Inside Job

indy Beyer looked at the final numbers with surprise. She ran them again to make sure there were no errors. The results were the same. So she ran them a third time. Once again, the same outcome-$118 million.

Beyer and her peers at Offutt Air Force Base in Bellevue, Neb., were stunned. They didn't think it was possible that the spread could be that big. But it was. In the Air Force's largest job competition to date, a group of employees at the base had put together a bid to save thousands of jobs that had been deemed commercial in nature, besting their opposition-DynCorp Technical Services, one of the nation's most successful defense contractors-by a wide margin.

The contest, conducted under Office of Management and Budget Circular A-76, opened 1,459 jobs-including 313 civilian positions-to competition with the private sector. The jobs covered a wide range of services, including aircraft maintenance, hazardous waste management, cargo transportation, real estate management and base communications. In all, seven squadrons were involved. Offutt has a total of nearly 10,000 civilian workers.

The group of in-house employees came up with a workforce restructuring plan that would cut 58 percent in annual manpower costs alone. That equates to nearly $46 million in savings each year. Air Force brass would have been happy with a 40 percent reduction, according to a Defense Department official. DynCorp came in at about 42 percent savings, says the official, who wished to remain anonymous. Officials from DynCorp, which is now part of Computer Sciences Corp., declined to comment for this story.

In March 2002, Beyer, the contracting officer in charge of the jobs competition for the 55th Air Wing at Offutt, notified base commanders, Air Force officials at the Pentagon and congressional staffers that the employee group had submitted the lower bid.

On March 21, Beyer told Offutt's Manpower and Organization Office, which developed the employee bid, that it had been tentatively selected as the winner. When the 30-day window for protests passed with none filed, the award became final on April 24. "We were ecstatic, but not necessarily surprised," says Randy Livingston, chief of performance management at Offutt and head of the in-house team. "We knew we had put together a competitive package and that it would take a lot to beat us out."

Under the plan, 848 jobs will be cut from Offutt's workforce. Some positions are being eliminated outright; others are merging with similar functions. No civilians will lose their jobs. The cuts are being made by reassigning military personnel to other Air Force bases. Some have chosen to retire.

NO BLACK EYES

The fact that the in-house team at Offutt's 55th Air Wing won is not so remarkable in and of itself. During the past seven years, Air Force employees have won 40 percent of the service's A-76 competitions. What makes Offutt unique, and what earned it a Presidential Quality Award last year, is the fact that the large competition ran so smoothly and promised to generate such huge savings.

The Bush administration is pushing for an acceleration of A-76 competitions, operating under the belief that such competitions result in savings for the taxpayer regardless of who wins. During the A-76 process, an agency forms two separate teams-one to develop the contract requirements; the other to come up with a plan to create a "most efficient organization" and bid for the work. Strict barriers are established between the two to avoid giving the latter an unfair advantage over the private sector. The contracting team also runs a preliminary contest among companies to determine which will go toe to toe with the in-house group.

The whole process can get messy. But at Offutt, while the competition took 42 months to complete, it ended with no protests or appeals from the private sector. That alone is a big feat for the Air Force, which had run highly controversial projects at Maxwell Air Force Base, Ala., Tinker Air Force Base, Okla., and Lackland Air Force Base, Texas.

"We wanted to avoid getting another black eye," says retired Col. Glenn Charczuk, who ran Offutt's manpower office and oversaw the entire competition. Although he left the service shortly after the competition, Charczuk remains on base to help with the transition. "We were very deliberate in everything we did. We wanted to make sure that everything was done correctly."

Getting it right also was important for officials at the Pentagon, says Vince Gasaway, the Air Force's deputy chief of competitive sourcing and privatization. That was especially true after the controversies at Maxwell and Lackland. In both instances, the Air Education and Training Command, which ran the competitions, was accused of violating public-private competition rules.

At Maxwell, the General Accounting Office found that the cost comparison-involving more than 800 base operations jobs-was slanted toward the in-house team, which was declared the winner. After losing its first appeal, DynCorp turned to GAO for a second review. In July 2002, GAO overturned the award and recommended that DynCorp get the $198 million five-year contract. The watchdog agency found two major problems. For starters, the in-house team shaved $1.3 million off its bid by subtracting the cost of existing government materials from its total estimate. DynCorp did not. Either party would have had access to those materials, so they should have been deducted from both proposals, GAO said.

