Competitive Sourcing: Greater Emphasis Needed on Increasing Efficiency and Improving Performance
Published: 2004-02-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In August 2001, the administration announced competitive sourcing as one of five initiatives in the President's Management Agenda. Under competitive sourcing, federal agencies open their commercial activities to competition among public and private sector sources. While competitive sourcing is expected to encourage innovation and improve efficiency and performance, it represents a major management change for most agencies. This report describes the progress selected agencies have made in establishing a competitive sourcing program, identifies major challenges these agencies are facing, and discusses strategies they are using to select activities for competition.
section_title: What GAO Found
paragraphs: Since the President announced competitive sourcing as a governmentwide initiative, the six civilian agencies GAO reviewed created a basic infrastructure for their competitive sourcing programs, including establishing offices, appointing officials, hiring staff and consultants, issuing guidance, and conducting training. With infrastructures in place and leadership involvement, each agency has developed competitive sourcing plans and conducted some competitions. The Department of Defense (DOD) has had an extensive competitive sourcing program since the mid-1990s. Interagency forums for sharing competitive sourcing information also have been established. While such activities are underway, each agency GAO reviewed, including DOD, cited several significant challenges in achieving its competitive sourcing goals. Key among these is maintaining workforce inventories that distinguish inherently governmental positions from commercial positions--a prerequisite to identifying potential positions to compete. Agencies also have been challenged to develop competitive sourcing approaches that would improve efficiency, in part because agencies have focused more on following OMB guidance on the number of positions to compete--not on achieving savings and improving performance. Ensuring adequate personnel with the skills needed to run a competitive sourcing program also challenged agencies. Many civilian department-level offices have only one or two full-time staff to interpret new laws, implement new OMB guidance, maintain inventories of competable positions and activities, and oversee agency competitions. The Federal Acquisition Council is currently identifying agency staffing needs to address this challenge. Finally, some of the civilian agencies we reviewed reported funding challenges in implementing their competitive sourcing programs. OMB told agencies to include a line item for competitive sourcing activities in their fiscal year 2005 budget requests. Several agencies integrated their strategic, human capital, and competitive sourcing plans--an approach encouraged by the Commercial Activities Panel, which was convened to conduct a congressionally mandated study of the competitive sourcing process. For example, the Internal Revenue Service (IRS) used business case analyses to assess the economic benefits of various sourcing alternatives. An IRS official said this approach required minimal investment to determine an activity's suitability for competitive sourcing. The National Institutes of Health, the Army, and the Department of Education also took a strategic approach to competitive sourcing. OMB's task in balancing the need for transparency and consistency with the flexibility agencies need is not an easy one. While OMB is addressing funding and human capital challenges, it needs to do more to assure that the agencies' inventories of commercial positions and goal-setting processes are more strategic and helpful to agencies in achieving savings and improving performance.

section_title: Letter
paragraphs: The environment in which the federal government currently operates— with new security threats, demographic changes, rapidly evolving  technologies, increased pressure for results, and growing fiscal  imbalances—demands that agencies engage in a fundamental review of  how they accomplish their missions. Agencies increasingly rely on a  range of technical and support services to meet mission objectives. It is  important for agencies to decide how best to acquire and deliver such  services, including whether to obtain services in-house or through private  sources. One way to inform this decision is to use competitive sourcing,  a strategy under which agencies open the government’s commercial  activities to competition among public and private sector sources.
In 2001, the administration identified competitive sourcing as one of five  governmentwide initiatives in the President’s Management Agenda. This  initiative seeks to expand competition between the public and private  sectors to encourage innovation, increase efficiency, and to improve  performance. But the use of public-private competition represents a major  management change for agencies and has raised concerns about the  fairness of the process and the potential impact on federal jobs. Therefore,  after discussions with your staff, we agreed to (1) describe the progress  agencies have made in establishing a competitive sourcing program in  response to the President’s Management Agenda, (2) identify major  challenges agencies are facing, and (3) identify strategies they are using to  select activities for competition based on mission-related needs.
Our work focused on the initial implementation efforts of the following  seven departments and the agencies within those departments that have  the most developed competitive sourcing programs: Agriculture; Defense;  Education; Health and Human Services (HHS); the Interior; the Treasury;  and Veterans Affairs (VA). Together, these departments account for about  84 percent of the commercial positions among the 26 executive branch  agencies implementing the President’s Management Agenda. For more on  our scope and methodology, see appendix I.
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 agency determines that it is cost-effective. In 1966, OMB  formalized this policy in its Circular A-76 and, in 1979, issued a handbook  with procedures for determining whether commercial activities should be  performed in-house, by another federal agency, or by the private sector.
Administrative and legislative constraints from the late 1980s through 1995  resulted in a lull in awarding contracts under A-76 competitions. In 1995,  when congressional and administration initiatives placed greater emphasis  on public-private competitions to achieve economies and efficiency of  operations, DOD gave competitive sourcing renewed emphasis. In our past  work, we have found that DOD achieved savings through competitive  sourcing, although it is difficult to estimate precisely the amount of  savings. By including competitive sourcing as one of five governmentwide  initiatives announced in August 2001, the administration directed agencies  to implement competitive sourcing programs to achieve increased savings  and to improve performance. The administration continues to advocate  the use of competitive sourcing, which is addressed in the President’s  budget for fiscal year 2005.
Competitive sourcing has met with considerable controversy in both the  public and private sectors. Each sector expressed concerned that, in  general, the process was unfair and did not provide for holding the winner  of the competition accountable for performance. In response to this  controversy, in 2000, the Congress mandated a study of the government’s  competitive sourcing process under A-76—a study conducted by the  Commercial Activities Panel, chaired by the Comptroller General of the  United States. The panel included representatives from OMB, DOD, the  Office of Personnel Management, private industry, academia, a trade  association, and unions. In April 2002, the panel released its report with  recommendations that included 10 sourcing principles to provide a better  foundation for competitive sourcing decisions in the federal government  (see app. II). In particular, the panel stressed the importance of linking  sourcing policy with agency missions, promoting sourcing decisions that  provide value to the taxpayer regardless of the service provider selected,  and ensuring greater accountability for performance. The panel also  addressed an area of particular importance for all affected partieshow  the government’s sourcing policies are implemented. In this regard, one of  the sourcing principles was that the government should avoid arbitrary  numerical or full-time equivalent (FTE) goals. This principle is based on  the concept that success in government programs should be measured in  terms of providing value to the taxpayer, not the size of the in-house or  contractor workforce.
