United States GAO General Accounting Washington, Of&e D.C. 20548 General Government Division B-282180 March 26,1999 The Honorable Ben Nighthorse Campbell Chairman The Honorable Byron L. Dorgan Ranking Minor& Member Subcommittee on Treasury, General Government, and Civil Service Committee on Appropriations united states senate The Honorable Jim Kolbe Chairman The Honorable Steny H. Hoyer Ranking Minority Member Subcommittee on Treasury, Postal Service, and General Government Committee on Appropriations House of Representat&s The Honorable Steve Horn Chainnan Subcommittee on Government Management, Information and Technology Committee on Government Reform House of Representatives Subject: Outsourcin~ and Privatization: Private-Sector Assistance for Federal AWXY Studies -Section 640 of the Treasury, Postal Service, and General Government Appropriations Act of 1997’authorizes the Of6ce of Management and Budget (OMB) and federal executive branch agencies to use private-sector assistance in conducting reviews and analyses2of whether to contract out, outsource, or privatize” certain activities under the provisions of the Clinger- ’P.L 104-208,Sepknber 30,1996. 1 . pnvate-sectorassktancere~tothepsuiicip&mof consultants orconsultantknsthatareconixickdfromtheprivate sector to perform or as&t in the applicable federal reviews and anaiyws. ‘~~refers~the~ferofan~f~~businessoradministrativefunctionto~~mmerciasector,withthe government . . remaining responsible for the affected .setice~. Privatization refers to the transfer of a federal business or e function, including the responsibility for the affected mvices, to the commercial sector. Page 1 GAO/GGD-9952E Private-Sector A&stance for Federal Stadie~ B-282180 Cohen Act of 1995 (CCA),’ particularly section 5113 concerning new information systems (L and infoimation technology (ll”). Section 640 also requires applicable IS/IT studies, 1&.F. 1., and analyses carried out under section 5113@)(2)(B) and (C)” of the CCA, hereinafter referred to as “studies,” that begin on or after September 30,1996, and end before Septembe 1,1999, to (1) Iast no longer than 180 days, unless an extension is approved by the agency head, and (2) be conducted in a manner that precludes private-sector participants of these studies from participating in subsequently outsourced work Further, section 640 requires to review and provide an assessment of its implementation. To fulfill this requirement, we contacted six executive branch agencies, along with OMB, to determine what actions they had taken to implement section 640, and particulariy its spec’ emphasis on CCA section 5113 (b)(2)(R) and (C). Additionahy, we obtained information tic these agencies about private-sector participation on nonXXM%ed oursourcing and privatization studies for the same period. These six agencies included the Departments of Defense (DOD), Energy (DOE), Transportation (DOT), and Health and Human Services (IIIIS), as well as the National Aeronautics and Space AdminMration (NASA) and the General Services Administration (GSA). Within DOD, we included the Army, Navy, Air FL Marine Corps, Defense Logistics Agency @LA), and Defense Finance and Accounting Ser.’ (DFAS). Within DOT, we included the Office of the Secreuuy, FederaI Aviation . . Am ‘on (FAA), and the Coast Guard. Together, these agencies accounted for $175. billion, or about 90 percent, of all federal contract dollars reported in the Federal Procurement Data System Report for fiscal year 1996,the year in which section 640 was enacted. We obtained readily available documentation to support the information provide6 the agencies we contacted, but did not otherwise independently verify the information. We conducted our review from October 1998 to March 1999in accordance with generally accepted government auditing standards. We requested comments on a draft of this letter from the heads of OMB and the six agencies we reviewed. Their comments are discussed the end of this letter. RESULTS Neither the six agencies we contacted nor OMR had taken action specifically aimed at implementing section 640. OMR has issued guidance on the implementation of CCA with respect to new IS/lT investments that addresses contracting out, outsourcing, and privatization issues6 This guidance, however, did not address section 640 in particular. ’ section 5101 of P.L 104-105,February 10,1995, repealed section 111 of the Federal Property and Amve !