Defense Management
DOD Faces Challenges Implementing Its Core Competency Approach and A-76 Competitions Gao ID: GAO-03-818 July 15, 2003The Department of Defense (DOD) is pursuing a new initiative involving a core competency approach for making sourcing decisions--that is, sourcing decisions based on whether the function is core to the agency's warfighting mission. In determining how to best perform non-core functions, DOD's position is that its components should look beyond just the use of public-private competitions under Office of Management and Budget (OMB) Circular A-76 in making sourcing decisions, and consider other alternatives such as partnering or employee stock ownership. GAO was asked to assess (1) the department's progress in assessing its core functions as a basis for sourcing decisions, (2) the plans and progress DOD has made in identifying and implementing alternatives to A-76, and (3) the current status of DOD's A-76 program.
Progress in assessing core functions has been varied and limited across major Defense components, affected somewhat by ambiguous definitions of the term "core function." In some instances additional guidance was obtained, but definitions of core remain somewhat broad and subjective, and will likely remain so in the future. Army and Air Force have led within DOD in assessing core functions, but the Army has done the most, and found, contrary to its expectations, that distinguishing between core and non-core functions does not, by itself, prescribe a sourcing decision. Other factors must also be considered such as risk and operational considerations. The range of alternatives to A-76 likely to be pursued under the core competency-based approach is not yet clear, but DOD has made some progress toward identifying and/or using some alternatives through pilot projects and other efforts by the services as they have focused on the core initiative. However, the use of alternatives could be limited without special legislative authorities and/or repeal of various existing prohibitions, and some could be tempered by the department's efforts to meet the A-76 competitive sourcing goals set by OMB. DOD reported that as of June 1, 2003, it has met OMB's short-term goal to use the A-76 process to study 15 percent of the positions identified in DOD's commercial activities inventory by the end of fiscal year 2003. However, meeting the longer-term goal to study at least 50 percent (226,000) of its nearly 453,000 commercial activity positions through fiscal year 2008 will present a challenge. This is nearly double the number of positions that DOD has previously studied during a comparable time period, and providing sufficient resources (financial and technical) to complete the studies may prove challenging. Also, the defense components, particularly the Air Force, plan to transfer certain military personnel into warfighting functions and replace them with government civilian and/or contractor personnel. This will require the components to reprioritize their funding for operation and maintenance accounts, because it is from those accounts the services must fund replacement civilian or contractor personnel.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-818, Defense Management: DOD Faces Challenges Implementing Its Core Competency Approach and A-76 Competitions
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Report to the Ranking Minority Member, Subcommittee on Military
Readiness, Committee on Armed Services, House of Representatives:
United States General Accounting Office:
GAO:
July 2003:
Defense Management:
DOD Faces Challenges Implementing Its Core Competency Approach and A-76
Competitions:
GAO-03-818:
GAO Highlights:
Highlights of GAO-03-818, a report to the Ranking Minority Member,
Subcommittee on Military Readiness, Committee on Armed Services, House
of Representatives
Why GAO Did This Study:
The Department of Defense (DOD) is pursuing a new initiative involving
a core competency approach for making sourcing decisions”that is,
sourcing decisions based on whether the function is core to the
agency‘s warfighting mission. In determining how to best perform non-
core functions, DOD‘s position is that its components should look
beyond just the use of public-private competitions under Office of
Management and Budget (OMB) Circular A-76 in making sourcing
decisions, and consider other alternatives such as partnering or
employee stock ownership. GAO was asked to assess (1) the department‘s
progress in assessing its core functions as a basis for sourcing
decisions, (2) the plans and progress DOD has made in identifying and
implementing alternatives to A-76, and (3) the current status of DOD‘s
A-76 program.
What GAO Found:
Progress in assessing core functions has been varied and limited
across major Defense components, affected somewhat by ambiguous
definitions of the term ’core function.“ In some instances additional
guidance was obtained, but definitions of core remain somewhat broad
and subjective, and will likely remain so in the future. Army and Air
Force have led within DOD in assessing core functions, but the Army
has done the most, and found, contrary to its expectations, that
distinguishing between core and non-core functions does not, by
itself, prescribe a sourcing decision. Other factors must also be
considered such as risk and operational considerations.
The range of alternatives to A-76 likely to be pursued under the core
competency-based approach is not yet clear, but DOD has made some
progress toward identifying and/or using some alternatives through
pilot projects and other efforts by the services as they have focused
on the core initiative. However, the use of alternatives could be
limited without special legislative authorities and/or repeal of
various existing prohibitions, and some could be tempered by the
department‘s efforts to meet the A-76 competitive sourcing goals set
by OMB.
DOD reported that as of June 1, 2003, it has met OMB‘s short-term goal
to use the A-76 process to study 15 percent of the positions
identified in DOD‘s commercial activities inventory by the end of
fiscal year 2003. However, meeting the longer-term goal to study at
least 50 percent (226,000) of its nearly 453,000 commercial activity
positions through fiscal year 2008 will present a challenge. This is
nearly double the number of positions that DOD has previously studied
during a comparable time period, and providing sufficient resources
(financial and technical) to complete the studies may prove
challenging. Also, the defense components, particularly the Air Force,
plan to transfer certain military personnel into warfighting functions
and replace them with government civilian and/or contractor personnel.
This will require the components to reprioritize their funding for
operation and maintenance accounts, because it is from those accounts
the services must fund replacement civilian or contractor personnel.
What GAO Recommends:
GAO is recommending that DOD clarify its expectations for sourcing
decisions based on core competency assessment results and provide
guidance on additional factors that should be considered in reaching a
sourcing decision; and ensure that conversion of functions from
performance by military to government civilian or contractor personnel
have clearly identified sources of funding to support those decisions.
The department generally concurred with the recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-03-818.
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Barry W. Holman at (202) 512-8412 or
holmanb@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Progress in Assessing Core Functions Has Varied Across the Defense
Components and Has Been Affected Somewhat by Definitions of "Core":
Some Progress Made in Identifying Alternative Sourcing Arrangements,
but the Extent to Which Alternatives Are Likely to Be Used Is Unclear:
DOD Expected to Maintain an Active A-76 Competitive Sourcing Program:
Conclusions:
Recommendations:
Agency Comments and Our Evaluation:
Scope and Methodology:
Appendix I: Alternatives to A-76 for Sourcing Non-Core Competencies:
Appendix II: Army's Plans for Transforming Its In-House
Industrial Facilities:
Appendix III: Senior Executive Council Definitions of Core Competency:
Appendix IV: Pioneer Projects:
Appendix V: Comments from the Department of Defense:
Appendix VI: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Pioneer Projects Submitted to OMB:
Table 2: DOD Positions Announced for Study under A-76, by Component,
Fiscal Years 1997-2002:
Table 3: Number of Positions for Which A-76 Studies Have Been
Completed, by Component, Fiscal Years 1997-2002:
Table 4: Number of Positions for Which A-76 Studies Are Ongoing, by
Component and Year When Study Was Announced, Fiscal Years 1999-2003:
Figure:
Figure 1: DOD's A-76 Positions Completed and OMB's Goal, Fiscal Years
1997-2008:
Abbreviations:
AMC: U.S. Army Materiel Command:
CAMIS: Commercial Activities Management Information System:
CINC: commander-in-chief:
DFAS: Defense Finance and Accounting Service:
DLA: Defense Logistics Agency:
DOD: Department of Defense:
ESOP: Employee Stock Ownership Plans:
FAIR: Federal Activities Inventory Reform Act:
NSA: National Security Agency:
OMB: Office of Management and Budget:
TBC: Transitional Benefit Corporations:
United States General Accounting Office:
Washington, DC 20548:
July 15, 2003:
The Honorable Solomon P. Ortiz
Ranking Minority Member
Subcommittee on Military Readiness
Committee on Armed Services
House of Representatives:
Dear Mr. Ortiz:
The Department of Defense (DOD) is currently examining a core
competency-based approach for making sourcing decisions--that is, the
decision to use a public or private sector source to perform a
necessary agency function or activity based on whether the function or
activity is core to the agency's mission.[Footnote 1] This is one of
the business transformation initiatives that have been endorsed by one
of DOD's high-level management committees, the Senior Executive
Council.[Footnote 2] It believes that the department should focus its
energies and talents on those functions that are core or directly
linked to its warfighting mission, and which must be performed by the
agency, with the expectation that necessary products or services
associated with non-core functions should be obtained from other
government agencies or the private sector.
In determining how to best perform non-core functions, DOD's
position is that its components should look beyond just the use of
Office of Management and Budget (OMB) Circular A-76, with its focus
on public-private competitions, in making sourcing decisions. It has
expressed interest in examining the use of other alternatives, such
as public-private partnering, transferring functions to other
agencies, employee stock ownerships, and quasi-government
corporations. Nevertheless, Circular A-76 remains an important tool for
making sourcing decisions for non-inherently governmental functions
typically involving commercially available services. Also, A-76
competitive sourcing is a major initiative under the President's
Management Agenda[Footnote 3] and OMB has set ambitious goals for those
competitions.
At your request, we examined DOD's plans for sourcing non-core
functions and the effect this may have on its A-76 program.
Accordingly, we assessed (1) the department's progress in assessing its
core functions as a basis for sourcing decisions, (2) the plans and
progress DOD has made in identifying and implementing alternatives to
A-76, and (3) the current status of DOD's A-76 program.
In performing work for this review, we obtained and analyzed plans
available from DOD and its components for assessing non-core functions
and identifying alternate sourcing approaches, and reviewed relevant
documents from DOD agencies. We met with officials from the Office of
the Secretary of Defense, the Army, the Navy, the Air Force, the Marine
Corps, the Defense Logistics Agency, and other organizations to obtain
information on their sourcing programs and efforts to identify
alternative sourcing options. The A-76 data used in this report are
derived from a Web-based DOD commercial activities database; we did not
validate the information in this database. Further details on our scope
and methodology are included at the end of this report.
Results in Brief:
Progress in assessing core functions has been varied and limited across
major Defense components[Footnote 4] and has been challenging. Multiple
and somewhat ambiguous definitions of what constitutes a core function
have made it difficult for the components to easily employ the core
competency-based approach to decision making. As a result, some
components have sought additional guidance and/or applied their
own criteria to identify core functions. Even then, much guidance
remained somewhat broad in nature and subjective, and will likely
remain so in the future. The Army has made the most progress to
identify core and non-core functions, having completed core competency
determinations for over 200,000 positions, but has had to deal with
numerous appeals to its initial core determinations. The Air Force has
recently completed a more limited effort, focusing predominately on
military positions. As a result of its core competency-based effort,
the Air Force identified over 17,000 military positions and almost
9,000 civilian positions it believes are non-core. The Navy and Marine
Corps are in the early stages of determining their core functions. The
Defense Logistics Agency broadly identified its core and non-core
competencies, but has not identified specific positions as core or non-
core. Meanwhile, through its efforts to operationalize the core
competency-based approach, the Army discovered that the utility of
identifying core functions for the purpose of making sourcing decisions
can have its limitations. More specifically, contrary to its original
expectations, the Army found that distinguishing between core and non-
core functions may not, by itself, prescribe a sourcing decision. Once
it has been determined that a function is not core to an agency's
mission, other factors that are not currently covered in DOD's guidance
must also be considered, such as risk and operational considerations.
As a result, this creates some uncertainty regarding how and to what
extent the Army will use the results of the core analyses and
potentially has implications for other Defense components as well.
