CAP panel members

David Walker, Comptroller General, Chairman

E.C. 'Pete' Aldridge Jr., Undersecretary of Defense for acquisition, technology and logistics at the Defense Department

Frank Camm Jr., a Senior Analyst at Rand Corp. of Santa Monica, Calif., who provides analysis on logistics services to the Air Force

Mark Filteau, President of Johnson Controls World Services Inc. of Washington, a federal contractor

Stephen Goldsmith, Senior Vice Ppresident of Affiliated Computer Services of Washington and a former adviser on domestic policy to President George W. Bush

Bobby Harnage, President of the American Federation of Government Employees, AFL-CIO

Kay Coles James, Director of the Office of Personnel Management

Colleen Kelley, President of the National Treasury Employees Union

David Pryor, Director of the Institute of Politics at Harvard and former Democratic senator from Arkansas

Members of the Commercial Activities Panel made their case at a hearing of the House Armed Services Subcommittee on Military Readiness. From left, Robert Tobias, Mark Filteau, Bobby Harnage, Michael Wynn, Angela Styles and David Walker.

Henrik G. DeGyor

NTEU's Colleen Kelley says that a FAR approach puts government employees at a disadvantage.

Stan Soloway, president of the Professional Services Council, voted with the majority of the CAP in support of a FAR-based approach.

Rep. Joel Hefley (R-Colo.), chairman of the House Armed Services Subcommittee on Military Readiness, held a hearing to sort out the panel's recommendations.

Michael Wynn, undersecretary of Defense for acquisition, says, 'The entire process is frustrating for all concerned,' including government employees, contractors and managers.

Bobby Harnage, president of AFGE, says 'I support A-76 even though there's a lot of things wrong with it and nobody seems to like it. It's still the best thing going.'

Three months after the Commercial Activities Panel released its final report on the role of Office of Management and Budget Circular A-76, the dust has yet to settle.

The short-term, practical effect of the report should become manifest when OMB's Office of Federal Procurement Policy releases its proposed modifications to A-76 later this summer.

Its longer-term impact remains unclear; the panel's far-reaching and controversial recommendations will take time and some legislative tinkering before they take root.

And questions are still swirling in Washington.

For example: Did the 12-member panel really agree on a course of action? Well, up to a point.
After a year's work, the panel reached unanimous agreement on a set of 10 broad principles to guide future sourcing policy.

These items ranged from making certain that federal sourcing policy supports agency missions to guaranteeing that competitions between public- and private-sector organizations are conducted fairly.

One critic of the report called them bland and soporific.

But the panel was split, eight to four, on a series of more-concrete recommendations for moving the federal government to a new sourcing system.

The recommendations included a dramatic change: merging A-76's public-private competition component into the Federal Acquisition Regulation (FAR) and basing sourcing decisions on overall best value rather than solely on price.

Voting in favor of the recommendations were CAP chairman David Walker, E.C. (Pete) Aldridge Jr., Frank Camm Jr., Mark Filteau, Stephen Goldsmith, Kay Coles James, Stan Soloway and Angela Styles.

Voting against the recommendations as a whole were Bobby Harnage, Colleen Kelley, David Pryor and Robert Tobias.

Walker, head of the General Accounting Office, argued that despite the divided vote on the recommendations, there was more agreement than disagreement among a highly diverse group of panelists that included representatives of the contracting sector, federal labor unions, the academic world and government.

[IMGCAP(2)]'The fact that we were able to achieve unanimous agreement on a set of principles is a major accomplishment,' Walker said. 'Those principles can and should be used by OMB not only to make modifications to A-76 but to implement the new integrated process. They should also be used by Congress in connection with any legislation in this area.'

The recommendations, even though they garnered support from what Walker termed a supermajority of the panel, were another matter.

Philosophical differences

'I would have liked to have had more people vote for the recommendations but I'm not surprised we weren't able to achieve a higher vote total, given the controversy associated with this issue and the constituencies involved,' Walker said. 'But the differences between those members who voted no and those who voted yes were few in number and philosophical in nature.'

