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STATEMENT OF ANGELA B. STYLES
ADMINISTRATOR FOR FEDERAL PROCUREMENT POLICY
BEFORE THE
COMMITTEE ON GOVERNMENT REFORM
UNITED STATES HOUSE OF REPRESENTATIVES
June 26, 2003
Chairman Davis, Congressman Waxman, and Members of the Committee, I appreciate
the opportunity to appear before you today to provide an update on our competitive
sourcing initiative and discuss the recently released revisions to OMB Circular
A-76. Two years ago, almost to the day, I outlined for your Technology and
Procurement Policy Subcommittee the Administration's vision of a market-based
government that embraces the ideals of competition, innovation, and choice.
I am pleased to say that we have made significant progress since that June
2001 hearing towards fulfilling our vision and transforming agencies' mindset
from one that resists competition to one that welcomes the value competition
generates. Of particular note, OMB has:
- secured
the commitment of senior agency officials to increase the number of
government-performed commercial activities that are subject to the dynamics
of public-private competition;
- improved
the processes agencies use to inventory their commercial and inherently
governmental activities and to identify commercial activities suitable
for competition with the private sector;
- worked
closely with federal managers in developing customized competition plans
to reflect differing agency missions, priorities, and workforce mixes
and enable the institutionalization of public-private competition in
a responsible and reasonable manner;
- strengthened
policies and procedures for conducting public-private competitions,
so agencies are effectively positioned to select the best public or
private provider that can help them meet their needs; and
- negotiated
scorecards with each agency to track agency progress and trigger adjustments
when results fall short of expectations.
I am particularly gratified by the improvements we have made to the policies
and procedures for conducting public-private competitions. These changes,
which are reflected in the recently issued revisions to Circular A-76, give
federal managers the means to bring about improved program performance and
lower costs for their agencies. Today, I would like to discuss some of the
market-based, results-oriented changes we have made to Circular A-76. I
will then briefly mention the additional management steps we are taking
to ensure the success of competitive sourcing over the longer term.
Revisions
to Circular A-76
Despite the commitment of our federal managers, overall use of competitive
sourcing has been weak. This underutilization is not surprising. For a long
time, the acquisition community has argued that the benefit derived from
public-private competitions could be much greater if performance decisions
were made within more reasonable timeframes, processes were more accommodating
to agency needs, and greater attention was given to holding sources accountable
for their performance. To address these and other shortcomings, Circular
A-76 has been revised to provide a number of results-driven features. Let
me highlight a few of them for you.
1. Time limits for completing competitions. Timeframe
standards have been incorporated into the revised Circular to instill greater
confidence that agencies will follow through on their plans and ensure the
benefits of competition are realized. Under the revised Circular, a standard
competition must generally be conducted within a 12-month period: beginning
on the date the competition is publicly announced and ending on the date
a performance decision is made. A "standard competition" is the
general competitive process required by the revised Circular when an agency
selects a provider based on formal offers or tenders submitted in response
to an agency solicitation. The revised Circular provides that the agency's
competitive sourcing official (CSO) -- i.e., the official within the agency
responsible for implementing the Circular -- may extend the 12-month period
by 6 months with notification to OMB. Streamlined competitions, which I
will describe in a moment, must generally be completed within a 90-day period.
Agencies will be required to publicly announce, through FedBizOpps, the
beginning of competitions, performance decisions made at the end of a competition,
and any cancellation of an announced competition. Announcements of competition
and performance decisions must also be publicized locally.
I should emphasize that the new competition timeframes are not intended
to truncate planning. Effective agency planning is a critical prerequisite
for sound sourcing decisions and is especially important for agencies that
lack experience in conducting public-private competitions. OMB deliberately
structured the Circular so that timeframes, for either standard or streamlined
competitions, will not begin to run until preliminary planning has been
completed.
2. More accommodating processes. The revamped
Circular is designed to better accommodate agency needs in the conduct of
source selections. Options available to the agencies include the following:
- Expanded
opportunities to consider best value. Under the revised Circular,
agencies have more leeway to take non-cost factors into account during
source selection. For example, an agency may conduct a phased evaluation
source selection process to consider alternative performance levels
that sources may wish to propose. If non-cost factors are likely to
play a significant role in the selection decision, an agency may, with
certain parameters, conduct a tradeoff source selection process similar
to those authorized by the Federal Acquisition Regulation (FAR). The
Circular limits use of tradeoffs to: (1) information technology activities,
(2) contracted commercial activities, (3) new requirements, (4) segregable
expansions, or (5) activities approved by the CSO before public announcement,
with notification to OMB.
- Use
of streamlined competitions. The prior Circular authorized a "streamlined
cost-comparison process." The revised Circular builds on this foundation
to create a more versatile process so that agencies may efficiently
capture the benefits of public-private competition without the burdens
associated with past processes. For activities performed by 65 or fewer
full-time-equivalent employees (FTEs), the new streamlined competition
gives agencies considerable latitude to make cost-effective choices.
