Steady progress. This quarter, two more agencies - the Defense Department (DOD) and the Department of Transportation (DOT) - achieved green status for competitive sourcing. These agencies, along with Health and Human Services (HHS), Energy (DOE), and the Office of Personnel Management (OPM) have established infrastructures and long-range plans for the reasoned and timely application of competition to reduce costs and improve the performance of their commercial activities. Each successfully used its infrastructure in a responsible manner to garner impressive savings or cost avoidances in FY 2003 and continues to do so in FY 04.

Agency	Est. net savings from competitions finished in FY 03
DOD	$733M
DOE	$35M
HHS	$246M
DOT	$8M
OPM	$10M

An increasing number of additional agencies have taken the initiative to make competitive sourcing a viable management tool for strengthening program operations. The Environmental Protection Agency, the Social Security Administration and the Department of Labor moved from red to yellow status in the third quarter, bringing the total number of PMA agencies at yellow status to 13. Only eight agencies remain at red and half of them have announced or completed competitions. This includes an agency-wide competition for information technology (IT) services at the Corps of Engineers and a competition for administrative and management support at Housing and Urban Development, the first standard competitions announced by each of these respective agencies.

Good results. In FY 2003, agencies completed studies of more than 17,500 FTEs covering a wide range of support services - from IT and graphics to building maintenance and finance and accounting services. In late May, OMB released a report summarizing the results of these competitions, the first consolidated reporting of results achieved under the PMA's competitive sourcing initiative. According to agency data, these competitions are estimated to generate net savings, or cost avoidance, of approximately $1.1 billion over three to five years. This translates to annualized savings of roughly $12,000 for every position studied, regardless of whether the work is being performed by the government or by the private sector.

These positive results come as no surprise. Over the years, reports analyzing competitive sourcing have consistently found that the application of competition to in-house operations creates savings. OMB has made concerted efforts during the past two years to capitalize on this potential. Circular A-76 has been revamped to make competitive assessments more efficient and results-oriented. In addition, agencies have been encouraged to focus on long-range planning tailored around their unique mission and workforce mix.

Agencies are using past experiences to improve future results. For example, the Department of Agriculture's Natural Resources Conservation Service (NRCS), which experienced minimal savings in FY 2003 from competing small, isolated functions, is now emphasizing larger, strategically grouped activities. The in-house provider for its National Cartography and Geospatial Center (covering more than 90 FTEs) took advantage of a recently conducted standard competition to reorganize its operations. The Department determined that the reorganized in-house provider offered the best value for the taxpayer. By relying on these federal employees, NRCS expects to save $9 million over 5 years.

OMB will continue to work closely with agencies, especially those that have reported more limited savings in their initial efforts, to promote consistent application of the practices that have been proven to yield success - i.e., sound preliminary planning, grouping related activities to generate private sector interest, reorganizing inefficient in-house operations, and aligning competitive sourcing and human capital efforts to close competency and skills gaps. With experience, disciplined application of good management practices, and the ongoing support of senior agency officials, the return on investment will only get better.