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SEPTEMBER 27, 2002

Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity to be here today to discuss the competitive sourcing initiative, the final report of the Commercial Activities Panel, and the pending release of the revised OMB Circular A-76.

As you know, the Administration is committed to making fundamental changes to the way we manage the federal government. These changes are guided by a firm belief that the federal government should be results-oriented, citizen-centered, and market-based. Whether reducing purchase card fraud, expanding e-government, linking agency performance with results, or competing commercial jobs with the private sector, we are making progress on management issues.

Progress is particularly notable on each of the five government-wide initiatives included in the President’s Management Agenda: (1) strategic management of human capital; (2) competitive sourcing; (3) improved financial performance; (4) expanded electronic government; and (5) budget and performance integration. To ensure transparency and accountability for performance and results, we have employed a simple “traffic light” grading system. In the FY 2003 budget, 26 departments and agencies received baseline evaluations. Reflective of the fact that the chosen government-wide initiatives targeted areas with the most apparent deficiencies -- and the greatest opportunities for improved performance -- the initial baseline evaluation showed a lot of poor scores.

After eighteen months of hard work by the departments and agencies in each of these areas, I am heartened by the progress I am starting to see. The competitive sourcing scores for progress included in OMB's Mid-Session review tell a different story from that revealed by the initial baseline. The initial sea of red has been replaced by thirteen green, four yellow and four red progress scores. Departments have begun to effectively use competitive sourcing as a tool to manage. Agencies are taking a very hard look at how they fulfill their missions and they are asking the right questions: what are employees doing that is inherently governmental? What are they doing that is commercial? Is this mix right for mission success? They are also asking what their private contractors are doing for the agency and whether the agency is managing those contracts well. These questions are rather fundamental, but ones that must be asked if we are to have any chance of doing a better job of managing our most important federal resources – people and dollars.

The Competitive Sourcing Initiative

Each time I testify or give a speech, I like to begin the discussion with some of the basics to ensure we all have the benefit of the same historical perspectives. Competitive sourcing is a government-wide initiative to encourage competition for the performance of government activities that are commercial in nature. Using Office of Management and Budget (OMB) Circular No. A-76 (“Circular A-76”) departments and agencies have been asked to “determine whether commercial activities should be performed under contract with commercial sources or in-house using Government facilities and personnel.” Competitive sourcing is a means to an end, with the means being competition (generally public-private competition) and the end being better management of our government and better service for our citizens.

As of June 2000, there were 850,000 people in the federal government performing jobs that are commercial in nature – jobs that people also perform in the private sector. Despite the fact that many of these jobs are as basic as mowing the lawn or serving food, few if any of these 850,000 jobs have been exposed to the rigors of competition. Frankly, the federal government has not spent much time managing resources to determine if the same or a higher quality service can be provided to our citizens at a lower cost.

The competitive sourcing initiative asks agencies to manage resources by building the infrastructure necessary to institutionalize public-private competition. Competitive sourcing asks agencies to make some difficult choices. These choices affect real jobs, held by dedicated and loyal career civil servants. In many respects, this initiative comes down to one simple reality: very few people, whether they are working in the private sector or the public sector, like to work under the pressure of knowing that their work is on the line if they do not figure out how to perform it more efficiently and effectively. But, the fact that this initiative requires hard choices and a lot of hard work makes it an initiative that can bring about fundamental and lasting improvements to the way the federal government is managed.

Key to the success of any private sector company is the regular evaluation of whether necessary services should be provided in-house by company employees or by another company. A number of different factors are part of this determination, including the mission of the company, cost differential, performance, continuity of service, and the potential for quality improvements. As many technology companies have realized over the past decade, the decision to “buy” rather than “make” has meant that company employees are truly focused on the mission of the company -- in the case of technology companies -- making the next generation technology. Mirroring the sourcing decisions of the private sector, the competitive sourcing initiative strives to focus the federal government on mission -- delivering high quality services to citizens at the lowest possible cost.

Our Goals

The aggregate government-wide goal, established at the outset of the initiative, envisions the competition of 425,000 full-time equivalent employees (FTEs) -- i.e., 50 percent of commercial FTEs. Recognizing the need for significant analysis and review to establish individual agency competition plans, no timeframe has been established for the achievement of this long-term goal. Instead, OMB established a two-year ramp-up goal to compete 127,500 jobs (15 percent of commercial FTEs).

Let me be clear about the application of this aggregate government-wide goal. It is not intended as an arbitrary quota, such as the ones that were put into effect through most of the 1990’s when the workforce was reduced by 324,580 FTEs. In fact, the President’s Management Agenda includes an important Human Capital initiative to encourage agencies to address the dual challenges of arbitrary cuts already taken and the looming wave of retirements government-wide.