The panel, in one of its 10 sourcing principles, also endorsed creating  incentives and processes to foster high-performing, efficient, and effective  organizations and continuous improvement throughout the federal  government. On November 6, 2003, the Comptroller General hosted a  forum to discuss what it means for a federal agency to be high-performing  in an environment where results and outcomes are increasingly  accomplished through partnerships that cut across different levels of  government and different sectors of the economy. There was broad  agreement among participants at the forum on the key characteristics and  capabilities of high-performing organizations, which are organized around  four broad themes. These four themes are (1) clear, well-articulated, and  compelling missions; (2) strategic use of partnerships; (3) a focus on the  needs of clients and customers; and (4) strategic management of people.
The competitive sourcing process starts with agencies developing  inventories of their commercial positions in accordance with the Federal  Activities Inventory Reform (FAIR) Act of 1998. Additionally, OMB  requires agencies to identify activities that are inherently governmental, as  well as commercial positions that are exempt from competition because of  legislative prohibitions, agency restructuring, or other reasons. Only  activities classified as “commercial” and not otherwise exempt are  potentially competable. In the 2002 FAIR Act inventories, the proportion  of competable commercial, non-competable commercial, and inherently  governmental FTE positions varied widely among the agencies we  reviewed. Governmentwide, competable commercial positions in 2002  accounted for approximately 26 percent of the total federal workforce.  Except for the Education Department’s 62 percent, the percentage of  competable commercial positions in each of our selected agencies was  less than 50 percent of the agency’s total FTEs (see app. III).
After agencies identify competable commercial positions under the FAIR  Act and OMB guidance, they select from these positions which ones to  compete. Resulting public-private competitions are guided by OMB  Circular A-76. In May 2003, OMB released a revised Circular A-76. Under  this revised circular, agencies must use a standard competition process for  functions with more than 65 FTEs. As part of the standard process,  agencies identify the work to be performed in a performance work  statement, establish a team to prepare an in-house proposal to perform the  work based on a “most efficient organization” (MEO), and evaluate that  proposal along with those submitted by private companies and/or public  reimbursable sources. For activities with 65 or fewer FTEs, agencies may  use either a streamlined or standard competition. Streamlined  competitions require fewer steps than the standard process and enable  agencies to complete a cost comparison more quickly.
section_title: Agencies Have Established a Foundation for Their Competitive Sourcing Programs
paragraphs: When the President announced competitive sourcing as one of five  governmentwide management agenda items in August 2001, few agencies  other than DOD had an established competitive sourcing infrastructure—a  key component of OMB’s strategy for institutionalizing competitive  sourcing. Few of the other departments and agencies that we reviewed  had competitive sourcing experience. Since that time, all six civilian  agencies we reviewed have established a basic competitive sourcing  program infrastructure. Leadership involvement and an established  infrastructure have enabled each agency that we reviewed to develop  competitive sourcing plans and complete a number of initial competitions.  Interagency forums for sharing information also have been established.
subsections: section_title: All Agencies We Reviewed Have Made Progress in Developing Their Infrastructures
paragraphs: Although they lack DOD’s A-76 experience, the civilian agencies we  reviewed have made significant progress toward establishing a  competitive sourcing infrastructure with such actions as establishing an  office, hiring staff, obtaining contractor support, creating policies and  procedures, and providing training to agency staff involved in the  competitive sourcing process. Table 1 provides an overview of civilian  agency infrastructure development.
In addition, DOD, which has the most competitive sourcing experience in  the federal government, has issued numerous policies, procedures, and  guidance for implementing OMB’s Circular A-76. DOD also has  established a management structure to oversee the department’s A-76  activities. In carrying out its competitive sourcing program, DOD uses  both in-house personnel and contractors to provide assistance within the  department in developing performance work statements and MEOs. In  response to our previous recommendation, DOD also has established a  Web site to share competitive sourcing knowledge and experience. This  Web site is available governmentwide. The site contains resources such  as A-76 policy and procedures, best practices, sample documents, bid  protests, and links to other sites with information on Circular A-76.
section_title: Studies Completed While Infrastructures Were Put into Place
paragraphs: The civilian agencies we reviewed completed their initial rounds of  competitive sourcing studies in fiscal years 2002 and 2003 (see app IV).  Based on data given to us by five of the six civilian departments, 602  studies were completed in fiscal year 2003. Of these 602 studies, 363 were  streamlined competitions and 130 were direct conversions to performance  by a contractor. In addition, DOD completed 126 studies, including 54  direct conversions and 7 streamlined competitions. Collectively, these  studies involved over 17,000 FTEs, with almost 57 percent of the FTEs  studied by DOD and the remaining 43 percent studied by the civilian  agencies. According to agency data, in-house teams won many of the  competitions, retaining almost 76 percent of the FTEs covered by the  studies. (See app. V for details on the outcome of these studies.) While  agencies have been able to complete these studies while establishing their  infrastructures, it is too early to assess the impact of the studies in terms  of efficiencies or performance improvements achieved.
section_title: Efforts to Share Competitive Sourcing Information across Agencies
paragraphs: A number of initiatives have been undertaken to share competitive  sourcing information across agencies. In addition to DOD’s Web site,  at least two interagency forums have been established to facilitate  interagency information sharing. For example, staff working in  competitive sourcing offices in various agencies and subagencies  meet monthly at the civilian agencies’ competitive sourcing working  group to exchange ideas and information. The Federal Acquisition  Council—composed of senior acquisition officials in the Executive  Branch—also promotes acquisition-related aspects of the President’s  Management Agenda by providing a forum for monitoring and improving  the federal acquisition system. The Council has published a guide on  frequently asked questions and a manager’s guide to competitive sourcing.
In addition, OMB is developing a competitive sourcing data tracking  system to provide consistent information and to facilitate the sharing of  competitive sourcing information by allowing agencies to identify planned,  ongoing, and completed competitions across the government. According  to OMB officials, future refinements to the system may allow agencies to  track and manage their own sourcing activities—a problem for most  agencies—as well as provide OMB with consistent information. OMB plans  to use the system to monitor agency implementation of the competitive  sourcing initiative and generate more consistent and accurate statistics,  including costs and related savings, for reporting to the Congress.
section_title: Many Agencies Face Challenges in Implementing Competitive Sourcing
paragraphs: Despite their progress in establishing a competitive sourcing infrastructure  and conducting initial competitions in varying degrees, the agencies we  reviewed continue to face significant challenges in four areas. First,  agencies have been challenged to develop and use FAIR Act inventory data  to identify and group positions for competition. Second, agencies are  operating in a continually changing environment and under OMB guidance  focused more on meeting milestones rather than achieving desired  outcomes. Third, agencies have reported that they lack the staff needed to  carry out the numerous additional tasks required under the new Circular  A-76. Finally, agencies have reported that they lack the funding needed to  cover the substantial costs associated with implementing their programs.
