Human Capital: Selected Agencies' Use of Alternative Service Delivery Options for Human Capital Activities
Published: 2004-06-25T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Human capital offices have traditionally used alternative service delivery (ASD)--the use of other than internal staff to provide a service or to deliver a product--as a way to reduce costs for transaction-based services. GAO was asked to identify which human capital activities agencies were selecting for ASD, the reasons why, how they were managing the process, and some of the lessons they had learned. Eight agencies were selected to provide illustrative examples of ASD use.
section_title: What GAO Found
paragraphs: The selected agencies were using ASD for the full range of their human capital activities. Agencies generally approached their management of ASD in similar ways. They conceptually agreed that human capital activities that did not require an intimate knowledge of the agency, oversight, or decision-making authority could be considered for ASD, although in practice they showed differences in their choices of ASD activities. GAO identified several lessons the agencies had learned about ASD management, such as the importance of understanding the complexity and requirements of an activity before making an ASD decision. As the President's agent and adviser for human capital activities, OPM also has a central role in assisting agencies' management of ASD. Several agencies noted that they used OPM's Training and Management Assistance program, which provides human capital contract assistance. However, the officials also cited the need for sharing information about specific ASD efforts, useful metrics, and lessons learned.

section_title: Letter
paragraphs: In an April 2003 report on selected agencies’ use of human capital  strategies to attain mission results, we noted that improved ways of  providing services can enable agencies’ human capital offices to reallocate  their resources to better meet expanded roles as strategic partners. As part  of this, agencies need to consider how best to accomplish their human  capital activities, including who the service provider should be. Alternative  service delivery (ASD)—the use of other than internal staff to provide a  service or to deliver a product—has traditionally been used for transaction- based services, such as payroll administration, as a way to reduce costs.  However, many public and private sector human capital leaders are now  advancing it as an approach that can also help free their staff to focus on  core strategic activities and expand their access to expertise. As the  number, scope, and quality of ASD options, such as reimbursable services  from other agencies and private sector providers, continue to increase and  the experience of agencies continues to mature, human capital leaders  expect that ASD will become an increasingly significant consideration in  the delivery of human capital products and services. For a broader  discussion of the federal government’s sourcing policies and procedures, see the final report of the Commercial Activities Panel released in April  2002.
To obtain a better understanding of federal agencies’ use of ASD for  accomplishing their human capital activities, you asked us to report on  how federal agencies determine the human capital activities to retain and  those for which they would consider using outside providers. Specifically,  you asked that we identify (1) the human capital activities selected  agencies are accomplishing through the use of ASD options and the basis  on which they decided to use ASD and (2) how the use of ASD is being  managed and the lessons learned by the selected agencies. The agencies we  selected were the Department of Energy (DOE), the Department of the  Interior’s U.S. Fish and Wildlife Service (FWS) and Minerals Management  Service (MMS), the National Geospatial-Intelligence Agency (NGA), the  U.S. Coast Guard (USCG), the U.S. Department of Agriculture’s (USDA)  headquarters, the U.S. International Trade Commission (USITC), and the  U.S. Mint’s headquarters. Agencies were selected through research that  identified them as using ASD for some human capital activities and based  on the recommendations of human capital experts from the National  Academy of Public Administration (NAPA), George Washington University,  and a private sector consultant for federal contract management. The  agency selection process was not designed to produce findings that could  be considered representative of the use of ASD for human capital activities  in the federal government as a whole, but rather to provide illustrative  examples of how selected agencies were using ASD.
To meet our objectives, we analyzed information from a review of the  literature on the use of ASD for human capital activities in both public and  private sector organizations. We then interviewed human capital officials  from the selected agencies to identify the activities for which they were  using ASD, the basis on which they decided to use it, how the selected  agencies managed their use of ASD, and the lessons learned from the  agencies’ experiences. Some of the agencies provided supporting  documentation, such as contracts and project plans, for review. We did not  verify the agencies’ cost savings estimates. After reviewing and analyzing  the agencies’ responses, we developed a framework for organizing and  discussing their use of ASD for human capital activities. Our review was  conducted in accordance with generally accepted government auditing  standards from August 2003 through February 2004. Appendix I provides  additional information on our scope and methodology.
subsections: section_title: Background
paragraphs: Recent research on private sector companies indicates that many  companies are using ASD, generally referred to in the private sector as  “outsourcing,” as an integral and permanent part of their human capital  strategies. Along with extensive use of technology and consolidation of  service delivery units, outsourcing accompanies the desire of many human  capital offices to move their focus from transaction-based activities toward  becoming more of a strategic partner. A 2002 Conference Board study,  based on responses from 125 surveyed companies, found that two-thirds  currently outsource a major human capital activity and most of these  companies are seeking to expand their outsourcing activities. The study  reported that pressure to cut costs, improve the quality of human capital  services, gain access to specialist expertise and technology, and free staff  to concentrate on core business activities drove the companies’  outsourcing decisions. Slightly more than 50 percent of survey respondents  reported that they had fully achieved their outsourcing objectives, 42  percent had partially achieved them, and less than 1 percent of outsourced  human capital functions had been brought back in-house. A December 2003  study from the Corporate Leadership Council found, from a survey of 162  of its member organizations, that most human capital activities continue to  be largely performed in-house, although aspects of almost every activity  are outsourced.