Second, GAO found that the Air Force ignored a key performance promise in the DynCorp bid. Namely, the company promised to start work 30 days earlier than the Air Force required. The Air Force previously considered that fact when it selected DynCorp over other contractors to compete against the in-house team.

The Lackland effort was even more controversial. Initially, the five-year $352 million contract was awarded to Lackland 21st Century Services Consolidated, a joint venture involving Computer Sciences Corp., Del-Jen Inc., and Tecom Inc. The government team filed a protest and won. The firms then filed their own appeal with GAO, which recommended that the Air Force stick by the original decision. The contract was handed back to the firms.

The flip-flop eventually brought about a Defense Department inspector general investigation. In a May 2001 report, the IG said inexperienced employees were allowed to evaluate the bids, leading to miscalculations of the proposals. Additionally, Air Force officials made improper changes to the in-house bid, and an official with a conflict of interest was allowed to supervise the in-house team.

GETTING IT RIGHT

Offutt's study, which started in the late 1990s, was well under way when the controversies erupted at Maxwell and Lackland. Despite those setbacks, there was never any apprehension about continuing with the competition, says Gasaway.

Officials at Offutt were informally notified that the base would be subjected to an A-76 cost comparison in 1997. The Air Force had just introduced Project Jumpstart, an initiative targeting more than 43,000 jobs for potential outsourcing. It was part of a broader Pentagon plan to modernize the department's workforce. Since a formal announcement hadn't been made yet, base commanders couldn't talk with employees about which jobs would be competed. However, the manpower office held briefings to let workers know generally what to expect.

"We wanted to make sure from the start that we kept people informed," says Charczuk. "It was important to keep the rumors down. We didn't want people getting disgruntled."

Still, there was ample confusion, according to Kay Balaban, an employee in the base's sign-making and repair shop and president of the 450-member American Federation of Government Employees Local 1468. Some employees weren't sure whether their jobs would be put up for competition. Others were secretly hopeful that they would be offered early retirement, she says.

In September 1998, 55th Air Wing commanders announced that more than 1,600 positions would be subject to competition. But they made it clear that the performance requirements document, which details the work that is open for competition, was a living document. It would-and did-change over the course of two years. In fact, by the end of the competition about 200 jobs were taken off the initial list for a variety of reasons. For instance, some communications jobs were declared inherently governmental and yanked off the list two weeks before final bids were due.

DynCorp turned out to be the only contractor interested in the competition. The company and the in-house "most efficient organization," known as the MEO, were able to keep up to date with the constant changes via a Web site that Beyer established. She says the Web site went a long way toward reducing any confusion about what was required and ensured a level playing field between DynCorp and the MEO.

In another attempt to keep the competition fair, and avoid some of the problems that plagued previous Air Force studies, a firewall was set up between the contracting office and the MEO, according to Charczuk. Employees involved in the MEO were prohibited from helping develop the performance requirements document. Such firewalls are mandated in A-76 competitions, but are not always adhered to.

GETTING SERIOUS

As Livingston and his team began work on the bid, attitude became one of the most important components. "We wanted to get employees thinking about competing for their jobs," he says. "They had to get in that mind-set and know that we were serious. The message we put out was, 'This is your study. You are competing for the jobs.' We helped them put together the package, but they knew what worked and what didn't."

Getting flexibility and top leadership buy-in was a critical part of doing that. Through some tough negotiations, Livingston convinced commanders to let him build an MEO made up of the "best and brightest" personnel on the base. He went to each of the squadrons in the air wing and peeled off their most knowledgeable staff members-both civilian and military-to work on the team full time.

"The focus came from top leadership," Livingston says. "We were able to put the best foot forward."

Balaban says the top-down approach had its limitations. Although union officials were consulted throughout the process, she says, the leaders of the MEO did not communicate enough with workers in the trenches. While military leaders made the decisions, civilians on the sidelines were left to wonder what would become of their jobs, Balaban says. Charczuk insists that workers were well informed and involved at each step of the competition.

