1 / 38

“Competitive Sourcing”: The Results to Date

“Competitive Sourcing”: The Results to Date. The Honorable Jacques S. Gansler Professor and Roger C. Lipitz Chair Center for Public Policy and Private Enterprise School of Public Affairs University of Maryland. Doer. Manager of Doers. Competitive Sourcing A-76 Competitions Outsourcing

yoshiko
Download Presentation

“Competitive Sourcing”: The Results to Date

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. “Competitive Sourcing”:The Results to Date The Honorable Jacques S. Gansler Professor and Roger C. Lipitz Chair Center for Public Policy and Private Enterprise School of Public Affairs University of Maryland The Results to Date

  2. Doer Manager of Doers • Competitive Sourcing • A-76 Competitions • Outsourcing • Privatization • Public/Private Partnerships The Changing Role of Government What is the proper role for the government? • A shift from “the provider of goods and services” to the “manager of the provider of goods and services” • Government does only those functions which are “inherently governmental;” or which it can do most efficiently and effectively. The Results to Date

  3. The President’s Agenda “Government should be market-based – we should not be afraid of competition, innovation, and choice. I will open government to the discipline of competition.” George W. Bush Presidential Management Agenda (2002) • 5% or more of FTE slots in FAIR 2002 • 10% additional competitions in 2003 • 50% of FAIR by 2005 Subsequently, OMB backed off of the “quantitative objectives,” but not of the intent FAIR Feb. 2001 identified 849,389 positions for competition* (approximately 50% of the 1.7 million “eligible” federal positions). *Many areas were defined by agencies as not included in the Federal Activities Inventory Reform (FAIR) Act (e.g. military positions in jobs that were “not inherently governmental”). Also, this excludes 320,000 DoD jobs now being done by military, but are going to be eligible for competitive sourcing (as of 1/26/04) The Results to Date

  4. The Critical Issue • The issue is competition(not public sector vs. private sector) • Competition creates incentives for higher performance at lower costs (vs. public or private monopolies) The Results to Date

  5. Current Processes for Competitive Sourcing • Meet fierce resistance (unions, Congress, civilian workforce, even military) • Although recognized as a not very effective process (per Congressionally-mandated A-76 Commission, and general observations by all participants), $5 billion* in savings were generated at DoD between 1997 and 2001 • Recent, but still untested revisions to A-76 include: • 12 month time limit (can be extended by 6 months) • Elimination of direct conversions (use accelerated process) • Establishment of firewalls (to prevent Conflict of Interest) • Use of “Best Value” for awards Basis for resistance must be addressed *Government Executive, March 31, 2003 The Results to Date

  6. Concerns • Performance will Deteriorate. • Industry will focus on profits not public needs • Industry won’t be flexible to changing need (e.g. surges) • Government more experienced in these jobs (so better) • Costs will be higher. • Government employees are paid less • And they don’t charge a fee • Promised Saving (from the competitions) will not be realized over time. • Small Businesses will be negatively impacted. • Large numbers of government employees will be involuntarily separated (RIFed). • Loss of control by government management The Results to Date

  7. Concerns • Performance will Deteriorate. • Costs will be higher, since government employees are paid less and they don’t charge a fee. • Promised Saving (from the competitions) will not be realized over time. • Small Businesses will be negatively impacted. • Large numbers of government employees will be involuntarily separated (RIFed). • The government will lose control The Results to Date

  8. Performance Improvements 1st –Then Cost Savings • NAVAIR Auxiliary Power Unit Logistics Support Program (a public/private partnership utilizing COTS software) [Caterpillar software, Honeywell management]: • Reliability of each carrier-based aircraft’s APU has been increased by more than a factor of ten. • Reliability exceeded guarantees by more than 25%. • Dramatic improvements achieved in mean time between failures (Mean Number of Flight Hours Between Unscheduled Removal (MFHBUR)) • 300% on P-3 Platform • 45% on FA-18A/B/C/D • 15-25% on S-3 and C-2 platforms • For Afghanistan, surged 50% to fill all demands • Program savings are difficult to quantify(no baseline) The Results to Date