The research on the private sector’s use of outsourcing also indicates that  the range of human capital activities outsourced is increasing. According to  a 2003 report from the University of Southern California, the large  corporations they surveyed were most likely to outsource employee  assistance and benefits administration. This report noted that  compensation, benefits, employee training, human resource information  systems, recruitment, performance appraisal, affirmative action, and legal  affairs all showed statistically significant increases in the use of  outsourcing from 1995 to 2001. No activity was less likely to be outsourced  in 2001 than it was in 1995. In addition, some organizations are following a  path where they transfer the majority of their human capital activities to a  single contractor.
Research on the federal government’s use of human capital ASD includes a  1997 NAPA report that was intended to provide federal managers and  human capital staff with a practical guide to the issues that must be  addressed in approaching ASD for human capital functions. The report  recommended that because of the risks involved with ASD, including a  potentially negative effect on the general workforce, agencies must  recognize that its use requires careful planning. It maintained, however,  that as in the private sector, federal government executives were in a  position of managing a decrease in resources along with increased  performance expectations and that ASD was a viable approach to help  meet this challenge.
Federal agencies have a number of ASD options available to them.  Examples include human capital services offered by other federal agencies,  contracts with private sector and nonprofit organization providers, and  partnerships with other organizations. USDA’s National Finance Center is  an example of an interagency service provider, supporting a number of  other federal agencies, including GAO, with automated information  systems services for personnel and payroll. Private sector providers of  human capital services have increased in both their number and the range  of their services geared toward the federal human capital community. For  instance, in 2000 the General Services Administration (GSA) introduced a  new schedule of contracts from more than 50 different contractors for  activities such as recruitment and position classification. Another ASD  option includes the use of partnerships with other organizations, which  may not necessarily involve exchanges of funds. The Bureau of the Census,  for example, partnered with national, state, and local organizations to help  the agency recruit census takers for the 2000 Census. Appendix II has  more detail on ASD options available to federal agencies.
section_title: Selected Agencies Reported Using ASD for the Full Range of Their Human Capital Activities
paragraphs: Human capital officials from the selected agencies reported using ASD for  a variety of specific human capital activities that we grouped into “tiers,” a  construct we created to discuss how agencies use ASD for similar types of  human capital activities; they are not discrete categories, but rather groups  of activities that overlap. All of the agencies used ASD for at least some tier  I activities, such as payroll and employee assistance programs, and tier II  human capital activities involving the implementation of human capital  policy and strategy. Most of the agencies had contracted for assistance,  generally with the private sector, for tier III activities, such as special  projects involving workforce planning and organizational assessments. Of  the eight agencies, the Mint was the only agency currently engaged in a  competitive sourcing initiative involving most of its human capital  functions.
subsections: section_title: Agencies Regarded ASD Use for Tier I Activities as a Way to Reduce Costs in Some Cases and to Free Staff to Focus on Core Activities
paragraphs: Similar to private sector experience, agency officials regarded the use of  ASD for some of the tier I activities involving transactional human capital  functions, the acquisition and maintenance of technology, and specialized  services as a way to reduce or avoid costs. Agencies have been using ASD  for these activities for a number of years, and updated cost savings  estimates were not available. In general, however, using ASD for more  standardized, transactional activities allows human capital offices to make  use of high-volume providers’ investments and capabilities that realize  economies of scale. For instance, OPM is leading the effort to collapse the  operations of 22 executive branch agencies that currently run payroll  systems into what will eventually be only two systems at a projected  savings of $1.1 billion through fiscal year 2012. We reported that it is  evident that cost savings can be found by reducing the number of payroll  systems operated and maintained by the federal government and avoiding  the costs of updating or modernizing those systems, but have noted the  significant challenges in realistically estimating the financial savings from  this initiative. Likewise, although cost savings estimates were not  available, agency officials regarded consolidating the purchase of human  resource information systems and specialized services that would be  expensive to duplicate internally, such as purchasing commercial-off-the- shelf software or using a specialized provider of employee assistance  programs, as a way to reduce individual costs to the agency. In prior work  on how companies were taking strategic approaches to acquiring services,  we noted one tactic involved using a companywide approach to procuring  services. When the companies analyzed their spending on services, they  realized that individual units of the company were buying similar services  from numerous providers, often at greatly varying prices. In some cases,  after this analysis, thousands of suppliers were reduced to a few, enabling  the companies to negotiate lower rates.
Common examples of the types of tier I activities for which the eight  agencies used ASD are   components of human resource information technology,  health screening and wellness services,  employee fitness programs, and   drug and alcohol testing.
As previously noted, federal agencies have used ASD for tier I human  capital activities for a number of years. NAPA reported in 1997 that human  capital outsourcing by federal agencies was already substantial in these  areas. All of the agencies used ASD for some of their tier I activities, and  most of the agencies reported using ASD for their payroll administration  and at least some component of their information technology. NGA, for  example, partnered with another agency to share contracts for human  capital information technology development and maintenance. NGA said  that the arrangement allowed it to access expertise not resident in-house  and promoted knowledge transfers between the two agencies. Using ASD  for traditional employee services was also common among the selected  agencies. Many of them used ASD for their employee assistance programs,  wellness and fitness centers, health units, or drug and alcohol testing, often  using interagency services to provide these functions. By going to outside  providers for these specialized services, agency officials believed that they  were able to focus more on core activities in addition to gaining efficiencies  by joining other agencies’ efforts. A DOE official, for example, said that the  department used ASD for its fitness centers to avoid liability issues so that,  for example, if an employee were injured using the center it would not be  the responsibility of the department. DOE also reported joining another  department’s large contract for drug and alcohol testing to reduce its  workload by not having to commit resources to contracting for the service  itself. Officials also said they gained the benefit of having a neutral third- party provider, which was believed to be important because employees  may be less likely to use services such as employee assistance programs  when internally provided due to confidentiality issues.
section_title: Agencies Regarded ASD Use for Tier II Activities as a Way to Free Staff to Focus on Core Activities
paragraphs: All of the selected agencies used ASD for at least one of their tier II  activities, which involve the implementation of human capital policy and  strategy, including advisory services. Common examples of the agencies’  ASD tier II activities are   training development and delivery,  classification and staffing support,  classification appeals and reviews,  equal employment opportunity (EEO) and administrative investigations,  mediation.
