FedGovContracts.com

Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: May 1, 2002

SUBJECT: General Accounting Office; Commercial Activities Panel Final Report

SOURCE: General Accounting Office Website (http://www.gao.gov), April 30, 2002

AGENCIES: General Accounting Office (GAO)

ACTION: Final Report

SYNOPSIS: The Commercial Activities Panel, which was required by Section 832 of the Fiscal Year 2001 National Defense Authorization Act (Public Law 106-398) to study the transfer of commercial activities currently performed by government employees to federal contractors (a procedure commonly known as "contracting out" or "outsourcing"), has issued its final report, "Improving the Sourcing Decisions of the Government." The panel recommends that the government adopt a procedure based on the Federal Acquisition Regulation (FAR) Part 15, Contracting by Negotiation.

EDITOR'S NOTES: An executive summary of the report is available at http://www.gao.gov/a76panel/dcap0202.pdf. The full report is available at http://www.gao.gov/a76panel/dcap0201.pdf.

"Contracting out," or "outsourcing," is governed by Office of Management and Budget (OMB) Circular A-76, Performance of Commercial Activities. OMB Circular A-76, its Revised Supplemental Handbook, and currently applicable Transmittal Memoranda are available at http://www.whitehouse.gov/omb/circulars/index.html.

For more on the Commercial Activities Panel, see the following FEDERAL CONTRACTS DISPATCHES: March 23, 2001,"General Accounting Office; Commercial Activities Panel"; April 17, 2001, "General Accounting Office; Commercial Activities Panel Named"; May 23, 2001, "General Accounting Office; Commercial Activities Panel Meeting Announced"; and July 11, 2001, "General Accounting Office; Commercial Activities Panel Hearings Announced."

SUPPLEMENTAL INFORMATION: Section 832 of the Fiscal Year 2001 National Defense Authorization Act (Public Law 106-398) required the Comptroller General of the United States (the head of the GAO) to convene a panel of experts to study the policies and procedures governing the transfer of commercial activities for the federal government from government personnel to a federal contractor. Section 832 required the Comptroller General to submit to Congress, by May 1, 2002, a report of the panel on the results of the study, including recommended changes with regard to implementing policies and enactment of legislation.

On April 17, 2001, the GAO announced the names of the 12 panelists from the government, private industry, federal labor organizations, and academia. The panel held three public hearings and heard the views of interested parties on the current process issues, and it reviewed existing literature on outsourcing issues. The panel decided that all of its findings and recommendations would require the agreement of at least two-thirds of the 12 panelists.

On April 30, 2002, the panel released its final report with its recommendations. The panel unanimously adopted the following ten guiding principles as the basis for all sourcing decisions:

1. Support agency missions, goals, and objectives.
2. Be consistent with human capital practices designed to attract, motivate, retain, and reward a high-performing federal workforce.
3. Recognize that inherently governmental and certain other functions should be performed by federal workers.
4. Create incentives and processes to foster high-performing, efficient, and effective organizations throughout the federal government.
5. Be based on a clear, transparent, and consistently applied process.
6. Avoid arbitrary full-time equivalent (FTE) or other arbitrary numerical goals.
7. 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.
8. Ensure that, when competitions are held, they are conducted as fairly, effectively, and efficiently as possible.
9. Ensure that competitions involve a process that considers both quality and cost factors.
10. Provide for accountability in connection with all sourcing decisions.

After unanimously approving these ten guiding principles, the panel split 8-4 on the other three recommendations, with government and private industry representatives in the majority and federal employee organizations and academia representatives in the minority.

The other three recommendations are:

• Integrated Competition Process: "The Panel believes that all parties -- taxpayers, agencies, employees, and contractors -- would be better served by conducting public-private competitions under the framework of the FAR, while using appropriate elements of the current A-76 process. In essence, a public-sector proposal could be submitted in response to a broad range of agency solicitations, including in appropriate cases, work currently contracted out and new work, and have the proposal evaluated under the same rules that apply to proposals from private-sector offerors...This and perhaps other aspects of the integrated competition process would require changes to current law or regulations, and the Panel urges the Congress and the administration to begin work immediately toward that end."
  
  
• Limited Changes to Circular A-76: "Development of an integrated FAR-type process will require some time to be implemented. In the meantime, the Panel expects current A-76 activities to continue, and therefore believes some modifications to the existing process can and should be made. Accordingly, the Panel recommends a number of limited changes to OMB Circular A-76. These changes would, among other things, strengthen conflict of interest rules, improve auditing and cost accounting, and provide for binding performance agreements."
  
  
• High-Performing Organizations: "The Panel recommends that the Administration develop a process to be used to select a limited number of functions currently performed by federal employees to become high-performing organizations (HPOs), and then evaluate their performance. As to those functions, authorized HPOs would be exempt from competitive sourcing studies for a designated period of time...Successful implementation of the HPO concept will require a high degree of cooperation between labor and management, as well as a firm commitment by agencies to provide sufficient resources for training and technical assistance. In addition, a portion of any savings realized by the HPO should be available to reinvest in continuing reengineering efforts and for the HPO to use for further training and/or for incentive purposes."

While many of the panel's recommendations can be accomplished administratively under existing law, the panel recognizes that some of its recommendations would require changes to statutes and regulations, and this could take some time. Therefore, the panel is recommending that the following phased implementation strategy be implemented:

• A-76 studies underway or initiated in the near future should continue under the current framework.
  
  
• OMB should develop and oversee the implementation of the FAR-type, integrated competition process. To expedite the process, OMB may want to limit the new process initially to agencies where its use would not required legislation (for example, the Department of Defense is subject to statutory provisions that do not apply to civilian agencies). The panel recommends that "the integrated competition process be used in a variety of agencies and in meaningful numbers across a broad range of activities, including those currently performed by federal employees, work currently performed by contractors, and new work."
  
  
• Within one year of initial implementation of the new process, and one year after that, OMB should submit a detailed report to Congress identifying the costs of implementing the new process, any savings expected to be achieved, expected gains in efficiency or effectiveness of agency programs, the effect on federal employees, any lessons learned, and any recommendations for appropriate legislation. In addition, the GAO should provide its own assessment to Congress. Congress would then be in a position to determine the need for any additional legislation.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

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