CNA Vice President Sam Kleinman testifies to the Senate Subcommittee on National Parks on Competitive Sourcing

Competitive Sourcing
Testimony of Sam Kleinman
To the Senate Subcommittee on National Parks
24 July 2003

Good afternoon, Mr. Chairman. I thank you for inviting me to speak before the subcommittee. My name is Sam Kleinman and I am a Vice President at The CNA Corporation, a nonprofit research and analysis organization in Alexandria. We have studied public-private competitions for over a decade. I will briefly present our findings on the Defense Department's competitions under circular A-76. The Defense Department, as the biggest user of the program, is the greatest source of lessons learned from the A-76 program. It has conducted public-private competitions for many of the functions that the Department of the Interior is considering for its competitions.

What is the rationale for an A-76 program?

Some argue that we should outsource all work that is not inherently governmental; others argue that we should keep current government work in-house. The A-76 program is a compromise between those two positions. For those jobs that are not inherently governmental, it allows for either solution.

It represents a policy in which all potential providers of services to the government, whether they are public or private providers, are given the opportunity to demonstrate that, for a specific service, they provide the best value. The A-76 program provides a mechanism to compare the current services with alternative approaches and teams, both public and private.

Given its structure and procedures, A-76 is properly seen as a competition program and not an outsourcing program. In fact, in the Department of Defense, roughly half of the winners have been in-house government teams.

Do the competitions save money?

The evidence is overwhelming that public-private competitions have saved money. In the 1980s, over 2,000 competitions saved an average of 30%; since 1995, several hundred competitions have saved, on average, 40%. In total, DoD has competed over 100,000 positions in 2,300 competitions. We see savings whether an in-house team or a private firm wins the competition.

These findings have not been limited to the Defense Department. We saw 30% savings at the GSA in the 1980s. Others have found savings in state and local competitions ranging from 20% to 60% and savings of 20% in a comparable program in Great Britain.

We also know what contributes to more savings and what seems to be unrelated to savings. The type of service competed seems unrelated to the size of savings: almost all reduce costs. Competitions for large activities produce a higher percentage of savings than competitions for smaller activities. Competitions that attract many bidders produce greater savings than competitions that attract only a few bidders.

We see that restricting competitions to small businesses does not reduce the savings. Sixty-eight percent of the DoD competitions, accounting for 40% of the positions competed, were restricted to underrepresented groups in businesses. Most were small-business set-asides. For larger competitions, with over 100 positions, 23% were restricted. We looked at these restricted competitions and compared them with those that were unrestricted. The set-asides produced greater savings and attracted more bidders. We also found that 15% of the unrestricted competitions were won by small businesses.

These are real long-term savings. Detailed follow-up studies of private winners show that savings persist years later. We also looked at some Army and Air Force competitions. When they were recompeted 3 to 5 years later, we found further savings beyond the initial 30%. We looked at how private firms performed under aircraft maintenance contracts. We saw fewer maintenance hours per flying hour, and this persisted 10 years after the initial competition. In all the cases, these are not one-time savings to the government.

Does performance suffer?

Performance has not been degraded. We have surveyed customers, managers, and contracting officers to get their input. In their view, performance may dip slightly during the first year of performance, whether the winner is a private firm or the government's newly structured workforce. However, performance quickly improves to the pre-competition level and, with private winners, frequently exceeds the pre-competition level in later years. In our analysis of aircraft maintained by contractors, we found more aircraft available for flights, even as the aircraft were aging.

Are competitions costly to perform?

The data are limited on the costs to run these competitions. Where we have the data, it looks like it cost 5% to 10% of an activity's annual cost to run a competition. That includes creating a performance work statement, developing the government team's Most Efficient Organization, and completing the solicitation. But, with the average savings of 30%, the agency recoups that investment within 4 months.

Some of those costs reflect legacy problems with how we manage federal support activities. For example, the costs include the time and resources needed to determine what the organization really spends to do its job. With a good accounting system, determining this shouldn't cost a lot — but in many public activities it does. Also, the agency has to develop a performance work statement around performance criteria and performance standards. Again, it appears that there aren't performance criteria and standards for work performed in-house at many activities. The fact that an activity cannot easily identify its costs and performance requirements is not an argument against evaluating alternative management structures.

How do we protect public workers?

Facing competition is a difficult process for current government employees. The data on employees are not as complete as we'd like, but the evidence suggests that the long-term economic effects on most employees are not as dramatic as many feared. Very few are separated involuntarily. Many transfer to other government positions or take advantage of opportunities for early retirement. Others join the private firm that will do the work. Employees have a right of first refusal with the contractor when contracting out the activity. Private-sector firms are eager to take advantage of the skills that these employees possess and are required to provide wages and benefits that are comparable to government levels. In practice, contractors want to hire more of the affected workers than they can.

Are there problems managing the competitions?

Without doubt, these public-private competitions have had problems. Some examples follow:

• The competition process is too long. Average time is over 2 years. This can be very disruptive, in part because permanent workers leave and are either not replaced or are replaced with temporary workers. Services degrade before the winner is selected.
• There is poor follow-on monitoring, particularly of in-house winners.
• Statements of work are often too restrictive and limit the competitors' ability to make significant improvements or innovations
• The government does not adequately plan for transition.

Can we fix these problems?

The problems are not inherent to the program. They can be addressed with a reasonable set of practices. Here are a few suggestions:

• Headquarters should fund the competitions. Don't require local units to pay for the competitions out of their operations budgets.
• Use a centralized management team to help conduct the competitions. This could be very effective if the team works with the local personnel. This allows competitions to be conducted by people with experience in A-76 while incorporating the expertise associated with a specific activity.
• Let the organizations keep some of the savings. Put the money back into the programs. For example, the Department of the Interior can use the savings from this program to reduce the maintenance backlogs within the National Park Service (NPS).
• Develop a cost and performance tracking system early. This should be part of the contract or, for in-house winners, part of a Memorandum of Understanding.
• Separation pay should be improved. Offer generous separation packages to affected workers and relaxed rules on reentry into the federal workforce. A core staff should receive special compensation for seeing the activity through a transition.

Do these findings carry over to Interior and NPS?

These findings are fairly consistent across organizations and support functions. Within DoD, you will find they have competed both the operations and maintenance of facilities, grounds, utilities, roads, vehicles, and equipment. DoD also competed administrative functions. These functions have been competed both individually and jointly with other functions. Together these functions appear to represent over half of the positions listed in the National Park Service inventory. It is hard to argue that they shouldn't at least be evaluated through a competitive process.

Our results demonstrate, more than anything else, the value of competition, and this is what the government has gained from the A-76 program.

I don't know if public workers will demonstrate that they are the best value to the department for all the current in-house work, as some say. Odds are they will prove themselves right in many instances. I do know that the process forces a comparison of alternatives. It will lead to the public workers identifying better ways to do their job and lead to private firms also offering better ways to do the job. The department will be in the position of choosing the best of these alternatives, using a process that forces a comparison with common performance standards and standardized costs.

This is about leveraging our entire national workforce, public and private, in support of public objectives. This is about looking at all alternatives and not limiting our choices in performing public missions. We should do these competitions because they are part of good government.

Again, I appreciate this opportunity to participate in the debate on this important issue. We will be glad to provide any of the detailed analysis to your staff or to the department. Thank you.