Many of these activities entail services dealing with recruiting, developing,  and retaining employees, and they occupy the middle ground between the  primarily technical work in tier I and the increased strategic focus needed  for tier III activities. Drivers for this tier of activities included freeing staff  to focus on core activities and supplementing a lack of staff to perform the  activity. Tier II activities often involve partial outsourcing, using ASD for  only a component of the human capital function, whereas a tier I activity  such as drug testing may be completely outsourced. NGA’s Training and  Doctrine Directorate, for example, used OPM’s TMA program to select and  evaluate providers for its Leadership Program. The agency used a  combination of in-house expertise and contractors to design and deliver  the leadership training.
Within tier II activities, components of training development and delivery  were the most frequently cited human capital activities for which the  agencies used ASD. NAPA’s 1997 report also noted outsourcing of training  by federal agencies as substantial. As one example, USDA turned to a  private sector contractor to help develop the design for a corporate  leadership development program to prepare upper-level managers for  future leadership roles at USDA. One of the rationales for relying on a  contractor was that the contractor had the research edge on best practices  gleaned from completing needs assessments with other organizations. In  addition to using the private sector, several agencies used the training  services of providers such as the USDA Graduate School and the Federal  Executive Institute. OPM is also working on another training tool for  federal agencies to use. E-Training, one of OPM’s e-government initiatives,  is designed to create a governmentwide e-Training environment to support  the development of the federal workforce and provide a single source for  on-line training and strategic human capital development for all federal  employees. OPM expects that its initiative will allow agencies to focus their  own training efforts on unique needs, thus maximizing the effectiveness of  their expenditures on workforce performance.
Agencies also used ASD for tier II activities such as investigations,  mediation, classification and staffing, and recruiting. FWS, for example,  contracted for classification appeals and studies, EEO and administrative  investigations, and mediations. The agency maintained that ASD was useful  in this case because, given the sporadic nature of some of these activities, it  could contract for services only when it needed them. MMS contracted  with a retired employee to perform staffing, classification, and employee  relations functions. Two of the agencies used ASD for some component of  their recruitment function. For example, although the contract is new and  NGA has not yet directly tracked changes due to this initiative, the agency  anticipates that contracting for some of its recruitment activities will  provide better customer service and help confront reduced human capital  staffing.
section_title: Agencies Regarded ASD Use for Tier III Activities as a Way to Gain Access to Expertise
paragraphs: Tier III activities, which involve the formulation of human capital strategy  and policy support, represent a more recent application of ASD for human  capital activities. Examples of the agencies’ tier III ASD activities are  strategic human capital management planning,  benchmarking.
These activities involved expanding their base of expertise and gaining  access to new ideas and methodologies. All but one of the agencies  reported using ASD for some activities within tier III, often using private  sector providers.
Several agencies noted that the use of ASD for tier III activities enabled  their human capital offices to obtain access to the right mix of skills quickly  in order to meet critical deadlines, thereby providing the agency with new  tools and capabilities. USITC, for example, through OPM’s TMA program,  contracted for initiatives in strategic workforce planning. The agency used  contractors to help define its human capital vision and models and to  develop occupation guides and a human capital plan. USDA teamed with a  contractor to conduct a skills gap analysis to identify critical workforce  skills and analyze skills gaps. USDA reported that the contractor provided  third-party objectivity in retrieving and assessing information, used its own  technology to analyze data, and produced a model based on its own  scientific expertise that assisted USDA managers in determining workforce  skills needs for closing the gaps in the next 5 years. USCG contracted for  the use of OPM’s Organizational Assessment Survey after sporadic,  unsatisfactory in-house attempts to manage the survey development,  administration, data collection, analysis, and required reporting. Instead of  investing in three full-time employees supplemented by six part-time  employees that USCG believed would be needed to manage an annual  survey, it reduced the resources needed to manage the survey effort to one  full-time employee supplemented by two part-time employees. According  to an agency official, the estimated annual cost for the project was reduced  by approximately $300,000.
section_title: The Mint Is Engaged in a Human Capital Competitive Sourcing Initiative
paragraphs: All of the above examples of ASD for the three tiers of activities concerned  were specific activities that were outsourced to a variety of different  providers. Within private sector human capital offices, however, there is a  beginning trend toward aggregating multiple human capital activities into  one ASD contract. The 2002 Conference Board report on human resources  outsourcing trends found that although most of the companies they  surveyed used more than one source provider, 12 percent of the companies  surveyed outsourced the bulk of their human capital functions to a single  provider and 9 percent were in the process of doing so or plan to over the  next 3 years. Aggregating activities into one contract can result in better  contracting leverage. This is riskier, however, in terms of the complexity of  the arrangement and the assumption that one vendor can deliver and  maintain the same level of service previously provided in-house or by a  variety of different providers.
