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Report to Congressional Requesters: 

June 2004: 

HUMAN CAPITAL: 

Selected Agencies' Use of Alternative Service Delivery Options for 
Human Capital Activities: 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-679]: 

GAO Highlights: 

Highlights of GAO-04-679, a report to congressional requesters 

Why GAO Did This Study: 

Human capital offices have traditionally used alternative service 
delivery (ASD)—the use of other than internal staff to provide a 
service or to deliver a product—as a way to reduce costs for 
transaction-based services. 

GAO was asked to identify which human capital activities agencies were 
selecting for ASD, the reasons why, how they were managing the process, 
and some of the lessons they had learned. Eight agencies were selected 
to provide illustrative examples of ASD use. 

What GAO Found: 

The selected agencies were using ASD for the full range of their human 
capital activities. The figure below groups like human capital 
activities that the agencies provided through ASD into three 
overlapping tiers and identifies their associated drivers and the 
options used.

Summary of Selected Agencies’ ASD Characteristics for Three Tiers of 
Human Capital Activities: 

[See PDF for image]

[End of figure]

Agencies generally approached their management of ASD in similar ways. 
They conceptually agreed that human capital activities that did not 
require an intimate knowledge of the agency, oversight, or decision-
making authority could be considered for ASD, although in practice they 
showed differences in their choices of ASD activities. GAO identified 
several lessons the agencies had learned about ASD management, such as 
the importance of understanding the complexity and requirements of an 
activity before making an ASD decision. As the President’s agent and 
adviser for human capital activities, OPM also has a central role in 
assisting agencies’ management of ASD. Several agencies noted that they 
used OPM’s Training and Management Assistance program, which provides 
human capital contract assistance. However, the officials also cited 
the need for sharing information about specific ASD efforts, useful 
metrics, and lessons learned. 

What GAO Recommends: 

GAO is making a recommendation to the Director of the Office of 
Personnel Management (OPM) to work with the Chief Human Capital 
Officers Council to share and distribute information about ASD. OPM 
stated that the recommendation is consistent with their concern for 
overseeing human capital contracting, for which OPM has the lead. OPM 
expressed concern about two issues it believes were not sufficiently 
covered in the report—OPM’s support for agencies’ ASD efforts and 
agency accountability issues when using ASD providers. GAO believes 
that both issues are covered by this recommendation.

www.gao.gov/cgi-bin/getrpt?GAO-04-679.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact J. Christopher Mihm at 
(202) 512-6806 or mihmj@gao.gov.

[End of section]

Contents: 

Letter: 

Results in Brief: 

Background: 

Selected Agencies Reported Using ASD for the Full Range of Their Human 
Capital Activities: 

Selected Agencies Approached Their Management of ASD in Similar Ways 
and Shared Similar Lessons Learned: 

Conclusions: 

Recommendation for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Examples of Alternative Service Delivery Options Available 
to Federal Agencies for Accomplishing Human Capital Activities: 

Intragovernmental Revolving Fund Services: 

Franchise Fund Services: 

Cooperative Administrative Support Unit Services: 

Interagency Contract Service Programs: 

Contracting for Services: 

Partnerships: 

Appendix III: Comments from the Office of Personnel Management: 

Appendix IV: Comments from the Department of the Interior: 

Appendix V: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Acknowledgments: 

Figures Figures: 

Figure 1: Summary of Selected Agencies' ASD Characteristics for Three 
Tiers of Human Capital Activities: 

Figure 2: Description of OPM's Training and Management Assistance 
Program: 

Abbreviations: 

ASD: alternative service delivery: 

CASU: cooperative administrative support unit: 

CHCO: Chief Human Capital Officers: 

COTR: contracting officer's technical representative: 

DOE: Department of Energy: 

EEO: equal employment opportunity:  

FWS: U.S. Fish and Wildlife Service: 

GSA: General Services Administration: 

IR: intragovernmental revolving: 

IT: information technology: 

MMS: Minerals Management Service: 

NAPA: National Academy of Public Administration: 

NFC: National Finance Center: 

NGA: National Geospatial-Intelligence Agency: 

NIMA: National Imagery and Mapping Agency: 

OMB: Office of Management and Budget: 

OPM: Office of Personnel Management: 

SER-CASU: Southeast Regional Cooperative Administrative Support Unit: 