subsections: section_title: Agencies Experience Difficulties in Developing Their FAIR Act Inventories
paragraphs: The development of accurate FAIR Act inventories is the foundation for  determining which functions agencies compete. Agencies reported  difficulty in classifying positions as inherently governmental or  commercial and in applying OMB-assigned codes to categorize activities,  making it challenging for them to identify potential candidates for  competitions. This has been a persistent problem as we have reported in  the past. Despite changes made to OMB’s guidance for constructing FAIR  Act inventories, the guidance has not alleviated the difficulties some  agencies have had in developing and maintaining useful inventory data.
subsections: section_title: Classifying Positions as either Inherently Governmental or Commercial Is a Complicated Process
paragraphs: Under the FAIR Act and OMB guidance, agencies annually review and  classify positions as either inherently governmental or commercial. This  classification process is done using an OMB-provided coding schedule  containing nearly 700 functional codes in 23 major categories, such as  health services, grants management, and installation services. Civilian  agencies are having difficulty applying these functional codes, which were  developed by DOD. While intended to promote consistency, the codes are  not always applicable to civilian agencies, requiring some to create  supplemental codes to match their missions.
As we have previously reported, selecting and grouping functions and  positions to compete can be difficult. For example, the Army has  determined that many functions, such as making eyeglasses for troops  located in a war zone, are core to its mission even though this function  may not be classified as inherently governmental when performed in the  United States. Also, some functions may involve both “commercial” and  “inherently governmental” tasks. While agencies have had difficulty  classifying mixed positions, OMB’s guidance allows agencies to take a  variety of approaches to address this difficulty. For example, according to  agency officials, the Internal Revenue Service classifies mixed positions on  a case-by-case basis considering how critical the position is to its mission,  not just the percentage of tasks related to that position that may be  inherently governmental or commercial.
The process also can be resource intensive. For example, according to  agency officials, to determine whether positions should be classified as  inherently governmental or commercial, the National Park Service—the  largest bureau in the Department of the Interior—used an employee team  of approximately 30 individuals that represented all occupational areas, as  well as its human resources and acquisition staff. The team used the  analysis, in conjunction with payroll system data showing employee time  usage, to determine the number of commercial and inherently  governmental FTEs.
section_title: Agencies Concerned about Consistency and Timeliness of OMB Guidance
paragraphs: Accuracy of inventories depends on agency classification of positions,  based on OMB guidance, as well as consistent OMB review of inventories.  OMB has updated its FAIR Act inventory guidance annually to address  issues identified by agencies (see app. VI) and it consults with agencies to  resolve issues identified. For example, in April 2001, OMB created a new  requirement to report civilian positions designated as inherently  governmental. OMB’s guidance gives agencies considerable latitude in  preparing their inventories to determine if an activity is commercial.
OMB officials told us they have provided training on Circular A-76  procedures to its budget examiners, who act as liaisons between OMB and  each participating agency. The examiners address questions and provide  guidance on an agency-by-agency basis. OMB does not have formal written  guidance for reviewing FAIR Act data. Examiners provide verbal guidance  on an on-going basis to agencies and discuss concerns agencies have with  the FAIR Act and the related competitive sourcing program. Once agencies  submit their inventories, OMB officials review the inventories looking for  “red flags”—that is, deviations from the norm, such as one agency listing a  position as inherently governmental while others classify the same  position as commercial—and then consult with agency officials as  necessary on these deviations. However, a number of competitive sourcing  officials at two interagency forums expressed concern about the process.  For example, one official told us that an OMB program examiner said  there were too many function codes in one agency’s inventory. Then, after  the agency resubmitted its inventory, the same examiner said the  inventory had too few codes. An official from another agency told us that  its OMB examiners did not appear familiar with OMB’s own guidance for  applying the function codes. Given the lack of formal written OMB  guidance on reviewing the FAIR Act inventory data, there is little  assurance that OMB’s review of inventories will be consistent across  agencies.
According to a number of agency officials, implementation of OMB  guidance is further complicated due to time constraints. OMB inventory  guidance is typically issued in the spring, and agency inventories are due  to OMB by June 30. Officials contend that more time is needed to properly  implement the guidance. In response, OMB officials pointed out that the  basic guidance for developing inventories is set forth in Circular A-76 and  agencies can undertake significant steps to prepare their inventories based  on the Circular’s guidance.
section_title: OMB Guidance Has Focused More on Meeting Targets and Milestones Than on Improving Outcomes
paragraphs: The ultimate goal of the competitive sourcing initiative is to improve  government performance and efficiency. To date, however, OMB’s  competitive sourcing guidance to federal agencies has focused more on  targets and milestones for conducting competitions than on the outcomes  the competitions are designed to produce: savings, innovation, and  performance improvements. Although recent OMB guidance has stressed  the need for agencies to be more strategic, the emphasis in the guidance is  still more on process than results. The President’s Management Agenda  established expected results for the competitive sourcing initiative to  encourage innovation, increase efficiency, and improve performance of  agencies. The Commercial Activities Panel similarly stated that the  success of government programs, such as competitive sourcing, should be  measured by the results achieved in terms of providing value to  the taxpayer.
Since the inception of the competitive sourcing initiative in 2001, agencies  have faced continual changes to OMB’s targets and guidance for  conducting public-private competitions. OMB initially set a target for  agencies to compete or directly convert at least 5 percent of their full-time  equivalent commercial positions by the end of fiscal year 2002, and an  additional 10 percent by the end of fiscal year 2003. They also set a  long-term target for agencies to compete at least 50 percent of commercial  FTEs. OMB later moved to agency-specific plans that reflect each agency’s  own mission and workforce mix. OMB also developed a traffic light  system (red, yellow, green) for evaluating the progress agencies are  making in implementing these plans. Table 2 shows the chronology of  these changes.
As shown in table 2, in December 2003, OMB released a memorandum  with guidance on developing competitive sourcing plans that would  receive a “green” rating under its traffic light evaluation system (see  app. VII). The guidance notes the need for a long-range vision, strategic  action by agencies, and public-private competitions tailored to the  agency’s unique mission and goals. The memorandum also advises  agencies to include in their plans their general decision-making process  for selecting activities to compete, identification of activities to be  competed, potential constraints, and plans for handling activities suitable  for competition that the agency does not intend to compete.
