Competing to Win

When Dennis O'Brien, a 30-year Army veteran
with years of competitive sourcing experience, became head of that
activity at the Department of Energy (DOE), he thought he had the
perfect skills and expertise. "I came in with strong views about what
it takes to run a successful competitive sourcing operation," he recalls.

What he experienced at the civilian agency took him by surprise.
"Not everything you learn at the Defense Department is transferable
to a civilian agency," he says. "The funding chain is different, you speak
with different committees on the Hill, and it's harder to communicate
and get the message out."

Bolstered by what he calls outstanding
support from the agency's senior
management, O'Brien found the right
balance between old and new that helped
Energy attain a green competitive sourcing
rating in the latest rankings in the
President's Management Agenda (PMA).

Competitive sourcing is a deceptively
simple idea. For each project, the question
is asked: Is it more efficient for private
contractors or federal employees to
perform the work?

"It's all about making your agency a
smarter shopper," says Michael Hoffman,
director of the Center for Contracting and
Competitive Sourcing at the Performance
Institute, an Arlington, Va., think tank
that specializes in performance-based
management practices for government.
"Without competition, there's no motive
for creating more efficiency," he says.

But O'Brien and others are learning
that behind this simple idea is a raft
of cultural, management and political
challenges that threaten to swamp efforts
to bring competition to government
operations. Yet, the latest round of PMA
scorecards shows that, despite the
challenges, a number of agencies are
taking competitive sourcing seriously,
and are saving money and improving
performance as a result.

Some Agencies Get Good Returns

Studies done by the Center for Naval
Analyses, a Defense Department think
tank, show that competition creates long-term savings of approximately 35 percent
over projects where there is no
competition. "Over time, the savings
are real," says Joe Sikes, the Pentagon's
director for competitive sourcing and
privatization.

DOD has been pursuing competitive
sourcing for years. However, civilian
agencies lagged behind until the Bush
administration began insisting that they
use it to hold down costs.

According to the most recent annual
report on the subject by the Office of
Management and Budget (OMB), federal
governmentwide efforts begun in 2003
will save about $1.1 billion over the next
three to five years. This represents a
savings of nearly $12,000 for each full-time equivalent (FTE) job for which there
was competition.

Some agencies have seen even greater
returns. The big winner is the Department
of Energy, which reported $39,000 in
annual savings per FTE. Part of that return
derived from revision of the agency's
financial services systems, which is
expected to save $31 million over five
years through office consolidations and
reductions in federal employees.

Defense, Health and Human Services
(HHS) and the Office of Personnel
Management (OPM) also reported
significant per-FTE savings at $13,000,
$29,000 and $12,000, respectively. So far,
DOE, Defense, HHS, Transportation and
OPM have gotten green competitive
sourcing ratings in the PMA scorecards.

For many other agencies, competitive
sourcing success is proving elusive.
Problems include insignificant savings or
even losses, poor planning and execution,
and an inability to eliminate inefficiencies
in the sourcing process.

OMB acknowledges that competitive
sourcing's steep learning curve and
demands for significant changes in an
agency's long-standing business practices
make it a difficult and sometimes
contentious element of the PMA. And,
unfortunately, that's not likely to change
anytime soon.

"Competitive sourcing is, has been,
and will continue to be a very delicate and
tough issue," states Brien Lorenze,
managing director for e-government at
systems integrator BearingPoint based in
McLean, Va. "It's about jobs—who does
the work, who's in charge of the work,
whose Congressional district performs the
work. It's a politically charged issue."

Even competitions that meet the
letter of the competitive initiative
may not have adhered entirely to its
spirit. Overwhelmingly, civilian agencies
have chosen to conduct "streamlined
competitions," an easier-to-implement
methodology for smaller projects rather
than "standard competitions" that affect
projects representing 65 or more FTEs.
Streamlined competitions don't require
agencies to solicit bids from contractors.
Instead, the agencies depend on
published prices for comparisons.

Agencies completed 570 streamlined
and 92 standard competitions last year.
However, DOD, the veteran of
competitive sourcing, used standard
methodology almost exclusively, in part
because its studies from the Center
for Naval Analyses have shown
significantly higher returns from standard
competitions, according to OMB.