The magnitude of alternate sourcing arrangements that DOD will pursue
under the core competency-based approach is not yet clear, based on
limitations in core assessments conducted to date and due to legal and
other constraints that could impact use of alternate arrangements. Even
so, DOD has made some progress toward identifying and using some
sourcing arrangements that are alternatives to A-76, including some
identified as part of an initiative to identify alternatives through
use of pilot projects,[Footnote 5] and a few others that have been
identified by the services as they have focused on the core initiative.
For example, in an effort to stimulate consideration of alternatives,
DOD tasked each of its components with identifying at least one non-
core competency pilot project and developing plans to transition the
affected functions out of DOD using alternatives to A-76 competition.
Six pilot projects have been approved and are in varying stages of
implementation. They range from divestiture to partnering with
municipalities for services, with the latter expected to be used as a
model for more widespread implementation. Beyond those six pilot
projects, department officials told us about two additional projects
under way that would transfer certain functions to other agencies. At
the same time, various officials told us that legislative restrictions-
-such as those that restrict outsourcing--and OMB's emphasis on
competitive sourcing under A-76 could impact the extent to which
alternatives are used.
While the department continues to examine the potential for
implementing its core concept and alternative sourcing plans, it is
also actively maintaining an A-76 competitive sourcing program. This is
largely due to the emphasis on competitive sourcing in the President's
Management Agenda and the A-76 goals set by OMB. Building on its
ongoing A-76 program, DOD reported that as of June 1, 2003, it has met
OMB's short-term goal to study 15 percent of the positions that the
department identified in its year 2000 commercial activities inventory
by the end of fiscal year 2003. Meeting the longer-term goal of
studying at least 50 percent of its nearly 453,000 commercial activity
positions[Footnote 6] through fiscal year 2008 could present a
challenge because the goal requires studying far more positions--nearly
double--than DOD has previously studied under a comparable time period.
If the history of DOD's A-76 program is a guide, the department could
face other challenges associated with studying such sizeable numbers of
positions. These challenges include providing sufficient time and
resources to complete the studies, and encountering difficulties in
identifying and grouping positions for study. Another challenge to
completing OMB's A-76 goals involves the defense components' plans,
particularly the Air Force, to convert a sizeable number of military
positions to performance by government civilian or contractor
personnel, either as a result of the core-competency process or through
A-76 studies. Although precise numbers are not available for each of
the components, the services have indicated they plan to use such
conversions to transfer the affected military personnel and their slots
to fill other priorities, rather than reduce authorized military end-
strength. To do so will require the services to reprioritize their
funding for operation and maintenance accounts, because it is from
those accounts the services must fund replacement civilian or
contractor personnel.[Footnote 7]
This report contains recommendations for additional guidance in making
sourcing decisions based on core assessments and to ensure conversion
of functions from performance by military to civilian or contractor
personnel are accompanied by identified sources of funding to support
those decisions. In commenting on a draft of this report, the
department generally concurred with our recommendations.
Background:
Since 1955, the executive branch has encouraged federal agencies to
obtain commercially available goods and services from the private
sector when the agencies determined that such action was cost-
effective. OMB formalized the policy in its Circular A-76, issued in
1966. In 1979, OMB supplemented the circular with a handbook that
included procedures for competitively determining whether commercial
activities should be performed in-house, by another federal agency
through an Interservice Support Agreement, or by the private sector.
OMB has updated this handbook three times since 1979. An extensive
revision to Circular A-76 was issued on May 29, 2003, based in part on
the recent work of the congressionally mandated Commercial Activities
Panel.[Footnote 8]
Under the newly revised circular, agencies may convert commercial
activities to or from contractor performance through a public-private
competition, whereby the estimated cost of public or private
performance of the function is evaluated against published selection
criteria in accordance with the principles and procedures outlined in
the circular.[Footnote 9] As part of this process, the government
identifies the work to be performed in a "performance work statement,"
prepares an in-house offer which includes its most efficient
organization, and compares all the offers against each other and the
selection criteria. The revised circular provides several alternative
procedures for conducting source selections, only one of which allow
agencies to select a contract based on other than the lowest cost
technically acceptable offer.[Footnote 10] The four source selection
alternatives are: sealed bid, lowest price technically acceptable,
phased evaluation, and, in certain cases, trade-off (which permits
agencies to weigh cost and non-cost factors).
Administrative and legislative constraints from the late 1980s through
1995 resulted in a lull--and even a moratorium--on awarding contracts
resulting from A-76 competitions. In 1995, congressional and
administration initiatives placed more emphasis on A-76 as a means of
achieving greater economies and efficiencies in operations. Beginning
about 1995, DOD began to give renewed emphasis to the use of A-76
competitive sourcing under Circular A-76. More recently, competitive
sourcing has received governmentwide attention, as one of five
initiatives of the President's Management Agenda for fiscal year 2002.
DOD has been a leader among federal agencies in using A-76 in recent
years.
The revised circular requires agencies to prepare two annual
inventories that categorize all activities performed by government
personnel as either commercial or inherently governmental.[Footnote 11]
A similar requirement was included in the 1998 Federal Activities
Inventory Reform (FAIR) Act,[Footnote 12] which directs agencies to
develop annual inventories of their positions that are not inherently
governmental. DOD's 2000 FAIR Act inventory identified nearly 453,000
in-house civilian positions engaged in a variety of commercial
activities, nearly 260,000 of which have been, or are, subject to
competition or direct conversion under Circular A-76. The number
of positions subject to A-76 is less than the total number of positions
in commercial activities because DOD made adjustments to
exclude certain commercial activities from being considered eligible
for competition; they included such reasons as statutory, national
security, or operational considerations. Under the President's
Management Agenda, OMB has directed agencies to directly convert or
compete through cost comparison studies 15 percent of their total
fiscal year 2000 inventories of commercial activities by the end of
fiscal year 2003, with the ultimate goal of competing at least
50 percent of their inventories by the end of fiscal year 2008.
In providing guidance for determining whether activities and functions,
and associated positions are considered to be inherently governmental
in nature, DOD has sometimes equated the term "inherently governmental"
with the somewhat parallel term "core."[Footnote 13] While use of the
term "core" is associated with the private sector, DOD has sometimes
used the term to designate military and civilian essential positions
required for military and national security reasons. The old A-76
Handbook provided yet another, but similar, meaning for core. In the
context of A-76, core capability was defined as "a commercial activity
operated by a cadre of highly skilled employees, in a specialized
technical or scientific development area to ensure that a minimum
capability is maintained.":
The concept of core in DOD has also been associated with legislative
requirements to establish core logistics capabilities in government-
owned military maintenance depots. This process is based on a
requirement contained in 10 U.S.C. 2464 to identify and maintain within
government-owned and -operated facilities a core logistics capability
including the equipment, personnel, and technical competence required
to maintain weapon systems identified as necessary for national defense
emergencies and contingencies. Regardless of usage, determinations of
core and inherently governmental functions within DOD have often been
viewed as somewhat subjective in nature.
The term "core function" recently has gained increased and more
expanded use within DOD, beginning with DOD's publication of its
September 2001 Quadrennial Defense Review Report, which recommended the
identification of core and non-core functions.[Footnote 14] According
to the report, "only those functions that must be performed by DOD
should be kept by DOD. Any function that can be provided by the private
sector is not a core government function." The test to separate core
and non-core functions would be to determine whether a function is
directly necessary for warfighting, according to the report.
Further emphasis on assessing core functions subsequently came from
DOD's Senior Executive Council,[Footnote 15] which, in April 2002,
launched a departmentwide effort to distinguish between core and non-
core functions with an emphasis on retaining in-house only those
functions deemed core to the warfighting mission. Under this approach,
it tasked the defense components with developing plans to transition
non-core functions to alternative sourcing arrangements or A-76
studies, if appropriate, as soon as possible. In advocating the use of
alternatives, the Senior Executive Council noted that A-76 cost
comparisons were lengthy, expensive, and hard on the workforce.
Examples of alternate sourcing strategies cited by the Council included
public-private partnering, employee stock ownership, and quasi-
governmental organizations. Details about these and other alternatives
can be found at appendix I. While use of A-76 studies was still
permitted, emphasis was expected to be given to identifying alternate
sourcing approaches that might be used to transfer non-core functions
out of the department.
Much publicity to this new core emphasis surrounded Army's efforts
under its program, which it designated as "the Third Wave." The term
"Third Wave" was used to distinguish this current effort from two
previous sourcing efforts under A-76, the first occurring largely in
the 1980s and the second beginning in the 1996-97 time period. Unlike
the earlier two waves, which focused on A-76 studies of about 25,000
and 33,000 positions respectively, the scope of the Third Wave was to
be significantly larger, potentially involving over 200,000 positions.
This was of significant concern to government employees after several
years of A-76 study efforts within DOD. The Army's program also
received much public attention because of what Army officials have
characterized as an unrelated, but parallel, effort to have a
contractor (RAND) study options for rethinking governance of the Army's
arsenals and manufacturing plants.[Footnote 16] The Army has
subsequently indicated it does not plan to pursue the options outlined
in that study which ranged from privatization to creation of a federal
government corporation to operate these facilities. On March 24, 2003,
the Secretary of the Army directed that other action plans be developed
to deal with these facilities. (See app. II for a summary of the
actions directed.):
Progress in Assessing Core Functions Has Varied Across the Defense
Components and Has Been Affected Somewhat by Definitions of "Core":
Progress in assessing core functions has been varied and limited across
the major Defense components, and affected by somewhat ambiguous and
subjective definitions of what constitutes a "core function." These
multiple and somewhat ambiguous definitions of what is a "core
function" have made it difficult for the components to easily employ
the core competency approach to decision-making, and some DOD
components have sought additional guidance and/or applied their own
criteria to identify core functions. Even so, progress in assessing
core functions has varied across the components, with the Army and the
Air Force having made the most progress in their efforts. In addition,
the Army, which has devoted the greatest attention to assessing core
functions, has found that distinguishing between core and non-core
functions, by itself, has limited value because that distinction alone
does not necessarily prescribe a sourcing decision.
Guidance in Defining Core Has Been Broad and Additional Guidance
Sought:
DOD guidance to define a core function under the new program
emphasis has been broad and, as a result, there are multiple and
somewhat ambiguous definitions of "core," leading some DOD components
to seek additional guidance. The term "core" has had different meanings
depending upon the context in which it was used. Moreover, there has
been and remains a significant amount of subjectivity in defining
"core" as there has been with the term "inherently governmental."
Recognizing the potential difficulty in applying the core competency-
based approach, the Senior Executive Council provided several
definitions of "core" as well as criteria for determining core
competencies in its April 2002 implementing memo.
As a starting point for its core-competency emphasis, a work group
commissioned by the Senior Executive Council chose a business concept
outlined in a 1990 Harvard Business Review article.[Footnote 17] The
article provides several examples of corporations that identified their
core competencies, helping them to become more successful than their
competitors. The authors likened a diversified corporation to a
business tree. For example, the trunk and major limbs are core
products; the smaller branches are business units. While admitting this
concept is difficult to apply to DOD, the Senior Executive Council
nonetheless translated that business tree to a military application--
the core services were described as the set of activities that actually
contribute to the value of the end product (land, sea, and air
operations), the business units were the units of a component command,
the end products were military effects, and the customer was the
combatant commander employing forces and resources.
In adapting the definition of "core" from the Harvard Business Review
article to the DOD environment, the Senior Executive Council defined
core as "A complex harmonization of individual technologies and
'production' (employment, delivery) skills that create unique military
capabilities valued by the force employing [commander in chief]!"
Several additional definitions were provided in the Council's April
2002 memo to help clarify the reader's understanding of the definition
(see app. III). According to the memo, however, there are three themes
common to each definition: (1) the knowledge and experience acquired by
people, (2) the discrete and finite set of technologies the people
employ, and (3) the business objectives to be achieved. It stated that
DOD's business objective to be achieved is warfare.
