Defense Management

The Department of Defense (DOD) has sought improved efficiencies and cost reductions in its delivery of services that could be provided by the private sector, using both competitions with private companies and processes to create high performing organizations (HPO). The Office of Management and Budget's (OMB) Circular A-76 establishes federal policy for the competition of commercial activities. According to the circular, the longstanding policy of the federal government has been to rely on the private sector for needed commercial services. To ensure that the American people receive maximum value for their tax dollars, it is the federal government's policy that commercial activities should be subject to the forces of competition. As the largest federal agency, DOD has conducted more A-76 competitions than any other federal agency. However, the A-76 process has drawn criticism from both the public and private sectors. These criticisms largely center on the costs and length of time required to conduct competitions and the manner in which long-term savings are calculated. In light of these concerns, a panel of public and private sector experts convened in 2001 to identify ways in which the federal government could improve the A-76 process and included an option that focused on improving efficiencies in-house through the creation of HPOs rather than seeking improved efficiencies through public-private competitions. Although the A-76 process has been DOD's preferred method for ensuring the most efficient operation of a function, it is currently subject to a number of recently enacted statutory limitations. Given these relatively new developments and the potential for HPOs to serve as an alternative to the A-76 process, you asked us to examine the extent to which the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics (OSD) has made progress in implementing and evaluating DOD's HPO initiative.

OSD has made some progress in implementing DOD's HPO initiative by providing guidance to organizations that it selected to participate, but is not always collecting reliable data and has no clear plan to evaluate the effectiveness of the HPO initiative. Pilot initiatives such as this are typically used to evaluate alternative approaches or test new ideas. Gathering reliable data--data that are complete, accurate, and meet intended purposes--and measuring performance are critical to assessing the effectiveness of new ways of doing business. To implement DOD's HPO initiative, OSD selected nine organizations and issued guidance providing procedures for implementing and monitoring the performance of, and costs for, the HPOs. OSD's guidance provides performance measures that somewhat mirror performance measures set out in the National Defense Authorization Act (NDAA) for Fiscal Year 2004. The 2004 NDAA contains a list of performance measures that, according to the law, should be included among performance measures used in the pilot program. Our review of the annual reports submitted to OSD revealed that while all HPOs generally used the broad performance measures set out in the 2004 NDAA to report on performance, several reports did not include information on all of the performance measures. We found a number of instances in which the HPOs failed to include information on workforce expertise and customer satisfaction. Further, for the performance measures for which information was provided, we found instances of incomplete and inaccurate reporting. For example, in our review of annual reports covering the 2008 reporting cycle, one annual report did not clearly capture the costs associated with hiring temporary employees and the overtime required to augment the much smaller organization in response to unexpected workload increases. Moreover, although most HPOs have submitted at least one annual report, OSD has not used the information to evaluate the HPO initiative. Although OSD initially asserted a role in implementing the HPO initiative, according to OSD officials, their interest in overseeing the HPOs has waned because with the ongoing moratorium on new public-private competitions, they believe that organizations will not have any incentive to participate in the HPO process. Moreover, they believe that with the A-76 moratorium in place, existing HPOs might be less willing to continue working toward fulfilling the performance commitments they have made. Therefore, OSD officials stated that while they do encourage organizations to become more efficient, their position is that selecting new organizations for HPO designation is of questionable value due to the current moratorium on public-private competitions. However, unless OSD assesses the reliability of the information provided by the HPOs and uses reliable performance data to make decisions, DOD may miss opportunities to sustain efficiencies gained by existing HPOs, and will be unable to make management decisions and inform policymakers on the effectiveness of the HPO initiative.

Recommendations

Our 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: John H. Pendleton Team: Government Accountability Office: Defense Capabilities and Management Phone: (404) 679-1816