Bush administration touts savings from job competitions

In a report to Congress released Tuesday, the Office of Management and Budget provided its first estimates of savings to be generated by competitive sourcing, a management initiative aimed at letting contractors vie for thousands of federal jobs.

Public-private competitions completed at 26 major federal agencies in fiscal 2003 are likely to yield $1.1 billion in net savings over the next three to five years, OMB projected. "These are good returns for an initiative that has faced statutory restrictions, cultural challenges and a large learning curve, especially at civilian agencies that, until recently, had relatively little experience with using competition as a management tool," administration officials stated in the report.

The OMB statistics also indicate that in-house workers held onto nearly 89 percent of 17,595 jobs considered for outsourcing in contests finished in fiscal 2003 and the first quarter of fiscal 2004. These figures reflect the outcomes of competitions conducted using OMB's May 2003 revised version of Circular A-76, as well as those completed under the previous rules.

Clay Johnson, OMB's deputy director for management, has said that he hopes the release of detailed statistics will help the White House engage in a more informed debate with opponents of the controversial initiative. But federal employee unions were quick to claim Tuesday's report was misleading.

Most of the projected savings are based on estimates, said John Gage, president of the American Federation of Government Employees. Only the "tiniest fraction" of the savings, about $7 million, has actually been realized, he noted.

Union officials also claimed that the report underestimates the cost of the initiative. In guidelines issued in February for reporting competitive sourcing costs and savings, OMB instructed agencies to include only expenses directly attributable to running competitions, such as retaining consultants or hiring staff members for positions devoted exclusively to competitive sourcing.

The guidelines instruct agencies to omit the costs of assigning staff members to take time out of their normal workday to help out with competitions. Since agencies typically have very small staffs devoted exclusively to competitive sourcing and rely heavily on other employees to pick up the slack, this method of cost calculation fails to account for a large portion of actual expenses, the unions argue.

For example, the Forest Service spent an estimated $23.6 million on competitive sourcing in fiscal 2002 and 2003, according to a March 2004 report released Tuesday by staffers on a House appropriations subcommittee, but only a portion of those expenses will show up in the OMB's statistics. Most of the $11.7 million the Forest Service "spent on salaries and benefits associated with studies will not be reported because most was incurred during normal working hours," the appropriations committee staff concluded.

OMB defended the methods used to estimate that agencies spent $88 million on competitions completed in fiscal 2003, explaining that "incremental cost does not reflect, nor is it intended to reflect, the amount of overall effort an agency applies to competitive sourcing. It simply reflects the out-of-pocket costs to the agency."

This methodology is consistent with Congress' intent in asking agencies to submit competitive sourcing reports as part of the fiscal 2004 omnibus appropriations act, an OMB official said Tuesday. "The ratio of reported savings to costs is so large that we are confident that significant savings will continue to be identified," said the official, who asked to remain anonymous.

"The reality is that . . . people would be doing some of this work regardless," said Carl DeMaio, president of the Performance Institute, an Arlington, Va.-based think tank. He added that the savings projected by OMB are impressive, especially given that "a lot of agencies are doing this for the first time and are very rusty at managing competitions."

But unions say they will not be convinced of any savings until there is an independent review of the competitive sourcing initiative. "Clearly, given its highly political approach to privatization, no savings estimates from OMB can be taken seriously without an independent third-party review," Gage said. Colleen Kelley, president of the National Treasury Employees Union, has also called for a review, and in a statement issued Tuesday referred to OMB's report as "fiction."

In turn, key industry groups are concerned that OMB's statistics, while likely accurate, display a disturbing trend-federal employees are prevailing in almost all of the competitions. If agency managers were truly interested in using competition to find the best deal for taxpayers, they would not rig the system so that in-house workers win nearly 90 percent of contests, said Stan Soloway, president of the Professional Services Association, an Arlington, Va.-based contractors association.

"At some point, if these competitions continue to be drastically one-sided, the private sector will stop playing," said Chris Jahn, president of the Contract Services Association. "The taxpayer will be the loser in the long run."

OMB emphasized in its report that some agencies have caught on faster to competitive sourcing than others. Some agencies have "struggled to find a vision for success," the report stated. "Those agencies which have repeatedly experienced limited returns or losses typically have failed to adequately plan, generate private-sector interest in competition, or seize chances to reorganize inefficient operations."