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October 3, 2003:

The Honorable George V. Voinovich:

Chairman:

The Honorable Richard J. Durbin:

Ranking Member:

Subcommittee on Oversight of Government Management, the Federal 
Workforce, and the District of Columbia:

Committee on Governmental Affairs:

United States Senate:

Subject: Questions for Competitive Sourcing Hearing Record:

It was a pleasure to appear before the subcommittee on July 24, 2003, 
to discuss various competitive sourcing issues, including the recent 
revisions made by the Office of Management and Budget (OMB) to its 
Circular A-76. This letter responds to your request for my views on the 
following questions for the record:

The revised OMB Circular A-76 makes "best value" instead of "lowest 
cost" the factor that agencies must use in determining who will win a 
public-private competition. Some have alleged that this change is 
simply an effort to ensure that more private contractors win 
competitions. How do you see agencies benefiting from the change? How 
much of a factor do you see cost playing in determining which bidder is 
offering an agency the "best value?":

For many years, federal agencies conducting negotiated procurements 
under the Federal Acquisition Regulation (FAR) routinely have traded 
off cost and non-cost factors in making contract award decisions. The 
tradeoff process is often called "best value." Among the most common 
non-cost factors, all of which are required to be identified in the 
solicitation, are the contractor's technical approach, past 
performance, and management plan. Tradeoffs reflect a widespread 
practice used by other governments (state, local, and foreign) as well 
as by the private sector.

The tradeoff process moves the federal government past the "low bid" 
mentality of the past, with increasing consideration of factors such as 
quality and past performance. It entrusts federal employees acting as 
source selection officials with the authority to use their judgment in 
selecting among proposals offered. While concern sometimes has been 
expressed that the tradeoff process allows source selection officials 
very broad discretion, that discretion has boundaries. An award 
decision must comply with pre-established evaluation criteria, and is 
subject to challenge if it appears it did not. In this regard, GAO 
considers bid protests challenging the way tradeoffs are conducted, and 
sustains protests where the process was unfair, unreasonable, or 
inconsistent with the terms of a solicitation.

The previous version of OMB Circular A-76 allowed the use of a "best 
value" tradeoff selection process among private-sector proposals. The 
process created in the March 1996 revisions to the Circular A-76 
Supplemental Handbook endeavored to capture the benefits of the 
tradeoff process, while maintaining the perceived objectivity of a 
cost-only selection.

Under the new Circular A-76 issued in May, federal agencies will be 
able to use tradeoffs only under certain conditions. Under the terms of 
the new Circular, a tradeoff source selection is allowed in a standard 
competition for (a) information technology activities, (b) commercial 
activities performed by a private sector source, (c) new requirements, 
or (d) certain expansions of current work. An agency also may use a 
tradeoff source selection process for a specific standard competition 
if, prior to the public announcement of the competition, the agency's 
Competitive Sourcing Official approves use of the process in writing 
and notifies OMB.

The extent to which cost in tradeoff decisions will be a significant 
factor under the new Circular is unknown. But while the role of cost is 
important it must be balanced with the government's ability to obtain 
the technical capability and quality it needs to meet mission 
requirements. As I testified before the Subcommittee, although cost is 
important, it is not everything.

:

Part of the administration's goal in revising A-76 was to increase the 
amount of work submitted to public-private competition. If that 
happens, are agencies capable of effectively managing competitions and 
overseeing contracts? If not, what level of resources will we need to 
dedicate to bolstering agency contracting offices? Should that effort 
have come before we revised A-76?

Agencies will face significant challenges in managing their competitive 
sourcing programs, and will be doing so while addressing high-risk 
areas, such as human capital and contract management. In this regard, 
GAO has listed contract management at the National Aeronautics and 
Space Administration and the Departments of Housing and Urban 
Development, Defense and Energy as high-risk areas. With a likely 
increase in the number of public-private competitions and the 
requirement to hold accountable whichever sector wins, agencies will 
need to ensure that they have an acquisition workforce sufficient in 
numbers and abilities to administer and oversee these arrangements 
effectively.

