Federal agencies rely on a mix of public and private sector sources to perform a wide variety of commercial activities, such as information technology, building maintenance, property management, and logistics. Competitive sourcing is the term used to describe the strategy under which agencies use competitions between public and private sector organizations to identify the most cost-effective provider of commercial activities. In 2001 and 2002, the Comptroller General convened a Commercial Activities Panel to study the policies and procedures governing competitive sourcing. This panel included officials from federal agencies, federal labor unions, and private industry. The panel unanimously approved a set of 10 principles (see sidebar), and a supermajority of two-thirds of the panel members adopted an additional set of recommendations that they believed would significantly improve the government’s policies and procedures for making competitive sourcing decisions. tht me performed y either the public or the privte ector, wold permit public nd privte rce to prticipte in competition for work crrently performed in-house, work crrently contrcted to the privte ector, nd new work, content with thee principle. dollars by taking advantage of competitive forces. Further, in July 2008, OMB issued a memorandum on commercial services management recognizing that agencies should improve the operation of their commercial functions using a variety of techniques—such as business process re-engineering efforts and strengthened oversight of contractors— in addition to competitive sourcing. Inherently governmental activities Fnction thre o intimtely relted to the public interet tht they reqire performnce y federl government employee. Thee fnction normlly fll into two ctegorie: the exercie of overeign government authority or the eablihment of procedre nd process relted to the overight of monetry trsaction or entitlement. The first step in the competitive sourcing process is for agencies to determine which activities are suitable for competition. In accordance with the Federal Activities Inventory Reform Act of 1998 (FAIR Act) and OMB Circular No. A-76, federal agencies categorize all of the activities performed by their employees as either inherently governmental (not subject to competitive sourcing) or commercial (potentially subject to competitive sourcing). OMB Circular No. A-76 then directs agencies to further categorize their commercial activities according to six “reason codes,” with only one code signifying suitability for competitive sourcing that year. Agencies are allowed considerable discretion in how they categorize their activities, subject to review by OMB. Once the annual inventory is complete, agencies then select which activities will be competed and begin planning the associated competitions. In this stage, agencies separate the selected activities into groups and develop a full description of each group—called a “statement of work”—that will serve as a guide to potential bidders on what will be required by the final contracts or letters of obligation. Agencies also develop quality assurance plans and cost estimates to be used as standards against which to evaluate the performance of the winning service provider and the cost savings achieved by the competition. agencies also develop an in-house bid, or “tender,” under which agency employees will perform the work if the in-house government bid wins the competition. The staffing plan identified in the in-house agency bid is referred to as a “most efficient organization” (MEO). The MEO is not usually a representation of the incumbent organizational structure “as is,” but more commonly, it reflects a smaller, restructured version of the incumbent government organization doing the work. A streamlined competition implified competition process tht mused with ctivitie of 65 or fewer FTE, reqiring less ly nd docmenttion th ndrd competition. In-housid for tremlined competitionbased on the incent “as” orgniztion, bugencie re encoged to develop more efficient orgniztion. Generally, the lowest cost provider that is technically acceptable is awarded the contract, but factors other than cost may be considered in some circumstances. If a contractor (private sector service provider) wins the competition, certain federal worker protections are required, such as the right to “first refusal” in which the private sector service provider winning the competition generally must first offer any new employment openings under the contract to qualified government employees who were (or who will be) adversely affected as a result of the awarding of the contract. If the in-house government service provider wins the competition, other federal worker protections apply, such as those governing grade and salary retention rights. competitive process to used when more thn 65 FTE re involved (but mused when fewer thn 65 re involved). Bid re reqired to inclde quality control pl, nd gencie re reqired to develop pl to measure the winning ervice provider’ performnce. In-housid for ndrd competition re to inclde mot efficient orgniztion (MEO) nd more detiled ly nd docmenttion thfor