Tall Order

omeone unfamiliar with government might think Uncle Sam wouldn't want to lose a worker like archeologist Douglas Scott. At the National Park Service, Scott is an expert in battlefield archeology, a field he helped create. His skill at sifting through the artifacts of war zones has shed new light on events from the Battle of Little Bighorn to modern-day genocide in Rwanda. In recognition of his work, Interior Department officials feted Scott last September, giving him the agency's highest honor, the Distinguished Service Award. Then they told him he'd have to compete with a contractor to keep his job.

The Park Service put Scott's job on the auction block last year as part of a Bush administration effort, known as competitive sourcing, to let the private sector compete for the jobs of 425,000 civil servants. To keep their jobs, Scott and his 37 co-workers at the Midwest Archeological Center in Lincoln, Neb., now must prove they can do them more cheaply than companies can. Scott learned his job was in jeopardy just days after receiving the Interior award, and the sting remains. "So I'm told that all the work that I did in earning the top honor at Interior can just be disposed of," he says. "I'm just a little bitter about this, in case you can't tell."

He's not the only one. Since the Office of Management and Budget began its competitive sourcing push in March 2001, the initiative has sparked public protests, hostile legislation and even a spat with the Defense Department, the only agency with a significant history of conducting job competitions. Comptroller General David Walker has said the competitive-sourcing initiative is hurting morale throughout government, and Bush officials don't exactly disagree. "I think people are still very troubled by it. There's still a lot of angst and concern," says Angela Styles, administrator of the Office of Federal Procurement Policy at OMB and the administration's point person on the issue.

But Styles believes public-private competition slowly is becoming a routine part of the way government does business, which was the intention of the initiative, she says. Almost all Cabinet-level agencies have started job competitions, and some are using competition to restructure nationwide operations:

• The Forest Service is conducting a nationwide competition for its information technology activities, from staffing computer help desks to repairing radio towers in national forests; 1,200 federal jobs are affected.
• At the Energy Department, 642 IT workers and roughly 1,000 contract employees will face competition together as Energy pits its current IT organization against those of outside companies.
• The Army is planning to shift 58,727 soldiers into combat positions as part of its massive Third Wave outsourcing initiative. Under the initiative, up to 154,910 Army civilians will have to compete for their jobs.

In late April, Styles said direct conversions would be dropped from OMB Circular A-76, the rule book for federal job competitions, when OMB finished overhauling the document. The final circular was issued May 29. She hoped the move would signal that competition, and not outsourcing, was the focus of the Bush initiative. "I've been trying to tell [people] that what we want is competition and the best value for the taxpayer at the lowest cost," she said. "I think this adds a little more meat to what we're saying."

But it doesn't make competition any easier. In Lincoln, Scott and his co-workers now share their office with consultants from Delta Solutions, a Deerfield, Ill.-based company that is helping craft the employees' bid. Scott says the consultants are hard-working and professional, but their presence is an unmistakable reminder of the uncertain future of his office. "People are like zombies around here," he says. "I would say morale is at the lowest I've ever seen it in 28 years of federal service, and I've been through six reorganizations."

At the Forest Service, Thomas Mills has tried to sell competitive sourcing to a skeptical workforce, and he admits some employees aren't buying. Workers who have spent 20 to 30 years with the Forest Service don't want to prove their efficiency, or study whether private contractors could do a better job. And it's hard to accept that the agency now is asking them to do that.

"[Competitive sourcing] is a personal and professional affront to many of them, and there is nothing I could say that would remove that," says Mills, who is deputy chief for business operations at the agency.

Other employees worry that competitive sourcing could hit them in the pocketbook, especially in a weak economy. "I am a single mother with two children and a mortgage, and there are quite a few of us here who don't have a second income to fall back on," says a worker at the National Institutes of Health in Rockville, Md. Hugh Wright is one of the 1,200 IT workers at the Forest Service who are facing competition. Wright is an information resources manager in Portland, Ore., but he would gladly shift jobs to stay with the agency. "I don't care what I do as long as I can get my time in for retirement," he says.

