RATIONALIZING PUBLIC & PRIVATE SECTOR ROLES

As a result of The National Performance Review and in response to congressional mandates the federal government has sought to become more efficient by adopting commercial best practices, improving customer service and increasing value to the taxpayer. However, in the process it has lost its focus under the guise of “doing more for less”, and has allowed itself to become distracted from its core missions and responsibilities by pursuing “entrepreneurial” activities. Entrepreneurial government has been interpreted to mean public- private competitions to provide commercial services rather than creative new public policy approaches to discharging inherently governmental functions. This misplaced emphasis requires immediate review and reconsideration as Congress and the Executive branch try to transform how the government operates.

The Federal Government is Subordinating Its Core Missions

These latest developments have renewed a long-standing debate over the proper relationship between the public and private sectors. It is a question of what the government should do and what the private sector should do. Two basic premises apply in this debate. First, inherently governmental functions, as embodied in Office of Management and Budget Policy Letter 92-1 of September 23, 1992, should be performed by government employees. Second, government should not compete with its citizens. In fact, federal government policy clearly directs federal agencies to rely on commercially available goods and services for all but inherently governmental functions, whenever available. Despite this policy, the federal government, over the past few years, has acted in inconsistent ways. On the one hand, there has been new emphasis on outsourcing and privatization. On the other hand, in a variety of ways, federal departments and agencies have been encouraged to compete among themselves and with the private sector in providing services which are essentially commercial in nature. By creating these conflicts and inconsistencies, the government has put itself in the untenable position of customer, competitor and adjudicator. These conflicting roles undermine its ability to provide effective policy and management leadership during a time of rapid and needed change in how the government operates.

Forms of Public-Private Competition are Expanding

Public-private competition, both direct and indirect, has insinuated itself throughout government in a variety of forms. The examples continue to increase and include: 1) The public-private competitions falling under the Office of Management and Budget Circular A-76’s flawed cost comparison methodology; 2) The transfer of commercially performed activities back to performance by the government; 3) The practice of government agencies actively marketing and selling services to one another, or “franchising”; 4) Underwriting, or subsidizing, markets that are permitted to expand their services to state, local and private markets (such as government ESOPs); 5) “Cross-servicing” or interservice support agreements (ISSAs) that encourage agencies to compete with one another and with the private sector to provide common administrative support services; 6) Quotas and apportionments, such as those imposed on defense depots that arbitrarily limit the amount of work that can be performed by the private sector; 7) and Federally Funded Research and Development Centers (FFRDCs), nonprofits funded by the federal government that are prohibited from competing directly with the private sector but are assigned private sector type work on a sole source basis.

These practices blatantly contradict the government’s policy not to compete with its citizens, diminish the government’s end products and services, and erode the very private sector free market capabilities it wants to foster. The federal government claims its intent is to expand the benefits of competition and achieve cost savings, but in reality, public-private competition fosters competition for resources rather than cooperation among government agencies, places the private sector in competition with its government clients, and raises questions about conflicts of interest for the government when government entities are potential future competitors on work the private sector currently performs.

Another troubling aspect of this trend is that agencies are competing with private industry using capabilities that are peripheral to their missions and in excess of their needs. Instead of answering legislative branch calls to act in a business-like manner and shed excess capacity, agencies are searching for public and private sector markets to justify maintaining this capacity. Most of this excess capacity was amassed during World War II and other times of need or crisis when no private sector capability could answer the need and only the government had mastery of required technology. Circumstances have changed and a robust, competitive, technically competent private sector can perform most or all work that is not inherently governmental and, indeed, has taken the lead in development and application of new technologies. Retaining these functions after the need has passed diverts management time and attention from core responsibilities that can’t legitimately be performed anywhere else, does not promote needed efficiencies and requires maintaining a larger than necessary standing workforce.

A Level Playing Field Does Not Exist in Public Private Competitions

Fully understanding the clear advantages of relying on the private sector to the maximum extent possible for needed goods and services is complicated by the fact that government entities who are competing with the private sector are not subject to the same tax, accounting, auditing and regulatory compliance requirements as the private sector. Ironically, while OMB Circular A-76 contains the government’s policy of reliance on the private sector, it also sets forth the only methodology that the federal government has to determine and justify whether certain work should be performed by the government or by the private sector. Despite an attempt to improve the A-76 methodology in 1996, that methodology remains fatally flawed and should be replaced by a basic policy of direct outsourcing of those services that are not inherently governmental. Not all government costs are accurately reflected and, although the 1996 revision emphasizes “best value” procurement, the A-76 methodology continues to place primary emphasis on cost, most notably the ten percent advantage given to the government’s cost estimate.