TMA: Training and Management Assistance: 

USCG: United States Coast Guard: 

USDA: United States Department of Agriculture: 

USITC: United States International Trade Commission: 

Letter June 25, 2004: 

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

The Honorable Jo Ann Davis: 
Chairwoman: 
Subcommittee on Civil Service and Agency Organization: 
Committee on Government Reform: 
House of Representatives: 

In an April 2003 report on selected agencies' use of human capital 
strategies to attain mission results, we noted that improved ways of 
providing services can enable agencies' human capital offices to 
reallocate their resources to better meet expanded roles as strategic 
partners.[Footnote 1] As part of this, agencies need to consider how 
best to accomplish their human capital activities, including who the 
service provider should be. Alternative service delivery (ASD)--the use 
of other than internal staff to provide a service or to deliver a 
product--has traditionally been used for transaction-based services, 
such as payroll administration, as a way to reduce costs. However, many 
public and private sector human capital leaders are now advancing it as 
an approach that can also help free their staff to focus on core 
strategic activities and expand their access to expertise. As the 
number, scope, and quality of ASD options, such as reimbursable 
services from other agencies and private sector providers, continue to 
increase and the experience of agencies continues to mature, human 
capital leaders expect that ASD will become an increasingly significant 
consideration in the delivery of human capital products and services. 
For a broader discussion of the federal government's sourcing policies 
and procedures, see the final report of the Commercial Activities 
Panel released in April 2002.[Footnote 2]

To obtain a better understanding of federal agencies' use of ASD for 
accomplishing their human capital activities, you asked us to report on 
how federal agencies determine the human capital activities to retain 
and those for which they would consider using outside providers. 
Specifically, you asked that we identify (1) the human capital 
activities selected agencies are accomplishing through the use of ASD 
optionsand the basis on which they decided to use ASD and (2) how the 
use of ASD is being managed and the lessons learned by the selected 
agencies. The agencies we selected were the Department of Energy (DOE), 
the Department of the Interior's U.S. Fish and Wildlife Service (FWS) 
and Minerals Management Service (MMS), the National Geospatial-
Intelligence Agency (NGA),[Footnote 3] the U.S. Coast Guard (USCG), the 
U.S. Department of Agriculture's (USDA) headquarters, the U.S. 
International Trade Commission (USITC), and the U.S. Mint's 
headquarters. Agencies were selected through research that identified 
them as using ASD for some human capital activities and based on the 
recommendations of human capital experts from the National Academy of 
Public Administration (NAPA), George Washington University, and a 
private sector consultant for federal contract management. The agency 
selection process was not designed to produce findings that could be 
considered representative of the use of ASD for human capital 
activities in the federal government as a whole, but rather to provide 
illustrative examples of how selected agencies were using ASD.

To meet our objectives, we analyzed information from a review of the 
literature on the use of ASD for human capital activities in both 
public and private sector organizations. We then interviewed human 
capital officials from the selected agencies to identify the activities 
for which they were using ASD, the basis on which they decided to use 
it, how the selected agencies managed their use of ASD, and the lessons 
learned from the agencies' experiences. Some of the agencies provided 
supporting documentation, such as contracts and project plans, for 
review. We did not verify the agencies' cost savings estimates. After 
reviewing and analyzing the agencies' responses, we developed a 
framework for organizing and discussing their use of ASD for human 
capital activities. Our review was conducted in accordance with 
generally accepted government auditing standards from August 2003 
through February 2004. Appendix I provides additional information on 
our scope and methodology.

Results in Brief: 

The selected agencies reported using ASD for the full range of their 
human capital efforts including their transaction-based, 
administrative, and strategy and policy support activities. For the 
purposes of this report, we grouped the activities the agencies 
provided through ASD into three tiers and identified the primary 
drivers and options associated with each tier.[Footnote 4]

Figure 1: Summary of Selected Agencies' ASD Characteristics for Three 
Tiers of Human Capital Activities: 

[See PDF for image] 

[End of figure] 