In their competitive sourcing push, Bush officials have run headlong into a federal culture that could do without public-private competition. Privately, some managers say they wish the whole initiative would just end. "If we're too enthusiastic about competitive sourcing, our employees would not be pleased," says an official at a civilian agency. "If we're not enthusiastic enough, it looks like we're dragging our feet on the administration's issue." But Bush officials won't back down. They believe public-private competition can transform federal agencies, and they are prepared to make concessions on the details of competitive sourcing to make agencies stick with it. If government employees would just give competition a chance, OMB believes, they would like the results.

CULTURE CLASH

In her trim business suit and black pumps, Angela Styles hardly looks like a revolutionary. But she has a sweeping view of how competitive sourcing can help agencies restructure and even make government a more attractive place to work. "Anybody who thinks that people come out of college and want to come to a lifetime job in the federal government has no idea what they're talking about," she said during an interview in late January. "We need to attract people to the federal government by having an environment that's dynamic, that's not related to the stability of your tenure there. That's what you get with competition."

To understand why Bush officials are so bullish about competition, it helps to look at the government they inherited. In 2000, agencies filed reports under the 1998 Federal Activities Inventory Reform (FAIR) Act indicating that 850,000 federal employees were doing jobs that were commercial in nature. But outside the Defense Department, job competitions were virtually unknown.

To Bush officials, asking whether private companies could hang drywall, run an IT help desk, or serve food at a lower cost than federal employees could was a no-brainer. If a contractor could maintain trails in a national park more efficiently than federal workers could, hire the contractor. "The general idea that the business of government is not to provide services, but to see that [services] are provided seems self-evident to me," OMB Director Mitch Daniels told a federal audience in April 2001. And since competitions routinely save 30 percent-most savings come from simply reducing the number of people needed to do the work, according to the General Accounting Office-the government would reap big savings.

So, in the summer of 2001, OMB told agencies to compete 15 percent of the jobs on their FAIR Act lists-127,500 federal jobs in all-by Sept. 30 of this year. Once the administration's political appointees were in place at agencies, they began to set up competitive sourcing offices and pick jobs that should face competition.

OMB soon met resistance at the two biggest federal departments, Defense and Veterans Affairs. The lone department to hold job competitions during the Clinton administration, Defense completed 784 competitions and direct conversions between 1997 and 2001, generating $5 billion in savings. But by the time OMB issued its targets, many in Defense were fed up with the cumbersome A-76 process and wanted to try something new. In December 2001, Defense announced it was developing "alternatives to A-76" and would not be held to OMB's competitive sourcing targets. "Rather than pursuing narrowly defined A-76 targets, we propose to step back and not confine our approach to only A-76," Pete Aldridge, then undersecretary of Defense for acquisition, technology, and logistics, wrote in a Dec. 26 letter to OMB. A month later, Styles announced Defense had fallen back in line and would meet the 15 percent target, but the department continued searching for new competition methods.

At Veterans Affairs, officials had little experience with A-76, but were used to tapping the private sector. Between 1995 and 2000, the Veterans Health Administration hired 43,000 contract employees to staff new community health clinics, a centerpiece of the department's effort to make health care more accessible to veterans. During the same period, the VHA cut its federal workforce by almost 21,000 positions. VA officials believed they had followed the spirit, if not the letter, of competitive sourcing for years.

So did many other agencies. In 1999, the most recent year for which data are available, the government relied on a contract workforce of 5.6 million employees, according to Paul C. Light, a senior fellow at the Brookings Institution. With 1.9 million civilian employees in government, federal agencies had more than three contract employees for every civil servant before competitive sourcing even got started. In this context, many agencies were reluctant to start competitive sourcing-and putting their employees through the competition process-just to fulfill OMB targets. Some small agencies still are holdouts. Two years into the initiative, the Agency for International Development has not started any competitions. "They'll take some heat for that," says Styles.

VA officials resisted until OMB agreed to shield the department's doctors and other medical professionals from competition. The Education Department put competitive sourcing on hold while it developed a comprehensive approach to the five items in the Bush management agenda: personnel reform, advancing e-government, improving financial management, and linking program funding to performance. Education now uses activity-based costing to reengineer portions of its support workforce before they face competition from companies, according to William Leidinger, assistant secretary of education for management. Despite its slow start, Education is a model for how agencies should approach competitive sourcing, says Styles. "I use Education as an example of an agency that took a little longer to get started but, as a result, has a tremendous plan," she says. "If you are making a great effort, I think we are much more flexible on what the time frame is for finishing a study."