The Senior Executive Council's memo also provided some criteria for
determining core competencies. According to the Council, a core
competency:
* has potential application to a wide variety of national security
needs,
* provides a significant contribution to the combatant commander's
desired effect,
* would be difficult for competitors to imitate,
* provides the means to differentiate from competitors,
* crosses organizational boundaries within an enterprise,
* is a direct contributor to the perceived value of the service,
* does not diminish with use,
* deploys with forces, and:
* provides training and experience that forms the basis of ethos and
culture.
The memo also noted that these criteria are not "pass/fail" criteria.
That is, some criteria may help to identify core competencies while
others may not, and that these criteria are based on business concepts
that have been adapted to the military domain. Furthermore, the memo
stressed the importance of senior leadership judgment in identifying
core competencies.
According to various officials, the lack of a clear and concise
definition of the terms related to the core concept initially made it
difficult for the Army and Air Force to apply the core concept to their
functions. Both services have subsequently supplemented the Senior
Executive Council definitions with their own internal documents and
specific guidance, which are discussed in the next sections.[Footnote
18] That notwithstanding, the definition of core remains somewhat broad
in nature and subjective, and will likely remain so in the future. The
Navy and Marine Corps have only recently begun their efforts to
identify core functions, and have not yet sought to develop additional
guidance. A Defense Logistics Agency official told us they did not use
any additional guidance.
DOD and service officials told us that while the concepts "inherently
governmental" and "core" are similar and may overlap, they may not
always be the same. Specifically, not all inherently governmental
functions would be considered core, nor would all core functions be
designated inherently governmental. For example, according to Army
analysis, many civil functions performed by the Army Corps of
Engineers, such as wetlands regulation and eminent domain authority,
are inherently governmental, but they are not core to the Army's
mission. Conversely, we were told, certain medical services provided by
doctors and nurses in the operating forces are not deemed to be
inherently governmental; however, these services are considered to be
core to the Army's mission.
Progress on Identifying Core Functions Has Varied:
The Senior Executive Council directed the services and defense agencies
to inventory their organizations and identify their core functions, but
only the Army and Air Force have made much progress in doing so. The
Army took the lead in pursuing this initiative and has recently
completed an effort to identify its core and non-core functions. The
Air Force also initiated a core competency review, which focused
predominately on military positions. The Navy and Marine Corps are in
the early stages of assessing their core functions. The Defense
Logistics Agency broadly identified its core and non-core competencies,
but has not identified specific positions as core or non-core.
Army Efforts Recently Completed:
The Army has recently completed an effort to identify its core and
non-core functions for over 200,000 positions. Initially, the Army's
Third Wave program assumed that all commercial positions were non-core
and thus potential candidates for performance by the private sector or
other government agencies. However, it permitted its components to
request exemption from the non-core designation and, as a result,
considered appeals involving numerous functional areas. Some were
sustained while others were not. The results of this process differed
somewhat from the Army's initial expectations that all non-core
functions could be subject to competition or alternate sourcing, and
the number of positions likely to be subject to alternate sourcing is
not yet clear.
In permitting its components to present a case for functions to be
exempt from the non-core designation, the Army provided specific
guidance on the submission of exemption requests and the factors to be
used to evaluate those requests. An exemption request needed to provide
a compelling case that a non-core designation could pose substantial
and specific risks to core warfighting missions or would violate a
statutory requirement affecting a function. The Army components
submitted 24 requests for exemption from non-core designation, each
representing one or more broad functional areas. For example, these
areas included civilian personnel, installation management, law
enforcement and criminal investigations, and both military and civilian
career progression activities.
The Army's authority for reviewing and approving core-competency
exemption requests was the Assistant Secretary of the Army for Manpower
and Reserve Affairs. In evaluating the exemption requests, the Office
of Manpower and Reserve Affairs supplemented the Senior Executive
Council's definitions of core with six core competencies identified by
the Army in Army Field Manual 1 and other documents. The six
competencies were depicted as:
* Shape the security environment--provide a military presence.
* Prompt response--provide a broad range of land power options to shape
the security environment and respond to natural or manmade crises
worldwide.
* Forcible entry operations--provide access to contested
areas worldwide.
* Mobilize the Army--provide the means to confront unforeseen
challenges and ensure America's security.
* Sustained land dominance--provide capabilities to control land and
people across various types of conflicts.
* Support civil authorities--provide support to civil authorities in
domestic and international contingencies, including homeland security.
After evaluating the appeals, the Army, in some instances, sustained
the exemption requests, while, in other instances, they were denied.
However, in many instances a mixed decision was rendered regarding
individual functions within a broad functional area. This is
illustrated by the Army's determination of core competencies for two
functions--medical services and information resources.
In making its decisions, Army officials determined that medical
activities could be considered core in some circumstances and non-core
in others. The Army also found that, in some cases, functions
considered to be core--such as information resources--contained
elements that were designated non-core.
The Army determined that many medical functions are core to the Army's
mission even though they are not classified as inherently governmental.
The Army recognizes that medical functions do not require unique
military knowledge or skills or recent experience in the operating
forces to be performed. However, for troops deployed in theater (i.e.,
a war zone), medical functions do need to be performed by in-house
personnel because reliance on host nation contracting for medical
support could place significant risks on the Army forces. The Army has
determined that the in-theater medical mission is a critical element of
the Army's ability to accomplish its core competencies. Even so,
certain functions within the medical area can be considered both core
and non-core. For example, the optical fabrication function--which is
the ability to produce eyewear (replacement spectacles and protective
mask inserts)--is considered a core competency in support of the
operational forces close to the point of need in the area of
engagement. However, this same function performed in the United States
is not considered to be a core competency, and the Army states that
this function may be reviewed for divestiture or privatization.
Within the information resources function, the Army considers the
management of information resources in a network-centric, knowledge-
based workforce to be a core warfighting competency. This core
competency includes information operations that support operating
forces, and utilizes commercial technology adapted for military
applications. Organizations and personnel performing functions that
ensure command, control, and communications interoperability across
Army, joint, interagency, and coalition forces are core functions and
need to be kept in-house. However, other information resource
functions--such as help-desk services--are deemed to be non-core and
can be considered for possible outsourcing.
Army officials said they recognized that once the determination was
made that a function was considered to be core or non-core to the
Army's mission, the sourcing of the function would, in many instances,
require additional analysis to determine the amount of core capability
to be kept in-house and the risk the Army might face by sourcing the
function. The types of risk to be considered in evaluating impacts upon
a core mission are force management, operational, future challenges,
and institutional.[Footnote 19] Additional factors must also be
considered. For example, the Army determined that its casualty and
mortuary affairs function is not a core mission, nor is it an
inherently governmental function. However, national policy dictates
that Army officials notify families of a casualty in person.
Overall, the Army found the results of its review were somewhat
contrary to its, and the Senior Executive Council's, initial
expectation that all non-core functions should be subject to
competition or alternative sourcing. As noted previously, the Army
found the designation of "core" does not necessarily indicate military
or government civilian performance is required or necessarily precludes
competitive sourcing of the function. That is, a designation of "non-
core" does not automatically mean that a function can, or should, be
contracted out--other factors must also be considered. As a result,
this has led to some uncertainty regarding how and to what extent the
results of the Army's core analyses will be used in sourcing decisions
and this potentially has implications for other Defense components as
well. While at this point, the Army is still deciding how to proceed
with implementing the results of its core assessments, Army officials
told us that the core decisions would be reflected in the Army's 2003
FAIR Act inventory.
Air Force Efforts Focus on Military Positions:
The Air Force focused its initial core competency review predominately
on military positions. This was done because the Air Force wanted to
identify functions performed by military personnel that might be
realigned for civilian or contractor performance, thus permitting
affected military personnel to be reassigned to operational areas where
shortages of military personnel existed. All military positions were
reviewed in terms of three main core competencies and six distinctive
capabilities. The three institutional core competencies were depicted
as:
* Developing Airmen (the heart of combat capability).
* Technology to Warfighting (the tools of combat capability).
* Integrating Operations (maximizing combat capability).
Six distinctive Air Force capabilities also considered were those
related to:
* Precision engagement--the ability to locate the objective or target,
provide responsive command and control, generate the desired effect,
assess the level of success, and retain the flexibility to reengage.
* Rapid global mobility--the ability to rapidly and flexibly respond to
the full spectrum of contingencies worldwide.
* Information superiority--the ability to collect, control, exploit and
defend information while denying the adversary the same.
* Agile combat support--the ability to provide combat support in a
responsive, deployable, and sustainable manner.
* Air and space superiority--the ability to establish control over the
entirety of air and space, providing freedom from attack and freedom to
attack.
* Global attack--the ability to find, fix, and attack targets anywhere
on the globe.
Although the core competency review process did involve some subjective
judgment, each position was classified into three basic categories--
those (1) requiring military performance, (2) requiring government
civilian performance, and (3) available for contractor consideration.
As a result of this review, 17,800 military positions were identified
for potential conversion to either government civilian or contractor
civilian positions. Our prior work has identified various instances
where personnel costs are generally less for civilian personnel than
for military.[Footnote 20] An additional 4,477 military positions were
identified for possible future realignment through other reengineering
efforts, such as adjusting the manpower requirements process and
conducting a business case analysis for alternative installation
support practices, for a total of 22,277 military positions. Because
many of the functions reviewed involved both military and civilian
personnel, an additional 8,900 Air Force civilian positions were
identified for possible conversion to contractor performance. An Air
Force official stated that the service hopes to do a more in-depth
review on the civilian side in the future; however, at the moment, none
is planned. The Air Force expects the number of positions that can be
competed in its FAIR Act inventory will be increased as a result of
this review.
In the near-term, as a direct result of the core function review, the
Air Force has indicated it plans to outsource a significant portion of
the workload of its Pentagon Communications Agency currently performed
by over 400 military personnel. Although Air Force officials indicated
the service has the resources to implement this action, other efforts
may have to be postponed until the funds are available. To
move military positions to operational warfighting positions,
additional government civilian or contractor personnel would be needed
to replace the military personnel. Air Force officials told us that
moving the military personnel out of non-core functions is a high
priority, but because of the high cost involved in adding funds to the
operations and maintenance appropriation account to pay for replacement
civilian or contractor positions, it is currently an unfunded
priority.[Footnote 21] They recently estimated this additional cost to
be about $5 billion over the next 5 years. Moreover, in its internal
budget planning documents for fiscal year 2004, the Air Force stated
that its number one unfunded priority is funding ($2.34 billion) for
moving the initial 6,300 military positions out of non-core functions.
As a result, it is not yet clear to what extent larger number of
conversions would take place and the extent to which they might involve
direct conversions or be done as part of public-private competitions
using the A-76 process.
Other DOD Component Efforts Are Not as Advanced:
As mentioned earlier, the Marine Corps has recently begun its effort to
identify core functions and has convened a working group to determine
how to proceed. The Secretary of the Navy tasked the Navy components
to determine their core competencies on April 18, 2003, so this effort
is still in its infancy. The Defense Logistics Agency has identified
four core competencies--customer knowledge, integrated combat
logistics solutions, rapid worldwide response, and single face to
industry and customers. In addition, it identified 10 non-core
competencies. These are: base operations; warehousing services;
transportation services; document automation, printing and production
services; marketing of unneeded materiel; computer application
software; computer operations and database management support;
cataloging; payroll services; and civilian personnel services. However,
it has not determined which positions are considered to be core.
