Arbitrary Outsourcing

A major impetus behind the initiative is the administration's desire to close gaping loopholes in the 1998 Federal Activities Inventory Reform (FAIR) Act and OMB's policy guidance. The FAIR Act requires agencies each year to publish lists of jobs that could be performed in the private sector; in 2000 there were 850,000 of them. The issue relates to the language in the law that calls for agency heads to review their annual commercial activities "within a reasonable period of time after the date on which a notice of public availability . . . is published."

The subsequent OMB guidance, issued as a revision to the Circular A-76 Supplemental Handbook of 1996, which sets the rules for public-private competitions, adopts the language in the law but chooses not to define the phrase "reasonable time." Moreover, the language calls on agency heads only to review the activities on the list. It does not require actual decisions on whether competitions will be conducted. Nor does it call for any documentation of the review process or how any decisions to compete (or not to compete) are to be reached. As a result, agencies are free to roll over activities on their lists from year to year with a degree of impunity not intended by Congress.

In the face of this loophole, and to keep some election promises, the Bush team quickly concluded that setting specific targets for competitions or conversions to be achieved within specific time frames was the only way to kick-start an A-76 process that had grown moribund in recent years.

OMB's goals have the advantage of clarity and focus, but do they represent a defensible and effective pathway to success? One problem is that OMB has been silent on how it determined its numeric targets. It is not clear what, if any, empirical or historical data were used in arriving at the 5 percent and 10 percent goals. Further, applying the same goals rigidly to all agencies and departments regardless of mission, culture, size and past experience with competitive sourcing may not prove realistic.

'Malicious Compliance'

Rep. Tom Davis, R-Va., chairman of the House Government Reform Subcommittee on Technology and Procurement Policy, said at a June 28 hearing on outsourcing: "There is nothing that says that to arbitrarily assign federal agencies target figures is the best means to ensure cost savings for the government." Davis' use of the term "arbitrary" captures what is likely to be the reaction of many federal executives and managers faced with helping their agency heads achieve these goals. If managers view the goals as not based on a sound assessment of needs and situational requirements, many will find creative ways to circumvent them and avoid accountability. In other words, a perception of arbitrariness inevitably breeds counter-functional behavior. Some call it "malicious compliance."

Agency-Specific Analysis

The administration has wisely backed off from its ill-advised campaign promise to flatten the federal hierarchy by cutting more than 40,000 middle management jobs. Instead, OMB has substituted a much more rational approach in which it has asked each agency, using OMB- developed guidance, to systematically analyze its workforce profile against its mission and future requirements. The results of these analyses will be followed by an agency-by-agency restructuring plan that feeds directly into the fiscal 2003 budget cycle. Now, any numeric cuts, organizational flattening or restructuring will be the outcome of a comprehensive analysis, not just a knee-jerk response to an arbitrary decree issued from above. The approach, although demanding and time-sensitive, is being viewed by many agency executives as a serious attempt to involve them in the goal-setting process. Moreover, the approach is much more in line with the philosophy and procedures that underlie the 1993 Government Performance and Results Act. The word "arbitrary" is not being applied widely to the workforce analysis initiative.

A similar approach should be considered by the administration for its competitive sourcing policy. Instead of a top-down 15 percent compete-or-convert goal, agencies should be required to (1) apply OMB-developed decision criteria during their annual commercial inventory reviews and (2) rigorously document the results of their analyses.

For example, if an agency's current inventory listed 2,000 commercial jobs, the agency should be required to apply the OMB criteria to all (or some percentage) of the inventory and then document how it decided which activities to compete (or convert) and which not to compete-and why. The documentation should be reviewed regularly and addressed by agencies in their annual GPRA performance reports. Nothing like this now exists. Agency decisions on inventory status can be (and are) delayed indefinitely because of the loophole in the FAIR Act. The drafters of the FAIR Act may have envisioned an annual decision process, but that's not what's happening.

Unlike the administration's current cookie-cutter strategy (i.e., 15 percent by 2003 for everyone), specific targets for possible competition would likely vary from agency to agency under this more rational approach. Indeed, it is likely that a number of agencies should set goals higher than the 15 percent target. OMB Director Mitch Daniels recently singled out the Interior Department as falling in this category.

Carefully set targets would have the advantage of being an outgrowth of relevant analyses of agency-specific mission requirements and circumstances. They definitely would not be seen as arbitrary.

The Bush administration needs to reconsider the path it has taken before the cynicism it has engendered becomes irreversible. Too much is at stake.