The recommendations urged the adoption of the following actions:
  • Conduct public-private competitions under a process based on the FAR, which currently governs competitions among private bidders

  • Make interim changes to improve the current A-76 process while the FAR process is worked out

  • Encourage the development of high-performing organizations (HPOs) to replace most efficient organizations (MEOs), the in-house entity against which cost comparisons are made under the current A-76 process.

The transition to a FAR-based process, the panel agreed, will take time because it will require both regulatory and statutory amendments.

With regard to legislation, for example, Congress would have to amend Title 10 of the U.S. Code, which requires the Defense Department to base sourcing decisions on low cost. That's not likely to happen'if it does'until next year.

Moreover, cost vs. best value remains a burning issue in the report's wake.

A-76 primarily is a cost-comparison process. An agency constructs an MEO and compares its cost to private sector proposals to do the same work. Unless the contractor performance would save the agency at least $10 million or 10 percent of personnel-related costs, the work stays in-house.

Under a best-value approach, factors in addition to cost are taken into account, such as quality of services, innovation, flexibility and reliability.

Cost issue

Best value is especially applicable in today's environment, where government services are more critical, complex, interrelated and increasingly driven by technology, Walker said.

[IMGCAP(3)]'In the federal procurement system today, there is common recognition that a cost-only focus does not necessarily deliver the best quality or performance for government or the taxpayers,' Walker told a recent House Armed Services Subcommittee on Military Readiness hearing on the CAP Report and A-76.

'While cost is always a factor, and often the most important factor, it is not the only factor. In this sense, the A-76 process may no longer be as effective a tool, since its principal focus is on cost comparisons.'

But the government employee unions beg to differ. They see A-76, warts and all, as a vehicle for competing with commercial bidders for government work because employees can compete on a cost basis.

They contend that competing against the private sector under a FAR best-value scheme would put them at a disadvantage against private industry'and result in a loss of dues-paying members.

'Contractors can come in with bells and whistles that look attractive,' said Colleen Kelley, president of the National Treasury Employees Union. 'But if employees don't have the resources, the technology or skills to compete, they won't win these competitions.'

Kelley said that while A-76 does need some changes, such as adding an appeals process for employee organizations, 'there wasn't a huge need for doing away with A-76 or merging it into something else.'

Good points of A-76

Harnage, president of the American Federation of Government Employees, AFL-CIO, agreed. 'I support A-76 even though there's a lot of things wrong with it and nobody seems to like it,' he said. 'It's still the best thing there.'

[IMGCAP(4)]He added: 'FAR doesn't have any provision to compete with the public sector. So they've got to amend the FAR to incorporate part of the A-76 process they've been bitching about in order to make a public-private competition.'

Indeed, in its report, CAP panelists cited some good points in the current A-76 process.
One is that A-76 competitions are run under an established set of rules, which ensure that sourcing decisions are based on 'uniform, transparent and consistently applied criteria.'

In addition, the A-76 process 'has enabled federal managers to make cost comparisons between sectors that have vastly differently approaches to cost accounting.'

But perhaps most importantly, A-76 has been used to achieve 'significant savings and efficiencies for the government''20 percent or more in Defense Department A-76 competitions.

While the CAP panelists generally concurred that the sourcing process needs to be improved, they disagreed on the extent of Congress's role as OMB forges a new approach.

The supermajority wanted OMB to expeditiously roll out a new, integrated process for civilian agencies'in which case legislation is not required'and a year later submit a report to Congress detailing the costs, expected savings and impact of the process on employees.

But several panelists wanted a more cautious strategy, with immediate congressional involvement.

'Congress has the responsibility to demand data before it makes a decision that a FAR-type process serves the public better than a modified A-76 process,' American University's Robert Tobias said.

