Competition is the key to outsourcing target, OMB deputy says

Agencies that completely avoid public-private competitions as they aim to meet a Bush administration outsourcing mandate will face scrutiny from the Office of Management and Budget, OMB Deputy Director Sean O'Keefe said Tuesday. In a March 9 memo, O'Keefe directed agencies to compete at least 5 percent of government jobs considered commercial in nature, or 42,500 federal jobs, by October 2002. O'Keefe's memo gives agencies two options for meeting the 5 percent target: direct conversions, in which jobs are converted to the private sector without competition, and public-private competitions. Both options are governed by OMB Circular A-76. Concerned that A-76 competitions are too time-consuming and costly, some civilian agencies are considering direct conversions to comply with OMB's requirement. But agencies shouldn't disregard A-76 competitions when attempting to meet the 5 percent target, said O'Keefe. "I'm very much more an advocate of public-private competition, because it brings out the element of efficiency," O'Keefe said at a management conference sponsored by FPMI Communications. When asked what he would tell agencies that only use direct conversions to meet the 5 percent target, O'Keefe replied, "Let's talk." O'Keefe used his remarks to clarify the purpose of the 5 percent mandate. The Bush administration is not interested in cutting federal jobs, he said, but wants agencies to consider how they can carry out their missions more efficiently. "There is no bias towards privatization or outsourcing," said O'Keefe. "[The 5 percent mandate] is an attempt to get agencies to think about different ways of delivering their services." The 1998 Federal Activities Inventory Reform (FAIR) Act has contributed to the notion that outsourcing and the public-private competition process exist only to shift government work to the private sector, O'Keefe said. The act requires agencies to compile annual lists of all federal functions that are commercial in nature and could be contracted out. "The way the FAIR Act was set up … [functions] are either inside the tent of inherently governmental and protected from competition or part of a competitive free-for-all," said O'Keefe. Agencies should think about how outsourcing can improve their mission instead of dwelling on the classifications of the FAIR Act, he said. "As a management tool, it is better to look at all functions and think about how to perform them in a more efficient way," said O'Keefe. O'Keefe also mentioned that the Bush administration is drafting legislation that will help agencies account for the full cost of their programs, a step that is central to another OMB management initiative, performance budgeting. At present, many agencies are unable to account for the overhead, support and non-direct costs associated with their programs, making it difficult for managers to assess program performance. The legislation will require agencies to account for the benefit costs associated with their programs, O'Keefe said. "The ultimate objective is to reach a full cost accounting system," he said, citing activity-based costing as a tool that can help agencies improve their accounting.