Two events are working together to confront the challenge facing federal agencies in figuring out which programs are working, how customers are being served, and if functions are better provided by private firms. The first is President Bush's Management Agenda, which is a set of initiatives designed to improve the management of federal agencies by adopting performance-based criteria for decision-making and action, and ultimately tying performance to budget appropriations. The Agenda includes a set of goals for "competitive sourcing," the most important of which is asking federal agencies to subject 50 percent of all commercial positions identified in their Federal Activities Inventory Reform (FAIR) Act inventories to competition from the private sector over the next four years. That is over 400,000 positions.
The second event is the release of the final report from the General Accounting Office-led Commercial Activities Panel. Two years ago Congress ordered the GAO to convene an expert panel to recommend changes in how the federal government conducts public-private competitions and outsourcing. The report did what many who watched the process expected, and recommended scrapping the Office of Management and Budget Circular A-76 process for competitive sourcing and replacing it with the best-value competition process from Federal Acquisition Regulations Part 15. These two events come together to foster federal agencies' strategic use of partnerships with private firms.
President Bush's competitive sourcing goals are for competition, not outsourcing. An outsourcing goal is an ephemeral thing, with nothing to sustain it over time, and a lightning rod for organized resistance. President Bush is looking instead to change the institutional structure in which decisions about what an agency should be doing are made. He is asking agencies to use competition between employees and private firms to evaluate who can deliver the best performance.
The President's goals come together with the Commercial Activities Panel report, because the competitive sourcing approach in FAR Part 15 allows performance-based, best-value competitions in a way the A-76 process does not. OMB is judging agency plans to meet the President's competitive sourcing goals to a large extent on how much they are based on improving agency performance. And flexible best-value approaches, such as those allowed in FAR Part 15 and recommended by the Commercial Activities Panel, are crucial to basing competitive sourcing on performance criteria rather than simple low cost.
Most federal agencies will probably choose to buy political space with their staff by using public-private competitions even where A-76 or the much more generous FAR Part 15 process allows direct outsourcing. But, again, OMB has demonstrated that it will accept a wide range of approaches to meeting the competitive sourcing goals, as long as each approach is grounded in demonstrable performance criteria. As agencies move forward, they should develop performance criteria for deciding when to take a public-private competition approach and when direct conversion makes more sense.
One way for agencies to identify where to begin applying competitive sourcing, and later to help decide whether to use public-private competition or direct conversion, is shown in the figure. If an agency has done a good job of analyzing how important an activity is to meeting the agency's performance goals and also analyzed how well the activity is performing, it can plot the activity in the graph. The more important the activity is to the agency's overall performance, the higher on the graph it is. The better the activity is performing, the farther to the right on the graph it is.
Based on which box the activity falls into, an agency can determine what opportunities for change may exist.
- Attention Needed—Activities plotted here are important to the agency's overall performance, but are not performing very well. These activities are prime candidates for competition designed to improve activity performance.
- Proven Success—Activities plotted here are important to the agency's overall performance and are performing very well. Enough said.
- Exit Opportunity—Activities plotted here are not important to the agency's overall performance and are not performing very well. The agency may choose to shift resources to more important areas after ceasing these activities and allowing the private sector to meet any demand for them.
- Resources Available—Activities plotted here are not important to the agency's overall performance but are performing very well. The agency may have resources and staff here that can deliver similar high performance in more important activities and again may choose to shift resources to more important areas after ceasing these activities and allowing the private sector to meet any demand for them.
But such an approach to focusing on and allocating resources to agency performance will only succeed if the process is improved, as the Commercial Activities Panel report suggests, and if Congress follows through by being willing to oversee agencies and make appropriations based on performance criteria rather than micromanaging service delivery. Without a bottom line and without competitive forces, program structures and approaches often stagnate, while success is not always visible, and is hard to replicate. Worse, since budgets are not linked to performance in a positive way, too often poor performers get rewarded as budget increases follow failure.
The President's Management Agenda is aimed at creating the institutional change that creates a bottom line and a competitive system. Performance is the common thread. In applying competition to decisions about doing activities in house or moving them to the private sector, these institutional changes begin to solve the problem of inadequate cost information to begin with and no longer accept an agency's failure to use performance measurement to track and compare quality and value. Performance becomes embedded in all service decisions, including contracting. Unnecessary or poor performing programs cannot survive the transparency and the scrutiny that follows it. They change or they go away.
Adrian Moore is Vice President of Reason Foundation.