Feds Win!

Like many of the machinists at the Treasury Department's Bureau of Engraving and Printing, Robert Thomas took the news hard. After 28 years of federal service, Thomas didn't want to hear that a private contractor would get a chance to replace him. But in March 2003, the bureau started a job competition in its machine shop in Washington-Thomas' office for the past 13 years. At the time, he faced his prospects with gallows humor: "If you see a poor machinist on the corner with a tin cup, give him a quarter, will you?"

Eleven months later, Thomas' fortunes have changed. He and his machine shop co-workers won the competition, underbidding their private opponent-Allied Aerospace Inc. of Newport News, Va.-by $3.2 million. "We bid that contract like we were a private entity," says Thomas. "We trimmed it down to what we needed."

One of the more interesting questions surrounding the Bush administration's competitive sourcing effort, which aims to subject federal jobs to private competition, is how workers at civilian agencies would fare against private contractors. With little experience at such competitions and large rosters of jobs found in the private sector-from maintenance workers to accountants-civilian agencies seemed to be ripe targets for outsourcing. "The Interior Department has been called the world's largest lawn care service," former Office of Management and Budget Director Mitch Daniels told a contractor group in 2001.

To be sure, competitive sourcing has not been easy on civilian workers. Some employees have been laid off, and others have agreed to take pay cuts so that their organizations could craft more competitive bids. But as the results of competitions begin to trickle in, a trend is emerging: Most of the time, the feds are winning. Almost three years after the launch of the Bush initiative, private contractors have yet to see a windfall, because civil servants like Robert Thomas are beating them. For instance:

• At the Forest Service, civil servants have retained 2,187 of 2,474 federal jobs put up for competition.
• At the Centers for Medicare and Medicaid Services (CMS), federal employees won all 17 competitions held in fiscal 2003.
• 1,464 civil servants at the National Institutes of Health triumphed in two major competitions, although in-house teams had to cut 468 jobs to win.
• All 806 soil conservation technicians who faced competition at the Agriculture Department's Natural Resources Conservation Service kept their jobs. Of the 1,206 NRCS jobs put up for competition in fiscal 2003, 1,200 stayed in-house (a contractor won a single competition in Texas).

Incomplete data also cloud competition trends. OMB has no overall tally of the results, and agency efforts to collect information and report on competitions varies widely. For example, the Interior Department had little trouble producing competition numbers when asked by Government Executive, but Agriculture and Treasury were unable to provide departmentwide figures.

But a survey of available data, recent agency experiences and outsourcing experts suggests that Thomas' case is no aberration: industry has won few job competitions. Through late December 2003, contractors' biggest win at a civilian agency was at the Veterans Benefits Administration, in a study involving 120 property management jobs that began during the Clinton administration. For industry advocates, the stellar showing by in-house workers is cause for alarm. "There should be a major red flag being waved right now," says Stan Soloway, president of the Professional Services Council, an Arlington, Va.-based contractor association. "If you had that kind of ratio of private sector wins, you would have [union-backed] legislation on the Hill in five minutes, because the assumption would be that the process was rigged."

Angela Styles, the former OMB procurement chief who oversaw the competitive sourcing initiative until she left government in September 2003, agrees that results at the Forest Service and NRCS should raise eyebrows. "I am sure they have a lot of high-quality workers, but the chances of that occurring in a fair and open competition aren't that high. If at the end of the day you have a 50-50 ratio of wins, you're about right. And if you see a huge skewing of wins, then you have to be watchful," says Styles, who is now a partner at the Washington law firm Miller & Chevalier.

Styles' old boss, OMB Deputy Director for Management Clay Johnson, isn't troubled by the in-house victories. "To me, the disturbing trend would be one that says we're not doing very many competitions," he says, adding that discussions of competition results so far amount to a "battle of anecdotes." OMB will have comprehensive competition numbers this spring, when it prepares a congressionally mandated report, he says.

Still, the battle of anecdotes has a clear winner thus far, and it's not industry. Why?