For example, when determining an estimated contract price for performing
the activity with a private sector source, an agency may use documented
market research or solicit proposals in accordance with the FAR. Agencies
may use streamlined acquisition tools, such as a Multiple Award Schedules
contract to obtain proposals from the private sector. Irrespective of
the tools used to compare the cost of performance between the private
and public sectors, agencies must document that their decisions are
cost-effective before engaging sources to provide services.
The Circular provides a streamlined form for agencies to document their
business decisions in a simple and straightforward manner.
In light of the significant efficiencies offered by the new streamlined
competition process and the general goal of relying on public-private
competitions, OMB has eliminated the practice of direct conversions. This
change is intended to address the criticism that direct conversions encourage
agencies to go directly to contract as a matter of administrative convenience,
even where a more efficient, cost-effective government organization could
be the better alternative. The new streamlined competition process retains
the best features of direct conversions -- namely, significant flexibility
and minimal burden -- and combines them with the opportunity to make better
economic decisions by considering the abilities of sources from both sectors.
Of course, streamlined procedures, like other parts of the Circular, must
be read in conjunction with existing law. Consider, for example, a situation
where an agency need could be met by a service that the agency, if it
chose to contract with the private sector, would be required to procure
from a nonprofit agency employing people with severe disabilities under
the Javits-Wagner-O'Day (JWOD) Act. In this case, the nonprofit agency
would be the sole representative of the private sector in the agency's
comparison of costs between the public and private sectors. While an agency
could not directly convert activities to performance by a nonprofit JWOD
agency under the revised Circular, the Circular's streamlined competition
form would provide an easy method of demonstrating that the nonprofit
could provide the service in a more cost-effective manner than the government
provider and at a fair market price, as the law expects when an agency
contracts with a nonprofit JWOD agency.
- Consideration
of innovative alternative practices.
OMB recognizes that the nature of service delivery is constantly changing
and our processes must be able to meet taxpayer needs in this dynamic
environment. We must always be on the lookout for better ways of carrying
out federal missions. To encourage innovation and continual improvement,
the revised Circular provides a process by which agencies, with OMB's
prior written approval, may deviate from the processes prescribed in
the Circular.
While we must be forward thinking, we must also ensure that deviations
are used only when there is good reason to believe significant benefit
may be offered and when alternative processes are transparent and impartial.
OMB believes the new standard and streamlined competition processes
should effectively accommodate agency needs for the vast majority of
public-private competitions and will carefully review deviation requests
to determine if they are justified.
3. Post-competition accountability. During the
revision process, we heard numerous complaints regarding weaknesses in post-competition
oversight. Among other things, the old Circular required post-competition
reviews only for 20 percent of the functions performed by the government
following a cost comparison. As a result, even where competition has been
used to transform a public provider into a high-value service provider,
insufficient steps have been taken to ensure this potential translates into
positive results.
Under the revised Circular, agencies will be expected to implement a quality
assurance surveillance plan and track execution of both standard and streamlined
competitions in a government management information system. Irrespective
of whether the service provider is from the public or private sector, agencies
will be expected to record the actual cost of performance and collect performance
information that may be considered in future competitions.
4. Balanced and fair practices. If we are to achieve
good results from public-private competitions, we must facilitate the type
of robust participation that will bring market pressures to bear, and embrace
even-handed practices that result in performance by the best source, irrespective
of the sector. The revised Circular seeks to improve public trust in sourcing
decisions by reinforcing mechanisms of transparency, fairness, and integrity.
In doing so, we have paid particular attention to the new features of the
Circular, hoping to reassure critics that changes are intended to improve
results, not weaken a source's ability to demonstrate its capabilities.
These safeguards include the following.
- Establishment
of firewalls.
The revised Circular establishes new rules to avoid the appearance of
a conflict of interest. In particular, the revised Circular separates
the team formed to write the performance work statement (PWS) from the
team formed to develop the most efficient organization (MEO) -- i.e.,
the staffing plan that will form the foundation of the agency's tender.
In addition, the MEO team, directly affected personnel and their representatives,
and any individual with knowledge of the MEO or agency cost estimate
in the agency tender will not be permitted to be advisors to, or members
of, the source selection evaluation board.
- Assurance
that decisions are cost-effective. While agencies will have greater
leeway to consider non-cost factors in standard competitions and more
options for comparing public and private sector performance in a streamlined
competition, the Circular has been designed to ensure that cost remains
a dominant consideration in all agency decisions. For example, the specific
weight given to cost or price must be at least equal to all other evaluation
factors combined in a tradeoff source selection unless quantifiable
performance measures can be used to assess value and can be independently
evaluated.
