Defense Management: DOD Faces Challenges Implementing Its Core Competency Approach and A-76 Competitions
Published: 2003-07-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) is pursuing a new initiative involving a core competency approach for making sourcing decisions--that is, sourcing decisions based on whether the function is core to the agency's warfighting mission. In determining how to best perform non-core functions, DOD's position is that its components should look beyond just the use of public-private competitions under Office of Management and Budget (OMB) Circular A-76 in making sourcing decisions, and consider other alternatives such as partnering or employee stock ownership. GAO was asked to assess (1) the department's progress in assessing its core functions as a basis for sourcing decisions, (2) the plans and progress DOD has made in identifying and implementing alternatives to A-76, and (3) the current status of DOD's A-76 program.
section_title: What GAO Found
paragraphs: Progress in assessing core functions has been varied and limited across major Defense components, affected somewhat by ambiguous definitions of the term "core function." In some instances additional guidance was obtained, but definitions of core remain somewhat broad and subjective, and will likely remain so in the future. Army and Air Force have led within DOD in assessing core functions, but the Army has done the most, and found, contrary to its expectations, that distinguishing between core and non-core functions does not, by itself, prescribe a sourcing decision. Other factors must also be considered such as risk and operational considerations. The range of alternatives to A-76 likely to be pursued under the core competency-based approach is not yet clear, but DOD has made some progress toward identifying and/or using some alternatives through pilot projects and other efforts by the services as they have focused on the core initiative. However, the use of alternatives could be limited without special legislative authorities and/or repeal of various existing prohibitions, and some could be tempered by the department's efforts to meet the A-76 competitive sourcing goals set by OMB. DOD reported that as of June 1, 2003, it has met OMB's short-term goal to use the A-76 process to study 15 percent of the positions identified in DOD's commercial activities inventory by the end of fiscal year 2003. However, meeting the longer-term goal to study at least 50 percent (226,000) of its nearly 453,000 commercial activity positions through fiscal year 2008 will present a challenge. This is nearly double the number of positions that DOD has previously studied during a comparable time period, and providing sufficient resources (financial and technical) to complete the studies may prove challenging. Also, the defense components, particularly the Air Force, plan to transfer certain military personnel into warfighting functions and replace them with government civilian and/or contractor personnel. This will require the components to reprioritize their funding for operation and maintenance accounts, because it is from those accounts the services must fund replacement civilian or contractor personnel.

section_title: Letter
paragraphs: The Department of Defense (DOD) is currently examining a core  competency-based approach for making sourcing decisions—that is, the  decision to use a public or private sector source to perform a necessary  agency function or activity based on whether the function or activity is  core to the agency’s mission. This is one of the business transformation  initiatives that have been endorsed by one of DOD’s high-level  management committees, the Senior Executive Council. It believes that  the department should focus its energies and talents on those functions  that are core or directly linked to its warfighting mission, and which must  be performed by the agency, with the expectation that necessary products  or services associated with non-core functions should be obtained from  other government agencies or the private sector.
In determining how to best perform non-core functions, DOD’s  position is that its components should look beyond just the use of  Office of Management and Budget (OMB) Circular A-76, with its focus  on public-private competitions, in making sourcing decisions. It has  expressed interest in examining the use of other alternatives, such  as public-private partnering, transferring functions to other agencies,  employee stock ownerships, and quasi-government corporations.  Nevertheless, Circular A-76 remains an important tool for making  sourcing decisions for non-inherently governmental functions typically  involving commercially available services. Also, A-76 competitive sourcing  is a major initiative under the President’s Management Agenda and OMB  has set ambitious goals for those competitions.
At your request, we examined DOD’s plans for sourcing non-core  functions and the effect this may have on its A-76 program. Accordingly,  we assessed (1) the department’s progress in assessing its core functions  as a basis for sourcing decisions, (2) the plans and progress DOD has  made in identifying and implementing alternatives to A-76, and (3) the  current status of DOD’s A-76 program.
In performing work for this review, we obtained and analyzed plans  available from DOD and its components for assessing non-core functions  and identifying alternate sourcing approaches, and reviewed relevant  documents from DOD agencies. We met with officials from the Office of  the Secretary of Defense, the Army, the Navy, the Air Force, the Marine  Corps, the Defense Logistics Agency, and other organizations to obtain  information on their sourcing programs and efforts to identify alternative  sourcing options. The A-76 data used in this report are derived from a  Web-based DOD commercial activities database; we did not validate  the information in this database. Further details on our scope and  methodology are included at the end of this report.
subsections: section_title: Background
paragraphs: Since 1955, the executive branch has encouraged federal agencies to  obtain commercially available goods and services from the private sector  when the agencies determined that such action was cost-effective. OMB  formalized the policy in its Circular A-76, issued in 1966. In 1979, OMB  supplemented the circular with a handbook that included procedures  for competitively determining whether commercial activities should be  performed in-house, by another federal agency through an Interservice  Support Agreement, or by the private sector. OMB has updated this  handbook three times since 1979. An extensive revision to Circular A-76  was issued on May 29, 2003, based in part on the recent work of the  congressionally mandated Commercial Activities Panel.
Under the newly revised circular, agencies may convert commercial  activities to or from contractor performance through a public-private  competition, whereby the estimated cost of public or private performance  of the function is evaluated against published selection criteria in  accordance with the principles and procedures outlined in the circular.
As part of this process, the government identifies the work to be  performed in a “performance work statement,” prepares an in-house offer  which includes its most efficient organization, and compares all the offers  against each other and the selection criteria. The revised circular provides  several alternative procedures for conducting source selections, only  one of which allow agencies to select a contract based on other than the  lowest cost technically acceptable offer. The four source selection  alternatives are: sealed bid, lowest price technically acceptable, phased  evaluation, and, in certain cases, trade-off (which permits agencies to  weigh cost and non-cost factors).
Administrative and legislative constraints from the late 1980s through  1995 resulted in a lull—and even a moratorium—on awarding contracts  resulting from A-76 competitions. In 1995, congressional and  administration initiatives placed more emphasis on A-76 as a means of  achieving greater economies and efficiencies in operations. Beginning  about 1995, DOD began to give renewed emphasis to the use of A-76  competitive sourcing under Circular A-76. More recently, competitive  sourcing has received governmentwide attention, as one of five initiatives  of the President’s Management Agenda for fiscal year 2002. DOD has been  a leader among federal agencies in using A-76 in recent years.
The revised circular requires agencies to prepare two annual inventories  that categorize all activities performed by government personnel as either  commercial or inherently governmental. A similar requirement was  included in the 1998 Federal Activities Inventory Reform (FAIR) Act,  which directs agencies to develop annual inventories of their positions  that are not inherently governmental. DOD’s 2000 FAIR Act inventory  identified nearly 453,000 in-house civilian positions engaged in a variety  of commercial activities, nearly 260,000 of which have been, or are, subject  to competition or direct conversion under Circular A-76. The number  of positions subject to A-76 is less than the total number of positions in  commercial activities because DOD made adjustments to exclude certain  commercial activities from being considered eligible for competition;  they included such reasons as statutory, national security, or operational  considerations. Under the President’s Management Agenda, OMB has  directed agencies to directly convert or compete through cost comparison  studies 15 percent of their total fiscal year 2000 inventories of commercial  activities by the end of fiscal year 2003, with the ultimate goal of  competing at least 50 percent of their inventories by the end of fiscal  year 2008.
In providing guidance for determining whether activities and functions,  and associated positions are considered to be inherently governmental in  nature, DOD has sometimes equated the term “inherently governmental”  with the somewhat parallel term “core.” While use of the term “core” is  associated with the private sector, DOD has sometimes used the term to  designate military and civilian essential positions required for military and  national security reasons. The old A-76 Handbook provided yet another,  but similar, meaning for core. In the context of A-76, core capability was  defined as “a commercial activity operated by a cadre of highly skilled  employees, in a specialized technical or scientific development area to  ensure that a minimum capability is maintained.”
