Questions for Competitive Sourcing Hearing Record

Published by the Government Accountability Office on 2003-10-03.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                                             Comptroller General
                                                                             of the United States
United States General Accounting Office
Washington, DC 20548

          October 3, 2003

          The Honorable George V. Voinovich
          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:

          Q. 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

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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.

Q. 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,

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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

Q. 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:

   (1) Determining the activities and full time equivalent (FTE) positions to be
   (2) Conducting preliminary research to determine the appropriate grouping of
       activities as business units to be consistent with market and industry
   (3) Assessing the availability of workload data and data collection systems.
   (4) Determining the activity baseline costs as performed by the incumbent.
   (5) Determining whether a streamlined or standard competition will be used.
   (6) Developing preliminary competition and completion schedules.
   (7) Determining the roles, responsibilities, and availability of participants in the
   (8) Appointing competition officials (agency tender official, contracting officer,
       performance work statement team leader, human resource advisor and source
       selection authority).
   (9) Informing any incumbent service providers of the date of the public

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

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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


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