Competitive Sourcing:

Greater Emphasis Needed on Increasing Efficiency and Improving Performance

GAO-04-367: Published: Feb 27, 2004. Publicly Released: Feb 27, 2004.

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In August 2001, the administration announced competitive sourcing as one of five initiatives in the President's Management Agenda. Under competitive sourcing, federal agencies open their commercial activities to competition among public and private sector sources. While competitive sourcing is expected to encourage innovation and improve efficiency and performance, it represents a major management change for most agencies. This report describes the progress selected agencies have made in establishing a competitive sourcing program, identifies major challenges these agencies are facing, and discusses strategies they are using to select activities for competition.

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

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On May 23, 2005, OMB released revised guidance for the workforce inventory submission process that explains how agencies can best apply classifications, such as inherently governmental, commercial or commercial-suitable for competition, to functions performed by the workforce. The guidance, OMB Memorandum M-05-12, also clarifies how to classify positions with a mix of commercial and inherently governmental tasks. It states that, except in rare instances, a position should be assigned a single function code based on the preponderance of work performed. When evaluating functions for purposes of assigning status or reason code in the inventory, the position should be categorized based on the work actually performed as part of regular duties, not based on titles or certifications. OMB worked with the Chief Acquisition Officers and agency competitive sourcing officials to revise this guidance and ensure consistency of application.

    Recommendation: To complement efforts already underway that address funding and human capital challenges and to help agencies realize the potential benefits of competitive sourcing and ensure greater transparency and accountability, the Director of OMB should ensure greater consistency in the classification of positions as commercial or inherently governmental when positions contain a mix of commercial and inherently governmental tasks by reviewing current guidance and developing additional guidelines, as necessary, for agencies and OMB examiners.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Implemented

    Comments: OMB has taken steps to address this recommendation, as cited in its annual report to Congress on competitive sourcing efforts required by section 647(b) of the Transportation, Treasury, and Independent Agencies Appropriations Act, Fiscal Year 2004, Division F of the Consolidated Appropriations Act of 2004. OMB reports that it is working with agencies to ensure that they are more strategic in their competitive sourcing efforts. In addition, on February 20, 2004, the Federal Acquisition Council issued its second edition of Manager's Guide to Competitive Sourcing. This guidance identifies key factors to consider in grouping functions for competition and states that grouping by function or geographical location enables larger and therefore potentially more attractive competitions. The guidance also notes that in the long-term, as the number of positions available for competition decreases, the application and use of function codes may need to be standardized across departments.

    Recommendation: To complement efforts already underway that address funding and human capital challenges and to help agencies realize the potential benefits of competitive sourcing and ensure greater transparency and accountability, the Director of OMB should work with agencies to ensure they are more strategic in their sourcing decisions and are identifying broader functional areas and/or enterprisewide activities, as appropriate, for possible public-private competition.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  3. Status: Closed - Implemented

    Comments: OMB has taken steps to address this recommendation, as cited in its annual report to Congress on competitive sourcing efforts required by section 647(b) of the Transportation, Treasury, and Independent Agencies Appropriations Act, Fiscal Year 2004, Division F of the Consolidated Appropriations Act of 2004. OMB reports that it has asked agencies to develop long-term plans to apply competition in a strategic manner. As part of these plans, OMB is requesting agencies to explain how functions are being selected for competition. The report notes that effective planning and strategic grouping of activities increases the likelihood that agencies will focus on activities that offer measurable efficiency and performance improvements.

    Recommendation: To complement efforts already underway that address funding and human capital challenges and to help agencies realize the potential benefits of competitive sourcing and ensure greater transparency and accountability, the Director of OMB should require agencies to develop competition plans that focus on achieving measurable efficiency and performance improvement outcomes.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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