The concept of core in DOD has also been associated with legislative  requirements to establish core logistics capabilities in government-owned  military maintenance depots. This process is based on a requirement  contained in 10 U.S.C. 2464 to identify and maintain within government- owned and –operated facilities a core logistics capability including the  equipment, personnel, and technical competence required to maintain  weapon systems identified as necessary for national defense emergencies  and contingencies. Regardless of usage, determinations of core and  inherently governmental functions within DOD have often been viewed as  somewhat subjective in nature.
The term “core function” recently has gained increased and more  expanded use within DOD, beginning with DOD’s publication of its  September 2001 Quadrennial Defense Review Report, which  recommended the identification of core and non-core functions.  According to the report, “only those functions that must be performed  by DOD should be kept by DOD. Any function that can be provided by  the private sector is not a core government function.” The test to separate  core and non-core functions would be to determine whether a function is  directly necessary for warfighting, according to the report.
Further emphasis on assessing core functions subsequently came from  DOD’s Senior Executive Council, which, in April 2002, launched a  departmentwide effort to distinguish between core and non-core functions  with an emphasis on retaining in-house only those functions deemed core  to the warfighting mission. Under this approach, it tasked the defense  components with developing plans to transition non-core functions to  alternative sourcing arrangements or A-76 studies, if appropriate, as soon  as possible. In advocating the use of alternatives, the Senior Executive  Council noted that A-76 cost comparisons were lengthy, expensive, and  hard on the workforce. Examples of alternate sourcing strategies cited by  the Council included public-private partnering, employee stock ownership,  and quasi-governmental organizations. Details about these and other  alternatives can be found at appendix I. While use of A-76 studies was still  permitted, emphasis was expected to be given to identifying alternate  sourcing approaches that might be used to transfer non-core functions out  of the department.
Much publicity to this new core emphasis surrounded Army’s efforts  under its program, which it designated as “the Third Wave.” The term  “Third Wave” was used to distinguish this current effort from two previous  sourcing efforts under A-76, the first occurring largely in the 1980s and  the second beginning in the 1996-97 time period. Unlike the earlier two  waves, which focused on A-76 studies of about 25,000 and 33,000 positions  respectively, the scope of the Third Wave was to be significantly larger,  potentially involving over 200,000 positions. This was of significant  concern to government employees after several years of A-76 study efforts  within DOD. The Army’s program also received much public attention  because of what Army officials have characterized as an unrelated, but  parallel, effort to have a contractor (RAND) study options for rethinking  governance of the Army’s arsenals and manufacturing plants. The Army  has subsequently indicated it does not plan to pursue the options outlined  in that study which ranged from privatization to creation of a federal  government corporation to operate these facilities. On March 24, 2003,  the Secretary of the Army directed that other action plans be developed  to deal with these facilities. (See app. II for a summary of the actions  directed.)
section_title: Progress in Assessing Core Functions Has Varied Across the Defense Components and Has Been Affected Somewhat by Definitions of “Core”
paragraphs: Progress in assessing core functions has been varied and limited across  the major Defense components, and affected by somewhat ambiguous and  subjective definitions of what constitutes a “core function.” These multiple  and somewhat ambiguous definitions of what is a “core function” have  made it difficult for the components to easily employ the core competency  approach to decision-making, and some DOD components have sought  additional guidance and/or applied their own criteria to identify core  functions. Even so, progress in assessing core functions has varied  across the components, with the Army and the Air Force having made  the most progress in their efforts. In addition, the Army, which has  devoted the greatest attention to assessing core functions, has found that  distinguishing between core and non-core functions, by itself, has limited  value because that distinction alone does not necessarily prescribe a  sourcing decision.
subsections: section_title: Guidance in Defining Core Has Been Broad and Additional Guidance Sought
paragraphs: DOD guidance to define a core function under the new program  emphasis has been broad and, as a result, there are multiple and somewhat  ambiguous definitions of “core,” leading some DOD components to seek  additional guidance. The term “core” has had different meanings  depending upon the context in which it was used. Moreover, there has  been and remains a significant amount of subjectivity in defining “core” as  there has been with the term “inherently governmental.” Recognizing the  potential difficulty in applying the core competency-based approach, the  Senior Executive Council provided several definitions of “core” as well as  criteria for determining core competencies in its April 2002  implementing memo.
As a starting point for its core-competency emphasis, a work group  commissioned by the Senior Executive Council chose a business concept  outlined in a 1990 Harvard Business Review article. The article provides  several examples of corporations that identified their core competencies,  helping them to become more successful than their competitors. The  authors likened a diversified corporation to a business tree. For example,  the trunk and major limbs are core products; the smaller branches are  business units. While admitting this concept is difficult to apply to DOD,  the Senior Executive Council nonetheless translated that business tree to  a military application—the core services were described as the set of  activities that actually contribute to the value of the end product (land,  sea, and air operations), the business units were the units of a component  command, the end products were military effects, and the customer was  the combatant commander employing forces and resources.
In adapting the definition of “core” from the Harvard Business Review  article to the DOD environment, the Senior Executive Council defined  core as “A complex harmonization of individual technologies and  ‘production’ (employment, delivery) skills that create unique military  capabilities valued by the force employing !” Several  additional definitions were provided in the Council’s April 2002 memo to  help clarify the reader’s understanding of the definition (see app. III).  According to the memo, however, there are three themes common to each  definition: (1) the knowledge and experience acquired by people, (2) the  discrete and finite set of technologies the people employ, and (3) the  business objectives to be achieved. It stated that DOD’s business objective  to be achieved is warfare.
The Senior Executive Council’s memo also provided some criteria for  determining core competencies. According to the Council, a core  competency    has potential application to a wide variety of national security needs,    provides a significant contribution to the combatant commander’s    would be difficult for competitors to imitate,    provides the means to differentiate from competitors,    crosses organizational boundaries within an enterprise,  is a direct contributor to the perceived value of the service,    does not diminish with use,    deploys with forces, and    provides training and experience that forms the basis of ethos and culture.
The memo also noted that these criteria are not “pass/fail” criteria. That is,  some criteria may help to identify core competencies while others may  not, and that these criteria are based on business concepts that have  been adapted to the military domain. Furthermore, the memo stressed  the importance of senior leadership judgment in identifying core  competencies.
According to various officials, the lack of a clear and concise definition of  the terms related to the core concept initially made it difficult for the Army  and Air Force to apply the core concept to their functions. Both services  have subsequently supplemented the Senior Executive Council definitions  with their own internal documents and specific guidance, which are  discussed in the next sections. That notwithstanding, the definition of  core remains somewhat broad in nature and subjective, and will likely  remain so in the future. The Navy and Marine Corps have only recently  begun their efforts to identify core functions, and have not yet sought to  develop additional guidance. A Defense Logistics Agency official told us  they did not use any additional guidance.
DOD and service officials told us that while the concepts “inherently  governmental” and “core” are similar and may overlap, they may not  always be the same. Specifically, not all inherently governmental functions  would be considered core, nor would all core functions be designated  inherently governmental. For example, according to Army analysis,  many civil functions performed by the Army Corps of Engineers, such  as wetlands regulation and eminent domain authority, are inherently  governmental, but they are not core to the Army’s mission. Conversely, we  were told, certain medical services provided by doctors and nurses in the  operating forces are not deemed to be inherently governmental; however,  these services are considered to be core to the Army’s mission.
section_title: Progress on Identifying Core Functions Has Varied
paragraphs: The Senior Executive Council directed the services and defense agencies  to inventory their organizations and identify their core functions, but only  the Army and Air Force have made much progress in doing so. The Army  took the lead in pursuing this initiative and has recently completed an  effort to identify its core and non-core functions. The Air Force also  initiated a core competency review, which focused predominately on  military positions. The Navy and Marine Corps are in the early stages of  assessing their core functions. The Defense Logistics Agency broadly  identified its core and non-core competencies, but has not identified  specific positions as core or non-core.
subsections: section_title: Army Efforts Recently Completed
paragraphs: The Army has recently completed an effort to identify its core and  non-core functions for over 200,000 positions. Initially, the Army’s Third  Wave program assumed that all commercial positions were non-core and  thus potential candidates for performance by the private sector or other  government agencies. However, it permitted its components to request  exemption from the non-core designation and, as a result, considered  appeals involving numerous functional areas. Some were sustained while  others were not. The results of this process differed somewhat from the  Army’s initial expectations that all non-core functions could be subject to  competition or alternate sourcing, and the number of positions likely to be  subject to alternate sourcing is not yet clear.
