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The Big Brawl Over Federal Competitive Sourcing

The Office of Management and Budget claims savings of 40 percent can be had if government workers and private contractors bid to see who can do the public's work for less.

August 29, 2003
Related Topics: Outsourcing

With a sigh, Susan Wells makes this admission: "I’m in denial," says the acting chief of the archaeological division for the Western Archaeological and Conservation Center in Tucson, referring to the possible loss of her job. "I’ll get irritated when it’s time."

    Wells is an ebullient G.S. 12 and a 20-year veteran of the National Park Service who supervises collections of spear points, pottery shards, sandals and petrified human feces ("coprolites"). She’s also in charge of identifying and mapping all potential archaeological sites in 60 different parks, lest someone decide to locate a sewage lagoon over a potential cache of Indian artifacts.

    Wells is one of about 858,000 of the country’s 1.8 million civil service employees who work in jobs that have been classified by the Bush administration as "commercial." That means that the agencies they work for have been ordered to subject these jobs to "competitive sourcing" to meet an unprecedented push to inject free-market competition into government activities. In the coming months, a team of efficiency experts will descend on the conservation center to study how Wells and others do their jobs, and write up "performance work statements" that allow the government workers and private contractors to stage a gladiatorial bidding battle to see who can do the work most cheaply. "I’m very apprehensive, both about the amount of time it’s going to take and what the results will be," Wells says. "It’s not a witch hunt, but I don’t even know what business model they’re using."

    Critics say that the "A-76" campaign to hawk jobs like Wells’s is just so much coprolite. The aggressive push to quantify and then bid out such positions, they say, is in itself a horrific waste of taxpayers’ money. While the administration insists that conducting public-private competitions "is not an outsourcing initiative," detractors say that is exactly what it is--an ill-considered ideological crusade to divert as many civil service jobs as possible into the private sector. Doing so, they claim, not only places sacred national treasures and critical missions in the hands of profiteers who will put Smokey the Bear into Mickey Mouse ears, but also imperils resources that belong to the American public. Bush administration spokesmen insist that competition will result in a leaner, higher-performance government and will whittle the federal payroll. The fight is an interesting one, in part because it raises the very provocative question of exactly how much money, if any, can be saved by putting federal jobs in play.

    "Our ultimate objective is to have competition for commercial activities," says Trent Duffy, a spokesman for the Office of Management and Budget, the agency in charge of the president’s management agenda. Implementation of A-76 has been protracted and tumultuous, in part because Congress often springs to the defense of embattled agencies. (The House already has passed a bill introduced by congressmen from Nebraska and Florida, for example, to halt 2004 funding for the archaeological-center job competitions in Nebraska and Florida.) Agencies were supposed to have completed competitions on 15 percent of their target jobs by the end of fiscal year 2003, but the numerical criteria were scrapped this spring. After implementation problems and complaints from both unions and private contractors that the process was grossly unfair, modifications were decreed. Direct conversions to the private sector were almost completely eliminated, agencies must now notify OMB of their progress by submitting quarterly reports and tracking competition results, and the competition process was shortened dramatically, to be completed within a year, with a possible six-month extension.

    "These competitions under the old way took four years," Duffy says. "If you’re a small business, you don’t have the time and staying power to do it; it was a de facto barrier to competition. By reducing the process by a factor of four, we’ve greatly streamlined and simplified the process, which leads to cost savings."

    The OMB says that studies from both the public and private sectors show that subjecting in-house operations to competition results in savings of 10 to 40 percent no matter who wins. "Just by holding a competition, you have savings of 30 percent," Duffy says. That’s because the A-76 process unearths redundancies and inefficiencies that can be eliminated, giving civil service employees a road map to perform in a more cost-efficient manner, he says.

Government workers have wound up "winning" (retaining their jobs) in more than 50 percent of the public-private competitions held. Detractors counter that these claims are a perfect example of Enron accounting.

    The OMB claims that it costs between $2,000 and $5,000 for each position studied, but there will be an $85,000 savings per position over five years. Government workers have wound up "winning" (retaining their jobs) in more than 50 percent of the public-private competitions held. Detractors counter that these claims are a perfect example of Enron accounting. They point out that no appropriations accompanied the order to conduct the costly performance work statements on which the competitions are based. That means that agencies are being diverted from their mandated missions to participate in the competitions. Millions of dollars that could be spent by already cash-strapped agencies on public service is instead devoted to counting wastebaskets, digging up ancient paperwork and cooperating with consultants. (The OMB says that agencies will be able to work the estimated costs of the competitions into their fiscal year 2005 budgets.)

