Privatization and Competition

S. 314, the Freedom From Government Competition Act, would require the government to procure from the private sector, with some exceptions, the goods and services it needs to carry out its functions. This bill incorporates several of GAO's suggestions, including provisions on the use of "best value" as a criterion for contracting decisions, allowing for situations where private sector sources cannot meet the government's needs and recognizing that the identification of inherently governmental functions is somewhat situational. This testimony discusses S. 314 as a potential vehicle for competitive contracting, drawing on the results of recent GAO work on privatization in state and local governments.

GAO noted that: (1) in the six governments GAO visited, a political leader, or in one case several leaders working in concert, played a crucial role in fostering privatization; (2) S. 314 does not, and probably cannot, provide for effective political leadership; (3) S. 314 would give the force of law to general reliance on the private sector for commercial goods and services, and thus would provide a stronger foundation, but not a substitute, for political leadership; (4) to implement their privatization initiatives, the governments GAO visited reported the need to establish an organizational and analytical structure; (5) responding to the need to such a centralized structure, S. 314 would require the Office of Management and Budget to issue regulations and to establish a new "Center for Commercial Activities,"; (6) the bill would amend the Government Performance and Results Act by requiring that agencies include in the annual performance plans and reports that they submit to Congress: (a) an inventory of functions that are subject to the act's provisions; and (b) a schedule for converting the functions identified in the performance plan; (7) if Congress chooses to enact S. 314, an opportunity exists to further integrate implementation of the bill's provisions with GPRA; (8) while providing a statutory basis for competitively contracting out government functions, S. 314 has implications for certain existing laws, and how it will relate to existing laws and policies is not entirely clear; (9) a notable feature of the draft legislation is the provision describing the criteria that are to be used in contracting for goods and services; (10) efforts are under way to develop the type of cost and performance data that would be necessary to compare public versus private proposals, as could occur under the provisions of S. 314; (11) the bill's findings section states that it is in the public interest for the private section to utilize government employees who are adversely affected by conversions of functions to the private sector; (12) the essential foundation for effective oversight is good cost and performance data, and S. 314's analytical requirements call for the consideration of all direct and indirect costs, qualifications, and past performance; and (13) these requirements, along with the authority and flexibility given to OMB in implementing the legislation, provide the necessary foundation for effective performance monitoring and oversight, but they do not resolve capacity problems.