Fifty years ago this month, President Eisenhower established a policy requiring federal agencies to determine whether the commercial activities performed by their employees could be provided more efficiently by the private sector. President Eisenhower's policy was the precursor to the principle of using competition to bring cost control to the daily tasks that support government operations. Today, departments and agencies are successfully using competitive to become more efficient and results-oriented. Under the auspices of the PMA, agency officials are improving how competitions are conducted and generating increased savings from each study.

According to agency reports on their 2004 competitive sourcing efforts (which are summarized in a report by OMB, available on this website), studies of more than 217 commercial activities completed in FY 2004 are expected to yield $1.4 billion in savings for taxpayers over the next five years. When combined with the $1.1 billion savings generated by 2003 competitions, the competitive sourcing initiative is expected to save taxpayers approximately $2.5 billion. This equates to about $552 million in annualized savings.

Of particular significance, OMB.s 2004 report finds:

• Results for the Taxpayer: Taxpayers saved roughly $22,000 in annualized net savings (or cost avoidance) for every position studied, regardless of whether the work is being performed by the government or the private sector. This figure is an 85 percent improvement from FY2003. Out-of-pocket (incremental) expenses for competition were just under $75 million — a modest investment for an impressive return.
• Results for the Government Employees: In-house government sources were identified as offering the best service for 91 percent of the positions competed in FY 2003. This underscores the high quality of work performed by Federal employees. At the same time, significant savings are being generated by implementing recommendations from employees to form the most efficient organization possible.
• Secrets to Success: Success is tied to increased use of standard competitions, where public and private sector sources compete head-to-head, and smarter use of streamlined competitions, where federal employees are routinely afforded the opportunity to identify better and more cost-effective business practices. Agencies are also becoming more strategic in their selection and grouping of activities for competition and aligning competitive sourcing and human capital efforts to close competency and skills gaps.

These results make a compelling case for the continued use of competitive sourcing as a standard management tool to reduce costs and improve performance. OMB intends to work with Congress to remove legislative restrictions that are currently limiting agencies' ability to take full advantage of competitive sourcing in a reasoned and responsible manner.

Copies of individual agency reports to Congress on their FY 2004 will be posted on this website.

Sincerely,

David Safavian
Administrator
Office of Federal Procurement Policy