The Mint was the only one of the eight selected agencies currently  considering using one ASD provider for the majority of its human capital  activities through a competitive sourcing initiative governed by the Office  of Management and Budget’s (OMB) Circular No. A-76. The initiative  involves all of the Mint’s human capital functions except employee and  labor relations and policy, and the agency expects to complete the  competitive sourcing study no later than February 2005. Although a Mint  official reported challenges maintaining morale and staff during the formal  cost comparison, the agency expects that the study will eventually result in  reduced costs. Our work looking at the progress selected agencies were  making in establishing competitive sourcing programs also found that  ensuring and maintaining morale was a challenge for those agencies.  NAPA reported that trust between agency leaders and employees can be  shaken by the consideration of nontraditional staffing. In addition,  employees may suffer stress-induced illness, increased absenteeism,  hostility, and depression, other symptoms of changed organizations. The  report noted that providing an authoritative source for employees to get  accurate information minimizes the unknown and helps control rumors  and miscommunication.
section_title: Selected Agencies Approached Their Management of ASD in Similar Ways and Shared Similar Lessons Learned
paragraphs: We examined the agencies’ management of ASD by looking at their  approaches to three phases of contract management. The phases included  (1) making the sourcing decision, (2) developing the contract and selecting  the provider, and (3) monitoring the provider’s performance. Our review  also identified some of the lessons the agencies learned and the role that  OPM plays in assisting agencies with their management of ASD.
subsections: section_title: Agencies Approached Sourcing Decisions in a Similar Way on a Conceptual Level but Showed Differences in Practice
paragraphs: To make a sourcing decision, organizations need to determine whether  internal capability or external expertise can more effectively meet their  needs. The Commercial Activities Panel, chaired by the Comptroller  General of the United States, noted that determining whether the public or  the private sector would be the most appropriate provider of the services  the government needs is an important, and often highly charged, question.  The report also stated that determining whether internal or external  sources should be used has proved difficult for agencies because of  systems and budgeting practices that (1) do not adequately account for  total costs and (2) inhibit the government’s ability to manage its activities in  the most effective manner possible. In prior work examining the  competitive sourcing initiatives of selected agencies, we reported that  several agencies had developed strategic and transparent sourcing  approaches. The approaches included the comprehensive analysis of  factors such as mission impact, potential savings, risks, current level of  efficiency, market conditions, and current and projected workforce  profiles. To make good human capital sourcing decisions, NAPA’s ASD  report also suggested identifying constraints on the process, such as the  lack of capacity within the organization to manage the ASD contract and  the legal, regulatory, and ethical issues related to the governmental nature  of the work.
The selected agencies reported similarities on a conceptual level in how  they made their sourcing decisions. Officials generally agreed about which  human capital activities were suitable candidates for ASD. Their  considerations were consistent with the Commercial Activities Panel  sourcing principles. For example, agency officials recognized that some  activities are inherently governmental or are functions that should be  performed by federal workers and that both quality and cost factors should  be considered. The general consensus was that virtually any activity could  be an ASD candidate as long as it did not require an intimate knowledge of  the agency or involve oversight or decision-making authority that should  belong with the agency. There was also general consensus that ASD should  be considered in situations where it could improve quality without  increasing costs or keep the same quality at a lower cost and in situations  where activities cannot be accomplished with the agency’s current skills  and resources. Some of the agencies excluded from ASD any activity  directly related to policy, while one official maintained that policy  development, as opposed to policy decision making, was appropriate for  ASD.
Notwithstanding the broad conceptual agreement among the agencies, they  showed differences in their choices of human capital ASD activities. This  may be partially due to differences in the activities they deemed to be  essential to the agency or to the human capital office. The USITC Human  Resources Director, for example, noted that USITC staffing was a function  that required intimate knowledge of the agency and one that it would not  consider for ASD. Private sector research also indicates that some  companies are reluctant to outsource activities such as employee  communications, assessment, and recruiting because they are critical to  the company’s corporate culture and provide a “personal touch.” The  differences may also be due to variations in existing capacity and in how  ASD was used in the agencies’ overall human capital strategy. FWS, for  example, noted that as the agency continues to identify areas for  consolidation and efficiency, it sees its use of ASD increasing as a means to  provide better customer service and supplement human capital skills not  present in the current workforce. Several of the agencies, NGA and USITC  in particular, remarked that ASD was integral to their overall human capital  strategy. In fact, an NGA official said that the agency was established in  1996 with a design that encouraged the use of ASD. On the other hand,  USDA stated that it used ASD primarily to meet critical deadlines.
Lesson learned: Understand the complexity and requirements of the  activity prior to making an ASD decision. In order to strategically and  objectively make a sourcing decision, several agency officials emphasized  the importance of laying out ASD requirements and goals and letting these  expectations guide the process. In order to do this and to manage for  results, they underscored the importance of knowing as much as possible  about the complexity and requirements of the activity before making an  ASD decision. As a USCG human capital official expressed it, throwing a  “problem” over the transom to a provider and waiting for a “solution” to be  thrown back is not a viable model. Similarly, a human capital official from  MMS said that in cases where ASD did not work well, there was a lack of a  clear vision about the work to be done, and a NAPA panel report examining  human capital outsourcing experiences noted that from the contractor’s  viewpoint, poorly defined requirements are a major flaw in government  management of outsourcing. To help solve this problem, one of the  leading commercial practices for outsourcing of information technology  (IT) services includes incorporating lessons learned from peers who have  engaged in similar sourcing decisions.
section_title: Agencies Approached Developing Their Contracts and Selecting Their Providers Similarly
paragraphs: The ASD contract defines the legal terms of the relationship between the  agency and the provider and sets the expectations for service levels and  delivery of essential services. These critical requirements are captured in  the contract as fundamental expectations. The development of the contract  is the foundation on which the relationship with the provider is built, and  once the agency understands the essential contractual requirements, it can  begin to identify providers that can meet its needs. According to the  NAPA human capital ASD report, the scope of the activity being converted  to ASD and its relative criticality to the agency mission should determine  the level of effort needed to develop the contracts and select the  providers.