&vices ,. 1949 (popularly referred to as the “Brook Act? and established a new stamry scheme for IT management and acquisition within the executive branch. ’ Subsection 5113@)(2)(B) provides that OMB direct agencies to determine, before making investment in anew l-T---~--’ system, whether the functions supported by the system should be contracted out, outsourced, or privaUz& Subs&on 5113(b)(2)(C) provides that OMB direct agencies, before making significant investments in miesio~&M IT, to analyze th agency’s mission and revise mission-related and adminishative processes as appropb. ’ Examples of such guidance include OMB. memorandum . 9742 on Funding Info&on Systems Investments, dated OcL 25: 1996, and the July 1997 Canital mamnune Gmde, supplement to OMB cinxlar bll. Page 2 GAO/GGD-9952B Private-Sector As&stancefor Federal I B-282180 Additionally, officials in the’sk agencies we contacted told us that they were not aware of section 640 and had not considered it when performing CCA-related studies. However, according to the officials we interviewed, they did not need section 640 authority to obtain private-sector assistance for WIT- or non-IS/IT-related outsourcing and privatization studies. IS/IT Studies Performed Pursuant to CCA As shown in table 1, of the six agencies we visited in November and December of 1998, DOE, Air Force, and GSA reported conducting a total of 12 CCA section 5113@)(2)(B) and (C) WIT studies beginrung after September 30,1995. Also, FAA reported conducting nine studies pursuant to CCA during &cal years 1996 and 1997 as part of the investment analysis performed for each of the nine projects. Although, FAA had information on the start and completion dates of the investment analyses, it was unable to determine whether the outsourcing portion of the investment analysis study, as defined by section 640, began before, on, or after September 30,1996. An IMT official from FAA explained that the agency’s IMT records were not clear as to when each of the studies actually began during fiscal years 1996 and 1997.With the exception of GSA, officials in each of these three agencies also told us that privatesector assistance was used on each of the studies and that the assktance was obtained using the agencies’general contracting authority. GSA reported that the decisions regarding CCA section 5113@)(2)(B) and (C) for each of its six WIT projects beginning after September 30,1996, were based on studies performed in-house by agency personneL Specifically, as shown in table 1, DOE reported conducting three studies with private-sector assistmce after September 30,1996, each of which lasted more than 130 days. According to an MT official in DOE, DOE did not formally obtain agency head approval for the extended time on these studies. The Air Force reported three studies that had privatesector a&stance and began after September 30,1996, and FAA reported nine studies with private-sector assistmce, but officials in neither agency were able to identify in their records the period of time for the studies. Table 1: IS/IT Studies Performed Pursuant to CCA Section 5113(b)(2)(B) & (C) Since Fiscal Year 1999 Studies beginning before g/30/96 Studies beginning on or after g/30/96 Federal aqency Total studies PSA studies Total studies PSA studies -DOD components’ Army 1 0 0 0 Air Force 9 9 3 3 & 01 0 0 00 DOE 2 2 3 3 DOT components Offloe of the Secretary 0 0 0 0 D b b D FAA” Coast Guard 0 0 0 0 HHS 0 0 0 0 GSA 0 0 6 0 NASA 1 0 0 0 Total 14 11 12 6. Legand: PSA refers to private-sector assistance. Wavy, which includes the Marine Corps, could not gather the information in time for us to report the number of WIT studii it had performed pursuant to CCA, which was enacted in February 1996. Page8 GAOKGD-99-52R Phatitor Assiitame for Federal Stwlies B-282180 ‘FM reported that nine studies were conducted with private-sector assistance during fiscal years 1996 and 1997; however, FAA did not have