Neither OMB’s initial FTE-based goals nor its revised competitive  sourcing goals and traffic light evaluation system calls for agencies to  assess how their plans for competitive sourcing could achieve the broader  improvements envisioned by the President’s Management Agenda or the  Commercial Activities Panel. In this regard, the Panel said that arbitrary  competition goals should be avoided. In testimony before the Congress,  the Comptroller General has stated that OMB’s initial competition targets  were inappropriate. Similarly, OMB’s revised goals continue to emphasize  process milestones such as competitions completed more than enhancing  value through performance improvements and efficiencies. For example,  for an agency to receive a “green” rating on OMB’s scorecard, it must have  developed an OMB-approved green competition plan, have publicly  announced standard competitions in accordance with the schedule in its  green plan, and have completed 95 percent of streamlined competitions in  90 days. The emphasis throughout OMB’s most recent guidance is similarly  more on process than on results.
Agencies have used a range of criteria to select positions for competition.  For most agencies, selection criteria have been based on the size and  composition of the workforce, such as attrition rates, skill needs, and  difficulty in hiring, as well as the agency’s capability to manage the  competitions. Because these agencies have focused on meeting targets to  announce and complete competitions, they have not assessed broader  issues, such as weighing potential improvements against the costs and  risks associated with performing the competitions. Some agencies,  however, used a broader set of factors such as the function’s contribution  to the mission, risks associated with the function being contracted out,  and the potential return on investment. (See app. VIII for further  discussion on the criteria these agencies have used to select positions  for competition.)
section_title: Human Capital Challenges
paragraphs: Officials in most of the agencies we reviewed expressed concern that they  lack sufficient staff to perform the additional tasks included in the recently  revised Circular A-76. To address this challenge, the Federal Acquisition  Council is currently studying agency staffing and skill requirements. As  we previously reported, agencies need to build and maintain capacity  to manage competitions, build the in-house MEO, and oversee the  implementation of competition decisions—skills that the Commercial  Activities Panel recognized may require additional capacity. Adding to  this complexity is agencies’ need to consider their competitive sourcing  staffing capacity in the context of their strategic human capital  management, an area we have identified as high-risk governmentwide  and one of the five President’s Management Agenda governmentwide  initiatives. For example, we recently reported  that DOD’s civilian human  capital strategic plan does not address the respective roles of civilian  and contractor personnel or how DOD plans to link its human capital  initiatives with its sourcing plans, such as efforts to outsource non-core  responsibilities. Finally, ensuring and maintaining employee morale is also  a challenge for agencies.
OMB’s revised Circular A-76 emphasizes the following key competitive  sourcing phases: preparing an inventory of agency’s activities, preliminary  planning, announcing and conducting the competition, conducting the  competition using either a streamlined or standard competition process,  implementing the performance decision, and conducting post-competition  accountability activities (see fig. 1). Each phase involves a number  of tasks.
According to agency officials, many of these tasks require skills and  human capital resources beyond those currently available. As we reported  in December 2002, in the current environment, acquisition staff can no  longer simply be purchasers or process managers. Rather, they need to be  adept at analyzing business problems and in helping to develop acquisition  strategies. For example, human capital, job, and market analysis skills are  needed to inventory agency activities; benchmarking, and strategic and  workforce planning skills are needed to conduct the preliminary planning;  organizational analysis, contract management and cost analysis skills are  needed to conduct competitions; and financial management and oversight  skills are needed in the implementation and post-competition phase. Some  skills, such as labor relations and information technology, are required  throughout the competitive sourcing process.
Despite these additional personnel requirements, many department-level  offices in the civilian agencies we reviewed have only one or two full-time  staff to complete FAIR Act inventories, interpret new laws and regulations,  and oversee agency selection of positions to compete and the  competitions. Officials at the six civilian agencies we reviewed stated it  would be helpful to have additional personnel well versed in the use of  Circular A-76. Even DOD, the leader among federal agencies in  competitive sourcing and A-76, may face human capital challenges in  running its competition program. According to a cognizant Army  competitive sourcing official who has analyzed this issue, the Army’s  implementation of the revised Circular A-76 will require approximately  100 to 150 additional personnel, including attorneys, human resources  specialists, and contracting officials. A final determination on Army  staffing requirements and capabilities has not been made.
As we reported in June 2003, building the capacity to conduct  competitions as fairly, effectively, and efficiently as possible will likely be  a challenge for all agencies, but particularly those that have not previously  been invested in competitive sourcing. The Commercial Activities Panel  also recognized in its recommendations that accurate cost comparisons,  accountability, and fairness would require high-level commitment from  leadership; adequate, sustained attention and resources; and technical and  other assistance in structuring the MEO, as well as centralized teams of  trained personnel to conduct the cost comparisons. According to officials  of the Federal Acquisition Council, its competitive sourcing working group  is now inventorying agency resources, skill sets and training needs  required to address this challenge.
At the same time, agencies we reviewed are challenged to maintain  employee morale. While most agencies have established vehicles for  communicating their competitive sourcing goals internally—such as work  groups and Web sites—officials from OMB report that it is difficult to  convince employees that the current competitive sourcing program is  designed to create value and improve efficiency, not to reduce the size  of the federal workforce—as was the case with past competitive  sourcing efforts.
section_title: Funding Challenges
paragraphs: Funding their competitive sourcing programs also has been cited as a  challenge for agencies. Officials in some of the agencies we reviewed cited  limited funding as a barrier to implementing their competitive sourcing  programs. Such program costs can be significant—at both the department  and agency levels. For example, USDA reported spending a total of  $36.3 million in fiscal years 2002 and 2003 on its competitive sourcing  program. The Forest Service, part of USDA, accounted for $18.7 million of  USDA’s $36.3 million on competitive sourcing. In fiscal year 2003, NIH  reported spending approximately $3.5 million on contract support for  two competitions involving more than 1,400 positions. The National Park  Services’ financial needs prompted the agency to ask the Congress for  permission to reprogram $1.1 million to help pay for its competitive  sourcing program. Other agency officials stated that funding to finance  their competitive sourcing initiatives was taken from other agency  activities. As we have previously reported, DOD has also been challenged  to ensure adequate funding for implementing competitive sourcing under  Circular A-76. Finally, in August 2003, the Department of Veterans Affairs  terminated all competitive sourcing studies as its General Counsel  determined that the prohibition regarding funds from the three health care  appropriation accounts under 38 U.S. C. 8110 (a)(5) is applicable.