In permitting its components to present a case for functions to be exempt  from the non-core designation, the Army provided specific guidance on the  submission of exemption requests and the factors to be used to evaluate  those requests. An exemption request needed to provide a compelling case  that a non-core designation could pose substantial and specific risks to  core warfighting missions or would violate a statutory requirement  affecting a function. The Army components submitted 24 requests for  exemption from non-core designation, each representing one or more  broad functional areas. For example, these areas included civilian  personnel, installation management, law enforcement and criminal  investigations, and both military and civilian career progression activities.
The Army’s authority for reviewing and approving core-competency  exemption requests was the Assistant Secretary of the Army for Manpower  and Reserve Affairs. In evaluating the exemption requests, the Office of  Manpower and Reserve Affairs supplemented the Senior Executive  Council’s definitions of core with six core competencies identified by the  Army in Army Field Manual 1 and other documents. The six competencies  were depicted as:    Shape the security environment—provide a military presence.    Prompt response—provide a broad range of land power options to shape  the security environment and respond to natural or manmade crises  worldwide.
Forcible entry operations—provide access to contested areas worldwide.    Mobilize the Army—provide the means to confront unforeseen challenges  and ensure America’s security.
Sustained land dominance—provide capabilities to control land and  people across various types of conflicts.
Support civil authorities—provide support to civil authorities in domestic  and international contingencies, including homeland security.
After evaluating the appeals, the Army, in some instances, sustained the  exemption requests, while, in other instances, they were denied. However,  in many instances a mixed decision was rendered regarding individual  functions within a broad functional area. This is illustrated by the Army’s  determination of core competencies for two functions—medical services  and information resources.
In making its decisions, Army officials determined that medical activities  could be considered core in some circumstances and non-core in others.  The Army also found that, in some cases, functions considered to be  core—such as information resources—contained elements that were  designated non-core.
The Army determined that many medical functions are core to the Army’s  mission even though they are not classified as inherently governmental.  The Army recognizes that medical functions do not require unique military  knowledge or skills or recent experience in the operating forces to be  performed. However, for troops deployed in theater (i.e., a war zone),  medical functions do need to be performed by in-house personnel because  reliance on host nation contracting for medical support could place  significant risks on the Army forces. The Army has determined that the  in-theater medical mission is a critical element of the Army’s ability to  accomplish its core competencies. Even so, certain functions within the  medical area can be considered both core and non-core. For example,  the optical fabrication function—which is the ability to produce eyewear  (replacement spectacles and protective mask inserts)—is considered a  core competency in support of the operational forces close to the point of  need in the area of engagement. However, this same function performed in  the United States is not considered to be a core competency, and the Army  states that this function may be reviewed for divestiture or privatization.
Within the information resources function, the Army considers the  management of information resources in a network-centric, knowledge- based workforce to be a core warfighting competency. This core  competency includes information operations that support operating  forces, and utilizes commercial technology adapted for military  applications. Organizations and personnel performing functions that  ensure command, control, and communications interoperability across  Army, joint, interagency, and coalition forces are core functions and need  to be kept in-house. However, other information resource functions—such  as help-desk services—are deemed to be non-core and can be considered  for possible outsourcing.
Army officials said they recognized that once the determination was  made that a function was considered to be core or non-core to the Army’s  mission, the sourcing of the function would, in many instances, require  additional analysis to determine the amount of core capability to be kept  in-house and the risk the Army might face by sourcing the function. The  types of risk to be considered in evaluating impacts upon a core mission  are force management, operational, future challenges, and institutional.  Additional factors must also be considered. For example, the Army  determined that its casualty and mortuary affairs function is not a core  mission, nor is it an inherently governmental function. However, national  policy dictates that Army officials notify families of a casualty in person.
Overall, the Army found the results of its review were somewhat contrary  to its, and the Senior Executive Council’s, initial expectation that all  non-core functions should be subject to competition or alternative  sourcing. As noted previously, the Army found the designation of “core”  does not necessarily indicate military or government civilian performance  is required or necessarily precludes competitive sourcing of the function.  That is, a designation of “non-core” does not automatically mean that a  function can, or should, be contracted out—other factors must also be  considered. As a result, this has led to some uncertainty regarding how  and to what extent the results of the Army’s core analyses will be used in  sourcing decisions and this potentially has implications for other Defense  components as well. While at this point, the Army is still deciding how to  proceed with implementing the results of its core assessments, Army  officials told us that the core decisions would be reflected in the Army’s  2003 FAIR Act inventory.
section_title: Air Force Efforts Focus on Military Positions
paragraphs: The Air Force focused its initial core competency review predominately  on military positions. This was done because the Air Force wanted to  identify functions performed by military personnel that might be  realigned for civilian or contractor performance, thus permitting affected  military personnel to be reassigned to operational areas where shortages  of military personnel existed. All military positions were reviewed in  terms of three main core competencies and six distinctive capabilities.  The three institutional core competencies were depicted as:    Developing Airmen (the heart of combat capability).    Technology to Warfighting (the tools of combat capability).
Integrating Operations (maximizing combat capability).
Six distinctive Air Force capabilities also considered were those related to:    Precision engagement—the ability to locate the objective or target,  provide responsive command and control, generate the desired effect,  assess the level of success, and retain the flexibility to reengage.
Rapid global mobility—the ability to rapidly and flexibly respond to the  full spectrum of contingencies worldwide.  Information superiority—the ability to collect, control, exploit and defend  information while denying the adversary the same.
Agile combat support—the ability to provide combat support in a  responsive, deployable, and sustainable manner.
Air and space superiority—the ability to establish control over the entirety  of air and space, providing freedom from attack and freedom to attack.
Global attack—the ability to find, fix, and attack targets anywhere on the  globe.
Although the core competency review process did involve some subjective  judgment, each position was classified into three basic categories—those  (1) requiring military performance, (2) requiring government civilian  performance, and (3) available for contractor consideration. As a result  of this review, 17,800 military positions were identified for potential  conversion to either government civilian or contractor civilian positions.  Our prior work has identified various instances where personnel costs are  generally less for civilian personnel than for military. An additional  4,477 military positions were identified for possible future realignment  through other reengineering efforts, such as adjusting the manpower  requirements process and conducting a business case analysis for  alternative installation support practices, for a total of 22,277 military  positions. Because many of the functions reviewed involved both military  and civilian personnel, an additional 8,900 Air Force civilian positions  were identified for possible conversion to contractor performance. An Air  Force official stated that the service hopes to do a more in-depth review  on the civilian side in the future; however, at the moment, none is planned.  The Air Force expects the number of positions that can be competed in its  FAIR Act inventory will be increased as a result of this review.
In the near-term, as a direct result of the core function review, the  Air Force has indicated it plans to outsource a significant portion of  the workload of its Pentagon Communications Agency currently  performed by over 400 military personnel. Although Air Force officials  indicated the service has the resources to implement this action, other  efforts may have to be postponed until the funds are available. To  move military positions to operational warfighting positions, additional  government civilian or contractor personnel would be needed to replace  the military personnel. Air Force officials told us that moving the military  personnel out of non-core functions is a high priority, but because of the  high cost involved in adding funds to the operations and maintenance  appropriation account to pay for replacement civilian or contractor  positions, it is currently an unfunded priority. They recently estimated  this additional cost to be about $5 billion over the next 5 years. Moreover,  in its internal budget planning documents for fiscal year 2004, the  Air Force stated that its number one unfunded priority is funding  ($2.34 billion) for moving the initial 6,300 military positions out of  non-core functions. As a result, it is not yet clear to what extent larger  number of conversions would take place and the extent to which they  might involve direct conversions or be done as part of public-private  competitions using the A-76 process.