information on when the studies began. Source: Agency ofkids. As explained by DOE, FAA, and Air Force officials, since they were not aware of section 640, they did not routinely monitor the length of the studies performed or take steps to ensure t” any studies lasting more than 180 days had specific agency-head approval for the additional time. DOE officials told us that they believed that the length of the studies generally depended on the complexity of the MT under consideration rather than on a predetermined number of days. In addition, DOE, FM, and Air Force officials said thatthe contractors participating in G&L studies did not participate in subsequently outsourced work They explained that, irrespective of section 649, subpart 9.5 of the Federal Acquisition Regulation already require them to take steps to preclude such organizational conflicts of interest, and they provided -- - with copies of the exchrsions normally included in the contracts for these types of services. We discussed the need to inform federal agencies about the effect of section 640 on the outso- and priw&ation provisions of CCA with OMB’s staff. They informed us that it e not OMR’s responsibiliti generally to notify agencies of statutory requirements that have government-wide impact, and it does not typically do so. While the other agencies included in our review did not report any studies applicable to the period set by section 640, table 1 shows that Army, Air Force, DFAS, DOE, and NASA reported atotal of 14 studiesperformedp ursuant to section 5113@)(2)(R) and (C) that ZL;- before September 39,1996. According to these agencies’officials, 11 of these studies were performed with private-sector a&stance obtained through their general contmcting authority, and 3 studies were performed in-house by agency personnel. Non-IS/IT Outsourcina and Privatization Studies Performed For studies other than those.associa ted with CCA-related Is/IT, which are not affected by section 640, Army, Navy, Air Force, DLA, and DFAS reported, as shown in table 2, that privat+sector a&stance was used, or was planned, on 2,391 of the 2,939 non-IS/IT-related putsourcing’ and privatization studies being performed, or planned to be performed, since fiscal year 1996. These non-HIT-related functions considered for outsourcing included a wide range of activities, from day care centers on military installations to wholebase suppc or maintenance operations. According to DOD officials, private-sector as&stance for competitive sourcing studies is funded through DOD’s annual appropriations. The non-ISTl’ related functions considered fc ‘~~“decisionsgenerally~governedbyOMBCircularA-76,whichdescribestheprocedures (i.e., studies, r&em and analyses) . . that agencies must perform in order to determine whether a gavemmentoperatedcommercialactivityor admuustrativefunctionshouldbeoubourcedtotheprivatesecbrorremain asagovemment4pemtedfunctior~Inessence,~ A-76 process nxpdms the government to kompete” with the private sector to determine which entity is best capable of performingthe function underconsideration in the most co&-effective manner. To mmgnize this ‘publidprivak competition espect of the outsourcing process, DOD mfels to the A-76 process as ‘%ompetitive sourcing.” Page 4 GAO/GGD-99-52B Private-SectorAs&tame for Federal -? B-282180 pxivatimtion consisted of the provision of military housing and installation utilities. Private- sector ass&tame for studies related to providing these two functions are authorized by specific legislation. Table 2: Non-MT Outsourcing and Privatization Studies.Since Fiscal Year 1999 Outsourcing studies beginning Privatization studies beginning Grand total Before g/W99 Onlafter g/30/96 Before 9kW99 On/after 9/39/99 Federal Total PSA Total PSA TOM PSA Total PSA Total PSA agency studies studies studies studies studies studies studies studies studies’ studiesb DOD component Army Function’ 156 62 0 0 158 62 0 0 0 0 Housing 43 25 0 0 0 0 0 860 43 25 Utilities 1,065 617 0 0 0 0 249” 636 731 Navy Function’ 120 52 1 0 119 52 0 0 0 0 Housing 16 16 0 0 0 0 0 0 16 1g utiliies’ 916 916 0 0 0 0 30 30 866 686’ Air Force Function’ 152 4 52 0 100 4 0 0 0 Housing 15 15 0 0 