  9. Performance Improvements 1st –Then Cost Savings (cont) • US Navy’s Sailor Arranged Move (SAM)—allows sailors to choose their own moving companies vice being centrally controlled by the Military Traffic Management Command. • Customer satisfaction increased from 23% to 95% • Damage claims dropped from one in four to one in 12 moves • British Telecom privatized in 1984 • Call failure dropped from 1 in 25 to 1 in 200 • Now 96% of public phones work vice 75% • Indianapolis Waste Water Treatment—city partners with private water supply utility. • Employee accidents fell 70%, effluent violations fell 86% • First year of operations partnership cut costs by 40% saving $12.5 million The Results to Date

  10. Performance Improvements 1st –Then Cost Savings (cont) Competitive Sourcing of Public Transportation—Transportation authorities award contracts to the lowest responsible and responsive provider—public or private. Savings have ranged from 20% to 60% compared to the costs of non-competitive services replaced The Results to Date

  11. Concerns • Performance will Deteriorate. • Costs will be higher, since government employees are paid less and they don’t charge a fee. • Promised Saving (from the competitions) will not be realized over time. • Small Businesses will be negatively impacted. • Large numbers of government employees will be involuntarily separated (RIFed). • The government will lose control The Results to Date

  12. Results of A-76 DoD Cost Comparisons:1978 - 1994 Defense Reform Initiative Report, Nov 1997 The Results to Date

  13. Results of A-76 Cost Comparisons: FY 1995 - 1999 • DoD completed 286 A-76 studies • 138 involved competitions between public and private sectors • 40% won by private sector • 148 direct conversions • 134 moved to private sector • DoD reported savings of 39% • GAO reported savings number imprecise • But agreed that “savings from A-76 studies are substantial and sustained over time.” • Baseline savings looked at personnel costs only, studies did not account for cost of study • Results consistent with CNA studies reporting total saving on order of 31% DoD Competitive Sourcing, GAO-01-20, December 2000 The Results to Date

  14. Results of A-76 Cost Comparison: FY 1997 - 2001 • DoD completed 314 cost comparison A-76 studies • 36,987 positions competed • Reduced number of positions by 35% to 24,136 • 40% of competitions (49% of positions) won by private sector Source: DoD CAMIS Data The Results to Date

  15. Results of A-76 Cost Comparison: FY 1997 - 2001 Source: DoD CAMIS Data The Results to Date

  16. DoD Savings by Size 1978 -1994 *Anne Laurent, “Award-Winning Acquisition,” Government Executive Magazine, Annual Procurement Preview, August 2000 ** Trunkey R. Derek, Robert F Trost, Christopher M. Snyder, “Analysis of DoD’s Commercial Activities Program,” Center for Naval Analysis, Dec 1996 (Note: This study had a slightly different data base, over the same time period) The Results to Date

  17. Results from Recent IRS Competitions* The government employee MEO won both competitions with dramatic proposed savings *The source selection results were released in Aug 2004 The Results to Date

  18. Concerns • Performance will Deteriorate. • Costs will be higher, since government employees are paid less and they don’t charge a fee. • Promised Saving (from the competitions) will not be realized over time. • Small Businesses will be negatively impacted. • Large numbers of government employees will be involuntarily separated (RIFed). • The government will lose control The Results to Date

  19. CNA Study of Long-Run Costs of Competitive Sourcing Long run Costs and Performance Effects of Competitive Sourcing CNA, February 2001 • Weighted Averages • Expected Savings (as bid by winner – government or private) 35% • Observed Savings (realized results, including scope & quantity changes) 24% • Effective Savings (realized results on same scope & quantity) 34% The Results to Date

  20. $4.23 $3.95 $2.28 A-76 Realized Results (on Facilities – Related Maintenance And Repair Costs)* • Contractor workforces had more than 40% lower costs • With government wins, workforces were not held to stringent cost/performance standards and rarely had to recompete • Conclusion: When government wins the workforce must meet the cost/performancein the A-76 proposal, and they must regularly recompete *LMI Insights, Fall 2002 The Results to Date