According to officials from most of the agencies we reviewed, they  have funded their competitive sourcing programs using existing funds.  However, some officials told us that OMB recently instructed their  agencies to include a line item in their fiscal year 2005 budget request  for their competitive sourcing programs. Doing so should provide  agencies with a more stable fiscal environment in which to plan and  conduct competitions.
section_title: Some Agencies Used Strategic Approach to Identify and Prioritize Activities for Competition
paragraphs: Several agencies have developed strategic and transparent competitive  sourcing approaches by integrating their strategic and human capital plans  with their competitive sourcing plans—an approach encouraged by the  Commercial Activities Panel. These approaches have gone beyond the  requirement to identify positions for competition as called for in OMB’s  initial FTE targets. These approaches employ broader functional  assessments of FAIR Act inventories and more comprehensive analysis of  factors such as mission impact, potential savings, risks, current level of  efficiency, market conditions, and current and projected workforce  profiles. Not only do these agencies’ processes identify viable activities for  competition, they also provide greater transparency in this critical part of  the process. Some of these approaches are summarized below. Appendix  VIII contains a more detailed discussion of these approaches. While it is  too early to tell whether the various agencies’ approaches will be effective,  a key to success will be learning from them and adapting them to each  agency’s unique circumstances.
OMB has recognized the challenges that agencies have faced in  implementing their competitive sourcing programs and recently publicly  endorsed agencies’ use of a more strategic approach to competitive  sourcing. For example, OMB supported the innovative approaches some  agencies have taken to ensure sound planning and effective use of  public-private competitions. OMB further stated that consulting with  program, human resources, acquisition, budget, and legal professionals  facilitates effective communication and a broad-based understanding of  competitive sourcing actions within the agency.
subsections: section_title: NIH Uses Decision Support Software
paragraphs: Officials from HHS’ National Institutes of Health told us they used a  steering committee of senior-level officials to determine the activities to be  competed under its competitive sourcing program. This committee used a  systematic approach that considered FAIR Act inventory data, the  knowledge and experience of program managers, and a decision support  software application to capture the judgments of managers familiar with  the commercial activity under study. The software application used a set  of evaluation questions that assessed a function regarding NIH’s mission,  human capital and risk, and recorded and scored managers’ responses.
Committee officials then reviewed the scores produced by the software,  considering factors such as (1) the activity’s impact on NIH’s mission,  (2) costs, (3) socioeconomic impacts, and (4) potential advantages to  competing the activity. NIH officials also stated that once a decision has  been made to compete an activity, consideration is given to re-engineering  the applicable business process, whether the activity remains in-house or  undergoes a public-private competition.
section_title: IRS Uses Business Case Analysis
paragraphs: Officials from the Internal Revenue Service, a bureau of the Department  of the Treasury, told us they used business case analysis and an  enterprisewide approach to determine if a commercial function has the  potential to create significant business process improvements and a  sizable return on investment. The business case analysis, which is  completed in approximately 4 to 6 months, calculates the economic  benefits of potential alternatives based on IRS responses to critical  questions such as: Is the function core to the mission? What does the  function cost? Is there potential to reduce cost and/or improve  productivity by competing the function? How does the function fit into  other current or planned strategic projects?
An IRS competitive sourcing official cited several benefits from the  business case approach used during the planning stage    up-front consideration of major decision variables such as economics,  market research, and risk;  involvement of top-level management and leadership;  the ability to test candidate projects against strategic goals and  performance improvement objectives; and  low investment of resources to qualify or reject an activity as a  competitive sourcing project.
section_title: Army’s “Core, Non-Core” Approach Is Evolving
paragraphs: The Army’s “core, non-core concept” for assessing functions employed a  more strategic approach. Initially, the Army’s approach for classifying  positions for its inventory focused on determining whether functions were  core or non-core to the agency’s mission. However, the Army found that  such a distinction did not, by itself, provide a good basis for a decision,  and that other factors, such as risk and operational considerations, also  must be considered. A cognizant Army official told us that focusing on  positions does not consider how well the function is being performed or  who should perform the function—military, civilian, contractor, or some  combination of these. In contrast, the Army learned that looking at  broader functional areas, such as utilities and family housing, as opposed  to positions, should allow them to better identify potential positions for  competition. For example, functions such as childcare and equal  employment opportunity operations, while not inherently governmental,  are exempt from competitive sourcing because they are important for  reasons such as military morale and quality of life. According to a DOD  competitive sourcing official, the Army’s approach is evolving and is  unique within DOD.
Officials at four civilian agencies in our review expressed similar concerns  that the Army official expressed on developing their inventories. Officials  told us that given the investment of time and resources required to develop  an inventory, agencies should focus on mission-related functions rather  than individual positions.
section_title: Education Uses Integrated Approach
paragraphs: The Department of Education’s “One-ED” initiative also used strategic  approaches in identifying candidates for competition. One-ED covers all  elements of major departmental operations, and seeks management  changes through integrated human capital reform, competitive sourcing,  and organizational restructuring. As part of its broader approach, the  department developed its FAIR Act inventory by analyzing key processes  in the activities under consideration. It then used the results of this  process to restructure positions as either commercial or inherently  governmental and frame a broader analysis of the function’s activities.
section_title: Conclusion
paragraphs: The ultimate success of the administration’s competitive sourcing  initiative hinges on the extent to which agencies achieve the efficiencies,  innovation, and improved performance envisioned by the President’s  Management Agenda. Successful implementation of this initiative requires  results-oriented goals and strategies; clear criteria and analysis to support  agency decisions; and adequate resources. OMB, in its leadership role, has  a difficult task in guiding this initiative and must balance the need for  transparency and consistency with the flexibility agencies need in  implementing significant changes to operations. While OMB is addressing  the funding and human capital challenges that agencies face, it needs to  ensure that the FAIR Act inventory and goal-setting process is more  strategic and helpful to agencies in carrying out their competitive sourcing  responsibilities. Recognizing that agency missions, organizational  structures, and workforce composition vary widely, the Commercial  Activities Panel provided a framework of sourcing principles that provide  an implementation roadmap for this initiative. However, OMB’s current  emphasis on meeting implementation milestones and targets does not fully  align with these principles or ensure achievement of the ultimate goal of  increasing efficiency and improving the performance of commercial  activities. OMB needs to work with agencies to ensure their long-range  plans are strategically focused. A more strategic approach focused on  achieving improvement outcomes would help focus agency efforts and  better achieve the results envisioned at the outset of the competitive  sourcing initiative.
section_title: Recommendations for Executive Action
paragraphs: To complement efforts already underway that address funding and human  capital challenges and to help agencies realize the potential benefits of  competitive sourcing and ensure greater transparency and accountability,  we recommend that the Director of OMB take the following three actions:    ensure greater consistency in the classification of positions as commercial  or inherently governmental when positions contain a mix of commercial  and inherently governmental tasks by reviewing current guidance and  developing additional guidelines, as necessary, for agencies and OMB  examiners;    work with agencies to ensure they are more strategic in their sourcing  decisions and are identifying broader functional areas and/or  enterprisewide activities, as appropriate, for possible public-private  competition; and  require agencies to develop competition plans that focus on achieving  measurable efficiency and performance improvement outcomes.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to OMB and the seven agencies for their  review and comment. OMB provided oral comments concurring with our  three recommendations, but disagreed with our conclusion that OMB’s  recent guidance on competitive sourcing emphasized process more than  results. Based on our review of the factors OMB considers in its review of  agency plans, we continue to believe that factors such as the agency’s  ability to conduct competitions are emphasized more than results such as  expected savings and the potential for improved performance as called for  in the President’s Management Agenda.