THE MIGHTY INCUMBENT

The idea that federal workers and contractors should win about the same number of job competitions is appealing-it makes the process seem fair. But it might be unrealistic. At the Defense Department, civil servants won 67 percent of all contests between fiscal 1995 and fiscal 2003, according to Defense figures. To reach the elusive 50-50 ratio of government-industry wins, you would have to factor in what are known as "direct conversions."

In the direct conversion process, agencies simply outsource work to private companies, without competition from federal workers. At Defense, contractors actually come out ahead in the competition tally-winning 55 percent of all jobs put up for bid from 1996 to 2003-when direct conversions are included in the totals.

Civilian agencies haven't been shy about directly converting jobs. The Interior Department used direct conversions to transfer almost 1,500 positions to private firms in 2002 and early 2003. In some cases, Interior simply filled vacant federal jobs with contract workers, a move endorsed by OMB. Forest Service officials directly converted the agency's IT help desk in Boulder, Colo., involving 150 jobs, to IBM. The IRS held two sizable direct conversions, outsourcing mail room and warehousing jobs to NISH, a nonprofit organization formerly known as National Industries for the Severely Handicapped. In the process, 246 federal jobs were eliminated. At some civilian agencies, including the Forest Service, the National Park Service, NIH and the Office of Personnel Management, virtually the only shifts of federal work to private firms have occurred via direct conversions.

But OMB banned direct conversions in its May 2003 rewrite of Circular A-76, the rule book for job competitions. While OMB has waived the ban in a few cases, federal workers generally have been able to compete for their jobs since May. And historically, when civil servants participate in job competitions, they hold their own. Dale Warden, chief operating officer at Warden Associates, a Springfield, Va.-based firm that helps agencies stage job competitions, says civil servants are little different from other contract incumbents in this respect. "I don't think the government win rate is out of proportion to any incumbent service provider," he says.

NO COMPETITIONS TO WIN

Contractors can't win A-76 competitions that never take place. At some civilian agencies, competitive sourcing either is bogged down in politics or has yet to get off the ground.

Perhaps the biggest setback occurred at the Veterans Affairs Department, where legal issues and politics have kept the Veterans Health Administration from putting any of the 55,000 jobs it had earmarked for competition up for bid. In April 2003, the VA general counsel ruled that federal law barred VHA personnel from working on competitions that were not funded by Congress. The verdict prompted VA officials to suspend all competitions. This winter, Congress rebuffed a Bush administration request to let the VHA tap up to $50 million for competitive sourcing in 2004, meaning the program will remain on hold "for the foreseeable future," says Dennis Duffy, VA's principal deputy assistant secretary for policy and planning.

With its 63 laundry facilities and variety of blue-collar jobs, the VHA presented a wide range of competition opportunities for contractors. But its plan would have put the jobs of 20,892 veterans at risk, a point not lost on congressional appropriators and the American Federation of Government Employees, which staunchly resisted OMB's appeal to restart VA competitions. Observers say OMB didn't go to the mat for its proposal. "They were vulnerable to the charge of underfunding VA and didn't put much muscle behind the request," says one source.

Other competitions have been stopped or slowed because of pushback from Congress. For much of 2003, Rep. Doug Bereuter, R-Neb., pressed the National Park Service on why it was staging a competition on workers at the Midwest Archeological Center in Lincoln, which is in his district. After Bereuter won approval in the House for legislation to cut funding for the study he received a letter from Lynn Scarlett, assistant deputy secretary for policy at Interior, announcing the study's cancellation.

A congressional reporting requirement held up competitive sourcing at the National Institute of Standards and Technology (NIST), a Commerce Department agency, for most of 2003. The measure required the agency to share its competition plan with Congress before announcing any studies. NIST and Commerce spent eight months crafting the plan. One sticking point was whether any of NIST's scientific staff would be exposed to competition, according to agency sources.