section_title: Other DOD Component Efforts Are Not as Advanced
paragraphs: As mentioned earlier, the Marine Corps has recently begun its effort to  identify core functions and has convened a working group to determine  how to proceed. The Secretary of the Navy tasked the Navy components  to determine their core competencies on April 18, 2003, so this effort is  still in its infancy. The Defense Logistics Agency has identified four  core competencies—customer knowledge, integrated combat logistics  solutions, rapid worldwide response, and single face to industry and  customers. In addition, it identified 10 non-core competencies. These are:  base operations; warehousing services; transportation services; document  automation, printing and production services; marketing of unneeded  materiel; computer application software; computer operations and  database management support; cataloging; payroll services; and civilian  personnel services. However, it has not determined which positions are  considered to be core.
section_title: Some Progress Made in Identifying Alternative Sourcing Arrangements, but the Extent to Which Alternatives Are Likely to Be Used Is Unclear
paragraphs: The range of alternatives to A-76 likely to be pursued under the core  competency-based approach is not yet clear given limitations in the core  analyses, but DOD has made some progress toward identifying and/or  using some sourcing arrangements that are alternatives to A-76. Some  were identified as part of an initiative to identify alternatives through the  use of pilot projects, and a few others have been identified by the services  as they have focused on the core initiative. At the same time, some DOD  officials indicated that the use of some alternatives could be limited  without special legislative authorities and/or repeal of various existing  prohibitions. The use of alternative sourcing could also be affected by the  emphasis on A-76 competitions and OMB’s goals for the department.
subsections: section_title: Alternate Sourcing Approaches Identified through Pilot Projects and Other Initiatives
paragraphs: DOD has made some progress in identifying and using sourcing  arrangements that are alternatives to A-76, including some as part of an  initiative to identify alternatives through use of pilot projects, and a few  others that have been identified by the services as they have focused on  the core initiative. These projects are in various stages of implementation.
DOD’s Senior Executive Council and Business Initiative Council  asked the components to identify and submit at least one pilot or  “pioneer” project to provide alternative sourcing methods for widespread  implementation. Ten projects were approved by the Business Initiative  Council and were then submitted to OMB for approval. OMB approved  eight projects in August 2002. The department later withdrew two projects  because the timing was not appropriate. The following table provides a  listing of the 10 Pioneer Projects. (A description of the ongoing pioneer  projects can be found in app. IV.)
The projects propose to use a variety of alternatives, including partnering  and divestiture, and are in varying stages of implementation, as noted in  appendix IV. For example, the Army previously developed a partnership  with the city of Monterey, California, to provide municipal services  needed for the operation of DOD assets in Monterey County. Because of  the success of this project, the Army submitted legislation to Congress  that would allow contracting for municipal services defense-wide. In  another example, the Navy has identified optical (eyewear) fabrication  as a potential candidate for divestiture, because that service is readily  available in the private sector. However, this project is still in the  conceptual phase and no decision will be made until a thorough analysis  has been completed to determine the most appropriate sourcing method.
DOD was required to go to OMB for approval of these Pioneer Projects to  determine if they would count toward the competitive sourcing goals set  by OMB. The criteria for OMB approval required that projects involve an  element of divestiture, competition, or the transfer of responsibility to  other private or public sector performers. The two pilot Pioneer Projects  that were not approved by OMB had proposed using reengineering or  the development of most efficient organizations as an alternative to A-76  competition. These two projects were not approved because they neither  involved the divestiture of responsibility for performing the function nor  contained a near-term element of competition. DOD officials withdrew  two others because they believed timing was not appropriate for those  actions.
In responding to OMB’s draft of its most recent revision to Circular A-76,  we stressed the importance of considering alternative approaches to  accomplishing agency missions. Such approaches encompass a wide range  of options, including restructuring, privatizing, transferring functions to  state and local governments, terminating obsolete functions, and creating  public-private partnerships. Given that these options can result in  improved efficiency and enhanced performance, we recommended at  that time that OMB continue to encourage agencies to consider these  and other alternatives to A-76 competition. The revised circular allows  agencies to deviate from certain requirements of the circular with prior  written approval from OMB. For example, agencies are permitted to  explore innovative alternatives, including public-private partnerships,  public-public partnerships, and high performing organizations, with prior  written approval from OMB for a specific competition.
In addition to these Pioneer Projects, some other initiatives to use an  alternate sourcing approach have emerged within the military services.  For example, the department plans to transfer its personnel security  investigations function, now performed by the Defense Security Service  to the Office of Personnel Management. In another instance, the Secretary  of the Army recently determined that the long-term incarceration of  prisoners was not a core competency of the Army. The department is in  the process of finalizing plans for transferring its military-dedicated prison  at Fort Leavenworth, Kansas, to the Federal Bureau of Prisons. Although  exact savings from this transfer have not yet been determined, an Army  official stated that transferring the facility to the Bureau of Prisons would  free up almost 500 military positions. In addition, Army officials believe it  will allow for efficiency gains because the cost to incarcerate a prisoner  per year by the Bureau of Prisons is expected to be less than half what it  costs the Army to do so.
section_title: Potential Limitations on Use of Alternatives Exist
paragraphs: The services have been charged by the Senior Executive Council to  identify and use sourcing arrangement alternatives to A-76 for their  non-core functions; however, DOD and the services have encountered  potential limitations to their efforts. These include legislative impediments  and the requirement to support the President’s Management Agenda to  meet the competitive sourcing goals of OMB.
subsections: section_title: Legislation Can Limit Use of Alternatives
paragraphs: Various officials in the Office of the Secretary of Defense and the  services expressed uncertainty over the extent to which existing  legislative prohibitions or the lack of legislative authority could limit the  pursuit of some alternatives. They noted existing prohibitions such as  those contained in 10 U.S.C. § 2461, and section 8014 of the annual  appropriations acts that require public-private competition in all but a  few circumstances. In citing areas where legislation might be needed, they  noted that to complete the planned transfer of the personnel security  investigative functions to the Office of Personnel Management, DOD  recently submitted a legislative request to Congress seeking authority to  do so as part of its legislative package known as the Defense  Transformation for the 21st Century Act of 2003. Specifically, the  legislation would allow DOD to transfer this non-core function to the  Office of Personnel Management, which would allow for consolidation of  requests for security clearances under this agency. Alternatively, Army  officials told us that in the initiative to transfer its Fort Leavenworth  prison to the Federal Bureau of Prisons, they did not believe special  authorizing legislation is required. They believe DOD is not required, by  statute, to maintain prisoners in DOD facilities and may use any facility  under the control of the U.S. government.
DOD officials have also requested some legislative relief to implement  some initiatives that they have already identified. For example, DOD  has requested the repeal of 10 U.S.C. § 2465 to allow the department  to bid and compete contracts for security guard services and for the  performance of firefighting functions at military installations in the  continental United States. DOD believes such contracts would be  cost-effective and provide a needed flexibility in exigent situations,  such as September 11, 2001. In another case, DOD has sought legislative  authority to contract directly with local governments for municipal  services based on the success of its Pioneer Project in Monterey,  California. Doing so would allow DOD components to use this type of  arrangement at other locations, as appropriate.
section_title: Supporting the President’s Management Agenda May Limit Use of Alternatives
paragraphs: The department, in attempting to meet OMB’s goals to conduct A-76  competitions, is unlikely to pursue alternative sourcing on a large scale.  One of the five governmentwide initiatives in the President’s Management  Agenda is competitive sourcing. Under this initiative, OMB has directed  agencies to compete 15 percent of positions deemed commercial in their  fiscal year 2000 FAIR Act inventories by the end of fiscal year 2003, with  the ultimate goal of 50 percent by the end of fiscal year 2008. For DOD,  this represents approximately 226,000 positions. Although OMB has  recently allowed some alternative sourcing methods that contain an  element of competition to be counted toward meeting these goals, DOD  expects that the vast majority of positions will be competed under A-76  competitions. Positions competed under A-76, of course, would not be  available for consideration for alternative sourcing methods.