Some Progress Made in Identifying Alternative Sourcing Arrangements,
but the Extent to Which Alternatives Are Likely to Be Used Is Unclear:
The range of alternatives to A-76 likely to be pursued under the core
competency-based approach is not yet clear given limitations in the
core analyses, but DOD has made some progress toward identifying and/or
using some sourcing arrangements that are alternatives to A-76. Some
were identified as part of an initiative to identify alternatives
through the use of pilot projects, and a few others have been
identified by the services as they have focused on the core initiative.
At the same time, some DOD officials indicated that the use of some
alternatives could be limited without special legislative authorities
and/or repeal of various existing prohibitions. The use of alternative
sourcing could also be affected by the emphasis on A-76 competitions
and OMB's goals for the department.
Alternate Sourcing Approaches Identified through Pilot Projects
and Other Initiatives:
DOD has made some progress in identifying and using sourcing
arrangements that are alternatives to A-76, including some as part of
an initiative to identify alternatives through use of pilot projects,
and a few others that have been identified by the services as they have
focused on the core initiative. These projects are in various stages of
implementation.
DOD's Senior Executive Council and Business Initiative Council[Footnote
22] asked the components to identify and submit at least one pilot or
"pioneer" project to provide alternative sourcing methods for
widespread implementation. Ten projects were approved by the Business
Initiative Council and were then submitted to OMB for approval. OMB
approved eight projects in August 2002. The department later withdrew
two projects because the timing was not appropriate. The following
table provides a listing of the 10 Pioneer Projects. (A description of
the ongoing pioneer projects can be found in app. IV.):
Table 1: Pioneer Projects Submitted to OMB:
Title: Reengineer existing information technology structure; Proposed
sourcing method: Streamlined A-76; Approved by OMB.
Title: Metalworking machinery repair/rebuild services; Proposed
sourcing method: Waiver to A-76; Approved by OMB.
Title: Desk top management services; Proposed sourcing method: New
requirement; Approved by OMB.
Title: Groundbreaker II (information technology support); Proposed
sourcing method: New requirement; Withdrawn by DOD.
Title: Municipal services partnership for base support; Proposed
sourcing method: Direct service contract (legislation required);
Approved by OMB.
Title: Randolph Air Force Base MEO (Most Efficient Organization)
developed with an A-76 competition to follow at a later date; Proposed
sourcing method: Reengineering; Disapproved by OMB.
Title: Revitalize and reshape the workforce; Proposed sourcing method:
Reengineering; Disapproved by OMB.
Title: Ophthalmic services; Proposed sourcing method: Divestiture;
Approved by OMB.
Title: Brooks city-base partnership; Proposed sourcing method:
Divestiture; Approved by OMB.
Title: White House Communication Agency military manpower; Proposed
sourcing method: Military conversion; Withdrawn by DOD.
Source: DOD.
[End of table]
The projects propose to use a variety of alternatives, including
partnering and divestiture, and are in varying stages of
implementation, as noted in appendix IV. For example, the Army
previously developed a partnership with the city of Monterey,
California, to provide municipal services needed for the operation of
DOD assets in Monterey County. Because of the success of this project,
the Army submitted legislation to Congress that would allow contracting
for municipal services defense-wide.[Footnote 23] In another example,
the Navy has identified optical (eyewear) fabrication as a potential
candidate for divestiture, because that service is readily available in
the private sector. However, this project is still in the conceptual
phase and no decision will be made until a thorough analysis has been
completed to determine the most appropriate sourcing method.
DOD was required to go to OMB for approval of these Pioneer Projects to
determine if they would count toward the competitive sourcing goals set
by OMB. The criteria for OMB approval required that projects involve an
element of divestiture, competition, or the transfer of responsibility
to other private or public sector performers. The two pilot Pioneer
Projects that were not approved by OMB had proposed using reengineering
or the development of most efficient organizations as an alternative to
A-76 competition. These two projects were not approved because they
neither involved the divestiture of responsibility for performing the
function nor contained a near-term element of competition. DOD
officials withdrew two others because they believed timing was not
appropriate for those actions.
In responding to OMB's draft of its most recent revision to Circular
A-76,[Footnote 24] we stressed the importance of considering
alternative approaches to accomplishing agency missions. Such
approaches encompass a wide range of options, including restructuring,
privatizing, transferring functions to state and local governments,
terminating obsolete functions, and creating public-private
partnerships. Given that these options can result in improved
efficiency and enhanced performance, we recommended at that time that
OMB continue to encourage agencies to consider these
and other alternatives to A-76 competition. The revised circular allows
agencies to deviate from certain requirements of the circular with
prior written approval from OMB. For example, agencies are permitted to
explore innovative alternatives, including public-private
partnerships, public-public partnerships, and high performing
organizations, with prior written approval from OMB for a specific
competition.
In addition to these Pioneer Projects, some other initiatives to use an
alternate sourcing approach have emerged within the military services.
For example, the department plans to transfer its personnel security
investigations function, now performed by the Defense Security Service
to the Office of Personnel Management. In another instance, the
Secretary of the Army recently determined that the long-term
incarceration of prisoners was not a core competency of the Army. The
department is in the process of finalizing plans for transferring its
military-dedicated prison at Fort Leavenworth, Kansas,[Footnote 25] to
the Federal Bureau of Prisons. Although exact savings from this
transfer have not yet been determined, an Army official stated that
transferring the facility to the Bureau of Prisons would free up almost
500 military positions. In addition, Army officials believe it will
allow for efficiency gains because the cost to incarcerate a prisoner
per year by the Bureau of Prisons is expected to be less than half what
it costs the Army to do so.
Potential Limitations on Use of Alternatives Exist:
The services have been charged by the Senior Executive Council to
identify and use sourcing arrangement alternatives to A-76 for their
non-core functions; however, DOD and the services have encountered
potential limitations to their efforts. These include legislative
impediments and the requirement to support the President's Management
Agenda to meet the competitive sourcing goals of OMB.
Legislation Can Limit Use of Alternatives:
Various officials in the Office of the Secretary of Defense and the
services expressed uncertainty over the extent to which existing
legislative prohibitions or the lack of legislative authority could
limit the pursuit of some alternatives. They noted existing
prohibitions such as those contained in 10 U.S.C. § 2461,[Footnote 26]
and section 8014[Footnote 27] of the annual appropriations acts that
require public-private competition in all but a few circumstances. In
citing areas where legislation might be needed, they noted that to
complete the planned transfer of the personnel security investigative
functions to the Office of Personnel Management, DOD recently submitted
a legislative request to Congress seeking authority to do so as part of
its legislative package known as the Defense Transformation for the
21st Century Act of 2003. Specifically, the legislation would allow DOD
to transfer this non-core function to the Office of Personnel
Management, which would allow for consolidation of requests for
security clearances under this agency. Alternatively, Army officials
told us that in the initiative to transfer its Fort Leavenworth prison
to the Federal Bureau of Prisons, they did not believe special
authorizing legislation is required. They believe DOD is not required,
by statute,[Footnote 28] to maintain prisoners in DOD facilities and
may use any facility under the control of the U.S. government.
DOD officials have also requested some legislative relief to implement
some initiatives that they have already identified. For example, DOD
has requested the repeal of 10 U.S.C. § 2465[Footnote 29] to allow the
department to bid and compete contracts for security guard services and
for the performance of firefighting functions at military installations
in the continental United States.[Footnote 30] DOD believes such
contracts would be cost-effective and provide a needed flexibility in
exigent situations, such as September 11, 2001. In another case, DOD
has sought legislative authority to contract directly with local
governments for municipal services based on the success of its Pioneer
Project in Monterey, California. Doing so would allow DOD components to
use this type of arrangement at other locations, as appropriate.
Supporting the President's Management Agenda May Limit Use of
Alternatives:
The department, in attempting to meet OMB's goals to conduct A-76
competitions, is unlikely to pursue alternative sourcing on a large
scale. One of the five governmentwide initiatives in the President's
Management Agenda is competitive sourcing. Under this initiative, OMB
has directed agencies to compete 15 percent of positions deemed
commercial in their fiscal year 2000 FAIR Act inventories by the end of
fiscal year 2003, with the ultimate goal of 50 percent by the end of
fiscal year 2008. For DOD, this represents approximately 226,000
positions. Although OMB has recently allowed some alternative sourcing
methods that contain an element of competition to be counted toward
meeting these goals, DOD expects that the vast majority of positions
will be competed under A-76 competitions. Positions competed under
A-76, of course, would not be available for consideration for
alternative sourcing methods.
While the department initially placed a priority on identifying
alternative sourcing arrangements, the most recent department guidance
is less clear regarding the priority of alternate sourcing arrangements
over A-76 competitions. The Business Initiative Council recently
directed the defense components to submit the status of their core
competency reviews and detailed competitive sourcing plans--including
both A-76 and alternatives to A-76--by June 2, 2003. The Business
Executive Council will review these plans in preparation for the fiscal
2005-2009 preliminary budget review. Details on these plans were not
available at the time we completed our review.
DOD Expected to Maintain an Active A-76 Competitive Sourcing Program:
Limited progress in implementing the core competency-based approach,
coupled with OMB's emphasis on the use of A-76 in conjunction with the
President's Management Agenda, suggest that the use of A-76 may remain
a key vehicle for sourcing decisions involving non-core and non-
inherently governmental functions. Nonetheless, despite its experience
in implementing competitive sourcing, the department faces a number of
challenges related to its A-76 program.
OMB Has Established Ambitious A-76 Program Goals for DOD:
OMB has established ambitious A-76 competitive sourcing program goals
for the department to meet in both the short term and the long term,
even while DOD is focusing on its core competency approach. The
department's A-76 goals for the number of positions to be studied and
the time frames for accomplishing those studies have varied over time,
reaching a high in 1999 of studying 229,000 positions between 1997 and
2005. However, DOD experienced difficulty in identifying eligible
functions for study and consequently, in 2001, reduced the goal to
study 160,000 positions between 1997 and 2007. Recently, DOD's study
goals have increased because of OMB's competitive sourcing goals. To
meet OMB's goal of directly converting or studying 15 percent of the
453,000 commercial activity positions identified in the 2000 FAIR Act
inventories by the end of fiscal year 2003, DOD would need to complete
A-76 studies on about 68,000 positions between fiscal year 2000 and the
end of fiscal year 2003.[Footnote 31] Then, to meet the larger goal of
50 percent, DOD would need to study an additional 158,000 positions in
the out years (fiscal years 2004-08). This represents a total of
226,000 positions to be studied, far more than DOD has been able to
complete in a similar time period. Figure 1 illustrates OMB's goals for
DOD compared to what DOD has completed at the end of fiscal year 2002.
Figure 1: DOD's A-76 Positions Completed and OMB's Goal, Fiscal Years
1997-2008:
[See PDF for image]
[End of figure]
The strength of DOD's A-76 program is shown in the number of positions
announced or planned for study, those completed, and those still
ongoing. Table 2 provides data on the number of positions the
department has announced for study under its A-76 program since its
resurgence in 1997.
Table 2: DOD Positions Announced for Study under A-76, by Component,
Fiscal Years 1997-2002:
Component: Army; Fiscal year: 1997: 10,878; Fiscal year: 1998: 14,430;
Fiscal year: 1999: 8,757; Fiscal year: 2000: 381; Fiscal year: 2001:
517; Fiscal year: 2002: 426; Total: 35,389.
Component: Navy; Fiscal year: 1997: 11,460; Fiscal year: 1998: 10,415;
Fiscal year: 1999: 10,470; Fiscal year: 2000: 6,445; Fiscal year: 2001:
5,273; Fiscal year: 2002: 2,516; Total: 46,579.
Component: Air Force; Fiscal year: 1997: 5,674; Fiscal year: 1998:
8,442; Fiscal year: 1999: 8,161; Fiscal year: 2000: 4,124; Fiscal year:
2001: 1,553; Fiscal year: 2002: 904; Total: 28,858.