All of the agencies said they used ASD for some activities in tier I, 
such as payroll administration and employee assistance programs. In 
addition to freeing staff to focus more on core activities,[Footnote 5] 
agency officials regarded purchasing services, such as payroll, from 
specialized providers as a way to reduce costs through economies of 
scale. All of the agencies used ASD for some activities in tier II, 
such as components of their training development and delivery, often to 
focus on core activities and respond to reductions in human capital 
staffing. They used a mix of options to accomplish both tier I and tier 
II activities, including interagency reimbursable services and private 
sector contracts. In a more recent development in the use of ASD, 
agencies reported gaining access to expertise as a primary driver for 
activities in tier III. These included projects such as workforce 
planning and organizational development, which involved the formulation 
of human capital strategy and policy support. Almost all of the eight 
agencies used ASD for a tier III activity and generally used the 
private sector as their ASD option for these developmental and 
consulting services. Of the selected agencies, the Mint was the only 
one engaged in a competitive sourcing initiative involving most of its 
human capital functions.

The selected agencies approached their management of ASD in similar 
ways and shared similar lessons learned about the process. The 
approaches and lessons are consistent with those we have identified as 
part of our larger body of work on sourcing practices.[Footnote 6] 
Agency officials generally agreed that any human capital activity that 
did not require an intimate knowledge of the agency, oversight, or 
decision-making authority could be a suitable ASD candidate. In 
practice, however, there were differences in their choices of 
activities for which they used ASD. A lesson learned about making ASD 
decisions included the need to understand the complexity and 
requirements of an activity prior to making a decision. Human capital 
officials said that they used a number of different methods to develop 
their ASD contracts and select their providers, and several emphasized 
specifying flexible terms with measurable performance standards in 
their contracts as essential requirements for meeting ASD objectives. 
Agencies used both formal and informal ways of monitoring their 
contracts. They noted using similar types of performance measures to 
assess their ASD use depending on the type of activity. For example, 
several said they used customer satisfaction surveys to check the 
effectiveness of their ASD efforts for their employee services and used 
established models to evaluate their training efforts. Agency officials 
said that finding an ASD provider with whom they could build a 
relationship was an important aspect of monitoring. Agencies noted that 
they used the Office of Personnel Management's (OPM) Training and 
Management Assistance (TMA) program to aid their management of ASD, 
which provided them with access to a pool of professionals who could 
help them select providers and negotiate and monitor agreements. As the 
President's agent and adviser for human capital activities, OPM also 
has a central role in agencies' management of ASD through its authority 
to oversee management of human capital activities.

Agency officials pointed to the need for partnering with other federal 
agencies to learn from each other about effective ways to use ASD for 
their human capital activities. OPM sees as part of its role the need 
to develop tools and provide support to agencies in their human capital 
transformation efforts and to assist in making the federal government a 
high-performing workplace. In addition, OPM has expressed a desire to 
improve oversight of human capital contracts. In light of this, this 
report contains a recommendation to the Director of OPM to work with 
the Chief Human Capital Officers (CHCO) Council[Footnote 7] to serve as 
a resource in sharing and distributing information, such as metrics and 
lessons learned, about agencies' use of ASD for human capital 
activities.

We provided a draft of this report to the Director of OPM and the 
departments representing the eight agencies for their review and 
comment. We received written comments from OPM and the Department of 
the Interior, which are included in appendixes III and IV. OPM stated 
that the report contained a good model for looking at human capital ASD 
use and that the recommendation was consistent with the agency's 
concern for human capital contracting, for which OPM has the lead. 
However, they expressed concerns that the report did not address the 
efforts of their human capital officers in helping agencies improve 
their human capital practices or how agencies ensure that their ASD 
providers comply with regulatory and statutory requirements. We did not 
assess the actions of the OPM human capital officers because their role 
did not surface in our interviews with agency officials. Regarding the 
concern of ensuring functions provided through ASD meet appropriate 
federal regulatory and statutory requirements, we agree with OPM's 
concern and believe our recommendation can help address this important 
issue OPM raises. The Department of the Interior suggested that GAO or 
OPM conduct an additional study that would examine the quality and 
value of various ASD products and providers to allow agencies an 
objective comparison of providers for similar services. The other 
agencies generally had no comments on the report or technical 
corrections.