Other agencies are going to extraordinary lengths to prevent competitive sourcing from demoralizing employees. At NIH, managers tried to personally inform each of the roughly 1,400 workers whose jobs are slated for competition this year. The agency has opened a transition center where employees displaced by competitive sourcing can get career counseling or train for a new career at NIH or its parent, the Health and Human Services Department. HHS officials have guaranteed that no NIH employees will lose their jobs or even be demoted to lower pay grades as a result of competition.

The National Institute for Standards and Technology has stopped filling certain vacancies in order to open slots for employees displaced by competition. Like NIH, the agency has set up a career center for employees who need retraining or just feel stressed. "We know A-76 can be unsettling to our employees, so we're doing everything possible to make sure we can give them as much assistance as we can," says Dr. Arden Bement, the director of NIST.

At the National Park Service, officials are hiring contractors to fill 900 new and vacant jobs, which will help the agency meet its competitive sourcing targets without affecting its workforce. "We can achieve our [target] without adverse impacts on employees' jobs," says David Barna, the agency's director of public affairs. "No NPS employees will lose their jobs over competitive sourcing in the next couple of years." Agencies also have used buyouts to soften the blow of competition.

If these tactics sound familiar, it's because agencies used them to cope with Clinton era downsizing goals. And just as they did with downsizing, agencies are trying to comply with competitive sourcing while keeping reductions in force resulting from competitions to a minimum. Through the end of March, the Interior Department had competed 917 jobs without a RIF. In fact, OMB is not aware of any RIFs resulting from competitive sourcing in its two-year history.

But observers expect some RIFs will be needed as agencies finish larger competitions. And when RIFs occur, there is concern they could disproportionately affect minorities, who are overrepresented in some agency competition plans. Fran Mainella, director of the National Park Service, raised this issue in an April 4 internal memorandum to Interior officials, noting that 89 percent of employees in jobs being considered for competition in the Washington area are women or minorities. "This potential impact upon this workforce concerns us," she wrote. Interior officials say they will encourage minority-owned businesses to bid on work at the department, and note they have picked a mix of white- and blue-collar occupations to face competition. Some Park Service employees believe the agency is targeting its white-collar professionals for competition, says Scott, the prize-winning archeologist.

As members of Congress learn more about which employees are in the crosshairs for competition, some are taking action. Sen. Frank Lautenberg, D-N.J., has introduced a bill that would exempt nearly all air traffic control employees from competitive sourcing, potentially halting a job competition involving 2,700 flight service specialists at the Federal Aviation Administration. In the House, Rep. Lane Evans, D-Ill., is considering legislation to protect veterans in the VA workforce from competition. The VA has pledged to compete 56,010 jobs over five years, including those of 10,470 agency employees who are veterans and 4,124 service-disabled veterans. And Sen. Robert Byrd, D-W.Va., placed a hold on the nomination of Clay Johnson to be deputy director for management at OMB in protest of the job competition program. Byrd lifted the hold on May 16, but his action helped delay the release of OMB's revised A-76 rules.

THE NEW A-76

Service contractors and federal unions are the Hatfields and McCoys of government; they just don't see eye-to-eye on most issues. But for years, these rivals have found common ground in their mutual dislike of the A-76 process. Derided as too long, too costly, and unfair to everyone involved, A-76 is the lightning rod for frustrations with public-private competition. In 2000, Congress appointed an expert panel to fix A-76. But in the last weeks of September 2001, the panel was at an impasse. Known as the Commercial Activities Panel, the 12-member group included representatives from unions, industry, federal agencies and academia. Comptroller General David Walker served as chairman. Starting in May 2001, the panel met monthly, and some members and their staffers gathered more frequently in working groups to hash out the details of A-76. As positions hardened, the working group sessions became increasingly unproductive; some degenerated into shouting matches between contractors and union participants.

