GAO Commercial Activities Panel Issues Report Recommending Changes to Outsourcing

By section 832 of the National Defense Authorization Act of 2001, Congress directed the Comptroller General to "convene a panel of experts to study the policies and procedures governing the transfer of commercial activities for the Federal Government from Government personnel to a Federal contractor . . ." After convening a panel of experts from government, industry and academia, and conducting public hearings and private meetings, the Comptroller General issued the panel’s final report on April 30, 2002. The report makes some specific recommendations for revising the outsourcing process, yet it also highlights some consternation that remains regarding the entire subject of outsourcing.

The panel made four broad recommendations to improve the procurement process for outsourcing. These recommendations range from the innovative to the anticipated and would require varying degrees of legislative or administrative action to implement.

First, the panel unanimously adopted a set of 10 "Sourcing Principles." Much like a tablet of commandments, the Sourcing Principles set forth general guidance for the conduct of outsourcing procurements. Some of these principles are reflective of current policy, such as: "support agency missions, goals, and objectives"; "recognize that inherently governmental and certain other functions should be performed by federal workers" and "ensure that, when competitions are held, they are conducted as fairly, effectively, and efficiently as possible." Other principles are directed at more specific change, such as: "avoid arbitrary full-time equivalent (FTE) or other arbitrary numerical goals"; "ensure that competitions involve a process that considers both quality and cost factors" and "provide for accountability in connection with all sourcing decisions."

Second, the panel recommended an Integrated Competition Process, i.e., that public-private competitions should be conducted within the framework of the Federal Acquisition Regulations (FAR). This suggestion contemplates that public-sector proposals would be submitted and evaluated under the same rules that apply to private-sector proposals to assure accountability. Importantly, the panel includes in this recommendation that federal employees have the right to file bid protests. This has been a significant issue for union representatives, given holdings by the GAO and Court of Federal Claims that federal employees do not have standing as an "interested party" to bring a bid protest.

Some other intriguing recommendations that might pose legal issues include: the guarantee of one round of discussions before the in-house proposal is eliminated from the competitive range when a federal workforce is already performing the work; execution of a "binding performance agreement" when the in-house proposal is selected, so that the government is held to the same expectations as industry under contract; the ability for the federal workforce to share in award fees; a right of first refusal when federal employees are to be displaced; and explicit permission for public-private partnerships.

The recommendation would incorporate some aspects of Office of Management and Budget (OMB) Circular A-76, but ultimately seeks to revoke OMB Circular A-76. The Panel made this recommendation by a supermajority vote.

In statements attached to the report, union representatives vigorously opposed application of FAR principles to public-sector proposals. Instead, opponents of the report offered an alternative approach that incorporates some concepts from the report, but focuses on pilot projects for alternatives to public-private competitions.

Third, the panel recommended several changes to OMB Circular A-76 until such time as it is overcome by the FAR. These modifications generally are to promote accountability within the government and to ensure fairness to all parties affected.

Finally, the panel recommended that the government promote high-performing organizations (HPO). The panel not only recommends that the government identify and promote HPOs, but also select certain functions to become HPOs and exempt them from competitive sourcing studies.

Some of these proposals will require congressional action, while others warrant administrative change to regulations. It is clear from the statements of the panel members that implementation of any recommendations apart from the guiding principles will be subject to heavy debate and lobbying before Congress. Accordingly, it is unlikely that the contracting community will appreciate any change to the public-private outsourcing process in the near future. For a copy of the report, see http://www.gao.gov/a76panel/dcap0201.pdf.