On the first recommendation, OMB officials concurred that there needs to  be consistency in the classification of positions and stated that OMB will  review its current guidance in light of the findings in this report to  determine how best to help agencies that have had difficulties in  classifying their activities. OMB officials stated that they would consider  additional guidelines as necessary.
OMB officials, while agreeing with the second and third recommendations,  emphasized that long-range “green” plans are intended to ensure that  agencies think strategically in choosing activities for review and routinely  take into account the type of factors that will ensure successful  application of competition. OMB reiterated that before an agency may  receive a green score on the President’s Management Agenda scorecard,  the agency must have an approved green competition plan.
OMB stated that its evaluation of plans will not be one-dimensional, but  instead will account for each agency’s unique mission and workforce  needs and demonstrated ability to conduct reviews in a reasonable and  responsible manner. OMB will also review agency plans to understand  how the agency has selected activities and their potential for savings and  performance improvements. However, while OMB’s guidance mentions  the importance of improving the cost effectiveness and quality of  commercial operations, we note that the guidance does not cite the  potential for savings or improved performance as factors OMB will look  for when reviewing agency green plans.
The Department of Agriculture and the Department of the Interior  concurred with our report. The Department of the Treasury stated that the  report’s recommendations were timely. The Department of Education and  DOD did not have any comments. The Department of the Interior, HHS,  OMB and VA provided technical comments, which were incorporated as  appropriate.
We are sending copies of this report to other interested congressional  committees; the Director, Office of Management and Budget; the  Administrator, Office of Federal Procurement Policy; and the Secretaries  of Agriculture, Defense, Education, Health and Human Services, the  Interior, the Treasury, and Veterans Affairs. We also will provide copies to  others on request. This report will also be available at no charge on GAO’s  Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at  (202) 512-4841 or John K. Needham at (202) 512-5274. Other major  contributors to this report were Robert L. Ackley, Christina M. Cromley,  Thomas A. Flaherty, Rosa M. Johnson, Nancy T. Lively, William M.  McPhail, Karen M. Sloan, Marilyn K. Wasleski, and Anthony J. Wysocki.
section_title: Appendix I: Scope and Methodology
paragraphs: To describe the progress DOD and the civilian agencies have made in  establishing the competitive sourcing program in response to the  President’s Management Agenda, we interviewed officials at the  Department of Agriculture; DOD; and the Departments of Education,  Health and Human Services, the Interior, the Treasury, and Veterans  Affairs. We selected the agencies based on the number of commercial  positions in their 2001 FAIR Act inventories. The agencies selected  represent 84 percent of the 2002 FAIR Act inventory of commercial  positions among the 26 executive branch agencies implementing the  President’s Management Agenda. We selected the Department of  Education because OMB highlighted its unique approach to implementing  the competitive sourcing initiative. We obtained and reviewed pertinent  documents from the seven government agencies. We also met with  members of the Civilian Agency Competitive Sourcing Working Group,  executive members of the Federal Acquisition Council and its Working  Group on Competitive Sourcing, and attended several competitive  sourcing conferences and workshops. We reviewed statutes and circulars  governing this program and reports on competitive sourcing. We also  reviewed reports on related subjects such as human capital, costs, and  savings that were issued by academic and independent research  organizations.
To identify what, if any, challenges exist for the agencies in implementing  the competitive sourcing initiative, we interviewed senior-level officials at  the seven competitive sourcing programs. In identifying the challenges  agencies face, we also reviewed OMB and agency guidance as well as  criteria and data used to develop inventories and select the activities to  study and compete. We discussed management expertise, training  requirements, planned contract support and contract oversight, timeline  and budget impact to achieve fiscal year 2003 goals as well as intra-agency  interactions, including budget and human resources offices.
To identify strategies agencies are using to identify activities for  competition, we discussed extensively the alternatives and strategies  agencies used to take a more strategic approach and obtained contractor  documents, if available. These studies, conducted in support of a  “compete/no compete” decision, gave us insight regarding decision  criteria, competitive sourcing strategies, and costs involved.
We did not evaluate savings from completed competitions during this  review as the program is new and such data are limited. The FAIR Act  inventory data used in this report have been reviewed by OMB, reported to  Congress, and made available to the public and covers the years 2000,  2001, and 2002. We did not independently verify this information.  OMB-reviewed data for 2003 were not available for all agencies at the time  of our review.
We performed our review between April and December 2003 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: Guiding Principles for Competitive Sourcing
paragraphs: In 2000, Congress enacted legislation creating the Commercial Activities  Panel and mandating a study of the government’s competitive sourcing  process. The Commercial Activities Panel’s mission was to devise a set  of recommendations that would improve the government’s sourcing  framework and processes so that they would reflect a balance among the  taxpayer interests, government needs, employee rights, and contractor  concerns.
In April 2002, the panel released its report with recommendations that  included 10 sourcing principles to guide federal sourcing policy. The panel  believed that federal sourcing policy should    support agency missions, goals, and objectives;    be consistent with human capital practices designed to attract, motivate,  retain, and reward a high-performing federal workforce;  recognize that inherently governmental functions and certain others  should be performed by federal workers;    create incentives and processes that foster high-performing, efficient, and  effective organizations throughout the federal government;    be based on a clear, transparent, and consistently applied process;    avoid arbitrary FTE or other arbitrary numerical goals;    establish a process that, for activities that may be competitively sourced,  would permit public and private sources to participate in competitions for  work currently performed in-house and work currently contracted to the  private sector as well as new work;    ensure that competitions are conducted fairly, effectively, and efficiently;    ensure that competitions involve a process that considers both quality and    provide for accountability in all sourcing decisions.
section_title: Appendix III: 2002 FAIR Act Inventories
paragraphs: Appendix III: 2002 FAIR Act Inventories  According to DOD, these FAIR Act inventory numbers do not include military, foreign nationals.  depot-level maintenance and repair commercial activities, DOD Inspector General, civilian  performance of any commercial activities that have already been contracted out, and the DOD  intelligence community.
section_title: Appendix IV: Competitive Sourcing Studies Initiated and Completed in 2002 and 2003
paragraphs: Results of Completed Studies (FTEs)
Positions Studied (FTEs)
Interior provided only aggregated data for 2002 and 2003. Over this 2-year period, 2,483 FTEs were  studied. Of those FTEs, 968 remained in-house and 1,515 were contracted out.