0 0 0 15 16 Utilities 463 463 0 0 0 0 0 0 463 4w Marines .Function’ 0‘ 0 0 0 0 0 0 0 0 0 Housing 9 9 0 0 0 0 0 0 9 9 Function’ 4 4 0 0 4 4 0 0 0 0 DFAS Function’ 6 6 3 3 5 5 0 0 0 0 TOt24lS Function’ 442 130 65 3 388 127 0 0 0 0 Housing 83 65 0 0 0 0 0 0 83 66 Utilities 2,464 2,196 0 0 0 0 279 116 2,185 2,080 Grand total 2,989 2,391 65 3 385 127 279 116 2,268 2,146 Legend: PSA refers to privatesectcr assistanca. ‘Includes stud&s fhat were performed, or planned to bs performed, on and after 9/30/96. Number of housing installations or ufilii systems wifh prfvatizaticn studies. ‘Federally operated commercial or administrative function that is being ccnsidered for outsourcing. ‘Amy officials reported 16 additional utility systems that dii not undergo ths privatization pmcsss because they were always under private control. Tofat number of projects to bs considered for privatization and which. according to agency officials, should be performed wfth private-sector assistance. An Air Force official told us that Air Force pmjacts may or may not be perfonnsd with private-sector assistance. ‘Includes utility systems for both Navy and Marines. Source: Agency officisls. Agency Comments On March 16,1999, NASA’s Audit Liaison, Office of Procurement, told us orally that NASA concurred with the substance of our report. On March 19,1999, DOT’s Audit Liaison, Office of the Assistant Secretary for Administration, provided us with FAA’s written technical comments. We considered and incorporated these comments in our report as appropriate. On March 22,1999, DOE’s Audit Liaison, Office of the Director, HHS’Audit Liaison, Office of P8ge 5 GAOBGD-995ZE Private4ector A&st.ance for Federal Studies ES-282180 Inspector General; DOTS Audit Liaison, Office of the Ass&ant Secretary for Administration; and GSA’s Audit Liaison, Audit Follow-Up and Evsluation Branch, all told us orally that their agencies had no comments. . On March 23,1999, we also received oral comments from DOD’s Office of the Under Secretary of Defense for Acquisition and Technology. Although DOD concurred with the report’s assessment of the implementation of section 640, it suggested that we extract the non-ISlT related data or further clarify that non-ISTl’ functions are not covered under se&k 640. We clarified the report as suggested by DOD. On March 24,1!I99, an Ass&ant General Counsel in OMB told us orally that OMB had no comments. We are sendmg copies of this letter to Senator Fred Thompson, Chairmq and Senator Joseph I. Lieberman, F&-king Minority Member, Senate Committee on Governmental Afktim, and to Representative Dan Burton, Chairman and Representative Henry Waxman, Ranking Minority Member, House Committee on Government Beform. We are also sending copies of this letter to The Honorable William S. Cohen, Secretary of Defense; l’he Honorable Bill Richardson, Secretary of En=, The Honorable David J. Bsrram, Administrator, General Services Administration; The Honorable Donna E. Shah& Secretary of Health and Human Services; The Honorable Jacob hew, Director, Office of Management and Budget; The Honorable Rodney E. Slater, Secretary of Transportation; and The Honorable Daniel S. Goldin, Administrator, National Aeronautics and Space Admh&mtion. We will also make copies available to others upon request Major contributors to this letter were Sherrill Johnson, As&tsnt Directoq Michael Rives, Senior Evaluator, and Bay Occhipinti, Evalwr. If you or your staff have any questions, please contact me on (202) 5124337. Bernard L Ungar - Director, Government Business - operationsIssues Page6 GAO/GGD-99-62R Private-Sector A&stance for Federal Studi Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 106 or more copies to be mailed to a single address are discounted 25 percent. Orders by msih U.S. General Accountiug OfIice P.O. Box 37050 Washington, DC 20013 or visit: Room 1100 700 4th St. NW (corner of 4th and G Sts. 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Outsourcing and Privatization: Private-Sector Assistance for Federal Agency Studies
Published by the Government Accountability Office on 1999-03-26.
Below is a raw (and likely hideous) rendition of the original report. (PDF)