While the department initially placed a priority on identifying alternative  sourcing arrangements, the most recent department guidance is less  clear regarding the priority of alternate sourcing arrangements over  A-76 competitions. The Business Initiative Council recently directed  the defense components to submit the status of their core competency  reviews and detailed competitive sourcing plans—including both A-76  and alternatives to A-76—by June 2, 2003. The Business Executive Council  will review these plans in preparation for the fiscal 2005-2009 preliminary  budget review. Details on these plans were not available at the time we  completed our review.
section_title: DOD Expected to Maintain an Active A-76 Competitive Sourcing Program
paragraphs: Limited progress in implementing the core competency-based approach,  coupled with OMB’s emphasis on the use of A-76 in conjunction with the  President’s Management Agenda, suggest that the use of A-76 may remain  a key vehicle for sourcing decisions involving non-core and non-inherently  governmental functions. Nonetheless, despite its experience in  implementing competitive sourcing, the department faces a number of  challenges related to its A-76 program.
subsections: section_title: OMB Has Established Ambitious A-76 Program Goals for DOD
paragraphs: OMB has established ambitious A-76 competitive sourcing program goals  for the department to meet in both the short term and the long term, even  while DOD is focusing on its core competency approach. The department’s  A-76 goals for the number of positions to be studied and the time frames  for accomplishing those studies have varied over time, reaching a high in  1999 of studying 229,000 positions between 1997 and 2005. However,  DOD experienced difficulty in identifying eligible functions for study and  consequently, in 2001, reduced the goal to study 160,000 positions between  1997 and 2007. Recently, DOD’s study goals have increased because of  OMB’s competitive sourcing goals. To meet OMB’s goal of directly  converting or studying 15 percent of the 453,000 commercial activity  positions identified in the 2000 FAIR Act inventories by the end of fiscal  year 2003, DOD would need to complete A-76 studies on about  68,000 positions between fiscal year 2000 and the end of fiscal year 2003.  Then, to meet the larger goal of 50 percent, DOD would need to study an  additional 158,000 positions in the out years (fiscal years 2004-08). This  represents a total of 226,000 positions to be studied, far more than DOD  has been able to complete in a similar time period. Figure 1 illustrates  OMB’s goals for DOD compared to what DOD has completed at the end of  fiscal year 2002.
The strength of DOD’s A-76 program is shown in the number of positions  announced or planned for study, those completed, and those still ongoing.  Table 2 provides data on the number of positions the department has  announced for study under its A-76 program since its resurgence in 1997.
The number of positions planned for study by year for each component for  fiscal years 2003-08 was not available, but it would seem to require much  greater numbers of announcements per year than were made in recent  years. The services are currently determining the number of positions they  plan to study in future years, including the number of military and civilian  positions to be studied, and are required to submit preliminary data to the  Office of the Secretary of Defense by June 2, 2003. However, as noted, the  total number of positions that would be required to be studied for fiscal  years 2004-08 to meet OMB’s target for DOD is a total of 158,000 positions.
Table 3 shows the number of positions completed in A-76 studies since  1997. Of the total, 48,921 were civilian positions and 19,336 were  military positions.
Table 4 shows the number of positions being reviewed in ongoing A-76  studies. Of the total, 23,766 are civilian positions and the remaining 2,622  are military positions.
As shown in table 3 above, DOD had already studied over 68,000 positions  through fiscal year 2002, although OMB did not count approximately  14,000 positions contained in A-76 studies completed during fiscal years  1997-99 toward the 15-percent goal because the positions studied were  not derived from DOD’s 2000 FAIR Act inventory. Nonetheless, OMB  permitted use of nearly 54,000 of the positions for which DOD  subsequently completed studies, leaving the department approximately  14,000 positions to study by the end of fiscal year 2003. DOD recently  reported that it has met its 15-percent goal by completing competitions in  excess of 71,000 positions between October 1,1999, through June 1, 2003.
DOD hopes to reach agreement with OMB to meet its additional  158,000-position study requirement through a combination of A-76  studies and alternatives to A-76, and change the period of study from  fiscal years 2004-08 to fiscal years 2005-09. Regardless, this longer-term  goal could be a challenge, requiring completion of a significantly larger  number of positions for study than has actually been completed in similar  periods in the past. For example, between fiscal years 1997 and 2002,  DOD completed competition studies for about 68,000 positions. Under  the new goals, DOD would be required to complete studies involving  158,000 positions during a 5-year period between fiscal years 2004-08. This  is more than double what DOD has been able to complete in the past  during a similar time frame.
section_title: DOD Faces Other Challenges in Meeting A-76 Goals
paragraphs: In addition to size of effort required to meet OMB’s out-year study goals,  DOD faces a number of challenges in meeting OMB’s A-76 program goals.  As we have tracked DOD’s progress in implementing its A-76 program  since the mid- to late-1990s, we have identified various challenges and  concerns that have surrounded the program. We believe those challenges  and concerns are still relevant to the department’s current A-76 program.  They include (1) the time required to complete the studies, (2) the cost and  other resources required to conduct and implement the studies, and  (3) the selection and grouping of positions to compete.
In addition, as noted earlier, the Army’s core competency review has  shown that the designation of “core” does not necessarily mean that  in-house employees should perform a function, nor does the designation  of “non-core” mean a function should necessarily be considered for  alternative sourcing or A-76 competitions. This may cause further  difficulties in selecting and grouping functions for A-76 reviews or other  sourcing alternatives.
OMB’s revised A-76 circular states that standard competitions shall not  exceed 12 months from public announcement (start date) to performance  decision (end date). Under certain conditions, a time limit waiver of no  more than 6 months can be granted. The revised circular also states that  agencies shall complete certain preliminary planning—such as scope,  baseline costs, and schedule—before public announcement. Even  so DOD’s studies have historically taken significantly longer than  12-18 months. DOD’s most recent data indicate that the studies take  on average 20 months for single-function studies and 35 months for  multifunction studies. It is not clear how much of this time was needed for  planning that will now be outside the revised circular’s study time frame.
Once DOD components found that the studies were taking longer than  initially projected, they realized that a greater investment of resources  would be needed than originally planned to conduct the studies. We  previously reported that the President’s 2001 budget showed a wide  range of projected study costs, from about $1,300 per position studied  in the Army to about $3,700 in the Navy. DOD is now estimating costs  at $3,000 per position for new studies beginning in fiscal year 2004.  However, the much larger number of studies required to be completed in  the out-years to meet OMB’s study goals could require DOD components  to devote much greater total resources to this effort than in the past.
In addition, DOD components, particularly the Air Force, are attempting  to shift military personnel away from commercial type functions to those  more directly related to warfighting. As noted above, because these  functions are not being eliminated, new operations and maintenance  account funds will have to be provided to pay for the additional civilians  or contractors that perform the function(s) currently being performed by  uniformed personnel. As previously mentioned in the report, the Air Force  alone has recently estimated this additional cost to be about $5 billion  over the next 5 years.
This is an issue other services have also encountered in the past and  will in the future as they plan to shift military personnel away from  commercial positions into warfighting positions, either as a result of its  core assessment or as part of its A-76 studies. We have not seen precise,  reliable figures on the extent to which these conversions may occur, and  the extent to which all affected military personnel would be needed in  warfighting positions. In the past we identified instances where service  components were required to absorb these costs without additional  resources. We recommended in our 2000 report that the Secretary of  Defense take steps to ensure that the services increase funding for  operation and maintenance accounts, as necessary, to fund the civilian  and contractor personnel replacing military positions that have been  transferred to meet other needs. The department acknowledged that  this practice would require the services to program additional funding for  operation and maintenance accounts, viewing this as a service investment  decision. However, given the increased emphasis the department has  placed on moving the military from commercial functions to warfare,  officials from the Army and the Air Force have expressed concern that  there were not adequate funds to replace the military with civilian or  contractor personnel once their positions have been competed or  transferred. This can have the effect of either limiting the number of  conversions that can be made or requiring Defense components to absorb  the costs within their existing budgets, creating limitations in other  program areas.
