A supermajority of the Panel agreed on a package of additional  recommendations. As I noted previously, the new Circular A-76 is generally consistent with  the Commercial Activities Panel’s sourcing principles and  recommendations and, as such, provides an improved foundation for  competitive sourcing decisions in the federal government. In particular,  the new Circular permits:    greater reliance on procedures contained in the FAR, which should  result in a more transparent, simpler, and consistently applied competitive  process, and    source selection decisions based on trade-offs between technical factors  and cost. The new Circular also suggests the potential use of alternatives to the  competitive sourcing process, such as public-private and public-public  partnerships and high-performing organizations. Challenges in Implementing Competitive Sourcing

Implementing the new Circular A-76 will likely be challenging for many  agencies. Foremost among the challenges that agencies face is setting and meeting  appropriate goals that are integrated with other priorities. Although the revised Circular also provides for a  streamlined process at comparable FTE levels, the revised streamlined  process lacks a number of key features designed to ensure that agencies’  sourcing decisions are sound. Finally, the revised Circular has created an accountability gap by  prohibiting all challenges to streamlined cost comparisons. Protest Rights

Another accountability issue relates to the right of in-house competitors  to challenge sourcing decisions in favor of the private sector—an issue  that the Commercial Activities Panel addressed in its report. While both  the public and the private sectors could file appeals to the ad hoc agency  appeal boards under the prior Circular, only the private sector had the  right, if dissatisfied with the ruling of the agency appeal board, to file a  bid protest at GAO or in court. Effective Human Capital Practices Will Be Key to Successful Implementation of Competitive Sourcing

For many agencies, effective implementation of the new Circular will  depend on their ability to understand that their workforce is their most  important organizational asset. Agencies will need to build and maintain capacity to manage competitions,  to prepare the in-house MEO, and to oversee the work—regardless of  whether the private sector or MEO is selected. 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 manage the cost, quality, and  performance of the service provider. Agencies can aid their workforce in transitioning to a competitive sourcing  environment if they:    ensure employee involvement in the transition process; for example, by  clearly communicating to employees what is going to happen and when it  is going to happen;    provide skills training for either competing against the private sector or    create a safety net for displaced employees to bolster their support for the  changes as well as to aid in the transition to a competitive environment,  such as offering workers early retirement, severance pay, or a buyout;  facilitate the transition of staff to the private sector or reimbursable  provider when that is their choice and assist employees who do not want  to transfer to find other federal jobs; and    develop employee retention programs and offer bonuses to keep people  where appropriate. This is a work of the U.S. government and is not subject to copyright protection in the  United States.
Why GAO Did This Study

In May 2003, the Office of Management and Budget (OMB) released a revised Circular A-76, which represents a comprehensive set of changes to the rules governing competitive sourcing--one of five governmentwide items in the President's Management Agenda. Determining whether to obtain services in-house or through commercial contracts is an important economic and strategic decision for agencies, and the use of Circular A-76 is expected to grow throughout the federal government. In the past, however, the A-76 process has been difficult to implement, and the impact on the morale of the federal workforce has been profound. Concerns in the public and private sectors were also raised about the timeliness and fairness of the process for public-private competitions. It was against this backdrop that the Congress enacted legislation mandating a study of the A-76 process, which was carried out by the Commercial Activities Panel, chaired by the Comptroller General of the United States. This testimony focuses on how the new Circular addresses the Panel's recommendations reported in April 2002, the challenges agencies may face in implementing the new Circular A-76, and the need for effective workforce practices to help ensure the successful implementation of competitive sourcing in the federal government.

What GAO Found

The revised Circular A-76 is generally consistent with the Commercial Activities Panel's principles and recommendations, and should provide an improved foundation for competitive sourcing decisions in the federal government. In particular, the new Circular permits greater reliance on procedures in the Federal Acquisition Regulation--which should result in a more transparent and consistently applied competitive process--as well as source selection decisions based on trade-offs between technical factors and cost. The new Circular also suggests the potential use of alternatives to the competitive sourcing process, such as public-private and public-public partnerships. However, implementing the new Circular will likely be challenging for many agencies. Foremost among the challenges that agencies face is setting and meeting appropriate goals integrated with other priorities, as opposed to arbitrary quotas. Additionally, there are potential issues with the streamlined cost comparison process and protest rights. The revised streamlined process lacks a number of key features designed to ensure that agency sourcing decisions are sound, including the absence of an appeal process. Finally, the right of in-house competitors to file a bid protest at GAO challenging the sourcing decisions in favor of the private sector remains an open question. For many agencies, effective implementation will depend on their ability to understand that their workforce is their most important organizational asset. Agencies will need to aid their workforce in transitioning to a competitive sourcing environment. For example, agencies will need a skilled workforce and adequate infrastructure and funding to manage competitions; to prepare the in-house offer; and to oversee the cost, quality, and performance of whichever service provider is selected.