To break the stalemate, Walker asked participants to draw up wish lists of changes to the A-76 process. Two staffers for contractors recommended replacing A-76 with a method based on Part 15 of the Federal Acquisition Regulation. Part 15 spells out how to conduct procurements under the "best value" approach, which allows noncost factors, such as technical performance and reputation, to be considered in procurement decisions. The acquisition reforms of the 1990s had made best-value procurements commonplace in federal contracting, but the lowest bidders still won most A-76 competitions. Over the next few months, most panel members-with the exception of union representatives-became convinced the "best value" approach was needed to bring public-private competition into the 21st century. By an 8-4 vote, the panel endorsed "best value" in its final report, which was issued April 30, 2002.

Styles took these recommendations and began OMB's rewrite of A-76. For months, the budget office had promised to simplify the competition process for civilian agencies, which had heard horror stories of how A-76 worked at Defense. To speed up the pace of competitions, OMB decided to add time limits to the circular. During the summer and fall of 2002, the budget office weighed deadlines of 24, 18, and 15 months before settling on 12 months, the preference of OMB Director Mitch Daniels.

OMB unveiled its draft circular on Nov. 14 . Besides setting time limits, it contained a range of competition methods, including the current process and a "best value" method for use in competitions involving IT jobs. It opened almost all inter-service support agreements (ISSAs) between federal agencies to private sector competition, giving companies greater access to the multibillion-dollar federal market for support services. The circular also required teams of federal employees to sign binding performance agreements if they won job competitions, and to face re-competition when these agreements expired. And in a major change, the circular presumed that all federal jobs are commercial in nature and eligible for competition unless proved otherwise.

Many of these changes struck agencies as radical. The Small Business Administration fretted that the re-competition requirement could make government work less attractive. "The actual duration of 'permanent' federal employment will become so uncertain that people may be reluctant to apply for government jobs," SBA officials wrote in comments on the circular. Every Cabinet-level agency protested the 12-month time frame, arguing a year was simply not enough time to stage a competition. OMB had intended to issue a final version of the revised circular in late January. But after the budget office received more than 700 public comments on the draft, Styles persuaded Daniels to push back the release date, according to multiple sources.

The extension gave agencies more time to mold the circular to their liking. One of the most active in suggesting alterations was the Interior Department, which began peddling a new competition process to OMB shortly after the draft circular was issued. On the morning of Dec. 5, as Washington woke up to its first snowfall of the approaching winter, Interior officials trekked over to OMB to pitch their idea. Interior's method is a twist on the current streamlined process used for job competitions involving 65 or fewer federal employees. That process compares the price of the existing federal unit with the going market rate for private companies to do the work. If the private-sector cost is lower, the agency puts the jobs out for companies to bid on. Since employees do not restructure themselves, the agency reaps no savings when they win-and Interior has won all six streamlined competitions to date. "There is not one red cent you can put your hands on when that happens," says Helen Bradwell-Lynch, director of competitive sourcing at Interior.

Under Interior's alternative, employees in small functions would reorganize into a "most effective organization," just as they do in contests with more than 65 workers. After four months of back and forth, Styles agreed to add Interior's process to the circular as one of several new options for holding small competitions.

Agencies also prodded OMB to abandon some of the more far-reaching proposals in the draft circular, including the requirement to compete inter-service support agreements. "We thought that ISSAs should be deferred because basic competitive sourcing is enough to work on at the moment," says Corey Rindner, the procurement executive at the Treasury Department and chairman of the "sewing circle," a group of civilian officials that meets monthly to discuss competitive sourcing.

This spring, OMB continued to backtrack from the draft circular. The final document dropped the presumption that federal jobs are commercial. Direct conversions also were eliminated. "Direct conversion implies an outcome, it implies the private sector can do it better and cheaper," Styles says.

In another concession, OMB will let agencies temporarily exempt some employee teams that win competitions from future job competitions. But Styles still believes that regular competition should be the rule for each of the 425,000 jobs in OMB's crosshairs. "I don't think in theory it should be any different than private sector [firms] that have to recompete every three to five years," she says. But Styles demurs when asked about the long-term consequences of making competition routine for so many federal workers: If employees are to face competition every five years, for instance, should they be exempt from federal pay and benefit plans to be more competitive? "That's a long term question that we haven't even come to yet," she says.

Some of OMB's changes could make it harder for employees to win competitions. In the final circular, OMB scrapped a rule that gave employee teams a 10 percent cost advantage in streamlined competitions. "In-house teams don't have a prayer without that," says Robert Knauer, an instructor with the National Contract Management Association.