The Agriculture Department's Farm Service Agency and Rural Development bureau would be barred from holding competitions in 2004 under language in the fiscal 2004 omnibus budget bill. The provision is a victory for AFGE local 2981 and American Federation of State, County and Municipal Employees Council 26, which lobbied a bipartisan group of members of Congress, including Sen. Christopher Bond, R-Mo., to halt studies at the agencies.

Still other agencies have small A-76 programs-the Justice Department has 132,100 employees, but it considers only 3,400 workers to be eligible for competition. The Department of Housing and Urban Development has told OMB it will compete 870 jobs, but it has yet to announce any competitions on FedBizOpps, the online database of federal contracting opportunities. "There may be a small A-76 study, but nothing like 870 jobs," says a HUD source. As of late December, neither the Labor Department nor NASA had finished a single competition, although both are setting up programs now.

The Smithsonian Institution, which has 1,300 commercial jobs, also has resisted holding any competitions. "They don't believe they're an executive branch agency," says OMB's Johnson. "They wonder why they're being looked at in the president's management agenda, so they just have been uninterested in considering competitive sourcing."

Most civilian agencies are holding competitions-16 of the 22 civilian agencies graded by OMB are conducting studies, according to a tally by Government Executive. But a variety of obstacles have kept some civilian agencies from doing much on the Bush initiative, reducing the number of competitions held. And where competitions have occurred, some agencies have found that contractors aren't interested.

TOO SMALL, TOO REMOTE

Soila Reando did all she could. She put notices on FedBizOpps. She wrote up solicitations, some more than 100 pages in length, outlining NRCS jobs in Arkansas that were on the auction block-including mail room work in Pine Bluff and soil conservation jobs in Star City, Benton and Hope. But contractors didn't bite. In September, Reando canceled eight separate streamlined competitions after no firms submitted bids. Fifty jobs stayed in-house.

In South Dakota, the NRCS held three streamlined competitions on 27 soil conservation jobs scattered across the small towns that dot the state. "We have a hard time filling some of those positions ourselves," admits Wilmer Brandt, NRCS state administrative officer in South Dakota. Brandt got one bid, from a company that mistakenly thought the NRCS wanted irrigation services. It was dismissed, and the jobs stayed in-house.

Patty Brown, the competitive sourcing coordinator at the NRCS, isn't sure why contractors stayed away from some competitions, while bidding in others. Ten firms bid on the NRCS competition in Texas that was won by a contractor, Creative Contracting of Mustang, Okla. "Normally, when you put out a solicitation there is somebody willing to do the work," she says.

Brown acknowledges that private firms are often less inclined to bid in rural areas, an experience shared by the Forest Service. Unlike the NRCS, the Forest Service did not issue solicitations for its streamlined competitions. It used market research, where officials compare the price of the in-house unit against a minimum of three private sector contracts. In some cases, the Forest Service had to cobble together pieces of different contracts to find a comparable match for the work done by its maintenance workers, who can repair hiking trails, roads and buildings.

Under such circumstances, Forest Service workers were almost invincible. In 143 streamlined competitions for maintenance work, research showed that the private sector could do the job more cheaply in only seven cases-and in two of those, involving road maintenance in Oregon and Washington, the Forest Service was unable to find any actual contractors that wanted the work. So it will stay in-house.

Contractors have won some streamlined competitions. Vienna, Va.-based Kensington Associates, a longtime Energy Department vendor, won a $3.5 million pact to perform equal employment opportunity reviews for the department. At the Program Support Center, a Health and Human Services Department unit, three of seven streamlined studies staged in fiscal 2003 were won by contractors.

But at the Interior Department, contractors have lost all 15 streamlined competitions held to date. Private firms also have been shut out at OPM, losing all four streamlined studies conducted there. At Defense, the streamlined method traditionally has been kind to federal workers-they won 51 of 52 streamlined studies staged from fiscal 1995 through fiscal 2003.

