Shifting Gears

When a public-private job competition ends, the real work begins: making the transition to a new way of doing business.

When the forest fire season starts in California next month, firefighters in the state's 18 national forests will turn to government-run shops when their vehicles need maintenance or repair, much as they always have. But the Forest Service employees at the shops will only take work orders and complete inspections, not turn wrenches. Since Feb. 22, when employees of Serco Management Services Inc., an affiliate of the United Kingdom-based Serco Group PLC, took over the nuts-and-bolts work, the federal mechanics haven't been allowed to get their hands dirty.

At Stanislaus National Forest, a 1.1-million-acre forest adjacent to Yosemite National Park, this has required the two remaining federal mechanics-now called "designated government representatives"-to ship repair jobs out to local garages until Serco has finished setting up phone lines, fax machines and computers, and has obtained certifications for hoists and other shop equipment.

The week Serco mechanics arrived, the Stanislaus shop needed to work on several fire engines. The former federal mechanics drove the trucks about 50 miles to a local garage that charged a significantly higher rate than the government shop would have charged for on-site work. Once Serco is fully staffed, the shop will employ six people-four contract workers and two designated government representatives-to do tasks previously performed by four federal employees.

Deborah Rae DeMars, the fleet manager at Stanislaus, is skeptical that Serco's debut at California's national forests is going to save the government money. But that is what Forest Service officials had in mind in January 2004 when they awarded Serco a contract worth $26 million over five years. The contractor underbid a team of 59 full-time federal mechanics fighting to keep their jobs, which had been classified as "commercial in nature" and then opened to private sector bids under the Bush administration's competitive sourcing strategy.

Peter Dumont, Serco's chief operating officer for North America, acknowledges that the company is working through some challenges on the Forest Service contract. But, he says, they're just minor bumps in the road and when fire season starts, Serco will be ready to hold up its end of the bargain. Forest Service officials hope he's right. Serco originally underbid the federal mechanics by about $2 million, but adjustments to its proposal closed the gap to less than $1 million. Given the adjustments and costs associated with a several-month delay in Serco's start date, caused by misunderstandings about the contract's terms, Doug Lee, director of acquisition for the Forest Service's Pacific Southwest region, says he no longer expects the contest to produce lower savings than originally anticipated. He is counting on a stellar performance from Serco to break even.

Across government, where hundreds of public-private competitions are being run, agencies are trying to avoid a similar fate. They hope that proper planning and execution can smooth transitions to new ways of doing business and ensure that promised savings materialize.

Bigger Competitions

Despite efforts by opponents of the competitive sourcing initiative to place legislative blocks in its way, agencies are increasing the size and scope of their contests. While the average competition in fiscal 2003 encompassed the equivalent of 27 full-time jobs, last year's average was 58. Even the Forest Service, berated in 2004 by congressional investigators and the White House for seeking bids on work involving as few as two jobs, completed a competition covering 1,200 information technology workers.

Larger competitions promise greater savings. The 217 contests held across government in fiscal 2004 will produce net savings of $1.4 billion over three to five years, according to Office of Management and Budget projections. Add that to the $1.1 billion in savings expected from 662 competitions completed in fiscal 2003, and potential savings to date top $2.5 billion. Savings per competed position rose from $12,000 in 2003 to $22,000 in 2004.

This savings potential alone ought to grab the attention of the few agencies that have yet to fully embrace competitive sourcing, says David Safavian, head of the Office of Federal Procurement Policy. The Bush administration initially asked agencies to aim toward giving contractors a shot at 425,000 federal jobs defined as commercial, but later substituted agency-specific targets for the governmentwide goal. Asked shortly after his confirmation how he intends to pressure resistant agencies into setting more aggressive goals, Safavian demurred. "We don't put pressure on folks in that regard," he said. "What we do is . . . say, 'Look, competitive sourcing brings cost savings to your operations. You're all under tight budget constraints. Here is one option for dealing with your constraints.' "

Wringing savings from competitive sourcing, however, is not a simple matter of running a public-private contest and awarding work to the team offering the cheapest proposal. To tap into potential savings, managers must facilitate a smooth transition to the service provider they select-whether it's an internal team or a contractor. As more agencies complete large contests, attention is shifting from the complicated task of conducting competitions to that of managing the transition.