As we have previously reported, selecting and grouping functions and  positions to compete can also be difficult. Some functions may be spread  across different geographic locations or may fulfill a roll that blurs the  distinction between “commercial” and “inherently governmental,” thus  preventing the packaging of some commercial positions into suitable  groups for competition. In addition, as previously noted, DOD excluded  certain commercial functions in its FAIR Act inventories from  competition. DOD’s fiscal year 2002 FAIR Act inventory exempted  171,698 positions from competition because of statutory, national security,  or operational concerns. Further, as we have previously reported, most  services have already faced growing difficulties in finding enough study  candidates to meet their A-76 study goals. Finally, use of alternatives  under the core-competency approach could also limit positions available  for A-76 study.
section_title: Conclusions
paragraphs: Progress varies among DOD components in assessing core competencies  and identifying and pursuing alternative sourcing strategies. Even so, some  limitations have been identified which indicate that, contrary to some  initial expectations, the determination of whether a function is core by  itself will not automatically lead to a sourcing decision because, as the  Army has discovered, other factors can also affect sourcing decisions.  Clarification of the department’s expectations for sourcing decisions is  needed along with additional guidance on other factors that may need to  be considered in sourcing decisions. Otherwise, the components may be  left with unrealistic expectations on making sourcing decisions or they  may make changes in sourcing that later prove to be problematic.
Under the core-competency process, the Air Force identified large  numbers of military personnel who could be reassigned to meet other  military requirements and be replaced by civilian or contractor personnel  who may be a more economical alternative. However, to accomplish this  reassignment, Air Force officials stated that it would need to find funds  for replacement personnel out of operations and maintenance accounts.  This is indicative of what other services are likely to face in seeking to  accomplish such conversions—the need for additional funding in  operations and maintenance accounts to support these conversions.  Such conversions may be a more cost-effective alternative than simply  increasing military end-strength where shortages exist in military  positions. However, decisions to replace military personnel with civilians  or contractors without identifying sources for increases in operations and  maintenance funds to support those decisions could stress the ability of  the operations and maintenance account to meet other pressing needs.
section_title: Recommendations
paragraphs: We recommend that the Secretary of Defense, through the Senior  Executive Council, clarify its expectations for DOD components in  making sourcing decisions based on core competency assessment results  and provide additional guidance identifying the range of additional factors  to be considered once the determination is made that a function is not  considered core.
We also recommend that the Secretary of Defense require DOD  components to ensure that decisions to convert functions performed  by military personnel to performance by civilians or contractors are  predicated on having clearly identified sources of funding to support  those decisions.
section_title: Agency Comments and Our Evaluation
paragraphs: The Principal Assistant Deputy Under Secretary of Defense (Installations  and Environment) provided written comments on a draft of this report.  The department generally concurred with our recommendations. With  respect to our first recommendation, the department agreed that, in  addition to the determination of core competency, there are additional  steps necessary to making effective sourcing decisions. However, the  response did not indicate what specific guidance, if any, would be  provided to clarify and assist the components in making sourcing  determinations. Instead, the department suggested that core assessments  would be used as input to the Inherently Governmental Commercial  Activities Inventory and that the department’s guidance on how to prepare  these inventories will be continually refined to help the sourcing decision  process. To the extent the department continues to emphasize core  competency assessments and alternatives to A-76 competitions in making  sourcing decisions, we still believe that additional guidance is needed to  assist components on factors other than the designation of core or  non-core that need to be considered when making a souring decision.
With respect to the second recommendation, the department agreed that  the identification of adequate resources is a critical factor in meeting its  competitive sourcing goals and, consequently, the response ensures that  they will be properly funded. The department also provided a number of  technical comments, which we incorporated into the report, where  appropriate. The department’s comments are reprinted in their entirety in  appendix V.
section_title: Scope and Methodology
paragraphs: As requested by the Ranking Minority Member of the House Committee on  Armed Services, Subcommittee on Readiness, we reviewed DOD’s plans  for sourcing non-core functions and the effect this may have on its A-76  program. Specifically, the objectives of this report were to assess (1) the  department’s progress in assessing its core functions as a basis for  sourcing decisions, (2) the plans and progress DOD has made in  identifying and implementing alternatives to A-76, and (3) the current  status of DOD’s A-76 program.
To evaluate the department’s progress in assessing its core functions as  a basis for sourcing decisions, we met with responsible officials from the  Senior Executive Council, the Business Initiative Council, and the Office  of the Secretary of Defense to identify plans and guidance for this  initiative. We also met with officials from the Army, the Air Force, the  Navy, the Marine Corps, and the Defense Logistics Agency to identify their  implementation plans, guidance, and analyzed available data to assess  progress being made. Our work was conducted in the Washington, D.C.,  metropolitan area.
To evaluate the plans and progress DOD has made in identifying and  implementing alternatives to A-76, we met with officials in organizations  identified above and obtained and analyzed relevant documentation  pertaining to alternatives identified. Additionally, we spoke with  representatives from the Defense Contract Management Agency and the  Defense Finance and Accounting Service about their Pioneer projects.
Likewise, to assess the status of DOD’s A-76 program, we met with  cognizant officials within DOD and its key components to update  information we had previously obtained in other recent studies in this area  concerning studies planned and completed and we updated information  we had previously obtained regarding challenges associated with this  program. Data on the number of A-76 competitions used in this report  were based on DOD’s Commercial Activities Management Information  System (CAMIS) Web-based system. Because the numbers change daily,  what we reported are the precise figures in the database at the specified  point in time. We have previously identified limitations in accuracy and  completeness of data included in this system, which limit the precision of  information included in the system. Since then, the department has made  changes to improve the accuracy of data in the system, and the database  remains the principal source of aggregate information on studies  underway and completed. However, we did not audit the accuracy of the  numbers in the database. We conducted our review from October 2002 to  May 2003 in accordance with generally accepted government auditing  standards.
We are sending copies of this report to the appropriate congressional  committees; the Secretary of Defense; the Secretaries of the Army,  the Navy, and the Air Force; the Commandant of the Marine Corps; and  the Director, Office of Management and Budget. We will make copies  available to others upon request. In addition, the report will be available at  no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have questions regarding this report, please contact  me on (202) 512-8412 or holmanb@gao.gov. Other contacts and key  contributors to this report are listed in appendix VI.
section_title: Appendix I: Alternatives to A-76 for Sourcing Non-Core Competencies
paragraphs: In its April 2002 memo, the Senior Executive Council noted that “there are  a number of imaginative alternatives to DOD ownership of Non-Core  competencies.” The memo provided detailed information on six specific  alternatives—employee stock ownership plans, transitional benefit  corporations, negotiation with private sector, city-base partnership,  strategic partnering, and quasi-government corporations. Following is a  description of the concept, an example of usage within the government,  and recommended Internet sites for each alternative, based on the Senior  Executive Council memo.
subsections: section_title: Employee Stock Ownership Plans (ESOP)
paragraphs: Concept: Mechanism used to spin off existing government activities to  form an employee-owned company.
Description: The ESOP gives federal workers the ability to control  their own destiny and obtain a stake in the successful outcome of a  new business. ESOP is a contribution benefit plan that buys and holds  company stock. Shares in the trust are allocated to individual employee  accounts. While many privatizations result in layoffs and disruptions,  ESOPs save jobs, retain critical skills, and provide seamless customer  service to federal agencies.
Where Used Previously: U.S. Investigative Services (1995)
section_title: Transitional Benefit Corporations (TBC)
paragraphs: Concept: Umbrella organization created to facilitate smooth transition of  government employees.
Description: The TBC is designed to transition employees to the private  sector while maintaining their federal benefits. Normally, a transition  period is established where the government continues to pay for the  benefits and then the new private company will eventually pay for those  benefits back through the federal government. In addition, the TBC can  contract with the private sector and partner with other governmental,  private sector, educational or not-for-profit entities. It maintains core  capabilities, preserves expertise of key personnel, finds a “soft landing” for  underutilized workers, creates business environment for new growth, and  provides a new business model for the government.
section_title: Negotiation with Private Sector (i.e., transfer workforce to the private sector as part of a contract negotiation)
paragraphs: Concept: Negotiated transfer of government workforce to a private  company.
Description: Negotiate with the private sector in the outsourcing of a  government function to the private sector. However, the government  negotiates to have the workers who performed the function be hired by  the contractor. The goal is to get the employees comparable pay, at the  same location (for an agreed upon minimum time period), and a matched  retirement plan. It offers stability that a normal A-76 cost comparison  study does not provide.
section_title: City-Base Partnership
paragraphs: Concept: Transforming a military installation to city-owned property with  military, public, non-profit, and commercial tenants occupying and leasing  facilities.
