| |
|
|
Competitive
Sourcing:
The Wait is Over - The Time is Now.
|
By
Carl DeMaio and Vincent J. Badolato
The
past week has substantially changed the face and future of competitive
sourcing in government. On May 29, 2003, after much anticipation,
the Office of Management and Budget released the final revised Circular
A-76, the guidance that regulates the performance of commercial
activities in the federal government.
The
revised A-76 reorganizes and streamlines the competitive sourcing
process by bringing aligning competitive sourcing with current federal
acquisition regulations. Moreover, agencies this month were asked
under OMB Deputy Director-Designate Clay Johnson's "Proud-to-Be"
memorandum to set and commit to 12-month milestones for achieving
progress on the competitive sourcing goal of the President's Management
Agenda.
The
revision of the A-76 competitive sourcing and the re-emphasis on
meeting PMA competition goals under the "Proud-to-Be"
memo are big developments. It is no secret that competitive sourcing
is a controversial management tool-strongly opposed by federal labor
unions. Moreover, several agencies have been slow to start competitions-with
some agencies playing a waiting game over the past two years while
guidance has been devised and debate has ranged in Congress. Indeed,
the Administration has had to navigate repeated attempts by a vocal
minority Congressional view against competition as well as devise
new A-76 guidance and sift through over 700 comments on the new
guidance.
10 Key Changes Under the New A-76 Competitive
Sourcing Process
The revised A-76 guidance makes some major changes to the competitive
sourcing process, substantially streamlining and ensuring the accountability
of competitions. The new guidelines allow for 12-month timeline
for standard competitions that have previously lasted up to four
years. There has been a shift from low-cost selection to a "best-value"
approach. Winning in-house teams are held to a performance agreement
similar to a contract. Direct conversions that allowed agencies
to contract for activities where fewer than 10 FTE's were involved
have been removed. Agencies will also have to now submit an inherently
governmental inventory with their commercial inventory, and both
will be published for the first time. All of these changes encourage
managers to expand their use of competitive sourcing by making competitions
easier and expedited.
The
ten most significant A-76 rule changes are:
1.
No More "Direct Conversions" in Lieu of "Streamlined
Competitions"
Agencies (except the Department of Defense and Bureau of Indian
Affairs) will no longer be permitted to use Direct Conversion
outsourcing. New language has been added to require a streamlined
competition consisting of a cost and performance evaluation against
market benchmarks or expedited bids. Cost comparisons can now
be as simple as quoting a bidder's price and filling out a one-page
form. To improve accountability, agencies will have a mere 90
days to complete these "Streamlined Competitions."
2.
12-Month Time Limits and Sanctions on Competitions
In full public-private competitions, agencies will now have to
meet a strict 12 month deadline-with a possible 6 month extension
under certain circumstances. The term begins when the agencies
make the public announcement of a managed competition on an agency
activity or function. In an important development, if the in-house
bid does not meet this timeline the in-house team will be removed
from the competition.
3.
"Best Value" Standards Using Cost/Technical Tradeoff
or Lowest Price Technically Acceptable Methods
The new guidance embraces the concept of "best value"
and recognizes that the cheapest choice is not always the best
choice. Performance and quality now factor heavily into the sourcing
decision as well as cost efficiencies. In fact, for streamlined
competitions, cost must constitute 50% of the evaluation with
performance standards being used for the other 50%.
4. Changes to Cost Estimates and Evaluations to Ensure "Cost
Realism"
It has been a common problem in the former process that cost estimates
for competitions have been unreliable and took far too long to
compile. This change seeks to ensure a "cost realism"
to better calculate costs for competitions as well as evaluate
actual costs of contracts to prevent vendors from exceeding their
original quote.
5.
New Classification Rules for FAIR Act Inventories
An inherently governmental inventory now has to be submitted by
agencies with the commercial inventory, both being published.
The new guidelines allow for the challenging of the designation
of "Commercial Reason Code A", about 500,000 of the
850,000 commercial activities in the FAIR inventory. This forces
agencies to provide written justification in their reporting.
6.
Performance Standards and Innovation Incentives in the PWS/QASP
This encourages the inclusion of performance standards and
departures from the solicitation to encourage bidders from agency
and private sources to be innovative in their PWS/QASP.
7.
Enhanced Contract Monitoring and Accountability
This is to ensure that the performance of a contract does
not become stale after the period of performance has begun. ALL
parties, including in-house winners, are to be held accountable
for the promised level of performance. In a significant development,
federal employees that win competitions will be subject to a binding
performance-based contract based on the cost and quality terms
of their winning bid.
8.
Regular Re-competition of Agency Activities
A regular re-competition cycle has been added to ensure that
the best party is servicing the contract. This provision-which
applies to employee wins and vendor wins-will guarantee that the
government is receiving the best possible performance for a contract.
9. Streamlined "Tradeoff Source Selection" Competitions
for IT and Other Activities Under the FAR
For information technology functions, activities widely provided
by private vendors, and new agency activities, the revised guidelines
provide for a tradeoff source selection evaluation of competitive
bids. Under this process, an agency can weight its evaluation
more heavily towards performance standards-and to encourage innovation,
a bidder can devise alternative ways to achieve performance.