tremlined competition. Once the competition is complete and the letter of obligation or contract is awarded, agencies are required to monitor the performance of the winning service provider on an ongoing basis and must report findings to both Congress and OMB, regardless of whether the winner is the in-house government service provider or a private sector service provider. For example, federal law requires agencies to submit annual reports to Congress on competitions announced and completed. In addition, OMB Circular No. A-76 and other guidance directs agencies to monitor postcompetition performance of the winning service provider and to track the actual costs of the performance. (See appendix III for more details.) Within DOL, the Office of Asset and Resource Management is responsible for planning and conducting the FAIR Act inventories of commercial and inherently governmental activities. It is also responsible for managing DOL’s competitive sourcing program, including the planning, monitoring, and evaluation of potential opportunities to improve effective and efficient program delivery at DOL. For example, this office coordinates the PCAR for each competition. According to DOL policy and procedures, an initial PCAR is normally conducted by an independent review official after the first full year of performance following a competition, with annual PCARs thereafter for the duration of the contract, in order to meet formal review and inspection requirements in OMB Circular No. A-76 and the Federal Acquisition Regulation. The competition process at DOL is illustrated in figure 1. Beginning in fiscal year 2004, DOL’s strategy for identifying and selecting work activities for competitive sourcing competitions involved starting out small in scope and gradually expanding its efforts over time. DOL’s first competitions in fiscal year 2004 involved mostly small groups of FTEs within a single DOL office (see table 1). By fiscal year 2007, DOL had expanded its public-private competitions to include functions involving a greater number of FTEs across multiple DOL offices. In addition, the number of private sector bids decreased over time. For a complete listing of DOL’s fiscal year 2004 through 2007 competitive sourcing competitions, see appendix V. DOL has made progress developing a system to assess the performance of winning service providers in its competitive sourcing program. DOL’s system, as outlined in its policy and procedures issued in 2005, directs DOL offices to ensure that (1) records are maintained for independent review of the competition, (2) all assessments contain criteria to measure performance, and (3) lessons learned are reported. In our review of all assessments conducted as of July 2008, we found that these policies and procedures generally were followed and that these assessments provide key information for DOL policymakers to evaluate the effectiveness of its competitive sourcing program. However, we found that DOL lacks a departmentwide process for tracking and addressing deficiencies and recommendations for improvement. In 2005, DOL issued policy and procedures for conducting PCARs—DOL’s system for monitoring performance in accordance with OMB Circular No. A-76 and the Federal Acquisition Regulation. We examined all of DOL’s initial PCARs completed as of July 2008 (18 total), and we found that DOL’s policy and procedures generally were followed in conducting the reviews. Most initial PCARs were completed in a timely manner and most records were maintained for review. Criteria to measure performance were established for half of the competitions, and the majority of initial PCARs included lessons learned. According to DOL policy and procedures and DOL officials, initial PCARs are normally conducted approximately 1 year after the first full year of performance for each competition. As of July 2008, we found that DOL had completed 18 of these reviews, based on the 21 competitions that were completed during fiscal years 2004 through 2006. Of the 3 competitions that did not have an initial PCAR, one case involved a fiscal year 2005 competition that, according to DOL officials, had been delayed in implementation. The initial PCAR for this competition was later completed in September 2008. The second case was DOL’s very first fiscal year 2004 competition to be won by a private sector service provider, and at the time, DOL had not yet issued the policy and procedures for conducting PCARs. In the last case, the contract was terminated a few months before the initial PCAR was expected to be completed. In addition to calling for initial PCARs, DOL’s policy also calls for annual PCARs thereafter. As of August 2008, we found that DOL had completed two annual follow-up reviews of the 14 cases where 1 year or more had elapsed since the initial PCAR. In 4 cases, implementation of the competitions had been terminated. In the remaining 10 cases, the follow- up reviews were still pending; in 6 cases, 2 or 3 years had elapsed since the initial PCAR was completed. A senior DOL official explained that DOL interpreted OMB guidance as calling for follow-up reviews only for certain standard competitions.