The Government’s Interpretation of Entrepreneurism is Misguided

The government’s attempt to justify its actions by associating itself with the positive connotations of “entrepreneurism” is misconceived. Entrepreneurial behavior in the private sector involves starting and growing a business, taking personal and financial risks, attracting stakeholders who are willing to invest, opportunistically developing new products and entering new markets, and engaging in highly competitive practices. In the public sector, entrepreneurism should have a far different meaning, having more to do with innovative public policies and planning and executing a well-defined mission, (such as collecting taxes, providing for the national defense and regulating business practices,) in a manner that is professional, open, fair and responsible and best serves the American taxpayers and the public good.

The public sector should not be trying to emulate the entrepreneurial behavior of the private sector by seeking to grow and expand into new products, services or markets at its constituents’ expense. Rather, government’s “entrepreneurial” energies should be directed toward achieving excellence and greater efficiencies in performing inherently governmental functions and developing and managing outsourcing programs that make the best use of private sector capabilities. This concentration on the core competencies of its governance mission would be a more productive “business-like” activity for a government agency, and would better answer Congressional mandates and the needs of its citizens.

The Architecture Exists for Government Improvement

The architecture that should guide the federal government in defining and performing its inherently governmental roles, and for appropriately using the private sector is already in place. It includes the Government Performance and Results Act, the Government Management Reform Act, the Chief Financial Officers Act, and the Information Technology Management Reform Act. The sound implementation of these statutory mandates would move the federal government in a clearly appropriate direction. To ensure a proper focus by the federal government on its appropriate roles, the following strategic and operational actions are strongly recommended.

REQUIRED LONG-TERM STRATEGIC ACTIONS

Blue Ribbon Oversight Panel -- Enact legislation mandating the establishment, by the Government Accounting Office, of an independent, blue ribbon panel charged with reviewing privatization/outsourcing strategies, inherently and non-inherently government policies and their impact on the size and effectiveness of government and effect on the competitiveness of the contractor base serving the federal government. This panel, including both public and private sector participants, should be tasked with identifying issues and opportunities, including relevant private sector and international developments, and making recommendations and suggesting changes to current policies.

Privatization Incentives -- Create statutory authority providing incentives for federal agencies to identify and implement outsourcing and privatization targets as part of their strategic plans and annual budget submissions.

Reliance on the Private Sector -- Establish a statutory mandate for government reliance on the private sector for goods and services that are not inherently governmental in order to clarify the proper roles of the public and private sectors.

Eliminate Flawed A-76 Cost Comparison Methodology-- Repeal, in statute, the government’s flawed methodology of competing commercial work among public and private sectors.

Contract out Commercial Activities -- Contract out to the private sector, through best-value competitions, all currently identified commercial activities.

REQUIRED SHORT-TERM OPERATIONAL ACTIONS

Activity Based Cost Accounting -- Require, through legislation, government-wide regulations mandating an activity based cost accounting system. Authorize and adequately fund pilot test programs to perfect the final regulations and maximize private sector participation.

Modify Public-Private Sector Competitions for Commercial Work -- Substitute in regulations a streamlined best value based mechanism for the current A-76 process in all public-private competitions. Include post award audits to assure compliance with financial commitments contained in successful offers.

Terminate Franchising Non-Inherently Governmental Functions -- Enact legislation prohibiting the federal government from using appropriated funds for marketing or conducting non-inherently governmental functions, especially those that are commercial in nature.

Replace Outdated Training Methods with Continuous Learning Environment -- Provide an immediate infusion of resources and incentives to maintain and build a professional acquisition workforce and to create a government-wide continuous learning environment, including innovative training and retraining, career advancement opportunities, recognition and awards. The primary focus must be to learn how to take advantage of the existing, extensive private sector business acumen through privatization and activity based accounting.

Job Transition Assistance -- Identify ways to provide new opportunities and work arrangements for individuals affected by major shifts in jobs between sectors by working jointly with the private sector.