In February, Joann Kansier, head of competitive sourcing at the Federal Aviation Administration, completed the largest job competition ever at a civilian agency. Before contractors could bid on the work of 2,500 flight service specialists-who provide weather briefings and other services to pilots of noncommercial aircraft from 58 stations nationwide-Kansier had to figure out how the Federal Acquisition Regulation, on which OMB's competitive sourcing rules are based, meshes with FAA's separate Acquisition Management System. She sought White House permission to extend the deadline for completing contests. She also had to get the OK to award a 10-year contract, rather than a five-year deal, to attract bidders willing to make the necessary extensive capital investments. And she asked permission to weigh technical factors more heavily than cost in awarding the contract.

Kansier is proud of her work. But, she says, the true test lies ahead, as winner Lockheed Martin Corp. takes over the flight service jobs. For FAA to deliver the more than $2 billion in savings she told the White House the outsourcing decision would yield over the next decade, the transfer will have to go well.

Post-Game Analysis

One of the keys to a successful transition is planning. At the Internal Revenue Service, officials begin considering worst-case scenarios before requesting proposals, says Raymona Stickell, director of the agency's Office of Competitive Sourcing. The IRS splits its contests into five phases. Contingency planning comes in the middle, after managers have determined whether the jobs in question are commercial and have demonstrated through a business-case analysis that a contest could save money, but before a solicitation is issued. Before formally announcing a recently completed competition at tax publication distribution centers, Stickell's office looked into canceling building leases should the winning team want to close down facilities.

Her office also had to consider how the contest would affect 550 full-time workers at distribution centers in Rancho Cordova, Calif.; Richmond, Va.; and Bloomington, Ill. Stickell knew that given decreasing taxpayer demand for paper forms, some IRS employees would lose jobs regardless of how the competition turned out, so she arranged for career counseling. When the announcement came in August that the in-house team had prevailed by proposing to close the Rancho Cordova and Richmond centers and eliminate some jobs in Bloomington, Stickell was prepared to help the more than 270 affected employees find other work or take advantage of early retirement or buyout offers. She had taken great care to keep workers informed so the decision would not surprise them.

IRS managers strive to keep employees happy enough that even if they lose their jobs in a downsizing, they will return to the agency should jobs open, Stickell says. This might be slightly wishful thinking. The distribution center contest left a "bad taste," says Tom Hines, president of National Treasury Employees Union Chapter 48, which represents employees in the Richmond area. He acknowledges the need to restructure the center's work, but says the IRS could have downsized through attrition. Stickell says quicker and more comprehensive changes were necessary.

The majority of employees who had left the Richmond center by mid-February had accepted early retirement or buyouts. Many of the center's workers were middle-aged and had been working at the IRS for at least 15 years, Hines says. Most of their experience was in taking phone orders. He says he has heard some managers have found new jobs, but "it's the lower graded worker bees that are having the biggest problem."

As of mid-February-several weeks before all but a handful of the affected workers were scheduled to be taken off the payroll-24 full-time employees and one part-time employee remained at Rancho Cordova, and 41 full-time workers and 59 seasonal workers were still at the Richmond warehouse. The Bloomington facility had 67 extra seasonal employees and two extra part-time employees. Stickell counts the transition a success overall, and notes that she fell only one month behind schedule, mostly because the IRS decided to wait until the busiest part of the tax season was over before shutting down the buildings.

The White House encourages agencies to engage in the type of worst-case scenario planning that Stickell undertook. The Office of Federal Procurement Policy is working with the Office of Personnel Management to make sure agencies receive responses to requests for permission to offer early retirements and buyouts within 20 days, Safavian says, adding that OMB still wants agencies to use these options judiciously.

The human resources side of a contest isn't just about helping employees who might face layoffs, says Joe Sikes, the Defense Department's director of competitive sourcing and privatization. It's also about ensuring that the right people are available to complete the work after the transition. If an in-house team wins, that means retaining the appropriate number of employees in the proper grade levels. If a contractor wins, that means making sure the company has enough workers to do the job. It might seem unlikely that a company would bid without knowing whether it could find enough employees. But contractors often count on recruiting at least some federal employees.

Serco, the company that won the Forest Service contract in California, planned to hire the federal mechanics who lost the job competition, Dumont says. But the contractor had to advertise throughout California for outside candidates, because the federal mechanics mostly stayed on at the Forest Service or retired. Dumont says he knows of only one who joined Serco.

