OMB Prepares Legislation To Promote Competition

The Office of Management and Budget is preparing legislation aimed at leveling the playing field for companies that compete with government agencies for public-sector work.

Angela Styles, administrator for OMB's Office of Procurement Policy, said the administration is drafting two new pieces of legislation that would promote public-private competition by making it easier to measure the actual costs incurred by government agencies on specific projects.

One proposed bill would fund the annual accruing cost of federal employees' pensions and retiree health benefits as they are earned, charging the employing agency's salary and expense accounts in the budget, Styles told Washington Technology. Today, many benefits are partly funded or not funded at all, and then financed when due by mandatory payments from the Treasury Department.

The other bill would expand full charging of annual costs to cover support services, use of capital and hazardous waste clean-up. Like the retirement costs, these often are not factored into the employing agency's estimates for a possible outsourcing project.

Both bills address long-standing complaints from contractors, who say the A-76 process for public-private sector competitions is like playing against a stacked deck. The Information Technology Association of America, a trade group for IT companies, has estimated that federal assessments routinely fail to account for 10 percent or more of government overhead costs.

"With public-private competition, the private sector is at a disadvantage as the federal assessments fail to catch all the costs," said Bob Cohen, senior vice president of communications for ITAA of Arlington, Va. "The full costs of the work need to be calculated."

The new legislation is one of several OMB initiatives to beef up public-private competition. Earlier this year, the Bush administration committed to opening for competition 50 percent of the commercial workload as defined under the Federal Activities Inventory Reform Act.

To follow up, OMB Deputy Director Sean O'Keefe issued memoranda in February and March, instructing the agencies to subject at least 5 percent of their FAIR Act positions, or about 42,500 jobs, to competition by October 2002.

To accomplish this, OMB is expanding its emphasis on its Circular A-76, which describes the process for the private sector to compete for jobs deemed inherently non-governmental. Under A-76 guidance, an activity performed in-house can be converted to the private sector if the private-sector bid is 10 percent lower than the in-house estimate, or costs $10 million less.

According to the General Accounting Office, A-76 is employed in less than 1 percent of government outsourcing projects. It is used most by the Defense Department, which uses it in approximately 1 percent of outsourcing.

Agencies and contractors alike have complained that the process is cumbersome, taking two to four years to complete. In addition, agencies may require a broader array of reinvention and re-engineering options than can be subject to A-76.

Speaking before a June 28 House panel on outsourcing, Styles said OMB will take a number of steps to expand and improve the A-76 process. One is allowing federal agencies to keep the money they have saved through public-private competitions. OMB has also proposed opening interservice support agreements now contracted between agencies so that the private sector can bid as well.

OMB also has established a streamlining working group that will work with GAO's Commercial Activities Panel, a group formed to study the government's policies and procedures on outsourcing. And OMB is looking to streamline the A-76 process by shortening the time it takes to assess federal functions.

One agency, however, is ahead of the game. The Defense Logistics Agency has already reached the goals set by OMB, said Linda Heine, chief of competitive sourcing for DLA.

DLA's commitment to A-76 is 5.2 percent by the end of this fiscal year and more than 13 percent by the end of fiscal 2002, she said in written response to questions from Washington Technology. DLA estimates that by the end of this fiscal year, it will have already completed studies on more than 10 percent of positions defined as commercial in nature.

Heine, however, also voiced concerns that OMB's aggressive goals for fiscal 2003 would conflict with DLA's ongoing re-engineering efforts to reduce costs and improve performance.

"Applying A-76 prematurely to current re-engineering efforts will jeopardize efficiencies, mission effectiveness and the ability to accurately describe the functions to be performed [or] competed," she said.

Some lawmakers are also voicing concern that OMB's competitive sourcing initiatives are moving too fast. Rep. Albert Wynn, D-Md., has sponsored the Truthfulness, Responsibility and Accountability in Contracting Act (H.R. 721), which would bar outsourcing unless agencies can demonstrate the costs and savings from such work.

Under TRAC, all government outsourcing would be subjected to public-private competition. The legislation would require from agencies "comprehensive and reliable reporting systems to track the costs of service contracting," including comparisons of salaries and benefits between federal and private employees, said Mike Rious, senior legislative assistant to Wynn.

A Senate version of the TRAC bill, S. 1152, has been introduced by Sen. Richard Durbin, D-Ill. Both bills have received backing by trade groups such as the American Federation of Government Employees and the Federal Managers Association.

Many in industry, however, contend that TRAC will render the outsourcing process even more burdensome ? and may slow government modernization.

"TRAC totally ignores the human capital crisis the federal government is facing," said George Sigalos, counsel and director of communications for the Contract Services Association of America, a trade association representing companies that contract their services to the government.