Federal departments are achieving increasingly impressive results from competitive sourcing as infrastructures take hold and agencies use their experiences to apply competition more strategically. This past fiscal quarter, the General Services Administration became the sixth agency to achieve green status, joining the Departments of Health and Human Services, Defense, Energy, Transportation, and the Office of Personnel Management. Other agencies, such as the Department of the Treasury, are well positioned to move to green status shortly. These agencies are successfully using the dynamics of the competitive process to generate savings and improve performance for our citizens.

Demonstrating the benefits of competition

Performance decisions announced in the last quarter confirm, once again, that competitive sourcing is a valuable management tool when agencies use it in a reasoned and responsible manner.

• Competitive sourcing will save IRS more than $185 million over the next five years. Two recently completed public-private competitions have triggered transformational, cost saving changes at Treasury's Internal Revenue Service (IRS). One competition focused on IT support activities, such as computer operators, production controllers, tape librarians, computer specialists and clerks, for its campus operations (i.e., tax processing centers). A second competition addressed area distribution centers (ADCs), which inventory, warehouse, and process orders for more than 21,000 tax-related forms and publications.
  • Private sector participation. For both competitions, IRS invited all interested private sector sources to demonstrate why they should be selected to perform these activities. IRS received 8 contractor proposals between the two competitions, including multiple highly rated proposals. IRS attributes the strong private sector interest to the extensive preliminary planning it undertook before announcing the competitions. It developed a business case to support each competitive sourcing action, which included a market viability analysis. As part of this analysis, IRS sought price, delivery, and capabilities information from potential sources (i.e., through a "request for information") and conducted focused outreach to prospective sources and interested industry associations.
  • In-house participation. IRS gave its in-house providers the chance to propose their most efficient organization ("MEO"). After rethinking their current way of doing business, the MEO for campus operations offered to leverage technology and consolidate quality assurance support. The MEO for ADCs proposed the consolidation of facilities -- from three to one -- reliance on state of the art IT, and a reshaped workforce that would take advantage of new skill sets.
  IRS concluded that the two MEOs represented the best value solutions for each respective competition and made award to the in-house sources. It projects that implementation of the MEOs will save the bureau more than $185 million over a five-year period.

• GSA's Public Building Service (PBS) reduces costs for maintenance, inspection & custodial service. Through a series of regional streamlined competitions, PBS has identified a more cost-effective combination of in-house and private sector providers to perform maintenance, inspection and custodial services for the agency. The in-house source proved to be the more cost-effective provider in approximately one-third of the competitions while the private sector was identified as more cost-effective for the balance. By relying on the sector which offers the best value for each region studied, PBS expects to save almost $14 million in taxpayer dollars over 5 years. Equally important, PBS' competitive sourcing and human capital staffs have worked together to minimize disruption and adverse impact on its workforce. Some PBS employees transitioned to other federal jobs or took advantage of "soft landing" opportunities, such as buyouts or early retirement. Other PBS employees are expected to obtain employment opportunities with the winning contractors.

Making the most of lessons learned

The long-term success of competitive sourcing depends not only on the ability of agencies to use competitive sourcing in a reasoned manner but also on the willingness of agencies to make adjustments when shortcomings arise. For its part, the Forest Service has made significant progress in reversing the problems that were associated with its competitive sourcing program for most of FY 2003.

Over the past year, senior managers at the Forest Service committed to retooling their competitive sourcing program. They recognized that efforts in 2003 fell short of expectations. Competitions generated little or no opportunity for savings because activities were either fragmented or grouped in ways that did not garner private sector interest. The Forest Service refocused its attention on studies that reflect broader - and related - functional areas. An integrated team of technology, acquisition, personnel, budget and legal personnel was assembled to assist in a service-wide competition for information technology. This past quarter, the Forest Service concluded its competition with a determination that the in-house MEO offered the best value solution. The Department will enter into a letter of obligation with the MEO, identifying workload and levels of performance. Implementation of the MEO is estimated to generate $100 million in savings over the next five years.

Keeping focused on results

OMB has revised its guidance for tracking and measuring competitive sourcing efforts to ensure that successfully completed competitions translate into real results for the taxpayer.

• Increased transparency. Under OMB's recently revised reporting guidance, agencies will be required to identify achieved savings and/or quantifiable performance improvements on competitions completed in the prior fiscal year. They will also be required to identify the cost of providing central direction and oversight for the agency. Agencies are also being asked to describe the steps their human resources and competitive sourcing organizations have jointly taken to identify skill imbalances, competency gaps, and organizational redundancies.

• Increased accountability. To maintain their status, green agencies must demonstrate a positive anticipated net savings and/or significant improvement from competition. Green agencies must also independently validate through sampling that savings to be achieved for the prior fiscal year were realized.