Component: Marine Corps; Fiscal year: 1997: 0; Fiscal year: 1998: 0;
Fiscal year: 1999: 4,324; Fiscal year: 2000: 704; Fiscal year: 2001: 0;
Fiscal year: 2002: 13; Total: 5,041.
Component: Defense agencies; Fiscal year: 1997: 978; Fiscal year: 1998:
2,220; Fiscal year: 1999: 3,953; Fiscal year: 2000: 533; Fiscal year:
2001: 528; Fiscal year: 2002: 3,442; Total: 11,654.
Component: Total; Fiscal year: 1997: 28,990; Fiscal year: 1998: 35,507;
Fiscal year: 1999: 35,665; Fiscal year: 2000: 12,187; Fiscal year:
2001: 7,871; Fiscal year: 2002: 7,301; Total: 127,521.
Source: DOD's Commercial Activities Management Information System
(CAMIS) as of April 2003.
[End of table]
The number of positions planned for study by year for each component
for fiscal years 2003-08 was not available, but it would seem to
require much greater numbers of announcements per year than were made
in recent years. The services are currently determining the number of
positions they plan to study in future years, including the number of
military and civilian positions to be studied, and are required to
submit preliminary data to the Office of the Secretary of Defense by
June 2, 2003. However, as noted, the total number of positions that
would be required to be studied for fiscal years 2004-08 to meet OMB's
target for DOD is a total of 158,000 positions.
Table 3 shows the number of positions completed in A-76 studies since
1997. Of the total, 48,921 were civilian positions and 19,336 were
military positions.
Table 3: Number of Positions for Which A-76 Studies Have Been
Completed, by Component, Fiscal Years 1997-2002:
Component: Army; Fiscal year: 1997: 26; Fiscal year: 1998: 129; Fiscal
year: 1999: 691; Fiscal year: 2000: 1,538; Fiscal year: 2001: 7,534;
Fiscal year: 2002: 10,423; Total: 20,341.
Component: Navy; Fiscal year: 1997: 82; Fiscal year: 1998: 234; Fiscal
year: 1999: 2,936; Fiscal year: 2000: 4,214; Fiscal year: 2001: 5,323;
Fiscal year: 2002: 2,382; Total: 15,171.
Component: Air Force; Fiscal year: 1997: 1,838; Fiscal year: 1998:
3,930; Fiscal year: 1999: 2,993; Fiscal year: 2000: 5,915; Fiscal year:
2001: 6,352; Fiscal year: 2002: 4,450; Total: 25,478.
Component: Marine Corps; Fiscal year: 1997: 0; Fiscal year: 1998: 0;
Fiscal year: 1999: 0; Fiscal year: 2000: 41; Fiscal year: 2001: 551;
Fiscal year: 2002: 1,214; Total: 1,806.
Component: Defense agencies; Fiscal year: 1997: 306; Fiscal year: 1998:
894; Fiscal year: 1999: 361; Fiscal year: 2000: 1,400; Fiscal year:
2001: 1,008; Fiscal year: 2002: 1,492; Total: 5,461.
Component: Total; Fiscal year: 1997: 2,252; Fiscal year: 1998: 5,187;
Fiscal year: 1999: 6,981; Fiscal year: 2000: 13,108; Fiscal year: 2001:
20,768; Fiscal year: 2002: 19,961; Total: 68,257.
Source: DOD Commercial Activities Management Information System data,
as of March 2003.
[End of table]
Table 4 shows the number of positions being reviewed in ongoing A-76
studies. Of the total, 23,766 are civilian positions and the remaining
2,622 are military positions.
Table 4: Number of Positions for Which A-76 Studies Are Ongoing, by
Component and Year When Study Was Announced, Fiscal Years 1999-2003:
Component: Army; Fiscal year: 1999: 1,605; Fiscal year: 2000: 368;
Fiscal year: 2001: 277; Fiscal year: 2002: 417; Fiscal year: 2003: 0;
Total: 2,667.
Component: Navy; Fiscal year: 1999: 2,353; Fiscal year: 2000: 4,622;
Fiscal year: 2001: 4,118; Fiscal year: 2002: 2,509; Fiscal year: 2003:
92; Total: 13,694.
Component: Air Force; Fiscal year: 1999: 1,241; Fiscal year: 2000: 264;
Fiscal year: 2001: 321; Fiscal year: 2002: 876; Fiscal year: 2003: 156;
Total: 2,858.
Component: Marine Corps; Fiscal year: 1999: 45; Fiscal year: 2000: 489;
Fiscal year: 2001: 0; Fiscal year: 2002: 13; Fiscal year: 2003: 1,041;
Total: 1,588.
Component: Defense agencies; Fiscal year: 1999: 1,448; Fiscal year:
2000: 506; Fiscal year: 2001: 3,046; Fiscal year: 2002: 581; Fiscal
year: 2003: 0; Total: 5,581.
Component: Total; Fiscal year: 1999: 6,692; Fiscal year: 2000: 6,249;
Fiscal year: 2001: 7,762; Fiscal year: 2002: 4,396; Fiscal year: 2003:
1,289; Total: 26,388.
Source: DOD Commercial Activities Management Information System data,
as of April 2003.
[End of table]
As shown in table 3 above, DOD had already studied over 68,000
positions through fiscal year 2002, although OMB did not count
approximately 14,000 positions contained in A-76 studies completed
during fiscal years 1997-99 toward the 15-percent goal because the
positions studied were not derived from DOD's 2000 FAIR Act inventory.
Nonetheless, OMB permitted use of nearly 54,000 of the positions for
which DOD subsequently completed studies, leaving the department
approximately 14,000 positions to study by the end of fiscal year 2003.
DOD recently reported that it has met its 15-percent goal by completing
competitions in excess of 71,000 positions between October 1,1999,
through June 1, 2003.
DOD hopes to reach agreement with OMB to meet its additional
158,000-position study requirement through a combination of A-76
studies and alternatives to A-76, and change the period of study from
fiscal years 2004-08 to fiscal years 2005-09. Regardless, this longer-
term goal could be a challenge, requiring completion of a significantly
larger number of positions for study than has actually been completed
in similar periods in the past. For example, between fiscal years 1997
and 2002, DOD completed competition studies for about 68,000 positions.
Under the new goals, DOD would be required to complete studies
involving 158,000 positions during a 5-year period between fiscal years
2004-08. This is more than double what DOD has been able to complete in
the past during a similar time frame.
DOD Faces Other Challenges in Meeting A-76 Goals:
In addition to size of effort required to meet OMB's out-year study
goals, DOD faces a number of challenges in meeting OMB's A-76 program
goals. As we have tracked DOD's progress in implementing its A-76
program since the mid-to late-1990s, we have identified various
challenges and concerns that have surrounded the program.[Footnote 32]
We believe those challenges and concerns are still relevant to the
department's current A-76 program. They include (1) the time required
to complete the studies, (2) the cost and other resources required to
conduct and implement the studies, and (3) the selection and grouping
of positions to compete.
In addition, as noted earlier, the Army's core competency review has
shown that the designation of "core" does not necessarily mean that
in-house employees should perform a function, nor does the designation
of "non-core" mean a function should necessarily be considered for
alternative sourcing or A-76 competitions. This may cause further
difficulties in selecting and grouping functions for A-76 reviews or
other sourcing alternatives.
OMB's revised A-76 circular states that standard competitions[Footnote
33] shall not exceed 12 months from public announcement (start date) to
performance decision (end date). Under certain conditions, a time limit
waiver of no more than 6 months can be granted. The revised circular
also states that agencies shall complete certain preliminary planning-
-such as scope, baseline costs, and schedule--before public
announcement. Even so DOD's studies have historically taken
significantly longer than 12-18 months. DOD's most recent data indicate
that the studies take on average 20 months for single-function studies
and 35 months for multifunction studies. It is not clear how much of
this time was needed for planning that will now be outside the revised
circular's study time frame.
Once DOD components found that the studies were taking longer than
initially projected, they realized that a greater investment of
resources would be needed than originally planned to conduct the
studies. We previously reported that the President's 2001 budget showed
a wide range of projected study costs, from about $1,300 per position
studied in the Army to about $3,700 in the Navy.[Footnote 34] DOD is
now estimating costs at $3,000 per position for new studies beginning
in fiscal year 2004. However, the much larger number of studies
required to be completed in the out-years to meet OMB's study goals
could require DOD components to devote much greater total resources to
this effort than in the past.
In addition, DOD components, particularly the Air Force, are attempting
to shift military personnel away from commercial type functions to
those more directly related to warfighting. As noted above, because
these functions are not being eliminated, new operations and
maintenance account funds will have to be provided to pay for the
additional civilians or contractors that perform the function(s)
currently being performed by uniformed personnel. As previously
mentioned in the report, the Air Force alone has recently estimated
this additional cost to be about $5 billion over the next 5 years.
This is an issue other services have also encountered in the past and
will in the future as they plan to shift military personnel away from
commercial positions into warfighting positions, either as a result of
its core assessment or as part of its A-76 studies. We have not seen
precise, reliable figures on the extent to which these conversions may
occur, and the extent to which all affected military personnel would be
needed in warfighting positions. In the past we identified instances
where service components were required to absorb these costs without
additional resources. We recommended in our 2000 report that the
Secretary of Defense take steps to ensure that the services increase
funding for operation and maintenance accounts, as necessary, to fund
the civilian and contractor personnel replacing military positions that
have been transferred to meet other needs.[Footnote 35] The department
acknowledged that this practice would require the services to program
additional funding for operation and maintenance accounts, viewing this
as a service investment decision. However, given the increased emphasis
the department has placed on moving the military from commercial
functions to warfare, officials from the Army and the Air Force have
expressed concern that there were not adequate funds to replace the
military with civilian or contractor personnel once their positions
have been competed or transferred. This can have the effect of either
limiting the number of conversions that can be made or requiring
Defense components to absorb the costs within their existing budgets,
creating limitations in other program areas.
As we have previously reported, selecting and grouping functions and
positions to compete can also be difficult. Some functions may be
spread across different geographic locations or may fulfill a roll that
blurs the distinction between "commercial" and "inherently
governmental," thus preventing the packaging of some commercial
positions into suitable groups for competition. In addition, as
previously noted, DOD excluded certain commercial functions in its FAIR
Act inventories from competition. DOD's fiscal year 2002 FAIR Act
inventory exempted 171,698 positions from competition because of
statutory, national security, or operational concerns. Further, as we
have previously reported, most services have already faced growing
difficulties in finding enough study candidates to meet their A-76
study goals.[Footnote 36] Finally, use of alternatives under the core-
competency approach could also limit positions available for
A-76 study.
Conclusions:
Progress varies among DOD components in assessing core competencies and
identifying and pursuing alternative sourcing strategies. Even so, some
limitations have been identified which indicate that, contrary to some
initial expectations, the determination of whether a function is core
by itself will not automatically lead to a sourcing decision because,
as the Army has discovered, other factors can also affect sourcing
decisions. Clarification of the department's expectations for sourcing
decisions is needed along with additional guidance on other factors
that may need to be considered in sourcing decisions. Otherwise, the
components may be left with unrealistic expectations on making sourcing
decisions or they may make changes in sourcing that later prove to be
problematic.
