Since 1955, the executive branch has encouraged federal agencies to obtain commercially available goods and services from the private sector when the agencies determine that such action is cost-effective. OMB formalized the policy in its Circular A-76, issued in 1966. In 1979, OMB supplemented the circular with a handbook that included procedures for competitively determining whether commercial activities should be performed in-house, by another federal agency through an interservice support agreement, or by the private sector. OMB has updated this handbook several times. Under A-76, commercial activities may be converted to or from contractor performance either by direct conversion or by cost comparison. Under direct conversion, specific conditions allow commercial activities to be moved from government or contract performance without a cost comparison study (e.g., for activities involving 10 or fewer civilians). Generally, however, commercial functions are to be converted to or from contract performance by cost comparison, where the estimated cost of government performance of a commercial activity is compared with the cost of contractor performance in accordance with the principles and procedures set forth in Circular A-76 and the revised supplemental handbook. As part of this process, the government identifies the work to be performed (described in the performance work statement), prepares an in-house cost estimate on the basis of its most efficient organization, and compares it with the winning offer from the private sector. According to A-76 guidance, an activity should not be moved from one sector to the other (whether public to private or vice versa) unless doing so would save at least $10 million or 10 percent of the personnel costs of the in-house performance (whichever is less). OMB established this minimum cost differential to ensure that the government would not convert performance for marginal savings. The handbook also provides an administrative appeals process. An eligible appellant must submit an appeal to the agency in writing within 20 days of the date that all supporting documentation is made publicly available. Appeals are supposed to be adjudicated within 30 days after they are received. Private-sector offerors who believe that the agency has not complied with applicable procedures have additional avenues of appeal. They may file a bid protest with GAO or file an action in court. Circular A-76 requires agencies to maintain annual inventories of commercial activities performed in-house. A similar requirement was included in the Federal Activities Inventory Reform (FAIR) Act of 1998, which directs agencies to develop annual inventories of their positions that are not inherently governmental. The fiscal year 2001 inventory identified approximately 841,000 full-time equivalent commercial-type positions governmentwide, of which approximately 413,000 were in the Department of Defense (DOD). DOD has been the leader among federal agencies in recent years in its use of OMB Circular A-76; the circular’s use by other agencies has been very limited. However, in 2001, OMB signaled its intention to direct greater use of the circular on a government-wide basis. In a March 9, 2001, memorandum, OMB directed agencies to take action in fiscal year 2002 to directly convert or complete public-private competitions of not less than 5 percent of the full-time equivalent positions listed in their FAIR Act inventories. Subsequent guidance expanded the requirement to 15 percent by fiscal year 2003, with the ultimate goal of competing at least 50 percent. Although comprising a relatively small portion of the government’s overall service contracting activity, competitive sourcing under Circular A-76 has been the subject of much controversy because of concerns about the process raised both by the public and private sectors. Federal managers and others have been concerned about the organizational turbulence that typically follows the announcement of A-76 studies. Government workers have been concerned about the impact of competition on their jobs, the opportunity for input into the process, and the lack of parity with industry offerors to protest A-76 decisions. Industry representatives have complained about unfairness in the process and the lack of a level playing field between the government and the private sector in accounting for costs. Concerns have also been raised about the adequacy of the oversight of subsequent performance, whether the work is being performed by the public or private sector. Amid these concerns over the A-76 process, the Congress enacted section 832 of the National Defense Authorization Act, Fiscal Year 2001. The act required the Comptroller General to convene a panel of experts to study the policies and procedures governing the transfer of commercial activities for the federal government from government to contactor personnel. The act also required the Comptroller General to appoint highly qualified and knowledgeable persons to serve on the panel and ensure that the following entities received fair representation on the panel: DOD Persons in private industry Federal labor organizations OMB Appendix I lists the names of the Panel members. The legislation mandating the Panel’s creation required that the Panel complete its work and report the results of its study to the Congress no later than May 1, 2002. The Panel’s report was published on April 30, 2002. In establishing the Panel, a number of steps were taken to ensure representation from all major stakeholders as well as to ensure a fair and balanced process. This began with my selection of Panel members, which was then followed by the Panel’s establishment of a process to guide its work. To ensure a broad array of views on the Panel, we used a Federal Register notice to seek suggestions on the Panel’s composition. On the basis of the suggestions received in response to that notice, as well as the need to include the broad representation outlined in legislation, I personally interviewed potential panel members. I believe that we selected a group of outstanding individuals representative of diverse interest groups from the public and private sectors, labor unions, and academia with experience in dealing with sourcing decisions at both the federal and local government levels. Once convened, the Panel, as a group, took a number of steps at the outset to guide its deliberations and ensure a full and balanced consideration of the issues. The first step was the adoption of the following mission statement: Mission of the Commercial Activities Panel The mission of the Commercial Activities Panel is to improve the current sourcing framework and processes so that they reflect a balance among taxpayer interests, government needs, employee rights, and contractor concerns. The Panel also agreed that all of its findings and recommendations would require the agreement of at least a two-thirds supermajority of the Panel in order to be adopted. The Panel further decided that each Panel member would have the option of having a brief statement included in the report explaining the member’s position on the matters considered by the Panel. In addition to the Federal Register notice soliciting input on issues to be considered by the Panel, the Panel held 11 meetings over the period of May 2001 to March 2002. Three of these were public hearings in Washington, D.C.; Indianapolis, Indiana; and San Antonio, Texas. In the public hearings, Panel members heard testimony from scores of representatives of the public and private sectors, state and local governments, unions, contractors, academia, and others. Panelists heard first-hand about the current process, primarily the cost comparison process conducted under OMB Circular A-76, as well as alternatives to that process. Appendix II provides more detail on the topics and concerns raised at the public hearings. The Panel also maintained an E-mail account to receive written comments from any source. After the completion of the field hearings, the Panel members met in executive session several times, augmented between meetings by the work of staff to help them (1) gather background information on sourcing trends and challenges, (2) identify sourcing principles and criteria, (3) consider A-76 and other sourcing processes to assess what works and what does not, and (4) assess alternatives to the current sourcing processes. As the Panel began its work, it recognized the need for a set of principles that would provide a framework for sourcing decisions. Those principles, as they were debated and fleshed out, provided an important vehicle for assessing what does or does not work in the current A-76 process, and provided a framework for identifying needed changes in the process. The Panel coalesced around a set of sourcing principles. The principles helped frame the Panel’s deliberations and became a reference point for the Panel’s work. Moreover, the principles were unanimously adopted by the Panel and included as part of the Panel’s recommendations. While each principle is important, no single principle stands alone, and several are interrelated. Therefore, the Panel adopted the principles and their accompanying narrative comments as a package and then used these principles to assess the government’s existing sourcing system and to develop additional Panel recommendations. The Panel believes that federal sourcing policy should: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 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 and certain other functions should be performed by federal workers. Create incentives and processes to foster high-performing, efficient, and effective organizations throughout the federal government. Be based on a clear, transparent, and consistently applied process. Avoid arbitrary full-time equivalent or other arbitrary numerical goals. Establish a process that, for activities that may be performed by either the public or the private sector, would permit public and private sources to participate in competitions for work currently performed in-house, work currently contracted to the private sector, and new work, consistent with these guiding principles. Ensure that, when competitions are held, they are conducted as fairly, effectively, and efficiently as possible. Ensure that competitions involve a process that considers both quality and cost factors. Provide for accountability in connection with all sourcing decisions. The principles and their accompanying commentary are included in their entirety in appendix III. During our deliberations, the Panel noted that there are some advantages to the current A-76 system.