Human capital officials from the agencies reported using similar methods  to develop their ASD contracts and select their providers. Officials said that  they followed the guidance provided by the contract and procurement  office representative who solicited the bids and awarded the contract. NGA  stated that its general strategy was to rely on agency subject matter experts  who created detailed statements of work. For example, the agency expert  in the interpreting field provided the expertise needed for cost comparison,  evaluation, and program management for NGA’s interpreting services.  Officials listed reputation and experience of the provider as important  factors in the selection process. Some agencies noted using the panel  award approach to select providers. To select its employee assistance  program provider, for example, NGA assembled a panel comprised of  agency officials who conducted interviews with each of the candidates and  required the finalists to make presentations. Some officials stressed the  importance of using established contract vehicles, such as GSA’s contract  schedule or OPM’s TMA program, because it made the procurement  process easier. Agencies also noted that joining other agencies’ contracts  reduced the administrative effort needed on their part in terms of contract  development.
Lesson learned: Articulating ASD contract terms that are flexible  but include identified outcomes and measurable performance  standards is an essential requirement for meeting ASD objectives.  After determining what the use of ASD should accomplish, several agencies  shared the importance of translating these expectations in the ASD  contract into flexible terms with measurable outcomes. Accordingly, an  essential part of the contract is to define the level and quality of service  required of the ASD provider as well as specific evaluation criteria. A Mint  official said that performance-based contracts with metrics and quality  assurance plans helped the agency ensure that expectations were met.  Congress and OMB have also encouraged greater use of performance- based contracting, which emphasizes spelling out the desired end result,  while leaving the manner in which the work is to be performed up to the  contractor. Other attributes of performance-based contracting include  measurable performance standards; quality assurance plans that describe  how the contractor’s performance will be evaluated; and positive and  negative incentives, when appropriate. In developing contracts and  selecting providers, leading commercial practices for acquiring IT services  also suggest that the contract must be flexible enough to adapt to  changes. The practices note that the contract should include clauses for  issues such as resolving disputes promptly, conducting regularly scheduled  meetings, and declaring a significant event that can lead to a change in the  contract. A Mint contract, for example, specified how the contract would  be changed if access to desired data was not an option.
section_title: Agencies Also Approached Monitoring Performance in Similar Ways
paragraphs: The monitoring phase of ASD management involves ensuring that the ASD  provider is meeting performance requirements. The previous phases  addressed the extensive preparation that must precede the ASD provider’s  assuming responsibility for an activity. Monitoring includes examining  performance data for specific activities and making sure that the overall  objectives for using ASD are being met. According to commercial practices,  organizations need to examine internal service levels as well as maintain an  external view of the performance of other ASD providers to make certain  that their current relationship is still advantageous to the organization.
The agencies reported both formal and informal ways of monitoring their  ASD contracts. A contracting officer’s technical representative (COTR) or a  designee generally performed the formal oversight on an ongoing basis  with line managers being in position to perform the informal monitoring.  DOE, for example, described monitoring its human capital processing  functions by having a COTR work in conjunction with the program or  technical monitors, DOE’s office of procurement, and the direct customers  to ensure that problems were resolved and needs and expectations met.  NGA looked at the measures built into its quality assurance plans, which  included descriptions of the deliverables, performance standards,  acceptable quality levels, and methods used to assure quality, such as  random testing. The agency also noted that it periodically checks prices  with outside service providers to make sure it is not paying more than the  market rate for the contracted services. An MMS human capital official said  that accountability for monitoring the overall success of the ASD strategy  for a particular function belongs to the line manager responsible for that  function, who determines if program goals are being met.
Many of the agencies said that they used performance measures as part of  their ASD monitoring process. The types of metrics used varied with the  types of ASD human capital activities, but generally included elements of  quality or timeliness. For projects dealing with human capital strategy and  policy support, agencies mentioned that along with quality, their measures  included timely completion and evaluation of interim deliverables during  the project. The USITC Human Resources Director stressed that when  using ASD for a specific project, it was important to incorporate ongoing  milestones into the contract as markers for how well the project is  progressing. Agencies using ASD for training and development activities  also reported using similar measures to monitor the success of the  activities. For example, NGA and DOE stated that they used a multilevel  training evaluation model to assess the effectiveness of the methodology,  media, and delivery mechanisms used by their ASD providers. Several of  the agencies used client satisfaction surveys to gauge the quality of their  employee services provided through ASD. USCG, for example, used  surveys and had one-to-one contact with members who used its employee  assistance program.
Lesson Learned: Creating a relationship with the ASD provider is  key to resolving issues that may arise in addressing concerns and  directing work. Human capital officials emphasized that smooth and  constructive interaction between the agency and the ASD provider at an  operational level is crucial to achieving the expectations of the ASD  arrangement. Relationship management goes beyond the structure of the  contract and if a good relationship exists between the agency and the ASD  provider, many problems that may arise can be worked out. As the USITC  Human Resources Director remarked, the agency needs to have the  capacity to manage relationships, not just contracts, with ASD providers. In  looking at leading commercial practices for outsourcing IT services, we  included relationship management as one of three critical success factors  contributing to successful outsourcing, a capability that must be present to  implement good outsourcing practices. The Director of OPM also  emphasized the importance of program managers’ ability to work inside  partnerships and relationships to help develop a new paradigm of  government-contractor relationships. She said that OPM plans to analyze  human capital contracts that were poorly managed and use those lessons  to improve the process.