Under the core-competency process, the Air Force identified large
numbers of military personnel who could be reassigned to meet other
military requirements and be replaced by civilian or contractor
personnel who may be a more economical alternative. However, to
accomplish this reassignment, Air Force officials stated that it would
need to find funds for replacement personnel out of operations and
maintenance accounts. This is indicative of what other services are
likely to face in seeking to accomplish such conversions--the need for
additional funding in operations and maintenance accounts to support
these conversions. Such conversions may be a more cost-effective
alternative than simply increasing military end-strength where
shortages exist in military positions. However, decisions to replace
military personnel with civilians or contractors without identifying
sources for increases in operations and maintenance funds to support
those decisions could stress the ability of the operations and
maintenance account to meet other pressing needs.
Recommendations:
We recommend that the Secretary of Defense, through the Senior
Executive Council, clarify its expectations for DOD components in
making sourcing decisions based on core competency assessment results
and provide additional guidance identifying the range of additional
factors to be considered once the determination is made that a function
is not considered core.
We also recommend that the Secretary of Defense require DOD components
to ensure that decisions to convert functions performed by military
personnel to performance by civilians or contractors are predicated on
having clearly identified sources of funding to support
those decisions.
Agency Comments and Our Evaluation:
The Principal Assistant Deputy Under Secretary of Defense
(Installations and Environment) provided written comments on a draft of
this report. The department generally concurred with our
recommendations. With respect to our first recommendation, the
department agreed that, in addition to the determination of core
competency, there are additional steps necessary to making effective
sourcing decisions. However, the response did not indicate what
specific guidance, if any, would be provided to clarify and assist the
components in making sourcing determinations. Instead, the department
suggested that core assessments would be used as input to the
Inherently Governmental Commercial Activities Inventory and that the
department's guidance on how to prepare these inventories will be
continually refined to help the sourcing decision process. To the
extent the department continues to emphasize core competency
assessments and alternatives to A-76 competitions in making sourcing
decisions, we still believe that additional guidance is needed to
assist components on factors other than the designation of core or
non-core that need to be considered when making a souring decision.
With respect to the second recommendation, the department agreed that
the identification of adequate resources is a critical factor in
meeting its competitive sourcing goals and, consequently, the response
ensures that they will be properly funded. The department also provided
a number of technical comments, which we incorporated into the report,
where appropriate. The department's comments are reprinted in their
entirety in appendix V.
Scope and Methodology:
As requested by the Ranking Minority Member of the House Committee on
Armed Services, Subcommittee on Readiness, we reviewed DOD's plans for
sourcing non-core functions and the effect this may have on its A-76
program. Specifically, the objectives of this report were to assess
(1) the department's progress in assessing its core functions as a
basis for sourcing decisions, (2) the plans and progress DOD has made
in identifying and implementing alternatives to A-76, and (3) the
current status of DOD's A-76 program.
To evaluate the department's progress in assessing its core functions
as a basis for sourcing decisions, we met with responsible officials
from the Senior Executive Council, the Business Initiative Council, and
the Office of the Secretary of Defense to identify plans and guidance
for this initiative. We also met with officials from the Army, the Air
Force, the Navy, the Marine Corps, and the Defense Logistics Agency to
identify their implementation plans, guidance, and analyzed available
data to assess progress being made. Our work was conducted in the
Washington, D.C., metropolitan area.
To evaluate the plans and progress DOD has made in identifying and
implementing alternatives to A-76, we met with officials in
organizations identified above and obtained and analyzed relevant
documentation pertaining to alternatives identified. Additionally, we
spoke with representatives from the Defense Contract Management Agency
and the Defense Finance and Accounting Service about their Pioneer
projects.
Likewise, to assess the status of DOD's A-76 program, we met with
cognizant officials within DOD and its key components to update
information we had previously obtained in other recent studies in this
area concerning studies planned and completed and we updated
information we had previously obtained regarding challenges associated
with this program. Data on the number of A-76 competitions used in this
report were based on DOD's Commercial Activities Management Information
System (CAMIS) Web-based system. Because the numbers change daily, what
we reported are the precise figures in the database at the specified
point in time. We have previously identified limitations in accuracy
and completeness of data included in this system, which limit the
precision of information included in the system. Since then, the
department has made changes to improve the accuracy of data in the
system, and the database remains the principal source of aggregate
information on studies underway and completed. However, we did not
audit the accuracy of the numbers in the database. We conducted our
review from October 2002 to May 2003 in accordance with generally
accepted government auditing standards.
We are sending copies of this report to the appropriate congressional
committees; the Secretary of Defense; the Secretaries of the Army,
the Navy, and the Air Force; the Commandant of the Marine Corps; and
the Director, Office of Management and Budget. We will make copies
available to others upon request. In addition, the report will be
available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have questions regarding this report, please
contact me on (202) 512-8412 or holmanb@gao.gov. Other contacts and key
contributors to this report are listed in appendix VI.
Sincerely yours,
Barry W. Holman,
Director
Defense Capabilities and Management:
Signed by Barry W. Holman:
[End of section]
Appendix I: Alternatives to A-76 for Sourcing Non-Core Competencies:
In its April 2002 memo, the Senior Executive Council noted that "there
are a number of imaginative alternatives to DOD ownership of Non-Core
competencies." The memo provided detailed information on six specific
alternatives--employee stock ownership plans, transitional benefit
corporations, negotiation with private sector, city-base partnership,
strategic partnering, and quasi-government corporations. Following is a
description of the concept, an example of usage within the government,
and recommended Internet sites for each alternative, based on the
Senior Executive Council memo.
Employee Stock Ownership Plans (ESOP):
Concept: Mechanism used to spin off existing government activities to
form an employee-owned company.
Description: The ESOP gives federal workers the ability to control
their own destiny and obtain a stake in the successful outcome of a
new business. ESOP is a contribution benefit plan that buys and holds
company stock. Shares in the trust are allocated to individual employee
accounts. While many privatizations result in layoffs and disruptions,
ESOPs save jobs, retain critical skills, and provide seamless customer
service to federal agencies.
Where Used Previously: U.S. Investigative Services (1995):
Internet Sites: http://www.nceo.org/esops/index.html and http://
americancapitalonline.com/datacenter/articleaspArticleID145.html:
Transitional Benefit Corporations (TBC):
Concept: Umbrella organization created to facilitate smooth transition
of government employees.
Description: The TBC is designed to transition employees to the private
sector while maintaining their federal benefits. Normally, a transition
period is established where the government continues to pay for the
benefits and then the new private company will eventually pay for those
benefits back through the federal government. In addition, the TBC can
contract with the private sector and partner with other governmental,
private sector, educational or not-for-profit entities. It maintains
core capabilities, preserves expertise of key personnel, finds a "soft
landing" for underutilized workers, creates business environment for
new growth, and provides a new business model for the government.
Where Used Previously: Department of Energy:
Internet Site: http://www.reedsmith.com/db30/cgi-bin/pubs/
a76costs.pdf:
Negotiation with Private Sector (i.e., transfer workforce to the
private sector as part of a contract negotiation):
Concept: Negotiated transfer of government workforce to a private
company.
Description: Negotiate with the private sector in the outsourcing of a
government function to the private sector. However, the government
negotiates to have the workers who performed the function be hired by
the contractor. The goal is to get the employees comparable pay, at the
same location (for an agreed upon minimum time period), and a matched
retirement plan. It offers stability that a normal A-76 cost comparison
study does not provide.
Where Used Previously: Army Logistics Data System Modernization with
CSC Corporation:
Internet Sites: http://www.gcn.com/vol20 no6/news/3836-1.html and
http://www.csc.com/newsandevents/news/720.shtml:
City-Base Partnership:
Concept: Transforming a military installation to city-owned property
with military, public, non-profit, and commercial tenants occupying and
leasing facilities.
Description: City Base is transforming a former military installation
to city-owned property with military, public, non-profit, and
commercial tenants occupying and leasing facilities. The service
conveys the installation to the city and then leases back the
facilities needed for mission operations. The city may contract with a
third party to manage and develop the property.
Where Used Previously: Brooks Air Force Base and the City of San
Antonio, Texas. The Air Force created the Brooks City-Base Partnership
with the city of San Antonio as a means to reduce Air Force base
operating and personnel cost and to promote public-public and public-
private partnerships. Special authorizing legislation in 1999 and 2000
allowed such partnership in which the Air Force transferred real
property to San Antonio in July 2002 in exchange for a leaseback of
facilities and for the city to provide municipal services such as fire
protection and law enforcement. Also, the Army has implemented a
similar type of partnership with the city of Monterey, California.
Internet Site: http://www.ci.sat.tx.us/edd/brooks/citybasedef.htm:
Strategic Partnering:
Concept: Similar to negotiating with the private sector, this
establishes a government-industry partnership and leverages the
expertise of the commercial marketplace.
Description: Strategic partnering moves a function and employees away
from the government. The function is not given to a private corporation
but is "taken over" by the employees. However, the employees do not
form a stand-alone corporation, but instead, a partnership with the
private company. It is used when an organization has many of the
necessary elements for operating as a private company, but does not
have the complete framework necessary to operate as a stand-alone
corporation (payroll, benefits programs, taxes, marketing, and business
development). A strategic partnership allows the employees to partner
with an entity that already has these systems and procedures in place.
Such partnering arrangements could be made with a private firm, joint
venture, or a non-profit organization.
Where Used Previously: National Security Agency (NSA)--CSC-led group
with Logicon (Northrup Grumman) and dozens of "Alliance" contractors:
Internet Site: http://www.reedsmith.com/db30/cgi-bin/pubs/
a76costs.pdf:
Quasi-Government Corporations:
Concept: Publicly owned, common stock corporation, chartered by
Congress and provided a marketplace niche in which to accomplish some
public good. They can be monopolies (e.g., the U.S. Postal Service) or
competitors (e.g., Fannie Mae and Freddie Mac).
Description: Quasi-government corporations are an alternative similar
to the non-profit corporation. The principal difference is that it is
established by a government agency in order to serve a governmental
purpose, rather than being established by private individual firms. The
employees are not federal civil servants and do not participate in the
federal retirement or other federal employee benefit systems. The
advantages are that they can operate more flexibly than a government
agency and they are not required to comply with all of the federal
personnel rules and acquisition regulations.
Where Used Previously: Fannie Mae, Freddie Mac:
Internet Sites: http://www.reedsmith.com/db30/cgi-bin/ pubs/
a76costs.pdf and http://www.auditor.leg.state.mn.us/fyi19a7.htm:
[End of section]
Appendix II: Army's Plans for Transforming Its In-House
Industrial Facilities:
In 2002, the Army's "Third Wave" initiative received much public
attention because of what Army officials have characterized as an
unrelated, but parallel effort underway whereby RAND, under contract to
the Army, was studying alternatives for rightsizing the Army's
government-owned ammunition manufacturing facilities and two arsenals
that manufacture ordnance materiel--facilities that overall had been
recognized as having declining workloads, excess capacity, and high
operating costs.
Although RAND had studied various options, such as privatization
and creation of a federal government corporation, the Army decided
in March 2003 not to pursue the options outlined in what was then a
draft RAND report. Instead, in a March 24, 2003 memorandum to the
Commanding General, U.S. Army Materiel Command (AMC), the Secretary of
the Army directed the following actions to transform the Army owned
portion of its defense industrial base to include ammunition
facilities, manufacturing arsenals, and also its maintenance depots:
* AMC was directed to develop a written concept for
consolidation, divestiture, or leasing, as appropriate, of the
government-owned/government-operated and government-owned/contractor-
operated ammunition facilities.
* AMC was directed to continue to work towards reducing government-
owned and operated manufacturing arsenal plant capacity and develop
internal efficiency measures for facilities responsible for ground-
based systems.
* AMC was directed to use existing legal authority to form and maintain
partnerships between government-owned and operated maintenance depots
and the private sector, and implement initiatives to improve
efficiencies, optimize utilization, and upgrade the core capabilities
required to meet current and future requirements.
