The A-76 dilemma

Big dollars ? and big risks ? await contractors<@VM>Words of wisdom

Joe Cipriano, vice president of business process outsourcing at Lockheed Martin IT.

Rick Steele

Jerry Wesbecher of Pearson Government Solutions said the company is cautiously approaching A-76 competitions, but is optimistic about success with them.

Rick Steele

The time to award has run as long as four years for some A-76 deals that Computer Sciences Corp. has won for military bases, said CSC's Lawrence Hare.

Rick Steele

When Lockheed Martin Corp. won a $1.9 billion competitive sourcing contract with the Federal Aviation Administration just over a year ago, the company was ecstatic. Here was a chance at a 10-year contract, taking over a 2,000-plus person operation and consolidating from 58 to 20 the FAA's flight stations that help with planning and sharing of information on weather and air space status across the country.
The contract also is the largest award under the government's A-76 process, in which the government competes its own workers against the private sector.

But Lockheed Martin's elation soon wore off as the National Association of Air Traffic Specialists, the union representing more than 2,000 FAA employees, and its allies in Congress stepped up opposition to the outsourcing deal.

The FAA employees, who formed a Most Efficient Organization to compete with Lockheed Martin, filed a bid protest. The MEO had teamed with Harris Corp. of Melbourne, Fla. Other bidders included Computer Sciences Corp., Northrop Grumman Corp. and Raytheon Corp.

Then, legislators in the House sided with the union and suspended $150 million in funding for transition work on the contract. The money was later restored, but the process for Lockheed Martin was daunting.
"It was somewhat disappointing to have all the protests filed after the award," said Vice President of Lockheed Martin IT Joseph Cipriano, who oversees the project. "But it should not be unexpected, since this was the largest A-76 ever awarded by the government. It was a milestone."

Lockheed Martin's woes dragged on until just a couple of months ago when, Cipriano said, the company finally cleared all the "legal hurdles, protests and threats of congressional language that could have derailed the project."

The opposition to Lockheed Martin's contract is an object lesson on why so many companies avoid A-76 competitions, named for the Office of Management and Budget circular that describes when to compete government operations with the private sector.

"It would be safe to say that industry has the perception that the environment is not evenhanded," said Trey Hodgkins, director of defense issues at the Information Technology Association of America.

Over it and out

Industry's participation in A-76 competitions "is really suffering right now, and a lot of companies have pretty much washed their hands of it," said Stan Soloway, president of the Professional Services Council.
The most dominant reason may be the low win rate. Most Efficient Organizations, government teams set up to compete against industry, known as MEOs, win 91 percent of A-76 competitions, according to OMB's most recent report, which covers fiscal 2004. Data for 2005 is due for release soon, OMB spokesman Alex Conant said.

During fiscal 2004, the government held 217 A-76 competitions, involving more than 12,500 jobs, according to OMB's last competitive sourcing report.

Several of the successes claimed in the report are for projects that did not involve a contract award to the private sector. For example, IRS conducted an A-76 competition between two in-house teams for area distribution centers, which process customer orders for tax forms and publications.

The IRS said that implementation of the plan will save $207 million over five years.

[IMGCAP(2)]In the report, OMB uses the high win rate by government competitors to show that A-76 is fair to federal employees. But for industry, the win rate is a discouragement.

"Industry is very realistic, and with the prospect of winning only 9 percent of the time and so many other opportunities [available], it's really a disincentive to get involved in an A-76 competition," said Olga Grkavac, executive vice president of the government division at ITAA.

Global management and technology consulting firm Accenture LLP, for example, focuses its efforts on "pursuing federal procurements where we have good prospects for success," said Lisa Mascolo, managing director of Accenture's USA government operating unit. "Most A-76 procurements for IT contracts are awarded to government bidders."

Pearson Government Solutions Inc. of Arlington, Va., is cautiously approaching A-76 competitions, but is optimistic, said Jerry Wesbecher, senior vice president of corporate and business development.

The company formed a team in late 2003 and early 2004 to conduct due diligence on the A-76 process, he said. Pearson has no A-76 work but is looking at several opportunities with civilian agencies, while the federal government continues to form its "go forward" plans, he said.

Another drawback for companies is that bidding on an A-76 project is expensive and time-consuming. The time to award has run as long as four years in the last couple of A-76 contracts that Computer Sciences Corp. has won for work at military bases, said Lawrence Hare, president of the company's applied technology division, which holds most of CSC's A-76 work.

[IMGCAP(3)]The OMB report said the average time to award has shortened from nine months to three months under A-76 procedures adopted in 2003.

