FAIR Play

But Defense officials' grudging acceptance of Office of Management and Budget's Circular A-76, the document that governs the competitive sourcing process, seems like high praise compared to the comments from industry representatives.

"A-76 makes a mockery of best value. It is focused only on low price," says Bert Concklin, president of the Professional Services Council, a trade association for the professional and technical services industry. "The winner is judged totally on price-not on quality, not on past performance, not on institutional capabilities. That's a travesty in terms of best-value-based procurement."

Once the Defense Department selects an activity for A-76 competition, it is required to first develop a performance work statement and quality assurance plan and then issue a request for proposals or invitation for bids from the private sector. As industry develops proposals, the Defense organization puts together a most efficient organization, or MEO, for retaining the work in-house. The MEO prepares its own proposal. The best-value contract offer is then compared with the MEO proposal. The final award is based on price. However, to win, the contractor's offer must come in at least 10 percent below the government's. Otherwise, the savings are not deemed significant enough to outsource the work.

Under A-76, the government assumes an overhead rate of 12 percent of the direct labor costs of MEO employees, a rate Concklin and others say is insufficient. "The government has very deficient accounting systems and accounting standards and they are not in any serious way structured to accurately reflect both direct and indirect costs," he says.

Steven Kelman, the former administrator of OMB's Office of Federal Procurement Policy and now the Weatherhead professor of public management at Harvard's John F. Kennedy School of Government, says Concklin may have a point. "The government has made an effort to try to get indirect costs factored into bids, but I suspect that industry is correct in worrying that they're still not fully factored in," Kelman says.

GAO's review of recent A-76 studies found that only one of 10 appeals was upheld, but that has not eased the criticism.

In addition, OMB recently proposed that commercial activities identified under the 1998 Federal Activities Inventory Reform Act be subject to A-76 review. Under the FAIR Act, all federal agencies are to annually publish lists of commercial activities currently being performed by government entities.

Concklin, who opposes public-private competition, says: "The FAIR Act has been subverted by what OMB has done. When you say that outsourcing must be done under A-76 rules, you take away a lot of the willingness to play the outsourcing game."

"We do not think the government should be in competition with the private sector," Concklin says. "The issue speaks to the philosophy of the role of government."

Whatever one's philosophical views on the role of government, the Defense Department's goal of competitively sourcing 229,000 positions by 2005 means that department officials will probably learn more about the A-76 process than they ever before imagined. GAO estimates as many as 100,000 positions a year will be under A-76 scrutiny this year and next.