[End of section]
Appendix III: Senior Executive Council Definitions of Core Competency:
In attempting to define core competency in a defense environment, the
Senior Executive Council defined core as "A complex harmonization of
individual technologies and 'production' (employment, delivery) skills
that create unique military capabilities valued by the force employing
CINC!" The Council provided the following additional definitions to
help in the understanding of core:
* Proficiency in the coordination of human activity and employment of
technology and technical systems to conduct military operations called
for by a CINC.
* A complex integration of human knowledge and skills with the
technologies of warfare to accomplish a military objective of value to
a commander.
* It's what we do better than anyone else to produce specific effects
desired by a CINC.
* The essence of what we provide in world-class warfighting and related
unique capabilities--through a synergistic combination of knowledge,
technologies, and people--to produce desired effects for CINCs.
* The deep commitment of people, using technologies and delivering
capabilities to meet a desired effect in support of national
objectives.
* A synergistic employment of individual and organizational knowledge,
technologies, and capabilities producing world-class services
(military operations) to deliver a desired effect to a CINC.
[End of section]
Appendix IV: Pioneer Projects:
In support of the Senior Executive and Business Initiative Councils'
direction to identify alternative approaches to A-76 for selected non-
core competencies, the services and Defense agencies identified 10
pilot "pioneer" projects. All 10 were approved by the Business
Initiative Council and presented to the Office of Management and
Budget. Eight of the projects were approved by OMB to be counted toward
DOD's FAIR Act inventory goal. OMB endorsed the pioneer projects whose
techniques were waivers to A-76, new requirements, direct service
contract, and divestiture, but disapproved the projects that proposed
reengineering as their technique. Subsequently, DOD withdrew 2
projects, leaving 6 pilot projects for implementation. A brief
description of those projects and their current status is provided
below.
Department of the Navy: Ophthalmic Services:
Description: Optical fabrication involves eyewear component production
and assembly and is performed at about 37 locations within and outside
of the United States, employing personnel in the Departments of the
Navy and Army. The Department of the Navy has the lead responsibility
for this pioneer project and is now starting its analysis of this
divestiture proposal. It anticipates that the analysis will take
approximately 6 to 18 months to complete. A final decision regarding
the optical fabrication divestiture will be made after the completion
of the analysis.
Alternative: Divestiture:
Positions Affected: Approximately 69 civilians and 300 military:
Status: Conceptual Stage:
Department of the Air Force: Brooks City-Base:
Description: The Brooks City-Base Partnership involves a partnership
between the Air Force and the city of San Antonio for which the
Congress passed special authorizing legislation in 1999 and 2000. This
divestiture was a way to reduce Air Force base operating and personnel
cost and build public-public and public-private partnerships. As part
of this effort, the Air Force transferred Brooks Air Force Base's real
property to San Antonio in July 2002 in exchange for a leaseback of
facilities and for the city to provide municipal services such as fire
protection, law enforcement, custodial and landscaping. Also, as part
of this partnering arrangement, the city of San Antonio will provide
the Air Force a share of the revenues generated from the contracts and
developments resulting from the land and facilities transferred.
Alternative: Divestiture:
Positions Affected: Approximately 100 civilian and 40 military:
Status: Ongoing.
Department of the Army: Municipal Services Partnership for Base
Support:
Description: According to its current arrangement with the city of
Monterey, California, the Department of the Army proposed the Municipal
Services Partnership for Base Support as its pioneer project. The Army
is seeking legislative authority for all components within the
department to be able to contract directly with local governments for
municipal services such as public works and utility.
Alternative: Direct Service Contract:
Positions Affected: Approximately 500 civilian employees (depending
upon the number of installations selected for this type of contract).
Status: Enabling legislation has been submitted to Congress for
consideration as part of the fiscal year 2004 authorization process.
The Army is conducting business case analyses for additional
installation selection in the event the legislation is approved.
However, as of May 2003, this proposal was not included in either the
House or Senate approved versions of the bill.
Defense Logistics Agency: Metalworking Machinery Repair/Rebuild
Services:
Description: The Defense Logistics Agency (DLA) is proposing that
the repair and rebuilding of depot-level industrial plant equipment by
in-house personnel at the Defense Supply Center Richmond's facility in
Mechanicsburg, Pennsylvania, be subject to direct conversion through
an A-76 waiver in accordance with the Office of Management and
Budget Circular A-76's Revised Supplement Handbook, part I, chapter I,
section E.
Alternative: Waiver to A-76 Full Cost Comparison Study:
Positions Affected: Approximately 82 civilians:
Status: DOD assessed the applicability of OMB Circular A-76 to this
function and determined that the Mechanicsburg facility is a depot
level maintenance and repair operation and is therefore exempt from OMB
Circular A-76.
Defense Contract Management Agency: Reengineer Existing Information
Technology Structure:
Description: The Defense Contract Management Agency plans to use a
streamlined A-76 approach to compete information technology functions
such as desk side support, district offices' information technology
operations, and automated application testing. The streamlined A-76
approach will allow the Defense Contract Management Agency to directly
compare its costs for these types of functions with those of
contractors on the General Services Administration's schedules. Also,
it will shorten the time for completing the A-76 process.
Alternative: Streamlined A-76:
Positions Affected: 450 positions reviewed, approximately 250 positions
affected:
Status: Streamlined A-76 effort is scheduled to start January 2004 with
anticipated implementation of the most efficient organization and/or
contracts by fiscal year 2005.
Defense Finance and Accounting Service: Desktop Management Services:
Description: The Defense Finance and Accounting Service (DFAS) is
proposing to acquire computer management services from a commercial
source. As part of this effort, DFAS plans to use a performance-based
service contract to obtain desktop hardware, software, and support
services.
Alternative: New Requirement:
Positions Affected: Approximately 125 civilians:
Status: DFAS notified Congress of this proposal and its plans to assess
desktop management services. DFAS has completed its desktop management
business case assessment and its announcement regarding that decision
is imminent.
[End of section]
Appendix V: Comments from the Department of Defense:
OFFICE OF THE UNDER SECRETARY OF DEFENSE:
3000 DEFENSE PENTAGON WASHINGTON, DC 20301-3000:
ACQUISITION, TECHNOLOGY AND LOGISTICS:
JUL 09 2003:
Mr. Barry W. Holman:
Director, Defense Capabilities and Management U.S. General Accounting
Office:
Washington, DC 20548:
Dear Mr. Holman:
This is the Department of Defense (DoD) response to the GAO final
report, GAO-03-818, "DEFENSE MANAGEMENT: DoD Faces Challenges
Implementing Its Core Competency Approach and A-76 Competitions," dated
May 30, 2003 (GAO Code-350292). A detailed response is enclosed.
Sincerely,
Philip W. Grone
Principal Assistant Deputy Under Secretary of Defense
(Installations and Environment):
Signed by Philip W. Grone:
Enclosure:
GAO-03-818/GAO CODE 350292:
"DEFENSE MANAGEMENT: DOD FACES CHALLENGES IN IMPLEMENTING ITS CORE
COMPETENCY APPROACH AND A-76 COMPETITIONS":
DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:
RECOMMENDATION 1: The GAO recommended that the Secretary of Defense,
through the Senior Executive Council, clarify its expectations for DoD
Components in making sourcing decisions based on core assessments and
provide additional guidance identifying the range of additional factors
to be considered once the determination is made that a function is not
considered core. (Page 32/Draft Report):
DoD RESPONSE:
The Department recognizes that determination of core competencies is a
meaningful step in the strategic planning process for achieving
business efficiencies. However, as the report notes, there are
additional steps to take to make effective sourcing decisions. The
revised OMB Circular A-76 designates responsibility for determining
availability of functions for competition to the DoD Competitive
Sourcing Official. We expect core competency results to inform but not
determine such coding. The Inherently Governmental Commercial
Activities Inventory guidance is provided each November and has
undergone considerable refinement. The dynamic nature of the sourcing
decision process will require continued refinement in this year's
guidance.
RECOMMENDATION 2: The GAO recommended that the Secretary of Defense
require DoD Components to ensure that decisions to convert functions
performed by military personnel to performance by civilians or
contractors are predicted on having clearly identified sources of
funding to support those decisions. (Page 32/Draft Report):
DoD RESPONSE:
We agree that identification of adequate resources is a critical factor
in meeting the Department's target for the President's Management
Agenda for Competitive Sourcing. We will ensure that these plans are
properly funded.
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
Marilyn K. Wasleski (202) 512-8436:
Acknowledgments:
In addition to the names above, Debra McKinney, Nancy Lively, R.K.
Wild, Daniel Kostecka, and Kenneth Patton also made significant
contributions to this report.
[End of section]
Related GAO Products:
Sourcing and Acquisition: Challenges Facing the Department of Defense.
GAO-03-574T. Washington, D.C.: March 19, 2003.
Proposed Revisions to OMB Circular A-76. GAO-03-391R. Washington, D.C.:
January 16, 2003.
Defense Management: New Management Reform Program Still Evolving. GAO-
03-58. Washington, D.C.: December 12, 2002.
Commercial Activities Panel: Improving the Sourcing Decisions of the
Federal Government. GAO-02-847T. Washington, D.C.: September 27, 2002.
Commercial Activities Panel: Improving the Sourcing Decisions of the
Federal Government. GAO-02-866T. Washington, D.C.: June 26, 2002.
Competitive Sourcing: Challenges in Expanding A-76 Governmentwide. GAO-
02-498T. Washington, D.C.: March 6, 2002.
DOD Competitive Sourcing: A-76 Program Has Been Augmented by Broader
Reinvention Options. GAO-01-907T. Washington, D.C.: June 28, 2001.
DOD Competitive Sourcing: Effects of A-76 Studies on Federal Employees'
Employment, Pay, and Benefits Vary. GAO-01-388. Washington, D.C.: March
16, 2001.
DOD Competitive Sourcing: Results of A-76 Studies Over the Past
5 Years. GAO-01-20. Washington, D.C.: December 7, 2000.
DOD Competitive Sourcing: More Consistency Needed in
Identifying Commercial Activities. GAO/NSIAD-00-198. Washington, D.C.:
August 11, 2000.
DOD Competitive Sourcing: Savings Are Occurring, but Actions Are Needed
to Improve Accuracy of Savings Estimates. GAO/NSIAD-00-107. Washington,
D.C.: August 8, 2000.
DOD Competitive Sourcing: Some Progress, but Continuing
Challenges Remain in Meeting Program Goals. GAO/NSIAD-00-106.
Washington, D.C.: August 8, 2000.
Competitive Contracting: The Understandability of FAIR Act Inventories
Was Limited. GAO/GGD-00-68. Washington, D.C.: April 14, 2000.
DOD Competitive Sourcing: Potential Impact on Emergency
Response Operations at Chemical Storage Facilities Is Minimal. GAO/
NSIAD-00-88. Washington, D.C.: March 28, 2000.
DOD Competitive Sourcing: Plan Needed to Mitigate Risks in Army
Logistics Modernization Program. GAO/NSIAD-00-19. Washington, D.C.:
October 4, 1999.
DOD Competitive Sourcing: Air Force Reserve Command A-76 Competitions.
GAO/NSIAD-99-235R. Washington, D.C.: September 13, 1999.
DOD Competitive Sourcing: Lessons Learned System Could Enhance A-76
Study Process. GAO/NSIAD-99-152. Washington, D.C.: July 21, 1999.
Defense Reform Initiative: Organization, Status, and Challenges. GAO/
NSIAD-99-87. Washington, D.C.: April 21, 1999.
Quadrennial Defense Review: Status of Efforts to Implement Personnel
Reductions in the Army Materiel Command. GAO/NSIAD-99-123. Washington,
D.C.: March 31, 1999.