Some observers think these concessions are motivated by politics. The American Federation of Government Employees rallied large numbers of congressional Democrats against the draft circular, and few Republicans defended it. "We had a draft that read like a plank on the Republican platform and now we're getting a circular that reads like a plank on the Democratic platform," says one observer.

But OMB's backtracking also helped win over agency managers. Civilian officials now believe Styles is open to their ideas. "What we really like about Angela is that she is willing to try new things," says Interior's Bradwell-Lynch. Competitive sourcing still may be a tough sell with employees in the field, but officials in Washington increasingly are on the same page.

THE THIRD WAVE

When the comment period for the revised A-76 closed on Dec. 19, OMB had the views of every agency but one: the Defense Department. The Pentagon did not submit its views until Jan. 17. OMB, of course, eagerly accepted them. On competitive sourcing-as in many areas-the rules are stretched for Defense. But OMB has put a halt to some Pentagon initiatives that would bypass A-76. Many in Defense are eager to develop alternatives to A-76, but the budget office generally has blocked options that do not involve public-private competition. For example, the Air Force tried to get competitive sourcing credit for implementing a common "most effective organization" (MEO) across the service without competition from private firms. OMB said no. "The Shared-MEO proposal effectively removes a commercial activity from the possibility of competition for an indeterminate amount of time," Styles wrote in an Aug. 22 memo explaining her decision. Her aim is to make Defense follow the same competitive sourcing rules as other agencies.

Still, with eight years of experience conducting job competitions, Defense views competition differently than other agencies do. While civilian agencies scrambled to set up offices and meet competitive sourcing targets, the military services used competition to launch a fundamental review of their workforces. In the fall of 2001, at the behest of Defense Secretary Donald Rumsfeld, the services began classifying their employees as "core" (basically, warfighters and employees who directly support them) or "noncore" (everyone else). Rumsfeld intended the reviews to move service members out of noncore jobs and into front-line military positions, thereby adding to the fighting force without increasing end-strength. In the Air Force, officials found 18,000 personnel they hoped to move out of noncore jobs, while the Army identified 58,727 soldiers for conversion. (The Navy is not as far along and has no figures.)

In early October, the Army unveiled the biggest competitive sourcing initiative ever envisioned by a federal agency. The service proposed to let private firms compete for the jobs of 154,910 civilians-almost two-thirds of the Army's civilian workforce-and to expand competition beyond base operations to all noncore positions. The Army called its initiative the "Third Wave" to differentiate it from previous rounds of outsourcing. "We are actively seeking to outsource or privatize all noncore functions," former Army Secretary Thomas White said in a speech to the Association of the U.S. Army in late October. But since then, the Army has exempted some noncore functions from the plan. After the "Third Wave," was announced, Army planners received a flood of requests for exemptions as Army commands sought to protect certain employees from the initiative. Headquarters officials responded with a thorough review of the legal and policy issues raised by potential outsourcing. An initiative that resembled a fire sale now has the feel of a Sotheby's auction.

The Army has carefully parsed its plan and as a result has significantly limited the types and numbers of jobs it intends to put on the block. For example, although all Army health care jobs are considered commercial under the FAIR Act and legally eligible for outsourcing, the service decided it would be too risky to outsource the jobs of doctors who might support troops during wartime. To emphasize its point that exemption decisions were based on policy, not numbers, the Army will not say how many noncore employees are now exempt from the Third Wave.

As the Army expands its outsourcing effort, it will confront some of the same cultural issues that have made competitive sourcing so difficult at civilian agencies. At a March 12 hearing of the House Subcommittee on Military Readiness, Army Vice Chief of Staff John Keane offered his personal view on outsourcing: "When you have a civilian employee, that employee's loyalty is to you, the institution itself, the United States Army. And there is a bond created between that civilian workforce and this institution called the Army, much as there is among our soldiers."

Managers throughout government probably would agree. After 27 years with the Forest Service, Thomas Mills certainly would. But Mills now runs that agency's competitive sourcing program, and he believes agencies need to 'fess up to the issues posed by competitive sourcing. "We can't simply allege that we do things better than everyone else anymore," he says. "We need to prove it."