Data represent bureaus remaining after transfer made to the Department of Homeland Security.  Actions on 3,449 FTEs are underway; some are in the planning stage, while others await senior  management approval before results are announced.
Management Services. This study began in 1999, competition was announced in 2001, and the  contract was awarded in August 2003.
section_title: Appendix V: Disposition of Competable Commercial FTEs Where Studies Completed
paragraphs: In addition, VA did not initiate any studies in 2002.
In addition, VA did not initiate any studies in 2002.
This activity had 270 FTEs at the time the study was announced in 1999. The Most Efficient  Organization provided for 120 FTEs if the work was retained in-house. VA awarded the contract to  the private sector in 2003.
section_title: Appendix VI: Evolution of OMB’s FAIR Act Guidance
subsections: section_title: FAIR Act passed and required agencies to provide OMB an annual inventory of their FTE positions that are not
paragraphs: considered inherently governmental.
The first submission of inventory data was 1999.
Directed agencies to also submit a separate report listing their inherently governmental positions.
Directed agencies to provide a single inventory submission that reflects both the agency’s inherently  governmental FTE positions and its commercial FTE positions. Once reviewed by OMB, agencies must provide a  listing of their commercial FTE positions to the Congress and the public.
Instructed agencies that they should anticipate the possibility that after their list of inherently governmental  positions has been reviewed, it too may be released to the public.
Directed agencies to submit their FAIR Act inventory in two parts—(1) a list of commercial activities performed by  FTE civilian personnel and (2) a list of inherently governmental activities performed by FTE civilian personnel.  After OMB reviews these lists, both will be released to the Congress and the public.
FTE civilian personnel. After OMB reviews these lists, both will be released to the Congress and the public.
Instructed agencies in developing their 2003 inventories to justify in writing all commercial positions that they  consider as not being appropriate for private sector performance.
Provided guidance for preparing inventories, directs agencies to annually submit inventories of (1) their  commercial activities performed by government personnel, (2) inherently governmental activities performed by  government personnel and (3) a summary report that identifies aggregate commercial and inherently  governmental inventory data. (Contained in revised Circular A-76)
Instructed agencies to justify in writing all inherently governmental positions and all commercial positions  classified as not appropriate for private sector performance. (Contained in revised Circular A-76)
section_title: Appendix VII: OMB Scorecard Criteria for the Competitive Sourcing Initiative
paragraphs: Appendix VII: OMB Scorecard Criteria for the  Competitive Sourcing Initiative    an OMB approved “yellow” competition plan to compete    an OMB approved “green” competition plan to compete  commercial activities available for competition;  commercial activities available for competition;    completed one standard competition or publicly announced  standard competitions that exceed the number of positions  identified for competition in the agency’s yellow competition  plan;    publicly announced standard competitions in accordance with  the schedule outlined in the agency “green” competition plan;    since January 2001, completed at least 10 competitions (no  minimum number of positions required per competition);  in the past two quarters, completed 75% of streamlined  competitions in a 90-day timeframe; and  in the past year, completed 90% of all standard competitions in  a 12-month time frame;  in the past two quarters, canceled less than 20% of publicly  announced standard and streamlined competitions. in the past year, completed 95% of all streamlined competitions  in a 90-day timeframe;  in the past year, canceled fewer than 10% of publicly  announced standard and streamlined competitions; and    OMB-approved justifications for all categories of commercial  activities exempt from competition.
section_title: Appendix VIII: Strategic Approaches to Competitive Sourcing
paragraphs: Several agencies used approaches that considered and balanced  multiple agency interests within the competitive sourcing environment.  The following discussion provides a more detailed description of these  approaches.
subsections: section_title: HHS’ National Institutes of Health Used Transparent Criteria to Identify Candidates for Competitive Sourcing
paragraphs: NIH has developed a more strategic competitive sourcing approach that  includes use of software and integration of the agency’s human capital and  strategic plans. According to NIH officials, in 2002, NIH appointed a  Commercial Activities Steering Committee, comprised of 14 senior level  officials, to work with NIH’s 27 centers to determine the activities to be  competed under its competitive sourcing program. The committee used  FAIR Act inventory data, knowledge and experience, and a decision  support software application that provides objective and analytical  results. The software, enabled managers to respond to NIH-developed  questions related to mission effectiveness, human capital, as well as  demand and risk.
Percent of staff in function who are true  for function (i.e. stability of demand)
Openness of staff in the function toward  sensitive information if the function were  outsourced.
The software assigns weights to each response—using NIH-developed  values—and generates scores for each activity under study. Committee  officials then review the scores, considering factors such as (1) the  activity’s impact on NIH’s mission, (2) costs, (3) socioeconomic impacts,  and (4) potential advantages to competing the activity. NIH officials also  stated that once a decision has been made to compete an activity,  consideration might be given to re-engineering the applicable business  process, whether it remains in-house or undergoes a public-private  competition. Once the Steering Committee has made its competitive  sourcing decision, the Commercial Activities Review Team, with  contractor assistance, implements the committee’s decisions.
Further, in an effort to add rigor to its competitive sourcing process,  NIH in a recent competition used a contractor to mitigate potential risks.  NIH convened a panel of nine experts from the Georgia Institute of  Technology to analyze and evaluate a request for proposal and its related  performance work statement concerning real estate property management  services at six installations—the estimated value of which exceed  $100 million each year. In light of the risks it could encounter if the  contract were deficient from a scope, technical, business, and/or legal  standpoint, NIH asked the panel to review the request for proposal  developed in-house and determine whether or not the contract documents  were properly conceived, logically organized, clearly written, and  sufficiently complete and accurate. As a result of its analysis, the panel  identified several areas where the request for proposal and performance  work statement subjected NIH to risks. NIH officials reviewed the risk and  made appropriate changes to these documents.