10.
New Competitive Sourcing Staffing Requirements
The revised guidelines define clear roles and responsibilities
for key players in a competitive sourcing initiative-including
a new role for human resource managers. The definition of roles
and responsibilities-complete with including competitive sourcing
goals in the evaluations of senior executives-provide enhanced
accountability throughout the process.
The
Four Key Principles in an Effective Competitive Sourcing Program
Overall, the new Circular A-76 enhances the key sourcing principles
of competition, transparency, accountability and performance. These
four principles are vital to maintaining the integrity and effectiveness
of the sourcing process and the revised Circular makes significant
steps in advancing these principles.
Principle
1: Competition
An ideal sourcing process must yield more competitions of
federal commercial activities, not less and should provide for
more competitors for those activities. Competition creates a "race-to-the-top"
in almost any undertaking. Truly competitive environments force
innovation, demand improvements, and maximize benefit while preventing
price-gouging. Without routine and robust competitive sourcing,
federal agency processes will become stale and inefficient. Moreover,
without competitive review, agencies might engage in activities
that distract from their core mission responsibilities.
Principle
2: Transparency
An ideal sourcing process must provide more information to
decision makers and the public on cost and performance achievements
of sourcing decisions. The revised guidance requires agencies
to submit inventories in electronic format for both commercial
and inherently governmental activities, and publish these inventories
for public review and protest. The guidance also provides more
structured and consistent methods for achieving "cost realism"
in price evaluation among bidders. Both of these changes are laudable.
Principle
#3: Accountability
An ideal competitive sourcing process would make winners of
competitions accountable for delivering on cost and performance
expectations over the life of the contract. This had not always
been the case under the previous federal sourcing process. Federal
agencies rarely have enforced the requirement for employees who
win competitions to maintain the cost and performance standards
of the MEO-and in some cases, the same has been true for private
sector winners. The new guidance makes clear indication that winning
in-house teams will be held to a performance agreement similar
to a contract. If the in-house team wins and they do not perform
to promised level or have cost overruns, it can lead to exclusion
or points against them in the next round of competition. This
greatly equalizes the sourcing process and makes all parties accountable
for their performance.
Principle
#4: Performance
An ideal competitive sourcing process for the federal government
will ensure that the government and the taxpayers receive the
highest level of performance for the lowest possible cost. As
we all expect what we purchase in our private lives, whether it
be a toothbrush or a car, to provide us with optimum performance
for the price we pay, so should the federal government provide
the citizens with optimum performance for our tax dollars. The
new A-76 makes some significant steps in ensuring that the citizen
does receive the best performance from the government, either
through public-private partnerships or a more motivated federal
workforce
Lessons
Learned and Best Practices are Emerging
Competitive sourcing is the only initiative where all agencies are
still in the "red" on the PMA scorecard, but some significant
progress has still been made by agencies. Several agencies provide
early lessons learned on implementing the new A-76 guidance. For
example, the Department of the Interior (DOI) is one agency that
serves as a model of the "streamlined competition" approach
being authorized by new A-76. When developing the new streamlined
competition approach, OMB borrowed heavily from the experiences
DOI had with its market comparison approach to competing activities
with less than 10 positions. As of April 2003, the DOI has studied
496 positions with: 181going to Direct Conversion, 39 Expressed
Review, 9 complete A-76 studies, 6 cost comparisons studies that
were all kept in-house, 14 lost positions, and 261 streamlined process.
These numbers prove that the streamlined approach for competitive
sourcing being instituted by the new A-76 can be done and makes
the sourcing process more efficient and beneficial.
No
Room for Further Delay: Competitions Should Begin Now
Ever since the President's Management Agenda (PMA) made a hefty
competitive sourcing goal one of the five pillars to achieving a
citizen-centered, results-oriented, and market-based federal government,
it has been speculated that the Administration would back down due
to the pressures of implementing this goal. At first, agencies decided
to wait for the recommendation of the Commercial Activities Panel
(CAP); a panel of experts from agencies, federal labor unions, private
industry, and elsewhere; to be released and use this guidance to
revise A-76 soon after. That report was released in May 2002. Then,
agencies decided to wait until OMB revised the A-76 circular. Every
so often, some agencies privately question whether the Administration
would back off from the competitive sourcing initiative entirely.
The
time for waiting and second guessing is over. The Administration
has firmly recommitted to competition goals and the new Circular
has been finalized. Competitive sourcing is here to stay. Now the
challenge becomes initiating and completing competitions-and showing
results for the taxpayer.
2003
Competitive Sourcing Summit - August 2003
The Institute is joining a number of good government groups in hosting
this timely summit that will provide you with up-to-date information
on the new competitive sourcing developments and how to use these
changes to keep your agency in compliance with the new A-76 guidelines.
Sessions will focus on the major changes to A-76-providing not only
an overview of the requirements but providing examples and tips
for agency implementation. For more information or to receive a
copy of the agenda, please contact Vincent Badolato [email protected].
Carl
DeMaio is president of The Performance Institute.
Vincent Badolato is research director of The Performance Institute.
|