    "Sometimes, you wonder if there should be even yet another layer to vet these competitions," says Ray Bjorklund, vice president of market intelligence and chief knowledge officer for Federal Sources Inc. of McLean, Virginia, a consultant for both the government and large contractors. Many businesspeople believe that outsourcing is a no-brainer in terms of savings, Bjorklund says, "but I have yet to see a real independent assessment that outsourcing is always cheaper." He guesses that the real savings after all the hassles and delays is far closer to 10 than 40 percent.

    "There’s not a lot of data in this. I looked for data," says Max Sawicky, an economist with the Economic Policy Institute in Washington, D.C., who is writing a paper on federal contracting. "You can’t find evidence" for the OMB claims of savings. "What you find are anecdotes that are the equivalent of press releases" and rampant "sample selection bias…The way they have of classifying these jobs [as commercial] is ridiculous," Sawicky adds. "You need to have a core of very accomplished, highly qualified and well-paid people who are not afraid of losing their jobs . . . to monitor contracts and enforce provisions. You can’t manage a contract any better than managing people, and the General Accounting Office routinely reports on [government] failure to monitor contracts. Monitoring contracts can be labor intensive to the point that it may not even be worth it."

    Sawicky asserts that certain "simpler" jobs for which productivity is "easily observable," such as office cleaning, lawn mowing and some software functions, might be reasonable candidates for outsourcing. More complicated work presents tremendous problems because in-house experts have to evaluate whether the contractors are performing honestly and productively. "Defense is where the most contracting is done, and there’s a long history of overspending there," Sawicky says. Another "glossed-over issue" is that government workers who lose the competitions often wind up working for the private contractors that won--at a lower salary and with fewer benefits. "There are no savings when someone else is getting the money instead of the workers." And employees dropped from federal rolls can wind up costing the government. If displaced employees are "stuck without medical insurance, they could wind up resorting to Medicaid," and devouring taxpayer money.

    Unions representing government employees have a litany of grievances about the public-private competition initiative. They say the competitions have demoralized dedicated careerists and prompted a talent flight out of government. What is much more surprising is the grumbling from the private sector. Louis Ray, CEO and president of Matcom International Corp. in Alexandria, Virginia, has bid unsuccessfully for work three times via the A-76 process. His firm won’t be bidding again, even under the new rules, unless it does so as a partner with the government going up against an outside contractor. The competitions, Ray complains, "are, generally speaking, rigged." The government, he says, has an advantage in its "huge supportive infrastructure" and routinely underestimates the cost of "overhead--facilities cost, telephones, all that stuff we have to pay for. For general and administrative costs, they just throw in a number, which is about half of what anyone can really run a business for. And the government doesn’t have to run on a profit margin." How on earth, Ray asks, can an unsubsidized business compete?

   The government’s edge can work in mysterious ways. Students and citizen volunteers contribute untold thousands of hours every year to help each of the archaeological centers, for instance. These citizens won’t be working for free on behalf of private companies.

    While hopeful that the new streamlined process will yield better results than the messy and protracted process of the past, Jim Giles says that the competition mandate to date "has not saved any money in my view." Giles, an independent review officer from Cherry Point, North Carolina, writes the performance work statements on which the contests are based. While Giles is regarded by the workers he evaluates as "the boatman on the Styx," they have so far fared quite well as a result of his work, adopting many of the efficiencies he recommends. A-76 competitions "are very difficult for the private sector to bid on," Giles says. In many cases, the playing field is uneven because "the government people don’t want to lose their jobs and do what they feel is appropriate, so they don’t."

    But under the new system, Giles points out, "the government has no guaranteed place at the table when the contracting officer makes the decision." This, and the streamlining modifications, will decrease the ratio of government wins dramatically, he predicts. Agency managers "are not experts in submitting proposals," he says. "That’s what’s going to kill the government. There are ‘capture managers’ in these big companies with big egos, who at the end of the year get a Porsche," if they’ve been successful in landing profitable contracts. "They’ll do whatever it takes to win," and will do so handily over civil service employees who have not been trained to compete for contracts.

    In the meantime, Susan Wells is wondering what fat the consultants will find in her bony operation: "Out of my staff of 25, three of us have permanent jobs." There has been no secretary for at least 10 years. "The computer has made everyone his or her own secretary." She just hopes that the government appreciates the value of the archaeological treasures in the National Park Service. After all, she points out, "the human adaptation to harsh conditions is a wonderful story."

Workforce Management, September 2003, pp. 63-65 -- Subscribe Now!

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