Both Tobias and Harvard University's David Pryor want Congress to enact legislation that would require OMB to conduct demonstration projects to test a new FAR process before it is deployed.

'I believe that OMB ought to collect the data and compare the two processes and, based on that, Congress can make a decision,' Tobias told the Military Readiness Subcommittee. 'Then you don't have speculation, you don't have assumptions. You have data.'

OMB acknowledges that there are inherent structural problems with merging A-76 into the FAR, a system designed for competition solely among companies.

Takes too long

'What we're doing is essentially taking a private-private system for competition and imposing it on a public-private system,' OFPP administrator Angela Styles told the subcommittee. 'There needs to be some recognition that there are problems in the private-private system in FAR-based competitions. It's not a perfect system and we may be exacerbating some of the problems when we try to apply the FAR-based system of private-private competition to public-private competitions.'

[IMGCAP(5)]Perhaps the biggest complaint about the current A-76 process is that it takes too long.

'A-76 competitions take an average of two years to complete,' Michael Wynn, the Defense Department's deputy undersecretary of defense for acquisition, technology and logistics, told the Military Readiness Subcommittee.

'The entire process is frustrating for all concerned: government employees who are in limbo about their jobs, contractors who have tied up considerable bid and proposal investments and the government activity that is managing the process while simultaneously performing their day-to-day mission.'

But would a FAR-based process be shorter? Even the CAP panel isn't sure.

'Whether and to what extent FAR-based public-private competitions would be faster than A-76 is unknown,' the report said.

'I think that's a rather significant admission on the part of the pro-contractor faction,' said a federal union source.

But Walker responded that the panel simply didn't do enough work on the issue to draw conclusions about the length of studies.

'A supermajority believes that [the process] should be done in a manner that saves time, but frankly that shouldn't be the driving force,' he said. 'The driving force is trying to move to a system that meets the 10 principles. The current system doesn't so let's move to one that does.'

Dissenting panelists offered divergent viewpoints. Tobias worried that an integrated FAR system might take even longer than the A-76 process.

'A FAR-type process will not speed up decision-making and in fact may slow it down,' he said.

[IMGCAP(6)]And Kelley wasn't even certain that the current process takes too long, given the potential impact of the studies on organizations and employees.

'These are huge decisions that shouldn't be rushed into,' she said. 'If you truly want to know what you're comparing, I don't know that I'd agree that it takes too long.'

Interim changes

However, OMB is pondering interim changes to A-76 that would help speed up the process, said Jack Kalavritinos, associate administrator for federal procurement policy.

'It's a challenge for OMB, in putting a circular together, to say 'Thou shalt do [a study] in three months or else.' Or else what? Are we going to come in with our swat team to finish the procurement?' he said. 'So we're looking at incentives and other structural changes.'

Another major issue emerging in the report's aftermath concerns the HPO, which under the proposed FAR-based process would be treated much like any other bidder.

For panelist Camm, this is troublesome. In a statement accompanying the report, he said the panel hadn't developed the concept of an HPO enough. 'Asking an HPO to operate almost as a virtual corporation asks the impossible,' he said.

'There are so many complex issues having to do with how government employees could compete head to head with the private sector that need to be resolved,' added Shirl Kinney Nelson, a principal at Acquisitions Solutions Inc. of Chantilly, Va., and author of a white paper on A-76.

CAP panelist Kay Coles James agreed in comments on the report that HR issues relating to public-private competition and HPOs have to be addressed. 'Change is inevitable, even in the federal work force,' she said in her report statement. 'But its impact on employees must be minimized.'

'HR offices should be involved early in the competitive process and be a key participant from a managerial perspective, advising affected employees during the process, as well as assisting with MEO and/or HPO development,' she said.

In the end, the debate lingering around the CAP report and the questions surrounding the proposed FAR-based process underscore the difficulties that lie ahead in executing a new system.

Bush administration officials know that getting everybody on board won't be easy. 'Achieving consensus among the key stakeholders will remain a challenge,' Styles said.

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