Finally, NIH officials sought advice and coordinated with HHS’ Office of  Strategic Management and Planning and Human Capital Office to link their  competitive sourcing program to HHS’ strategic and human capital plans.
subsections: section_title: Internal Revenue Service Uses Business Case Analysis and an Enterprisewide Approach
paragraphs: According to an IRS official, IRS, a bureau within the Department of the  Treasury, developed a strategic approach to competitive sourcing, using a  business case analysis methodology used by leading industry firms to  determine if commercial function(s) within a business division have the  potential to create significant business process improvements along with a  sizeable return on investment. Based on the results of the business case  analyses, the Strategy and Resources Committee, headed by the Deputy  Commissioner of Operations and Support decide to compete (public- private competition) or not compete the functions. According to IRS  officials, this process enhances the opportunities to make smart business  decisions aligned and supportive of the IRS Strategic Business Plan. IRS  has focused its competitive sourcing efforts primarily on more strategic  and enterprise-wide competitions because it has determined that this  approach makes more economic sense than identifying candidates in  smaller groups.
The official stated that the IRS’s initial step for identifying the functions  that will be considered to undergo a business case analysis is its review of  the FAIR Act inventory, which has been merged with IRS personnel  staffing database in a software application. This application, unique  in terms of the agencies that we reviewed, crosswalks the FAIR Act  inventory data with personnel staffing data to provide a comprehensive  analysis of the various commercial function groupings across the IRS.  After identifying these groupings, the bureau’s subject matter experts and  high-level managers along with hired contractors conduct business case  analyses of these positions. As we reported, the business case analyses,  which are completed in approximately 4 to 6 months, calculate the  economic benefits of potential alternatives based on IRS responses to a  number of critical questions:  Is the function core to the mission?
How much does the function cost?
Is there potential to reduce cost and/or improve productivity by  competing the function?
How does the function fit into other current or planned strategic projects?
Based on the responses to these questions, and analyses of current  operations, market research and an MEO design, IRS calculates and  considers the economic benefits of each potential alternative and the  upfront and recurring investments required to achieve and maintain  efficiencies. IRS then makes a decision to compete or not compete  based on weighted values assigned to IRS strategic business alignment,  investment risks, return on investment, FAIR Act goal alignment, and  alignment with President’s Management Agenda goals. A key success  factor to this approach is an expert validation of the assumptions used in  the business case as well as the inclusion of significant direct and indirect  costs associated with the function.
According to an IRS official, if competing a function makes the best  business sense, IRS appoints a team leader who selects a team and obtains  contractor support to plan and develop the performance work statement.  Throughout the entire business case analysis and competitive sourcing  lifecycle, the IRS Office of Competitive Sourcing is engaged and provides  support to the various teams.
Officials from IRS’ competitive sourcing program cited many benefits from  the business case approach used during the preliminary planning stage:  up-front consideration of major decision variables such as economics,  market research and risk; involvement of top level management and  leadership at the very early stages of the process; an opportunity to test  candidate projects against strategic goals and performance improvement  objectives; and a low investment requirement to qualify or reject an  activity as a competitive sourcing project. According to an IRS official,  while the time and cost to make a decision to compete or not to compete  may seem excessive, once IRS conducts a public - private competition,  they have confidence in the business case projected return-on- investment  and an understanding of why conducting a particular set of business  functions fits into the IRS strategic plan for business improvements and  human capital goals.
section_title: Army’s “Core-Non-Core” Approach for Classifying Positions
paragraphs: The Army’s experience in using a strategic approach to classify positions  offers lessons for other agencies in identifying positions for competitive  sourcing studies. The Army’s attempt to focus on determining whether  functions were core or non-core to the agency’s mission found that such a  distinction did not, by itself, adequately inform sourcing decisions. For  example, the Army’s core competency review showed that designating a  function as “core” does not necessarily mean that in-house employees  should perform a function or necessarily preclude competitive sourcing of  the function. As we reported, Army officials found that other factors, such  as risk and operational considerations, must also be considered.
The Army’s effort assumed that all commercial positions were non-core to  its mission and thus potential candidates for performance by the private  sector or other government agencies. However, Army officials recognized  that, in many instances, these “non-core” functions would require  additional analysis to determine potential risks if the function were  contracted. There are four categories of risk analysis: force management,  operational, future challenges, and institutional. For example, Army  officials determined that many medical functions, which are not  classified as inherently governmental, could be considered core in some  circumstances. Although medical functions typically do not require unique  military knowledge or skills, medical activities in theater need to be  performed by in-house personnel because contracting for medical support  in host nations could present significant risk to U.S. armed forces.  Consequently, the Army has determined that the in-theater medical  mission is a critical element of the Army’s ability to accomplish its core  competencies. Other medical functions could be considered both core and  non-core. For example, optical fabrication—the ability to produce  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, the same function performed in the  United States is not core. The Army also determined that its casualty and  mortuary affairs function is not a core or an inherently governmental  function. However, national policy dictates that Army officials notify  families of a casualty in-person.
section_title: Education’s “One-ED” Approach Seeks to Integrate Competitive Sourcing with Other Initiatives
paragraphs: In June 2002, the Department of Education launched, with OMB  approval, an ambitious management reform known as the “One-ED”  concept. One-ED seeks to transform departmental operations through  the integration of human capital reform, competitive sourcing, and  organizational restructuring.
As part of its One-ED approach the Department developed its FAIR Act  inventory by first analyzing key processes. It then used the results of this  process to restructure positions as either commercial or inherently  governmental. As a result of this process, Education’s reported inventory  data have changed significantly in the past few years, and according to  senior officials, the data are now more accurate and concise.
One-ED reviews cover selected elements of major departmental  operations and are being implemented in four phases over a period of  three years. In each phase, the Department (1) identifies specific business  functions for review, (2) conducts a business case analysis of each  function, and (3) decides whether to re-engineer the function or compete  it with the private sector.
Phase I, which concluded in mid-2003, focused on agency-wide support  functions, such as human resources, payment processing, and legal  review. As a result, five agency-wide support functions will be competed  with the private sector and four will be re-engineered and retained  in-house. In making this decision, nine teams—comprised of  approximately sixty employees knowledgeable about the function being  studied and assisted by contractor personnel trained in developing  business case analyses reviewed the functions and reported their findings  to senior management. These teams considered such factors as the  skill sets and competencies required to perform the functions being  reviewed,    potential risks associated with outsourcing the position, and  relationship of the business function to the Department’s strategic  planning.
An Executive Management Team—chaired by the Deputy Secretary and  staffed by senior Department officials—made the final determination using  the information developed by the teams as well as other data. The  Department initiated four standard competitions and one streamlined  competition in fiscal year 2003. In addition, the Department is in the  process of implementing proposals related to those business functions  that were identified for in-house re-engineering. These projects were not  completed at the time of our review. The Department’s Office of Inspector  General will report on its assessment on the implementation of the  One-ED initiative in early 2004.
section_title: Appendix IX: Comments from the Department of Health & Human Services
section_title: Appendix X: Comments from the Department of the Interior
section_title: Appendix XI: Comments from the Department of Veterans Affairs