While apparently supporting
competition, agencies revealed their
dependence on in-house organizations by
awarding 89 percent of last year's
competitions to internal resources. One of
the reasons for this may be the federal
workforce's concern that a significant
number of government jobs will be cut and
awarded instead to private sector workers.

"I don't think federal employees will
ever like this program," DOE's O'Brien
says. "But the more you can help them
understand that this is a competition,
the more you can get them on board to
come up with what's going to help the
organization the most."

Using Military Intelligence

Because DOD has the most experience
with competitive sourcing, other agencies
are tapping it for advice, technology and
even leadership. "We're the big gorilla in
competitive sourcing," says DOD's Sikes.

That goes for technology as well. An
application called Compare, developed
in 1999 by the Air Force, became an
agencywide tool for computing the cost of
projects and giving sourcing executives a
standard methodology for analyzing
public and private sector bids. Now being
refined and given a Web interface, the
program has caught the attention of OMB,
which has mandated its use throughout
federal government.

Some agencies use DOD's Commercial
Activities Management Information
System, a tool to track the cost and progress
of competitions. And DOD has launched
the SHARE A-76! Web site, where any
agency can view lessons learned,
performance work statements and news
about competitive sourcing regulations.

In addition, the National Institutes
of Health has created a program for
analyzing customer satisfaction, staff
turnover and other factors for identifying
competitive sourcing candidates.

The DOE benefited from some of the
lessons O'Brien learned in the Army. One
carryover was a strategy to focus on finding
new efficiencies in organizationwide
systems, such as IT and financial services.
"These were areas Defense had looked at
but were never considered at Energy,"
he says.

The strategy led to an effort to
streamline financial services, which could
save as much as $31 million, as well as
a competitive study on the streamlining
and consolidation management of
common IT functions spanning the
agency's headquarters and 19 field offices.

"We're trying to get the most efficient
technology organization in place for
DOE," says O'Brien, adding that a
potential workforce of about 200 federal
workers and 1,000 contractor positions is
under consideration for the competitive
sourcing competition.

In accordance with OMB guidance,
Energy is creating a most efficient
organization (MEO) model to run the
IT project. "We ask ourselves, 'Given a
clean sheet of paper, how would we be
most effectively organized and staffed
to do the job?'" O'Brien says. Often, he
concedes, the answers involve internal staff
reassignments as redundancies surface.

Health and Human Services advocates
diligent communications as a way to get to
green, which it achieved in last spring's
scorecard. "We have monthly meetings for
all the competitive sourcing program
managers in the department," says Robert
Noonan, director of the Office of
Competitive Sourcing. "It's become a
forum to trade lessons learned and
experiences in conducting competitive
sourcing activities.

"That resonated with OMB and was
very helpful in achieving our green status.
From our viewpoint, it struck us as just
being good management."

Managing Competitions

Like Energy, OPM also hired a long-time
Army veteran, Ronald Flom, as its senior
procurement executive to drive its
competitive sourcing effort. To get to
green, he managed an aggressive schedule
of competitions—11 dating from 2002,
with eight of those completed during the
last five months.

In one competition, OPM considered
using outside contractors, but instead
found savings of $10.4 million over five
years by implementing an automated test
scheduling system using in-house staff.
The new system, which helps eliminate
paperwork and creates an online
requisition system, involves 180 FTEs for
a savings of about $12,000 per position
per year over five years.

"Competitive sourcing is something
you have to attack aggressively," Flom
points out. "You can't ever let up. Trying
to run eight competitions at the same
time was hard work, but it was
something we had to do to meet the
requirements for getting to green. It was
a risk, but it worked."

Currently, the agency is working to
more closely link its competitive sourcing
plan with its human capital plan, another
area scored by PMA. In Flom's view, this is
one of the areas OMB will look at closely
when considering whether to continue
OPM's green rating.

"Competitive sourcing is just another
tool for human capital planning," he says.
"You can use it to identify areas where future
requirements lie and whether it's best to
meet those requirements with government
employees or by contracting it out."

Although each agency faces different
challenges in getting to green in
competitive sourcing, the Performance
Institute's Hoffman says the successful
ones share a key characteristic: a strong
commitment from senior managers.

"Every agency is required to have a
competitive sourcing official," he notes,

"but what you do with that person is
another matter. If no one at the secretary or
deputy secretary level is backing the effort,
you're setting yourself up for failure."

And failure, say some Army veterans, is
not an option.