  21. Case 1 2 3 4 5 6 RAND Study of Realized Results (Six Cases) • The expected savings ranged from 41 to 59 percent for contractor wins, and from 34 to 59 percent for in-house wins. • RAND found that the contract savings were sustained over time. • No cost data was kept for the in-house wins, so direct comparisons could not be made. However, the final headcounts were comparable to the MEO’s bid (authorizations are a pretty good proxy for personnel costs). The Results to Date

  22. Concerns • Performance will Deteriorate. • Costs will be higher, since government employees are paid less and they don’t charge a fee. • Promised Saving (from the competitions) will not be realized over time. • Small Businesses will be negatively impacted. • Large numbers of government employees will be involuntarily separated (RIFed). • The government will lose control The Results to Date

  23. Impact on Small Business • Between 1995 and 2001 DoD conducted 784 public-private competitions • 79% of all contracts awarded were to small businesses* • Additionally, many of the large contracts had requirements for a significant share to go to small businesses as sub-contracts. • Navy-Marine Corps Intranet and NSA Intranet mandate a 35% for small business set-aside • 10% must be used for Direct Labor Costs Advertising competitions on the world-wide-web has significantly increased small business participation. For example, NAVSEA’s Seaport e-business portal set a goal of assigning 35% of subcontracted work to small businesses. Also, seven of the 20 multiple award contract (MAC) holders were small businesses.** *Michael Wynne testimony, 13 Mar 02 **David C. Weld, SeaPort: Charting a New Course for Professional Services Acquisition for America’s Navy, IBM Endowment for the Business of Government, June 2003 The Results to Date

  24. Concerns • Performance will Deteriorate. • Costs will be higher, since government employees are paid less and they don’t charge a fee. • Promised Saving (from the competitions) will not be realized over time. • Small Businesses will be negatively impacted. • Large numbers of government employees will be involuntarily separated (RIFed). • The government will lose control The Results to Date

  25. One in-house win, two contractor wins 2190 billets before (1079 military & 1111 Civilian) Effects on Employees—GAO Examined Three A-76 Studies • All military transferred • Civilian workforce reduced to 348 26% of these took jobs with the contractor Effects of A-76 Studies on Federal Employees Employment, Pay, and Benefits Vary GAO-01-388, March 2001 The Results to Date

  26. Effects on Employees • CNA Study* • DoD programs found to be very effective in minimizing involuntary job losses • 40% of employees targeted for RIFs from depot maintenance facilities found other DoD or federal jobs; many other hired by winning contractor; and others chose to retire • Only 3.4% were actually RIFed • Department of Interior** • Smart planning allowed for 475 positions to be competed without anyone losing their job *CNA Report CAB 96-62, Case Studies in DoD Outsourcing, Jan 1997 **Government Executive, March 31, 2003 The Results to Date

  27. Effects on Employees Analysis of almost 1200 DoD “studies” (competitions) demonstrates that only a small percentage of federal employees are involuntarily separated as a result of competitive sourcing. (Forthcoming Gansler & Lucyshyn IBM Center for the Business of Government Report, Competitive sourcing: What Happens to Civilian Employees) The Results to Date

  28. Concerns • Performance will Deteriorate. • Costs will be higher, since government employees are paid less and they don’t charge a fee. • Promised Saving (from the competitions) will not be realized over time. • Small Businesses will be negatively impacted. • Large numbers of government employees will be involuntarily separated (RIFed). • The government will lose control The Results to Date

  29. Loss of Control “The greatest impediment to privatization by contracting is the fear of loss of control [by government managers].”* In reality, the senior government managers now have far greater control • They can use the competitive market to reward or replace, based on measured performance and costs (vs. their lack of control—or visibility—in the presence of a government monopoly) But the government has the full responsibility to manage the contract and the contractor (or they will lose control) * Based on the multiple surveys at the state and local level (F.S. Savas, Privatization and Public Private Partnerships, Chatham House, 2000, p. 285) The Results to Date