But those figures do not count the seemingly automatic delays of appeals and protests that occur when the private sector wins, industry officials said. The National Association of Air Traffic Specialists, for instance, challenged the FAA award three separate times.

Before Lockheed Martin in 2003 acquired the federal business of Affiliated Computer Services Inc., the Dallas company ran into its own A-76 troubles. About five years ago, after ACS won an A-76 contract from the Defense Finance and Accounting Service to run its retired and annuitant pay system in Cleveland, ACS faced strong opposition from the local union.

The MEO filed a protest that gained the backing of local congressmen. After employees received reductions in their salaries and benefits, they complained to the human resources department or quit their jobs, Cipriano said.

United front

The stronger a federal employee union objects to an A-76 competition, the less likely are contractors to be willing to bid on the procurement, Soloway said.

In most cases, when industry wins an A-76 competition, the winning company hires the government employees. In the FAA award, Lockheed Martin hired offered jobs to all of the agency's employees and ended up hiring about 1,700, Cipriano said.

As with Lockheed Martin's work for the FAA, opposition will push Congress to act to put the project on hold or wipe it out entirely.

"Once you win a contract, and you sustain protest against it and then have Congress attempt to take it away, it violates a sense of fair play," Grkavac said.

Fairness was one of the reasons the air traffic controllers union protested the award to Lockheed Martin.

Among the concerns that union President Kate Breen voiced were the impact on employees close to being vested in the government retirement program. The union also was concerned because Lockheed Martin promised to hold jobs at closed facilities for only a short time.

Lockheed Martin's "soft-landing" package for the FAA employees, which included a $5,000 bonus and a free Dell lap top computer, didn't make up for what some FAA workers lost in the deal, such as retirement benefits, holiday pay and weekend salary differentials, Breen said.

"We've lost a lot of things that a lap top and a $5,000 bonus just can't replace," she said, adding that Lockheed Martin has paid half the bonus to the FAA employees and will pay the remainder next month.

When the company won the contract, Breen lost her option for early retirement from the FAA, which would have given her $30,000-$35,000 a year plus health benefits, she said. Instead, she now ends up at age 62 with a deferred retirement of $3,000 a year and no benefits. "That's what I get for my 15 years" with the FAA, Breen said.

When it comes to competitive sourcing, industry has nothing to complain about, said Breen, one of the FAA air traffic controllers who works for Lockheed Martin.

"Industry is given every advantage, she said. "In this case, the FAA bent over backwards to give industry the advantage."

Companies that win A-76 procurements sometimes find themselves facing a hostile workforce. When such deals are handled poorly, government employees often harbor a natural antipathy to being outsourced to industry, Soloway said.

"It has been portrayed as a process that demeans and disadvantages federal employees, but when it's done right, that doesn't have to be the case," he said.

Soloway cited the case of an A-76 competition at Aberdeen Proving Ground, Md., in which industry won the work. The colonel who announced the news called it the saddest day in the history of Aberdeen, Soloway said.

"To me, that means the messaging and the leadership around that process were not positive, encouraging and supportive of the workforce, but also were not supportive of the process of the agency's responsibility to deliver to the taxpayer," Soloway said.

Staff Writer Roseanne Gerin can be reached at rgerin@postnewsweektech.com.Competitive sourcing contracts are not all bad news for federal IT contractors. But before jumping into the fray, check out the advice from veterans of these competitions:

  • Team with the agency's Most Efficient Organization. MEOs were developed to identify process improvements and cost reductions of activities as required by the performance work statement. A MEO partnership is the easiest and most painless way to win. Information management company Aspen Systems Corp., which Lockheed Martin Corp. acquired in January, recently won an IT services contract to support the Justice Department's Grant Management Office by joining forces with the department's MEO, according to Joseph Cipriano of Lockheed Martin Information Technology.

  • Focus on price. Most of the A-76 competitions are still focused on lowest price rather than best value. "You have to figure out how to be creative enough to do a really good job, and innovative enough to get the job done at a low price," said David Kriegman, chief operating officer and executive vice president of SRA International Inc.

  • Skip the smaller A-76 competitions. They often are better suited for the government MEOs already doing the work.

  • After a win and hiring the government employees, rebuild trust by not stressing profitability. "If the proposal was thoroughly thought out, there should be enough opportunities and time for the activity to be profitable," said Joann Kansier, former director of FAA's competitive sourcing office, now employed at consultancy Grant Thornton LLP.

  • Make a soft landing into the commercial sector. In the case of FAA's Automated Flight Service Stations Network program, Lockheed Martin IT offered all of the agency's employees jobs at their current pay, along with hiring and retention bonuses and free laptops, Lockheed Martin's Cipriano said. "It was a very successful transition, and we have a very happy workforce as a result," he said.

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