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entitled 'Commercial Activities Panel: Use of Numerical Goals' 
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Comptroller General of the United States: 
United States General Accounting Office: 
Washington, DC 20548: 

August 9, 2002: 

The Honorable George V. Voinovich: 
Ranking Member: 
Subcommittee on Oversight of Government Management, Restructuring and 
the District of Columbia: 
Committee on Governmental Affairs: 
United States Senate: 

Subject: Commercial Activities Panel: Use of Numerical Goals: 

Dear Senator Voinovich: 

I am pleased to provide the following response to your letter of August 
5, 2002,requesting my views on two competitive sourcing initiatives. 
Specifically, you asked me to address whether the two initiatives are 
consistent with the sourcing principles recommended by the Commercial 
Activities Panel (the Panel) in its April 30, 2002, report entitled 
Improving the Sourcing Decisions of the Government. The two initiatives 
are: 

1) the Administration’s “performance target” that federal agencies 
compete or directly convert to private-sector performance specified 
percentages of their full-time equivalent positions listed under the 
Federal Activities Inventory Reform Act (FAIR) by specified dates, and; 

2) section 640 of S. 2740, the Fiscal Year 2003 Treasury and General 
Government Appropriations bill, which would restrict the availability 
of funding for the use of numerical goals, targets, or quotas for 
public-private competitions or direct conversions. 

As discussed below, I do not believe that, based on their current 
design, either of these initiatives is fully consistent with the 
sourcing principles adopted by the Panel. 

As you know, I convened and chaired the 12-member Commercial Activities 
Panel in response to the requirements of section 832 of the Fiscal Year 
2001 National Defense Authorization Act. The Panel consisted of senior 
representatives from the groups most affected––agencies, federal 
employees, and private industry––as well as other individuals with a 
broad range of relevant experiences and expertise. The Panel heard and 
carefully considered all perspectives on the issues and unanimously 
agreed upon a package of 10 principles that should guide decisions in 
this area. Although several of the recommended principles are relevant 
to your inquiry, the most relevant is that federal sourcing policy 
should “avoid arbitrary full-time equivalent (FTE) or other arbitrary 
numerical goals.” The commentary accompanying this principle stresses 
that the success of government programs should be measured by their 
value to the taxpayer, not by their effect on the size of the in-house 
or contractor workforce. Furthermore, the report notes that any related 
FTE or other numerical goal should be based on considered research and 
analysis. 

As you are aware, the Office of Management and Budget (OMB) issued a
memorandum in March 2001, setting goals for a percentage of agencies’ 
FTE positions that are to be subjected to public-private competition or 
directly converted to contractor performance. I do not believe that 
this OMB initiative is consistent with the Panel’s recommended 
principles. Specifically, I have seen no evidence to indicate that its 
numerical FTE goals were based on considered research and sound 
analysis. In my view, any related goals should be based on a review of 
historical data on sourcing activity in the public and private sectors 
combined with an analysis of current and emerging market trends. The 
end result would be the identification of specific functions or 
activities that should be subject to public-private competition. In 
addition, I am not aware that OMB’s FTE goals took into full account 
the capacity of agencies, particularly civilian agencies, to conduct 
public-private competitions. In this regard, there is concern that 
agencies that lack experience in conducting such competitions, or the 
ability to develop the capacity in the near term to perform them, will 
opt for direct conversions in order to meet the specified FTE goals. 
The Panel report expressed concern about potential misuse of direct 
conversions, which generally should occur only when the number of 
affected positions is so small that the cost of conducting a public-
private competition would clearly outweigh any expected savings. 

Agencies’ abilities to meet goals in this area could be further 
complicated by the fact that OMB’s goals are based on the universe of 
FAIR Act inventories, not a smaller subset that, after further 
analysis, may be deemed eligible for competition. The Panel’s report 
notes that guidelines implementing the FAIR Act outline a variety of
reasons for permitting agencies to exclude certain commercial 
activities from being considered eligible for competition; they may 
include such reasons as legislative exemptions, national security 
considerations, etc. Accordingly, the number of positions deemed 
eligible for competition may be much smaller than the overall inventory 
of commercial activities. For example, while the Department of Defense
reported 412,756 commercial positions in its fiscal year 2001 inventory 
only 241,332 positions were considered eligible for competition. The 
OMB goal, however, is set as a percentage of the larger overall number. 

I recognize the Administration’s prerogative to set policy, and that, 
in general, it has the discretion to decide how best to implement its 
policy choices. I also recognize the benefits of well designed and 
executed competitive sourcing activities, and understand that 
establishing goals is often a key element in achieving change. GAO’s 
work monitoring the implementation of the Government Performance and 
Results Act notes the importance of setting qualitative and 
quantitative goals with specific performance measures that permit 
tracking progress toward meeting the goals. Nevertheless, as noted by 
the Panel, the use of arbitrary numerical targets or goals is 
inappropriate and can be counterproductive. 

On the other hand, I believe the approach of using sourcing targets or 
goals reflected in section 640 of S. 2740 could serve to 
inappropriately constrain the exercise of reasonable management 
discretion. The amendment provides as follows: 

“None of the funds made available in this Act [may be] used by an 
Executive agency to establish, apply, or enforce any numerical goal, 
target, or quota for subjecting the employees of the agency to public-
private competitions or converting such employees or the work performed 
by such employees to private contractor performance under Office of 
Management and Budget Circular A-76 or any other administrative 
regulation, directive, or policy.” 

Although not entirely clear, the provision does not appear to be 
limited to arbitrary goals or targets. Rather, the provision could be 
construed to prohibit use of goals or targets that may be based on 
considered research and sound analysis of past activities and current 
and emerging market trends. As a result, in my view, any blanket 
prohibition on the use of goals, even those based on considered 
research and sound analysis, would be inconsistent with the Panel’s 
recommended principles. In this regard, the Congress may wish to 
consider incorporating the word “arbitrary” in any legislation that 
might ultimately be enacted. Doing so would help to ensure consistency 
with the Panel’s recommendations. 

I appreciate your interest in this important issue and would be pleased 
to provide any additional information or assistance you may require. 
Unless you publicly announce its contents earlier, we plan no further 
distribution of this report until 30 days after its issue date. At that 
time, the report will be available at no charge on the GAO Web site at 
[hyperlink, http://www.gao.gov]. 

Sincerely yours: 

Signed by: 

David M. Walker: 
Comptroller General of the United States: 

[End of correspondence] 

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