section_title: OPM Has a Central Role in Assisting Agencies’ Management of ASD
paragraphs: OPM has a central role in agencies’ management of ASD by providing  assistance and guidance in operating human capital programs. As the  President’s agent and adviser for human capital activities, OPM’s overall  goal is to aid federal agencies in adopting human resources management  systems that improve their ability to build successful, high-performance  organizations. The agency’s five e-government initiatives are examples of  this effort. In addition, several agencies used OPM’s TMA program to help  them manage their ASD efforts. The TMA contracting vehicle assists  government agencies with training and human capital technical assistance  projects. (See fig. 2 for more details.) OPM’s TMA program may be  appropriate when agencies have a need for (1) outside expertise to help  define human capital needs and frame requirements, (2) help doing  something the agency has never done before, (3) short-term help to get a  specific task accomplished because internal resources are not available,  (4) long-term supplemental assistance to accomplish ongoing, mission- critical objectives and activities, and (5) plans to competitively source  certain learning or human capital activities or functions. USITC, for  example, used TMA to screen and qualify a select group of contractors to  assist the agency in its workforce planning initiatives. The agency’s Human  Resources Director said TMA facilitated USITC’s ability to appropriately  identify a contractor that could work best in the agency’s culture. She also  noted that the TMA program assists smaller agencies in gaining clout with  contractors because of the program’s large volume of contracts.
The Training and Management Assistance (TMA) Program, a fee-based  interagency contract service program, provides comprehensive, end-to-end  service that agencies can use for their training and human capital needs.
Products and Services:    Agencies can receive customized  and integrated services in areas  such as knowledge management,  training, compensation, and  performance management.
Process:   TMA project managers work with agencies on: 1. developing statements of work, 2. completing interagency agreements, 3. selecting providers, 4. attending project kick-off meetings, 5. reviewing and approving management plans, and  6. monitoring projects to completion.
OPM also plays a role in assisting agencies’ management of ASD through its  authority to oversee management of human capital activities. The Director  of OPM has called for more rigorous oversight of federal contracts used to  acquire personnel management services for agencies and their employees.  In addition, to ensure professional oversight of contracts, OPM has  instructed the Federal Executive Institute and the management  development centers to begin to train and retrain a new cadre of program  managers with the skills necessary to manage relationships and establish  partnerships with their peers in the procurement industry. The CHCO  Academy, created by OPM to educate chief human capital officers about  human capital management issues, included outsourcing human resource  services as one of its agenda topics.
While OPM has made efforts to help agencies with their human capital ASD  initiatives, there are additional opportunities to assist the agencies in  compiling, analyzing, and disseminating information on federal agencies’  use of ASD for human capital activities. Several agency officials noted that  having a clearinghouse of ASD information, such as posting information on  ASD projects and providers, and more communication sharing in general  would help them manage their ASD projects. They observed that joining  other agencies with existing contracts can be an effective strategy and that  communication among agencies about the reputation of ASD providers  plays a role in their selection process. An NGA official noted that (1)  partnering with other federal agencies could provide a venue to learn from  each other versus developing individually and (2) agencies could learn  more from each other’s ASD accomplishments and mistakes. OMB, for  example, is developing a competitive sourcing data-tracking system to  facilitate the sharing of competitive sourcing information by allowing  agencies to identify planned, ongoing, and completed competitions across  the government. The agency plans to use the system to generate more  consistent and accurate statistics, including those on costs and related  savings. The importance of sharing information about human capital ASD  efforts has recently gained attention as a few agencies have signed large  contracts for human capital services. Legislation creating the CHCO  Council also highlighted the importance of this activity by detailing that  one of the responsibilities of the Council is to advise and coordinate agency  activities for improving the quality of human resources information.
section_title: Conclusions
paragraphs: Recent studies looking at private sector organizations suggest that ASD use  for human capital activities is being leveraged to achieve a variety of  strategic and tactical objectives within human capital offices. The range of  human capital activities and the reported objectives for the selected  agencies’ use of ASD indicated the same. Although more evaluation needs  to be done, the agencies’ use of ASD for activities such as strategic human  capital management and workforce planning showed that ASD provides  access to new skills, expertise, and technology that can facilitate  implementation of new human capital initiatives. Likewise, freeing human  capital staff from transactional and administrative tasks such as payroll  administration and training delivery pointed to cost savings and an  improved ability to focus on mission-critical activities.
Given its potential benefits, it appears that, similar to its use in the private  sector, the use of ASD for human capital activities will increase among  federal agencies. There currently is not, however, a widely shared body of  knowledge about federal agencies’ use of ASD for human capital activities.  By sharing experiences and lessons learned, agencies may be able to tap  into the benefits of using ASD while avoiding some of the problems.  Although OPM’s TMA program appears to help agencies manage their use  of ASD, OPM could supply another necessary link to the agencies by  providing comprehensive information about how to use ASD for human  capital activities. The CHCO Council could be an excellent vehicle to assist  in this area.