Conducting fair, effective and efficient competitions requires 
sufficient agency capacity--that is, a skilled workforce and adequate 
infrastructure and funding. Agencies will need to build and maintain 
capacity to manage competitions, to prepare the in-house most effective 
organization (MEO), and to oversee the work--regardless of whether the 
private sector or the MEO is selected. While the level of resources 
needed will vary among the agencies, building and maintaining this 
capacity will likely be a challenge for many agencies, particularly 
those that have not been heavily invested in competitive sourcing 
previously. As I mentioned during the hearing, establishing a 
government-wide fund at OMB that agencies could access based on a sound 
business case would help to assure that the new process is both 
efficient and fair.

The administration has said in the past that the 12-month time limit 
placed on competitions in the revised OMB Circular A-76 should be 
sufficient if agencies plan properly before the competition begins. 
However, most competitions conducted under the old rules took much 
longer than 12 months, often twice as long. Do you think the time 
limits are appropriate? In your estimation, how much of the time taken 
to conduct competitions in the past was used to do things that you 
believe could be handled before the competition begins?

A major challenge agencies will face will be meeting the 12-month limit 
for completing the standard competition process in the new Circular. 
This provision is intended to respond to complaints from all sides 
about the length of time historically taken to conduct A-76 cost 
comparisons--complaints that the Commercial Activities Panel 
repeatedly heard in the course of its review. OMB's new Circular states 
that standard competitions shall not exceed 12 months from the public 
announcement (start date) to performance decision (end date). Under 
certain conditions, there may be extensions of no more than 6 months. 
The new Circular also states that agencies shall complete certain 
preliminary planning steps before a pubic announcement. These steps 
are:

Determining the activities and full time equivalent (FTE) positions to 
be competed.

Conducting preliminary research to determine the appropriate grouping 
of activities as business units to be consistent with market and 
industry structures.

Assessing the availability of workload data and data collection 
systems.

Determining the activity baseline costs as performed by the incumbent.

Determining whether a streamlined or standard competition will be used.

Developing preliminary competition and completion schedules.

Determining the roles, responsibilities, and availability of 
participants in the process.

Appointing competition officials (agency tender official, contracting 
officer, performance work statement team leader, human resource advisor 
and source selection authority).

Informing any incumbent service providers of the date of the public 
announcement.

We welcome efforts to reduce the time required to complete these 
studies. Even so, our studies of competitive sourcing at the Department 
of Defense (DOD) have found that competitions can take much longer than 
the time frames outlined in the new Circular. Specifically, recent DOD 
data indicate that competitions take on average 25 months. It is not 
clear how much of this time was needed for any planning activities that 
may now be done outside the revised Circular's 12-month time frame. It 
appears, however, that a significant amount of the process--developing 
the performance work statement, preparing the agency tender offer and 
most efficient organization, and conducting the source selection 
process--still needs to be done within the 12-month time limit.

In commenting on OMB's November 2002 draft proposal, we recommended 
that the time frame be extended to perhaps 15 to 18 months overall, and 
that OMB ensure that agencies provide sufficient resources to comply 
with the Circular. As such, we believe that additional financial and 
technical support and incentives will be needed for agencies as they 
attempt to meet the ambitious 12-month time frame. In this regard, we 
believe that implementation of the government-wide fund approach noted 
in my response to the prior question would help to assure that the 
needed resources are available.

I look forward to working with you on these and other issues in the 
future. If you have any further questions or would like to discuss any 
of the issues in more detail, please call me at (202) 512-5500; or Bill 
Woods, Director, Acquisition and Sourcing Management at (202) 512-8214.

Sincerely yours,

David M. Walker:

Comptroller General of the United States:

Signed by David M. Walker:

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