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. 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. 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. 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. 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. 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.