section_title: Recommendation for Executive Action
paragraphs: Given the need expressed by agency officials about the importance of  sharing data and lessons learned concerning the use of ASD for human  capital activities and consistent with OPM’s ongoing efforts in this regard,  we recommend that the Director of OPM take the following action:  Work with the CHCO Council to create additional capability within OPM  to research, compile, and analyze information on the effective and  innovative use of ASD and strengthen its role as a clearinghouse for  information about when, where, and how ASD is being used for human  capital activities and how ASD can be used to help agency human  capital offices meet their requirements. OPM should work with the  CHCO Council to disseminate the type of spending data that human  capital offices could use to leverage their buying power, reduce costs,  and provide better management and oversight of their ASD providers.  Such data would include the types of human capital services being  acquired, which ASD providers are being used for specific services, how  results are being measured, and how much is being spent on specific  ASD activities.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Director of OPM, the Secretary of  Agriculture, the Secretary of Defense, the Secretary of Energy, the  Secretary of Homeland Security, the Secretary of the Interior, the Chairman  of the International Trade Commission, and the Director of the Mint. We  received written comments from OPM and the Department of the Interior,  which are included in appendixes III and IV. OPM stated that the report  contained a good model for looking at human capital ASD use and that the  recommendation was consistent with the agency’s concern for human  capital contracting, for which OPM has the lead. OPM expressed concern,  however, that we had not addressed the role of its human capital officers in  helping agencies improve their human capital practices or how agencies  ensure that their ASD providers comply with regulatory and statutory  requirements. We did not assess the actions of the OPM human capital  officers because their role did not surface in our interviews with agency  officials about their use of ASD for human capital activities. Regarding the  concern of ensuring functions provided through ASD meet appropriate  federal regulatory and statutory requirements, we agree with OPM’s  concern and believe our recommendation can help address this important  issue OPM raises. In addition, the Department of the Interior suggested that  it would be helpful if GAO or OPM followed this report with a further study  that would examine the quality and value of various ASD products and  providers to allow for comparisons of similar services. We believe that our  recommendation will also help address this concern. Based on comments  from DOE that we received by e-mail, we clarified our definition of core  activities. DOE also suggested an alternative way to group human capital  activities. We believe that the framework is adequate for the discussion and  summary for which it was intended. The Department of Defense, USCG,  and USDA noted that they had no comments on the report. USITC and the  Mint had several technical comments that we incorporated.
As agreed with your offices, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 15 days after its  date. At that time, we will provide copies of this report to other interested  congressional parties, the Director of OPM, and the federal agencies and  offices discussed in this report. We will also make this report available at  no charge on the GAO Web site at http://www.gao.gov.
If you have any questions about this report, please contact me or William  Doherty on (202) 512-6806 or at mihmj@gao.gov or dohertyw@gao.gov.  Other contributers are acknowledged in appendix V.
section_title: Objectives, Scope, and Methodology
paragraphs: The objectives of this report were to  identify the human capital activities selected agencies are  accomplishing through the use of alternative service delivery (ASD)  options and the basis on which they decided to use it and   describe how the use of ASD is being managed and the lessons learned  by the selected agencies.
To address these objectives, we first synthesized information from a  literature review including articles, studies, and reports on the use of ASD  for human capital activities in both public and private sector organizations.  We also gathered information from a variety of sources, such as our past  work on agencies’ contracting efforts and other reports on federal  agencies’ use of ASD, to characterize the ASD options currently being used  by federal agencies to accomplish their human capital activities.
On the basis of this work, we identified a set of federal agencies varying in  size and mission that were using ASD for at least some of their human  capital activities. We consulted with human capital experts from George  Washington University, the National Academy of Public Administration,  and a private sector consultant for federal contract management to assess  whether they thought particular agencies in this set would yield examples  of ASD use for human capital activities. On the basis of their suggestions  and our previous research, we focused on ASD practices in eight federal  agencies: the Department of Energy (DOE), the Department of the  Interior’s U.S. Fish and Wildlife Service (FWS) and Minerals Management  Service (MMS), the National Geospatial-Intelligence Agency (NGA), the  U.S. Coast Guard (USCG), the U.S. Department of Agriculture’s (USDA)  headquarters, the U.S. International Trade Commission (USITC), and the  U.S. Mint’s headquarters. The agency selection process was not designed to  produce findings that could be considered representative of the use of ASD  for human capital activities in the federal government as a whole, but  rather to provide illustrative examples of how the selected agencies were  using ASD.
We conducted semistructured interviews with human capital officials from  the selected agencies to gather information on (1) the human capital  activities for which the agencies were using ASD, (2) the basis of their  decisions, (3) how they were managing the use of ASD, and (4) the lessons  they had learned. Some agencies provided documents such as final ASD  projects, project plans, interagency service agreements, and contracts,  which we reviewed. We did not verify the agencies’ cost savings estimates.  After reviewing and analyzing the agencies’ material and responses to our  interview questions, we developed a framework for organizing and  discussing their use of ASD for human capital activities. (See fig. 1.) As  shown in our framework, the activities are grouped into three overlapping  tiers based on whether the activity had more of a technical or a strategic  focus. We then identified the primary drivers and the primary ASD options  used for each tier. Our work was conducted from August 2003 through  February 2004 in accordance with generally accepted government auditing  standards.
section_title: Examples of Alternative Service Delivery Options Available to Federal Agencies for Accomplishing Human Capital Activities
paragraphs: Federal agencies have a variety of types of ASD options available to help  them accomplish their human capital activities. The options include  mechanisms that provide reimbursable services from one agency to  another and contracting with the private sector. Agencies also provide  reimbursable services that help other agencies gain access to private sector  contracts. The options listed below are some examples of ASD  mechanisms used by federal agencies to accomplish their human capital  activities.
subsections: section_title: Intragovernmental Revolving Fund Services
paragraphs: Intragovernmental revolving (IR) funds provide common support services  required by many federal agencies. An IR fund conducts continuing cycles  of businesslike activity within and between government agencies. It  charges for the sale of products or services and uses the collections to  finance its operations, usually without a requirement for annual  appropriations. Each IR fund is established by law. Generally, the specific  legal authorities creating IR funds authorize these funds to enter into  intragovernmental transactions and provide flexibility by allowing the  client agency’s fiscal year funds to remain obligated, even after the end of  the fiscal year, to pay for the goods or services when delivered.