Like you, Mr. Chairman, I have always opposed arbitrary FTE cuts and caps. As this Subcommittee has heard me say before, competitive sourcing is not about outsourcing or downsizing the workforce. To the contrary, it is about creating incentives and opportunities for efficiency and innovation through competition. This initiative has one main bottom line: to ensure that government service is provided by those best able to perform in terms of cost and quality, be that the private sector or the government itself.

Thus, as we work with agencies and evaluate their progress, the real issue is whether an agency’s plan first builds an infrastructure for public-private competition and then implements competitions over the long-term. While OMB will presume that an agency has built such an infrastructure if it competes 15 percent of its commercial FTEs, we have been careful not to apply this goal in a rigid or arbitrary manner. Indeed, after extensive review of agency competition plans and significant agency consultation, OMB approved agency plans for less than 15 percent competition, focusing on agencies that had experienced significant FTE cuts or high service contracting to FTE ratios. As part of this process, OMB also asked several agencies to consider appropriate opportunities for in-house organizations to compete for work currently under contract with the private sector. As a matter of reality, many agencies will have built an infrastructure well before 15 percent of commercial FTEs have been competed.

Improving the Public-Private Competition Process

Conducting a public-private competition is not easy and the current process has its share of detractors. We are the first to acknowledge that OMB Circular A-76 needs an overhaul. The Circular is virtually unreadable, internally inconsistent, repetitive, vague, lengthy, and universally disliked. It should be no surprise that there is a cottage industry of people and groups trying to translate the Circular into English. Since I was confirmed in May 2001, I have spent an extensive amount of time studying potential process improvements, including participation on the Commercial Activities Panel.

There are two key aspects of the Commercial Activities Panel Report (the “Report”). First, the Report is fair. Second, the Report confirms what we knew all along: public-private competition improves government performance and saves taxpayer dollars over the long term. The Report also recognized that there are no silver bullets. If we want a fair, equitable, and transparent decision process, we must have checks and balances and accountability on all sides.

In June, I established an interagency working group to consider specific changes for improving the Circular -- changes will be published for agency and public comment in the Federal Register. At this point, I can assure you that the Circular will be shorter, consistent and understandable. I do not want to publish a new Circular that takes a team of experts to understand, and an industry of consultants to implement. Achieving consensus among the key stakeholders will remain a challenge, but the Administration is committed to working with agency managers, federal employees, federal employee unions, and the private sector to make significant and lasting process improvements. While maintaining equity, fairness and transparency, we must do a better (and faster) job of making sourcing decisions.

Rest assured, we will not institute an immediate wholesale replacement of the existing competition procedures. The new system will need to be tested and there will be trial and error. We will try to take the best elements of private/private source selections and the best elements of the current A-76 process. Among other things, this means:

  • Reducing time to complete competitions: Currently A-76 competitions take 2-4 years to complete. Managers should be held accountable for lengthy competitions that hurt morale and scare off non-government bidders. The interagency working group has discussed setting caps on the length of time the government and the private sector have to participate in competitions.

  • Giving managers flexibility to achieve best value for the taxpayer: The interagency working group has developed a “one-step” integrated approach for certain functions, including information technology, that follows the existing FAR Part 15 rules, including the use of cost/technical tradeoffs.

  • Demanding accountability: We must find ways to make the in-house winners of competitions more accountable to perform over time as promised.

  • Centralizing oversight responsibility and providing training: We need to encourage greater use of centralized and trained management teams to conduct A-76 competitions.

  • Eliminating the appearance of all conflicts of interest: We must ensure that there is not even an appearance of a conflict of interest in the conduct of A-76 competitions.

  • Helping agencies with costing analysis: The DoD costing model “Compare” is being made available to all agencies


Federal employees are some of the Nation's most highly trained and dedicated employees. At the same time, I applaud the service and support that federal contractors and their employees provide to our citizens. We could not meet current requirements and the many challenges we face in fighting terrorism and protecting our nation without the creativity and innovation that the private sector brings to the table. Our task is to ensure that we take full advantage of the best capabilities that each sector has to offer in each specific situation.

Working with you and members of Congress, we are asking federal agencies to reconsider how they accomplish their missions. We are also asking them to test assumptions about the best provider through the competitive process. Mr. Chairman, competitive sourcing is laying the groundwork for improved mission performance through quality service at the lowest possible cost. Like any other effort that seeks to fundamentally transform the way we do business, this initiative has its challenges. If we are steadfast in our commitment to competition, which lies at the heart of competitive sourcing and the recommendations of the Commercial Activities Panel Report, we will no doubt deliver the quality service our taxpayers deserve.

This concludes my prepared statement. I would be pleased to respond to any questions that you might have.