Some contractors fear civilian agencies are taking a page from Defense's book. "They learned from [Defense] to keep the competitions small to make it very difficult for contractors to win," says John Hanlin, business development manager for JK Hill Inc., a Norfolk, Va.-based firm. The Professional Services Council's Soloway worries that agency market research often is biased against contractors. "We ought to be very concerned about the level of accountability that's assigned to the streamlined process," he says.

Jacqueline Simon, AFGE's public policy director, says the union warned OMB about bias creeping into streamlined competitions. "Our central critique of the new A-76 was that decisions could and would be made on the basis of subjective criteria," she says. But she fears subjectivity will be used to favor contractors.

Thomas Mills, deputy chief for business operations at the Forest Service, sees it differently. In study after study, he says, Forest Service workers benefited from multitasking-a crew might drive two hours to reach a remote stretch of forest, but once there, they do trail maintenance, repair an outhouse and pick up trash. For budgeting purposes, their transportation costs are split three ways. In a competition for trail maintenance, this makes Forest Service crews seem more efficient than contractors. "A contractor is spreading their travel costs against one activity-trail maintenance," says Mills. "We can take those costs and spread them across several activities. That reduces our costs substantially."

Because Forest Service maintenance workers did not restructure their work units for these competitions, the agency netted no savings when they won. Overall, the Forest Service estimates that it has saved $6.2 million through competitive sourcing, while it has spent $23.2 million, including $4.5 million on employee training. "I like the rigors of competitive sourcing, but we've got to find ways to do it cheaper," says Mills. Competitive sourcing has been a money loser for NRCS as well. The agency spent $6.1 million staging competitions in fiscal 2003, and generated just $146,000 in savings, according to Brown. To reduce administrative costs, both agencies now are using central teams to run larger, multistate competitions.

Other civilian agencies, including OPM and HHS, are restructuring small units into "most efficient organizations," in a bid to generate savings even if the work stays in-house. These agencies plan to follow the example of the Park Service, which should reap $4.2 million in savings over five years from a streamlined study won by workers at its Southeast Archeological Center in Tallahassee, Florida.

CUT TO THE BONE

Civil servants' victories aren't limited simply to small and streamlined competitions. They have fared well in several large competitions too. At the Census Bureau, a team of 225 administrative workers underbid Electronic Consulting Services, a Reston, Va.-based firm, by $2.7 million, to win a competition. At NIH, federal workers aggressively cut the size of their operations to prevail in two large competitions involving grants support and real property management. Both were conducted in only nine months. "I think that's got to be a record," says Tim Wheeles, director of competitive sourcing at NIH.

In the grants competition, NIH trimmed a workforce of 750 down to 677 positions. NIH workers cut even more for the real property study, reducing a workforce of 998 employees to 558. Workers in both studies also downgraded the General Schedule grade level of some jobs, sacrificing pay and promotion potential in a bid to stay employed. NIH pulled out all the stops to make its workers competitive, involving senior management and following the aggressive advice of Warden Associates, the contractor they hired to help conduct the competitions. "We wanted to win these," says Wheeles.

The cuts could yield significant savings, even when the steep price tag of running the studies and implementing the new internal organizations is factored in. Wheeles says NIH should save $18 million between the two competitions, although this figure could change as NIH sets up the new organizations. Both studies also face appeals from the contractors who lost.

The competitions were a trying experience for everyone involved at NIH; some officials resented the fact the agency moved so quickly to start job competitions while other civilian agencies were holding back. "NIH is a crown jewel of research activity in the world, and here we are diverting so many resources to work on [competitive sourcing]," says one official. But Warden says contractors should heed the competitive bid turned in by NIH workers. Civil servants "are taking this very seriously, and if industry wants to win, they need to submit a different kind of bid," he says.

Robert Thomas and his machine shop co-workers certainly took their competition seriously. They trimmed their operation from 33 to 19 workers, and downgraded the job classifications of some positions. To become more competitive, the machinists researched how the shop could use new technology, and mastered the arcana of federal personnel rules. "We were playing for keeps," says Thomas.