Description: City Base is transforming a former military installation to  city-owned property with military, public, non-profit, and commercial  tenants occupying and leasing facilities. The service conveys the  installation to the city and then leases back the facilities needed for  mission operations. The city may contract with a third party to manage  and develop the property.
Where Used Previously: Brooks Air Force Base and the City of San  Antonio, Texas. The Air Force created the Brooks City-Base Partnership  with the city of San Antonio as a means to reduce Air Force base operating  and personnel cost and to promote public-public and public-private  partnerships. Special authorizing legislation in 1999 and 2000 allowed such  partnership in which the Air Force transferred real property to San  Antonio in July 2002 in exchange for a leaseback of facilities and for the  city to provide municipal services such as fire protection and law  enforcement. Also, the Army has implemented a similar type of  partnership with the city of Monterey, California.
section_title: Strategic Partnering
paragraphs: Concept: Similar to negotiating with the private sector, this establishes a  government-industry partnership and leverages the expertise of the  commercial marketplace.
Description: Strategic partnering moves a function and employees away  from the government. The function is not given to a private corporation  but is “taken over” by the employees. However, the employees do not form  a stand-alone corporation, but instead, a partnership with the private  company. It is used when an organization has many of the necessary  elements for operating as a private company, but does not have the  complete framework necessary to operate as a stand-alone corporation  (payroll, benefits programs, taxes, marketing, and business development).  A strategic partnership allows the employees to partner with an entity that  already has these systems and procedures in place. Such partnering  arrangements could be made with a private firm, joint venture, or a  non-profit organization.
section_title: Quasi-Government Corporations
paragraphs: Concept: Publicly owned, common stock corporation, chartered by  Congress and provided a marketplace niche in which to accomplish some  public good. They can be monopolies (e.g., the U.S. Postal Service) or  competitors (e.g., Fannie Mae and Freddie Mac).
Description: Quasi-government corporations are an alternative similar to  the non-profit corporation. The principal difference is that it is established  by a government agency in order to serve a governmental purpose, rather  than being established by private individual firms. The employees are not  federal civil servants and do not participate in the federal retirement or  other federal employee benefit systems. The advantages are that they can  operate more flexibly than a government agency and they are not required  to comply with all of the federal personnel rules and acquisition  regulations.
section_title: Appendix II: Army’s Plans for Transforming Its In-House Industrial Facilities
paragraphs: In 2002, the Army’s “Third Wave” initiative received much public attention  because of what Army officials have characterized as an unrelated, but  parallel effort underway whereby RAND, under contract to the Army,  was studying alternatives for rightsizing the Army’s government-owned  ammunition manufacturing facilities and two arsenals that manufacture  ordnance materiel—facilities that overall had been recognized as having  declining workloads, excess capacity, and high operating costs.
Although RAND had studied various options, such as privatization  and creation of a federal government corporation, the Army decided  in March 2003 not to pursue the options outlined in what was then a  draft RAND report. Instead, in a March 24, 2003 memorandum to the  Commanding General, U.S. Army Materiel Command (AMC), the Secretary  of the Army directed the following actions to transform the Army owned  portion of its defense industrial base to include ammunition facilities,  manufacturing arsenals, and also its maintenance depots:    AMC was directed to develop a written concept for  consolidation, divestiture, or leasing, as appropriate, of the  government-owned/government-operated and government- owned/contractor-operated ammunition facilities.
AMC was directed to continue to work towards reducing government- owned and operated manufacturing arsenal plant capacity and develop  internal efficiency measures for facilities responsible for ground-based  systems.
AMC was directed to use existing legal authority to form and maintain  partnerships between government-owned and operated maintenance  depots and the private sector, and implement initiatives to improve  efficiencies, optimize utilization, and upgrade the core capabilities  required to meet current and future requirements.
section_title: Appendix III: Senior Executive Council Definitions of Core Competency
paragraphs: In attempting to define core competency in a defense environment, the  Senior Executive Council defined core as “A complex harmonization of  individual technologies and ‘production’ (employment, delivery) skills that  create unique military capabilities valued by the force employing CINC!”  The Council provided the following additional definitions to help in the  understanding of core:    Proficiency in the coordination of human activity and employment of  technology and technical systems to conduct military operations called  for by a CINC.
A complex integration of human knowledge and skills with the  technologies of warfare to accomplish a military objective of value to a  commander.  It’s what we do better than anyone else to produce specific effects desired  by a CINC.
The essence of what we provide in world-class warfighting and related  unique capabilities—through a synergistic combination of knowledge,  technologies, and people—to produce desired effects for CINCs.
The deep commitment of people, using technologies and delivering  capabilities to meet a desired effect in support of national objectives.
A synergistic employment of individual and organizational knowledge,  technologies, and capabilities producing world-class services (military  operations) to deliver a desired effect to a CINC.
section_title: Appendix IV: Pioneer Projects
paragraphs: In support of the Senior Executive and Business Initiative Councils’  direction to identify alternative approaches to A-76 for selected non-core  competencies, the services and Defense agencies identified 10 pilot  “pioneer” projects. All 10 were approved by the Business Initiative  Council and presented to the Office of Management and Budget. Eight  of the projects were approved by OMB to be counted toward DOD’s FAIR  Act inventory goal. OMB endorsed the pioneer projects whose techniques  were waivers to A-76, new requirements, direct service contract, and  divestiture, but disapproved the projects that proposed reengineering as  their technique. Subsequently, DOD withdrew 2 projects, leaving 6 pilot  projects for implementation. A brief description of those projects and their  current status is provided below.
subsections: section_title: Department of the Navy: Ophthalmic Services
paragraphs: Description: Optical fabrication involves eyewear component production  and assembly and is performed at about 37 locations within and outside of  the United States, employing personnel in the Departments of the Navy  and Army. The Department of the Navy has the lead responsibility for this  pioneer project and is now starting its analysis of this divestiture proposal.  It anticipates that the analysis will take approximately 6 to 18 months to  complete. A final decision regarding the optical fabrication divestiture will  be made after the completion of the analysis.
section_title: Department of the Air Force: Brooks City-Base
paragraphs: Description: The Brooks City-Base Partnership involves a partnership  between the Air Force and the city of San Antonio for which the Congress  passed special authorizing legislation in 1999 and 2000. This divestiture  was a way to reduce Air Force base operating and personnel cost and  build public-public and public-private partnerships. As part of this effort,  the Air Force transferred Brooks Air Force Base’s real property to San  Antonio in July 2002 in exchange for a leaseback of facilities and for the  city to provide municipal services such as fire protection, law  enforcement, custodial and landscaping. Also, as part of this partnering  arrangement, the city of San Antonio will provide the Air Force a share of  the revenues generated from the contracts and developments resulting  from the land and facilities transferred.
Positions Affected: Approximately 100 civilian and 40 military  Status: Ongoing.
section_title: Department of the Army: Municipal Services Partnership for Base Support
paragraphs: Description: According to its current arrangement with the city of  Monterey, California, the Department of the Army proposed the Municipal  Services Partnership for Base Support as its pioneer project. The Army is  seeking legislative authority for all components within the department to  be able to contract directly with local governments for municipal services  such as public works and utility.
Alternative: Direct Service Contract  Positions Affected: Approximately 500 civilian employees (depending  upon the number of installations selected for this type of contract).
Status: Enabling legislation has been submitted to Congress for  consideration as part of the fiscal year 2004 authorization process.
The Army is conducting business case analyses for additional installation  selection in the event the legislation is approved. However, as of May 2003,  this proposal was not included in either the House or Senate approved  versions of the bill.
section_title: Defense Logistics Agency: Metalworking Machinery Repair/Rebuild Services
paragraphs: Description: The Defense Logistics Agency (DLA) is proposing that  the repair and rebuilding of depot-level industrial plant equipment by  in-house personnel at the Defense Supply Center Richmond’s facility in  Mechanicsburg, Pennsylvania, be subject to direct conversion through  an A-76 waiver in accordance with the Office of Management and  Budget Circular A-76’s Revised Supplement Handbook, part I, chapter I,  section E.