Defense Reform Initiative: Progress, Opportunities, and Challenges.
GAO/T-NSIAD-99-95. Washington, D.C.: March. 2, 1999.
Force Structure: A-76 Not Applicable to Air Force 38th Engineering
Installation Wing Plan. GAO/NSIAD-99-73. Washington, D.C.:
February 26, 1999.
Future Years Defense Program: How Savings From Reform Initiatives
Affect DOD's 1999-2003 Program. GAO/NSIAD-99-66. Washington, D.C.:
February 25, 1999.
DOD Competitive Sourcing: Results of Recent Competitions. GAO/NSIAD-99-
44. Washington, D.C.: February 23, 1999.
DOD Competitive Sourcing: Questions About Goals, Pace, and Risks of Key
Reform Initiative. GAO/NSIAD-99-46. Washington, D.C.: February 22,
1999.
OMB Circular A-76: Oversight and Implementation Issues. GAO/T-GGD-98-
146. Washington, D.C.: June 4, 1998.
Quadrennial Defense Review: Some Personnel Cuts and Associated Savings
May Not Be Achieved. GAO/NSIAD-98-100. Washington, D.C.: April 30,
1998.
Competitive Contracting: Information Related to the Redrafts of the
Freedom From Government Competition Act. GAO/GGD/NSIAD-98-167R.
Washington, D.C.: April 27, 1998.
Defense Outsourcing: Impact on Navy Sea-Shore Rotations. GAO/NSIAD-98-
107. Washington, D.C.: April 21, 1998.
Defense Infrastructure: Challenges Facing DOD in Implementing Defense
Reform Initiatives. GAO/T-NSIAD-98-115. Washington, D.C.: March 18,
1998.
Defense Management: Challenges Facing DOD in Implementing
Defense Reform Initiatives. GAO/T-NSIAD/AIMD-98-122. Washington, D.C.:
March 13, 1998.
Base Operations: DOD's Use of Single Contracts for Multiple Support
Services. GAO/NSIAD-98-82. Washington, D.C.: February 27, 1998.
Defense Outsourcing: Better Data Needed to Support Overhead Rates for
A-76 Studies. GAO/NSIAD-98-62. Washington, D.C.: February 27, 1998.
Outsourcing DOD Logistics: Savings Achievable But Defense Science
Board's Projections Are Overstated. GAO/NSIAD-98-48. Washington, D.C.:
December 8, 1997.
Financial Management: Outsourcing of Finance and Accounting Functions.
GAO/AIMD/NSIAD-98-43. Washington, D.C.: October 17, 1997.
Base Operations: Contracting for Firefighters and Security Guards. GAO/
NSIAD-97-200BR. Washington, D.C.: September 12, 1997.
Terms Related to Privatization Activities and Processes. GAO/
GGD-97-121. Washington, D.C.: July 1, 1997.
Defense Outsourcing: Challenges Facing DOD as It Attempts to Save
Billions in Infrastructure Costs. GAO/T-NSIAD-97-110.
Washington, D.C.: March 12, 1997.
Base Operations: Challenges Confronting DOD as It Renews Emphasis on
Outsourcing. GAO/NSIAD-97-86. Washington, D.C.: March 11, 1997.
FOOTNOTES
[1] Throughout this report, we use the terms "activities" and
"functions" interchangeably.
[2] The Senior Executive Council is a high-level management committee
established in 2001 to (1) help guide efforts across the department to
transform and improve the department's business practices, and (2) to
function as a board of directors for DOD. The Council is chaired by the
Secretary of Defense and is comprised of the Deputy Secretary of
Defense, the service secretaries, and the Under Secretary of Defense
for Acquisition, Technology and Logistics.
[3] Executive Office of the President, Office of Management and Budget,
The President's Management Agenda, Fiscal Year 2002. The report can be
found at www.whitehouse.gov/omb/budget. The President's Management
Agenda, announced in the summer of 2001, is a strategy for improving
the management of the federal government. It focuses on five areas of
management weakness across the government where improvements and the
most progress can be made. In addition to competitive sourcing, the
President's Management Agenda includes an emphasis on strategic
management of human capital, improved financial performance, expanded
electronic government, and budget and performance integration.
[4] Defense components refer to the military services and Defense
agencies.
[5] Officially referred to as pioneer projects.
[6] This goal is based on DOD's inventory of commercial activities
reported in 2000; the numbers vary by year.
[7] The costs of military positions are funded through military
personnel appropriation accounts, whereas costs associated with
government civilian or contractor personnel are funded through
operation and maintenance appropriation accounts.
[8] The Panel, mandated by section 832 of the Defense Authorization Act
for fiscal year 2001, required the Comptroller General to convene a
panel of experts to study the process used by the federal government to
make sourcing decisions. After a yearlong study, the Panel published
its report in April 2002. See Commercial Activities Panel, Improving
the Sourcing Decisions of the Government: Final Report, (Washington,
D.C.: Apr. 30, 2002). The report can be found on GAO's Web site at
http://www.gao.gov under the Commercial Activities Panel heading.
[9] The current revision to the circular replaces the use of direct
conversion with a requirement to compete all non inherently
governmental functions. In addition, the revised circular provides for
a streamlined cost comparison for 65 or fewer civilian positions in
addition to standard competitions.
[10] DOD has submitted a legislative proposal for inclusion in the
National Defense Authorization Bill for Fiscal Year 2004, a request to
eliminate the existing requirement that the department base its
competitive sourcing decisions on cost. This would allow DOD to
consider quality as well as cost when making sourcing decisions.
[11] OMB Circular A-76 defines an inherently governmental function as
one that requires either the exercise of substantial discretion in
applying government authority or the making of value judgments in
making decisions for the government. Positions deemed inherently
governmental are not subject to the A-76 program.
[12] Section 5 of P.L. 105-270, 31 U.S.C. 501 note (1998), on the other
hand, defines an inherently governmental function as a "function that
is so intimately related to the public interest as to require
performance by Federal Government employees."
[13] As noted in subsequent discussion, the terms are not always
interchangeable.
[14] U.S. Department of Defense, Quadrennial Defense Review Report
(Sept. 30, 2001).
[15] The Senior Executive Council is a high-level management committee
established in 2001 to (1) help guide efforts across the department to
transform and improve the department's business practices, and (2) to
function as a board of directors for DOD. The Council is chaired by the
Secretary of Defense and is comprised of the Deputy Secretary of
Defense, the service secretaries, and the Under Secretary of Defense
for Acquisition, Technology and Logistics.
[16] William M. Hix et al., Rethinking Governance of the Army's
Arsenals and Ammunition Plants, RAND (Santa Monica, Calif., 2003).
[17] C.K. Prahalad and Gary Hamel, "The Core Competence of the
Corporation," Harvard Business Review, May-June 1990.
[18] For example, the Army used its Field Manual No. 1, The Army, to
provide additional guidance. The Army describes this as its capstone
doctrinal manual, which, among other things, delineates the Army's
purpose, roles, and functions.
[19] Force management risk includes the ability to recruit, retain,
train, and equip sufficient numbers of quality personnel and sustain
the readiness of the force while accomplishing its many operations
tasks. Operational risk concerns the ability to achieve military
objectives in a near-term conflict or other contingency. Future
challenges risk involves the ability to invest in new capabilities and
develop new operational concepts needed to dissuade or defeat mid-to
long-term military challenges. Institutional risk entails the ability
to develop management practices and controls that use resources
efficiently and promote the effective operation of the Defense
establishment.
[20] See U.S. General Accounting Office, Base Operations: Challenges
Confronting DOD as It Renews Emphasis on Outsourcing, GAO/NSIAD-97-86
(Washington, D.C.: Mar. 11, 1997); DOD Force Mix Issues: Converting
Some Support Officer Positions to Civilian Status Could Save Money,
GAO/NSIAD-97-15 (Washington, D.C.: Oct. 23, 1996); and DOD Force Mix
Issues: Greater Reliance on Civilians in Support Roles Could Provide
Significant Benefits, GAO/NSIAD-95-5 (Washington, D.C.:
Oct. 19, 1994.)
[21] Military positions are funded out of the Military Personnel
Appropriation accounts. With military personnel being shifted to other
positions, this does not free up funds that could be used to increase
funding for replacement personnel in the Operations and Maintenance
Appropriation accounts.
[22] The Business Initiative Council, an organization that reports
directly to the Senior Executive Council, was established in 2001 to
encourage the military services to explore new money-saving business
practices to help offset funding requirements for transformation and
other high-priority efforts. It is headed by the Under Secretary of
Defense for Acquisition, Technology and Logistics, and its membership
consists of the service secretaries, the Vice Chairman of the Joint
Chiefs of Staff, the Under Secretary of Defense (Comptroller), and the
Under Secretary of Defense for Personnel and Readiness.
[23] This legislative request was included as part of the department's
request for legislation submitted to Congress for consideration as part
of the fiscal year 2004 Defense Authorization bill. As of May 2003,
this proposal was not included in either the House or Senate approved
versions of the bill.
[24] U.S. General Accounting Office, Proposed Revisions to OMB Circular
A-76, GAO-03-391R (Washington, D.C.: Jan. 16, 2003).
[25] This prison houses level III prisoners from each of the military
services. This level has been defined as those prisoners with a
sentence of 7 years or more.
[26] Section 2461 requires, among other things, that before any
commercial or industrial type function that as of October 1, 1980, was
being performed by DOD civilian employees is changed to private sector
performance, DOD must report to the Congress, conduct an analysis
showing that private-sector performance will result in a savings to the
government over the life of the contract, and certify that the analysis
is available for examination.
[27] This provision requires that DOD certify its most efficient and
cost-effective organization analysis to congressional committees
before converting any activity performed by more than 10 DOD civilian
employees to contractor performance.
[28] 10 U.S.C. § 858 (Sentences of confinement adjudged by a court-
martial may be carried into execution in any facility under control of
the United States). 10 U.S.C. § 951 (The military may but is not
required to provide for the establishment of correctional facilities).
[29] Also included in the Defense Transformation for the 21st Century
Act of 2003. Generally, 10 U.S.C. § 2465 prohibits DOD from contracting
for firefighters and security guards except when (1) the contract is to
be performed overseas, (2) when the contract is to be performed on
government-owned but privately operated installations, or (3) when the
contract (or renewal of the contract) is for the performance of a
function already under contract as of September 24, 1983. In addition,
there is temporary exception for contracts for security services with
local governments with respect to closing bases.
[30] We have previously reported that the best way to determine if
savings can be achieved from contracting firefighter and security guard
services is by completing an A-76 study at each base where these
services are being considered for conversion to contract. See
U.S. General Accounting Office, Base Operations: Contracting for
Firefighters and Security Guards, GAO/NSIAD-97-200BR (Washington,
D.C.: Sept. 12, 1997).
[31] As of June 1, 2003, DOD reported that it has met OMB's 15-percent
goal.
[32] U.S. General Accounting Office, DOD Competitive Sourcing: Some
Progress, but Continuing Challenges Remain in Meeting Program Goals,
GAO/NSIAD-00-106 (Washington, D.C.: Aug. 8, 2000); and DOD Competitive
Sourcing: Questions About Goals, Pace, and Risk of Key Reform
Initiatives, GAO/NSIAD-99-46 (Washington, D.C.: Feb. 22, 1999).
[33] Streamlined competitions allow for an abbreviated source selection
for 65 or fewer civilian positions and/or any number of military
personnel. Streamlined competitions are to be completed within 90 days,
with a possible extension of no more than 45 days.
[34] GAO/NSIAD-00-106.
[35] GAO/NSIAD-00-106.
[36] GAO/NSIAD-00-106.
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