With respect to streamlined competitions, the revised Circular incorporates
mechanisms to ensure that agencies act as responsible stewards. First,
as I noted a few moments ago, the revised Circular requires agencies to
publicly announce both the start of a streamlined competition and the
performance decision made by the agency. The notice announcing the initiation
of a competition must include, among other things, the activity being
competed, incumbent service providers, number of government personnel
performing the activity, names of certain competition officials, and the
projected end date of the competition. Second, agencies must document
cost calculations and comparisons on a standardized streamlined competition
form. The official who documents the cost estimate for agency performance
must be different from the one who documents cost estimates for performance
by either the private sector or a public reimbursable source. Finally,
the agency must certify that the performance decision is cost-effective.
- Challenges.
The revised Circular authorizes challenges to standard competitions
by directly interested parties. Directly interested parties may challenge:
(1) a solicitation, (2) the cancellation of a solicitation, (3) a determination
to exclude a tender or offer from a standard competition, (4) a performance
decision, including, but not limited to, compliance with the costing
provisions of the Circular and other elements in an agency's evaluation
of offers and tenders, or (5) a termination or cancellation of a contractor
or letter of obligation where there is an allegation that such action
is based on improprieties concerning the performance decision. Rather
than perpetuating a separate A-76 administrative process, agencies will
be expected to rely on the agency protest process set forth in the FAR.
Even before committing to conduct a competition, agencies will be held accountable
for making rationally-based, good faith decisions. In preparing inventories
of their activities, agencies will now be required to prepare written justifications
if the agency concludes that a commercial activity is eligible but not appropriate
for private sector performance. (In agencies' initial inventory submissions
to OMB for fiscal year 2002, commercial activities exempt from competition
outnumbered those subject to competition.) These justifications will be
available to the public, upon request. Interested parties will continue
to be able to challenge the classification of an activity as inherently
governmental or commercial. For the first time, interested parties will
also be allowed to challenge the rationale (i.e., "reason code")
given for government performance of a commercial activity or the determination
that a commercial activity is suitable for a streamlined or standard competition.
Ensuring
the long-term success of competitive sourcing
Mr. Chairman, as you can see, OMB, in concert with our sister Executive
Branch agencies, have taken significant steps to improve the processes agencies
use for determining whether a commercial activity will be performed by a
public or private source. While these changes should make public-private
competitions more manageable and effective, OMB recognizes that better guidance
is only one ingredient for success. Agencies need a knowledgeable and committed
management support structure to implement the Circular if competitive sourcing
is to become an institutional force for better program performance over
the long term. For this reason, we are taking a number of actions to make
sure agencies have the necessary support structures in place.
First, we are requiring agencies (including the Military Departments) to
establish a program office that will be responsible for the daily implementation
and enforcement of the Circular. Effective oversight will serve to enhance
communications and facilitate sharing of experiences within the agency so
agencies may reinforce their successes and make adjustments where shortfalls
occur. This type of communication may be especially helpful to government
providers, many of whom have told us they have the capability to be highly
competitive but lack the private sector's insight and experience in competing
for work.
Second, the Federal Acquisition Council (FAC) has created a working group
to address common agency needs. Last week, for example, the working group
hosted a government-wide conference to acclimate agencies to the principles
and new processes of the revised Circular. A number of private consultants
participated on a panel to offer their ideas on effective planning. In the
coming months, the working group will assist in facilitating the posting
of lessons learned and best practices on SHARE A-76!, a Defense
Department management system used to disseminate knowledge, information,
and experiences about public-private competitions. Through SHARE A-76!,
agencies will be able to routinely use current experiences to inform and
improve competition practices and decision making. The working group's efforts,
like others sponsored by the FAC, should help agencies to better understand
and successfully implement the Administration's vision for a market-based
government.
Third, OMB intends to meet with managers at the "scorecard" agencies
over the coming months to understand what, if any, agency-unique challenges
management faces and how we can help them in meeting these challenges. The
faster challenges are identified and addressed, the sooner agencies will
be in a position to take routine advantage of the improved competition processes
and the benefits they will generate. To determine if the initiative is taking
hold, we will look behind the competition plans for evidence of sound strategic
planning, quality and timely competitions, and the like. These are important
indicia of the likely long-term success of competitive sourcing.
Conclusion
While there is a certain comfort level in maintaining the status quo, our
taxpayers simply cannot afford -- nor should they be asked to support --
a system that operates at an unnecessarily high cost because many of its
commercial activities are performed by agencies without the benefit of competition.
For this reason, the Administration has called upon agencies to transform
their business practices and increase the amount of government-performed
commercial activities that are subject to competition. In doing so, we have
provided tools for meeting this objective in a responsible and fair manner.
I appreciate the Committee's ongoing interest in competitive sourcing and
hope the acquisition community will give these tools a reasonable chance
to take hold as we work together to bring lasting improvements in the performance
of government.
This concludes my prepared statement. I would be pleased to answer any questions
you may have. |
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