Alternative: Waiver to A-76 Full Cost Comparison Study  Positions Affected: Approximately 82 civilians  Status: DOD assessed the applicability of OMB Circular A-76 to this  function and determined that the Mechanicsburg facility is a depot level  maintenance and repair operation and is therefore exempt from OMB  Circular A-76.
section_title: Defense Contract Management Agency: Reengineer Existing Information Technology Structure
paragraphs: Description: The Defense Contract Management Agency plans to use a  streamlined A-76 approach to compete information technology functions  such as desk side support, district offices’ information technology  operations, and automated application testing. The streamlined A-76  approach will allow the Defense Contract Management Agency to directly  compare its costs for these types of functions with those of contractors on  the General Services Administration’s schedules. Also, it will shorten the  time for completing the A-76 process.
Positions Affected: 450 positions reviewed, approximately 250 positions  affected  Status: Streamlined A-76 effort is scheduled to start January 2004 with  anticipated implementation of the most efficient organization and/or  contracts by fiscal year 2005.
section_title: Defense Finance and Accounting Service: Desktop Management Services
paragraphs: Description: The Defense Finance and Accounting Service (DFAS) is  proposing to acquire computer management services from a commercial  source. As part of this effort, DFAS plans to use a performance-based  service contract to obtain desktop hardware, software, and support  services.
Positions Affected: Approximately 125 civilians  Status: DFAS notified Congress of this proposal and its plans to assess  desktop management services. DFAS has completed its desktop  management business case assessment and its announcement regarding  that decision is imminent.
section_title: Appendix V: Comments from the Department of Defense
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the names above, Debra McKinney, Nancy Lively, R.K. Wild,  Daniel Kostecka, and Kenneth Patton also made significant contributions  to this report.
section_title: Related GAO Products
paragraphs: Sourcing and Acquisition: Challenges Facing the Department of Defense.  GAO-03-574T. Washington, D.C.: March 19, 2003.
Proposed Revisions to OMB Circular A-76. GAO-03-391R.  Washington, D.C.: January 16, 2003.
Defense Management: New Management Reform Program Still Evolving.  GAO-03-58. Washington, D.C.: December 12, 2002.
Commercial Activities Panel: Improving the Sourcing Decisions of the  Federal Government. GAO-02-847T. Washington, D.C.: September 27, 2002.
Commercial Activities Panel: Improving the Sourcing Decisions of the  Federal Government. GAO-02-866T. Washington, D.C.: June 26, 2002.
Competitive Sourcing: Challenges in Expanding A-76 Governmentwide.  GAO-02-498T. Washington, D.C.: March 6, 2002.
DOD Competitive Sourcing: A-76 Program Has Been Augmented  by Broader Reinvention Options. GAO-01-907T. Washington, D.C.:  June 28, 2001.
DOD Competitive Sourcing: Effects of A-76 Studies on Federal  Employees’ Employment, Pay, and Benefits Vary. GAO-01-388.  Washington, D.C.: March 16, 2001.
DOD Competitive Sourcing: Results of A-76 Studies Over the Past  5 Years. GAO-01-20. Washington, D.C.: December 7, 2000.
DOD Competitive Sourcing: More Consistency Needed in  Identifying Commercial Activities. GAO/NSIAD-00-198.  Washington, D.C.: August 11, 2000.
DOD Competitive Sourcing: Savings Are Occurring, but Actions Are  Needed to Improve Accuracy of Savings Estimates. GAO/NSIAD-00-107.  Washington, D.C.: August 8, 2000.
DOD Competitive Sourcing: Some Progress, but Continuing  Challenges Remain in Meeting Program Goals. GAO/NSIAD-00-106.  Washington, D.C.: August 8, 2000.
Competitive Contracting: The Understandability of FAIR Act Inventories  Was Limited. GAO/GGD-00-68. Washington, D.C.: April 14, 2000.
DOD Competitive Sourcing: Potential Impact on Emergency  Response Operations at Chemical Storage Facilities Is Minimal.  GAO/NSIAD-00-88. Washington, D.C.: March 28, 2000.
DOD Competitive Sourcing: Plan Needed to Mitigate Risks in Army  Logistics Modernization Program. GAO/NSIAD-00-19. Washington, D.C.:  October 4, 1999.
DOD Competitive Sourcing: Air Force Reserve Command  A-76 Competitions. GAO/NSIAD-99-235R. Washington, D.C.:  September 13, 1999.
DOD Competitive Sourcing: Lessons Learned System Could Enhance  A-76 Study Process. GAO/NSIAD-99-152. Washington, D.C.: July 21, 1999.
Defense Reform Initiative: Organization, Status, and Challenges.  GAO/NSIAD-99-87. Washington, D.C.: April 21, 1999.
Quadrennial Defense Review: Status of Efforts to Implement Personnel  Reductions in the Army Materiel Command. GAO/NSIAD-99-123.  Washington, D.C.: March 31, 1999.
Defense Reform Initiative: Progress, Opportunities, and Challenges.  GAO/T-NSIAD-99-95. Washington, D.C.: March. 2, 1999.
Force Structure: A-76 Not Applicable to Air Force 38th Engineering  Installation Wing Plan. GAO/NSIAD-99-73. Washington, D.C.:  February 26, 1999.
Future Years Defense Program: How Savings From Reform Initiatives  Affect DOD’s 1999-2003 Program. GAO/NSIAD-99-66. Washington, D.C.:  February 25, 1999.
DOD Competitive Sourcing: Results of Recent Competitions.  GAO/NSIAD-99-44. Washington, D.C.: February 23, 1999.
DOD Competitive Sourcing: Questions About Goals, Pace, and Risks  of Key Reform Initiative. GAO/NSIAD-99-46. Washington, D.C.:  February 22, 1999.
OMB Circular A-76: Oversight and Implementation Issues.  GAO/T-GGD-98-146. Washington, D.C.: June 4, 1998.
Quadrennial Defense Review: Some Personnel Cuts and Associated  Savings May Not Be Achieved. GAO/NSIAD-98-100. Washington, D.C.:  April 30, 1998.
Competitive Contracting: Information Related to the Redrafts of the  Freedom From Government Competition Act. GAO/GGD/NSIAD-98-167R.  Washington, D.C.: April 27, 1998.
Defense Outsourcing: Impact on Navy Sea-Shore Rotations.  GAO/NSIAD-98-107. Washington, D.C.: April 21, 1998.
Defense Infrastructure: Challenges Facing DOD in Implementing  Defense Reform Initiatives. GAO/T-NSIAD-98-115. Washington, D.C.:  March 18, 1998.
Defense Management: Challenges Facing DOD in Implementing  Defense Reform Initiatives. GAO/T-NSIAD/AIMD-98-122.  Washington, D.C.: March 13, 1998.
Base Operations: DOD’s Use of Single Contracts for Multiple Support  Services. GAO/NSIAD-98-82. Washington, D.C.: February 27, 1998.
Defense Outsourcing: Better Data Needed to Support Overhead Rates for  A-76 Studies. GAO/NSIAD-98-62. Washington, D.C.: February 27, 1998.
Outsourcing DOD Logistics: Savings Achievable But Defense Science  Board’s Projections Are Overstated. GAO/NSIAD-98-48. Washington, D.C.:  December 8, 1997.
Financial Management: Outsourcing of Finance and Accounting  Functions. GAO/AIMD/NSIAD-98-43. Washington, D.C.: October 17, 1997.
Base Operations: Contracting for Firefighters and Security Guards.  GAO/NSIAD-97-200BR. Washington, D.C.: September 12, 1997.
Terms Related to Privatization Activities and Processes.  GAO/GGD-97-121. Washington, D.C.: July 1, 1997.
Defense Outsourcing: Challenges Facing DOD as It Attempts to Save  Billions in Infrastructure Costs. GAO/T-NSIAD-97-110. Washington, D.C.:  March 12, 1997.
Base Operations: Challenges Confronting DOD as It Renews Emphasis  on Outsourcing. GAO/NSIAD-97-86. Washington, D.C.: March 11, 1997.