The company was "not at all expecting" to have to rely so heavily on outside candidates, but was able to find enough qualified people, Dumont says. Had the Forest Service not given the mechanics jobs, they likely would have decided to work for Serco, he adds, noting the contractor offered comparable benefits. But Dan Duefrene, a leader of the National Federation of Federal Employees branch representing the mechanics, disputes that. The contractor offered a lower salary, and the mechanics likely would have found jobs at local garages had they not been able to stay with the government, he says.

At FAA, competition winner Lockheed hopes that more than 90 percent of flight service specialists affected by the contest accept job offers with the company, says Joe Wagovich, a Lockheed spokesman. The offers would pay the employees at their current level and would provide benefits comparable-and in some cases better-than the government's. Some could even be "double-dippers," sitting on the contractor's payroll while collecting a federal pension. They also would be able to work beyond the mandatory retirement age of 56.

Lockheed is recruiting at all the flight service stations, and as of early March had already received 900 applications, Wagovich says. He doesn't think it's far-fetched to expect nearly every specialist to accept its offer. Kansier takes a more cautious view. While she is impressed by the "beautiful package" of benefits Lockheed is offering, she realizes federal specialists don't all share her enthusiasm. One calls Lockheed's Web page about the benefits an "evil seducement." He and others note that many specialists are close to retirement and want to continue working for the government until they can collect full benefits. Some also point out that Lockheed guarantees employment only for three years under certain conditions and plans to close 38 of the 58 flight service stations during that time.

"Are you guaranteed a job for three years?" Kansier rhetorically asks a reporter when questioned about criticism of Lockheed's offer. But just in case employees didn't find the offer attractive, she asked Lockheed to produce a plan showing how it could successfully perform the work without the federal employees it hopes to attract. Lockheed complied, but Wagovich says the plan contains proprietary information and declined to share details. The company needs to wrap up recruiting by July so it could turn to a backup strategy before the Oct. 1 transition date if necessary, Kansier says. The agency has another plan for continuing to provide flight services over the summer, even in the event of a mass exodus of federal employees. If facilities end up severely understaffed, phone lines could be transferred to those centers remaining open.

Kansier says she's tried to anticipate a variety of potential problems. At the outset of the competition, she asked several people who weren't involved in the process to establish the framework for transition. "I knew that we couldn't award this thing and then the next day have no framework there," she says. The team had an action item list that included writing memorandums of agreement with other FAA offices on how they would handle inspections of equipment introduced by the winner, integration of the technology into existing systems, construction of buildings and disposal of existing facilities.

Planning Isn't Everything

Some things are difficult to plan, however. Kansier still is working out the details of some programs to help affected employees because she couldn't discuss her plans fully before announcing the contest results for fear the in-house team would think she had rigged the competition. "People were so paranoid," she says. "I was getting calls every day that the rumor in the field was we had already made a selection. I mean, we hadn't even gotten proposals yet."

Kansier also must wait to finalize contract oversight plans. Her office will oversee the contract for six months after the award. She will have 90 days after Lockheed's Oct. 1 takeover to work out whether her office, or managers in charge of flight service operations, will determine whether Lockheed is meeting the contract's 18 performance standards. The matter couldn't be decided earlier because managers on the operations side were involved in writing the in-house bid.

The oversight would have been complicated regardless of whether the in-house team or the contractor won. When an in-house team wins a competition, agencies attempt to treat it as they would a contractor, holding it to agreed-upon performance standards. But it's more difficult to measure how an in-house team is doing because there is not always a separate budget for implementing its proposal, the Pentagon's Sikes notes. The Defense Department is updating software in an effort to more closely track in-house costs. Stickell says she would welcome better coordination between budget and competitive sourcing offices.

There's one last challenge that's hard for Kansier to ignore: "Government doesn't always work that quickly, and sometimes I think for good reason," she says. But Lockheed has set a very tight transition schedule. The contractor sought to conduct a joint inventory of equipment by the end of March, for example. This required Kansier to put a team together and obtain travel funds quickly.

"This is a very risk-averse agency because we deal with the lives of people every day," she says. "So you're talking about introducing new equipment into the math, and new facilities and getting people changed." Still, Kansier thinks Lockheed is up the challenge. Her question: "Can FAA keep up?"