One businesslike entity providing human capital services is the U.S.  Department of Agriculture’s National Finance Center (NFC) in New  Orleans. NFC provides a variety of other federal agencies with automated  information systems services for personnel, payroll, and voucher and  invoice payment systems and services.
section_title: Franchise Fund Services
paragraphs: The Government Management Reform Act of 1994 authorized the Office of  Management and Budget (OMB) to designate six franchise fund pilots to  provide common administrative services on a fully reimbursable basis.  Franchise funds are a type of intragovernmental revolving fund that were  created to be fully self-supporting competitive businesslike entities within  the federal government. The franchise fund pilots are located in the  Departments of Commerce, Health and Human Services, the Interior, the  Treasury, Veterans Affairs, and at the Environmental Protection Agency.  The six pilots provide a variety of common services, such as acquisition  management, financial management services, and employee assistance  programs. The legal authorities creating the franchise funds are similar to  those of other IR funds. However, most of the franchise funds have the  specific authority to carry over into the next fiscal year up to 4 percent of  the annual income of the fund for capital equipment and financial  management improvements. Most other IR funds do not have this authority.
The Treasury franchise fund service, for example, contains multiple  business units operating under the brand name FedSource. FedSource  offers various human capital services such as recruitment, employee  assistance, position classification, and alternative dispute resolution  through contracts with multiple vendors experienced in providing human  capital services in the federal sector.
section_title: Cooperative Administrative Support Unit Services
paragraphs: Cooperative administrative support units (CASU) have provided services  since 1986 and most operate under the authority of the Economy Act of  1932 as amended. CASUs are entrepreneurial organizations that provide  the full range of support services on a reimbursable basis to federal  agencies. Federal agencies in a local community identify services that they  would like to share under the leadership of one or more host agencies. The  host agency is reimbursed for all costs incurred in providing the services to  customer agencies. Several CASUs provide services in conjunction with a  franchise fund and operate under the authority of the franchise fund, which  allows them to make use of provisions more expansive than those of the  Economy Act, including permitting the customer agency’s fiscal year funds  to remain obligated to pay for services when delivered, even after the end  of the fiscal year.
The Southeast Regional CASU (SER-CASU) is an example of a chartered  unit within the National CASU Network. SER-CASU offers human capital  services, such as employee assistance program support and training  services.
section_title: Interagency Contract Service Programs
paragraphs: Federal agencies also use fee-for-service interagency contract service  programs. The programs are being used in a wide variety of situations, from  those in which a single agency provides limited contracting assistance to an  all-inclusive approach in which the provider agency’s contracting office  handles all aspects of the procurement. The increased use of interagency  contract service programs has come about as a result of reforms and  legislation passed in the 1990s, which allowed agencies to streamline the  acquisition process, operate more like businesses, and offer increasing  types of services to other agencies.
The Office of Personnel Management’s Training and Management  Assistance (TMA) program is an example of an interagency contract  service program. The TMA program operates under the IR fund established  by 5 U.S.C. § 1304(e). It is an expedited contracting process for federal  agencies seeking human capital management and development in areas  such as knowledge management, training, and workforce planning. For a  fee, clients access project managers, technology, and prequalified  contractors with the intended result of time and cost savings compared to  the agency undertaking its own procurement actions.
section_title: Contracting for Services
paragraphs: Contracting can be defined as the hiring of private sector firms or nonprofit  organizations to provide a good or service for the government. In contrast  to the use of IR funds, CASUs, and interagency contract service programs,  the agency uses its own contracting authority to enter into a contract with a  company and manages the contract.
For example, the Department of Homeland Security has awarded a  contract to a company to help design a human capital strategic plan, which  would assist the department in aligning its human capital requirements  with its mission needs.
section_title: Partnerships
paragraphs: Partnerships can be defined as voluntary alliances with other  organizations. They do not necessarily involve the exchange of funds. For  example, the Census Bureau’s Partnership and Data Services program  continues and expands upon more than 140,000 organizational  partnerships established during Census 2000. During the census, the  Bureau relied on its extensive network of partners at the national, state,  and local levels to help recruit employees for more than half a million  temporary jobs.
section_title: Comments from the Office of Personnel Management
section_title: Comments from the Department of the Interior
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: Judith Kordahl and Caroline Villanueva also made key contributions to this  report.
section_title: GAO’s Mission
paragraphs: The General Accounting Office, the audit, evaluation and investigative arm of  Congress, exists to support Congress in meeting its constitutional  responsibilities and to help improve the performance and accountability of the  federal government for the American people. GAO examines the use of public  funds; evaluates federal programs and policies; and provides analyses,  recommendations, and other assistance to help Congress make informed  oversight, policy, and funding decisions. GAO’s commitment to good government  is reflected in its core values of accountability, integrity, and reliability.
section_title: Obtaining Copies of GAO Reports and Testimony
paragraphs: The fastest and easiest way to obtain copies of GAO documents at no cost is  through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older  products. The Web site features a search engine to help you locate documents  using key words and phrases. You can print these documents in their entirety,  including charts and other graphics.
Each day, GAO issues a list of newly released reports, testimony, and  correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site  daily. The list contains links to the full-text document files. To have GAO e-mail  this list to you every afternoon, go to www.gao.gov and select “Subscribe to   e-mail alerts” under the “Order GAO Products” heading.
subsections: section_title: Order by Mail or Phone
section_title: To Report Fraud, Waste, and Abuse in Federal Programs
section_title: Public Affairs