A-76: The Program Everyone Loves to Hate

Contractors complain that the competitions used to determine who should do the work are rigged. Federal employees argue that savings projections are overstated and fail to account for quality.

The program has undergone several name changes over the years, from "contracting out," to "outsourcing" and now "competitive sourcing." Both "outsourcing" and "contracting out" imply a built-in bias toward shifting work to the private sector. But "competitive sourcing" suggests a more neutral outcome. The government doesn't care whether federal employees or contractors win, as long as it gets the best deal. The emphasis was on public-private competitions during the Reagan years, and then the program was revived under President Clinton. During his campaign, President Bush highlighted "opening government activities to competition" as a major element of his reform agenda. We can expect, therefore, an equivalent if not greater focus over the next four years.

The Defense Department continues to be the strongest proponent of "competitive sourcing." In a December 2000 study, the General Accounting Office reported that Defense had completed 286 A-76 public-private competitions between 1995 and June 2000. Of these, 138 involved cost comparisons between the public and private sectors and 148 resulted in some type of improvement in contractor or government performance. Of the 138 cost comparisons, the private sector won 40 percent. According to Defense, savings from all 286 studies totaled $290 million in fiscal 1999. GAO acknowledged in its report that there were savings. But it was unable to verify the precise amount, citing ambiguities in cost data.

Problems with determining credible savings data have plagued the program since its inception. The overall amount of savings is suspect, as is the validity of individual cost comparisons. These are critical elements in deciding whether a private sector firm or a government agency wins a competition.

The savings equation is muddied by such factors as:

• Estimating only average salary costs rather than actual costs and applying these costs to authorized positions (as opposed to positions that are, in fact, filled).
• Not accounting for or underestimating the costs of conducting the study when identifying savings. These costs can be as much as $9,000 per position studied.
• Projecting savings resulting from reduced military positions when those positions are not eliminated, but transferred elsewhere.
• Not fully covering such transition costs as separation pay for civilian employees who lose their jobs.
• Reduced savings because studies are not completed on time and therefore the savings either don't show up or show up much later.

Professor Lawrence L. Martin of Columbia University has studied public-private competitions and has worked with both public sector and private sector groups on this problem. His assessment: "I haven't spoken to anyone on either side who feels that the process is fair and equitable."

A new effort just getting under way will address all aspects of this issue. The 2001 Defense Authorization Act requires the comptroller general to convene a panel of experts to review the gamut of "contracting out" issues, from the adequacy of the A-76 process to the implementation of the 1998 Federal Activities Inventory Reform Act. The panel must include representatives from Defense, OMB, private industry and federal labor organizations. The comptroller general, who will chair the panel, must report to Congress by May 1, 2002, to present the results of the study and recommendations for improvements.

With the comptroller general's leadership and the right participation, this panel may well offer the best chance yet for reform. Bill Woods, project director for the GAO effort says, "We really want this panel to make a difference."