To get a sense of how work was being done at the base, the leaders of the MEO dispatched individual teams to a variety of locations. They studied, down to the smallest detail, how employees worked, in an effort to streamline operations as much as possible.

Part of that meant looking for ways to simplify work processes. That included cutting time spent traveling between locations, eliminating idle time between jobs and cutting back on requirements for multiple approvals of routine decisions. The team also looked for areas where it could merge positions. Within six weeks, the MEO had studied more than 60 job processes. Among other things, the employee team found it could trim costs by consolidating transportation and supply dispatch centers. The employees also found ways to improve workflow in some civil engineering jobs, thus creating a quicker turnaround on projects.

Another way the MEO generated cost savings was to reduce overhead by keeping workers within the existing base command structure rather than forming a stand-alone unit. DynCorp had no such flexibility. Because it was an outsider, the firm would have had to come in as a stand-alone organization and build its own management hierarchy mirroring that of the air wing. It would have needed separate managers for civil engineering and aircraft maintenance, for instance.

"It was definitely a benefit," Livingston admits. And, as the MEO has begun its initial operations, the existing structure has become even more useful. "One of the pluses is ownership," he adds. "We are able to let the wing commanders still feel that they own the function. That builds buy-in. If we were a stand-alone, it could have created an us-vs.-them atmosphere. People would be taking orders from the MEO instead of the squadron commanders."

Livingston will not say how much the MEO was able save by keeping the workers within the existing management framework. In fact, he declines to reveal specific examples of savings generated from the job function analysis. Divulging such data would put the MEO at a disadvantage in eight years when it has to recompete for the jobs, he says.

WINNER'S CIRCLE

What put the MEO's bid over the top was the 58 percent cost savings in manpower. Much of that was achieved by eliminating 848 jobs. Balaban says the move has meant that the remaining employees are simply overworked. When MEO leaders realigned functions, they didn't take into account how work is actually done, she says. They just looked at the numbers. In her sign shop, for instance, repair work would sometimes be done without a work order, or multiple tasks were lumped in on one order. But that didn't show up in the numbers-driven analysis of the function, she says.

"When you beat a contractor by $118 million, what does that tell you?" she asks.

Further, in areas where jobs are being merged, workers are not getting the training they need, says Balaban. For instance, she says an employee shifted from the paint shop to electrical work has yet to receive training.

"It's certainly going to be a culture shock for many people," says Livingston, who says training is a key component of the MEO's plan. "If you used to work with 20 people and we cut you down to 10, part of the process is educating you on how to do the job more efficiently. It's going to be a challenge to break down some barriers."

If the MEO is going to be successful, those barriers will have to come down quickly. The organization has a two-year transition period. During that time, it will phase out military personnel and put its team in place. In areas where jobs are being eliminated, those military personnel who have not retired will be transferred to other bases. Service members whose jobs were included in the study will become part of the MEO. As of early June, only a handful of functions had been completely turned over to the MEO.

In at least one area, jet engine repairs, the team already was showing dividends. Previously staffed with 10 workers, the unit used to have a 68-day turnaround for overhauling jet engines. Three months into its one-year transition to the MEO, the unit has been downsized to five people. But the repair turnaround time has been cut to 28 days.

MEASURING PERFORMANCE

As the MEO tries to live up to lofty expectations, it will be under close scrutiny. In 2005, once the transition is complete in all seven squadrons, Air Force auditors will come to Offutt to see whether the MEO is meeting its cost projections. They also will check to ensure that performance requirements are being met.

Michael Wynne, principal deputy undersecretary of Defense for acquisition, technology, and logistics, recently told a House committee that performance agreements are necessary to make in-house employees fulfill the terms of their bid. "We've had a very hard time getting them to stand up to anything other than [the] projected costs [of their work]," he said.

Workers are well aware that if they don't meet their objectives then the work will be put up for bid again.

"We are not complaining about winning the competition," says Balaban. "But now we've got all the burden and the stress. We are going to make it through this audit and keep our jobs. But one squadron can take the whole thing down. Everyone can do 110 percent of their work, but if one messes up, the whole thing is gone."