  30. Perceptions that Persist • Performance will deteriorate • Using government employees will cost less • Promised cost savings (from the competition) won’t be realized over time • Small businesses will be negatively impacted • Large numbers of government employees will be involuntarily separated (RIFed) • Loss of control by government management The empirical data refute all six of these perceptions The Results to Date

  31. Implementation Issues In 2002 – 2003(found by GAO study Feb 2004) • Consistent Inventories of jobs to be competed • Focus on Performance and Efficiency vs. number of jobs • Skilled personnel to run the competitions • Adequate resources to run the competitions • Agency Strategic Approach to competitive sourcing • Changing OMB and Congressional competition rules The Results to Date

  32. Jobs contracted out Jobs won in-house Competitive Sourcing 2002 and 2003* HHS Defense 2,167 1,210 1,757 7,826 2,967 positions studied 9,993 positions studied Interior 968 Overall, for 17,000 full-time positions competed, 76% were won in-house 1,515 2,483 positions studied * GAO report, Competitive Sourcing, GAO—04-367, Feb 2004 The Results to Date

  33. Competitive Sourcing in FY 2003 • In-house organizations win 89% of competitive sourcing studies • “Studies” completed: 662* (570 streamlined, 92 standard) • FTEs studied: 17,595 • Average incremental cost per FTE studied: $5,000** • Results: estimated savings from completed competitive assessments*** • Gross: $1.19 billion (over three to five years) • Net: $1.1 billion (over three to five years) • Annualized gross savings: $237 million • Annualized net savings per FTE: $12,000 • * excludes direct conversions; includes 4 standard competitions completed in the first quarter of FY 2004. • ** these are one time expenses • *** aggregate cost and savings figures were derived from agency calculations made in accordance with the general methodologies described in OMB Memorandum M-04-07. # OMB Report on Competitive Sourcing Results FY 2003, May 2004 The Results to Date

  34. Federal Acquisition Council/OMB Release “Best Practices” Guide* The Federal Acquisition Council (FAC), with OMB, published a “best practices” guide to help agency officials manage their competitive sourcing efforts in the most strategic and results-oriented manner possible. The guide finds that competitive sourcing works best when agencies: • Conduct thorough preliminary planning and strategically group -related activities • Take advantage of competition to reorganize and enhance the efficiency of in-house activities • Link competitive sourcing decisions to human capital considerations • Utilize tailored management tools to keep managers focused on results • Seek the assistance of able contractors to provide technical support and business acumen. *FAC/OMB, Managers Guide to Competitive Sourcing, February 20, 2004 The Results to Date

  35. Why is More Not Being Done? • There is limited analysis and even that receives low visibility. • Opponents are highly proactive • There is little education and training. • The Congressionally-mandated A-76 commission and the May 2003 OMB new circular are a major step forward (e.g. reduced time to compete; award on “best value”; track governmental costs) • Yet fierce resistance (in Congress, from the Unions, and the workforce persists) • Implementation is critical The Results to Date

  36. The Timing Is Right • President and OMB pushing • Agencies are short of money • Government has people problems (retirements and skill mix) The Results to Date

  37. A Helpful Step More education and research needs to be done on government efforts to outsource, competitively source, privatize, and form public-private partnerships to: • Greatly improve the process (in both time and costs) • Collect and analyze lessons learned • Develop a comprehensive data base of realized results • Provide guidance on the best approach (i.e. competitive sourcing, privatization, outsourcing, Public/Private partnership, etc.) for each application • Identify the most effective strategies to train for, plan, and conduct successful competitions, transitions, and subsequent management • Analyze best practices and available tools for achieving “soft landings” for government workers impacted The Results to Date

  38. Summary Results show that, no matter who wins the competition, performance has improved and the cost savings average at least 30% The Results to Date

More Related