Background: 

Recent research on private sector companies indicates that many 
companies are using ASD, generally referred to in the private sector as 
"outsourcing," as an integral and permanent part of their human capital 
strategies. Along with extensive use of technology and consolidation of 
service delivery units, outsourcing accompanies the desire of many 
human capital offices to move their focus from transaction-based 
activities toward becoming more of a strategic partner. A 2002 
Conference Board study, based on responses from 125 surveyed companies, 
found that two-thirds currently outsource a major human capital 
activity and most of these companies are seeking to expand their 
outsourcing activities.[Footnote 8] The study reported that pressure to 
cut costs, improve the quality of human capital services, gain access 
to specialist expertise and technology, and free staff to concentrate 
on core business activities drove the companies' outsourcing decisions. 
Slightly more than 50 percent of survey respondents reported that they 
had fully achieved their outsourcing objectives, 42 percent had 
partially achieved them, and less than 1 percent of outsourced human 
capital functions had been brought back in-house. A December 2003 study 
from the Corporate Leadership Council found, from a survey of 162 of 
its member organizations, that most human capital activities continue 
to be largely performed in-house, although aspects of almost every 
activity are outsourced.[Footnote 9]

The research on the private sector's use of outsourcing also indicates 
that the range of human capital activities outsourced is increasing. 
According to a 2003 report from the University of Southern California, 
the large corporations they surveyed were most likely to outsource 
employee assistance and benefits administration.[Footnote 10] This 
report noted that compensation, benefits, employee training, human 
resource information systems, recruitment, performance appraisal, 
affirmative action, and legal affairs all showed statistically 
significant increases in the use of outsourcing from 1995 to 2001. No 
activity was less likely to be outsourced in 2001 than it was in 1995. 
In addition, some organizations are following a path where they 
transfer the majority of their human capital activities to a single 
contractor.

Research on the federal government's use of human capital ASD includes 
a 1997 NAPA report that was intended to provide federal managers and 
human capital staff with a practical guide to the issues that must be 
addressed in approaching ASD for human capital functions.[Footnote 11] 
The report recommended that because of the risks involved with ASD, 
including a potentially negative effect on the general workforce, 
agencies must recognize that its use requires careful planning. It 
maintained, however, that as in the private sector, federal government 
executives were in a position of managing a decrease in resources along 
with increased performance expectations and that ASD was a viable 
approach to help meet this challenge.

Federal agencies have a number of ASD options available to them. 
Examples include human capital services offered by other federal 
agencies, contracts with private sector and nonprofit organization 
providers, and partnerships with other organizations. USDA's National 
Finance Center is an example of an interagency service provider, 
supporting a number of other federal agencies, including GAO, with 
automated information systems services for personnel and payroll. 
Private sector providers of human capital services have increased in 
both their number and the range of their services geared toward the 
federal human capital community. For instance, in 2000 the General 
Services Administration (GSA) introduced a new schedule of contracts 
from more than 50 different contractors for activities such as 
recruitment and position classification. Another ASD option includes 
the use of partnerships with other organizations, which may not 
necessarily involve exchanges of funds. The Bureau of the Census, for 
example, partnered with national, state, and local organizations to 
help the agency recruit census takers for the 2000 Census.[Footnote 12] 
Appendix II has more detail on ASD options available to federal 
agencies.

Selected Agencies Reported Using ASD for the Full Range of Their Human 
Capital Activities: 

Human capital officials from the selected agencies reported using ASD 
for a variety of specific human capital activities that we grouped into 
"tiers," a construct we created to discuss how agencies use ASD for 
similar types of human capital activities; they are not discrete 
categories, but rather groups of activities that overlap. All of the 
agencies used ASD for at least some tier I activities, such as payroll 
and employee assistance programs, and tier II human capital activities 
involving the implementation of human capital policy and strategy. Most 
of the agencies had contracted for assistance, generally with the 
private sector, for tier III activities, such as special projects 
involving workforce planning and organizational assessments. Of the 
eight agencies, the Mint was the only agency currently engaged in a 
competitive sourcing initiative involving most of its human capital 
functions.

Agencies Regarded ASD Use for Tier I Activities as a Way to Reduce 
Costs in Some Cases and to Free Staff to Focus on Core Activities: 

Similar to private sector experience, agency officials regarded the use 
of ASD for some of the tier I activities involving transactional human 
capital functions, the acquisition and maintenance of technology, and 
specialized services as a way to reduce or avoid costs. Agencies have 
been using ASD for these activities for a number of years, and updated 
cost savings estimates were not available. In general, however, using 
ASD for more standardized, transactional activities allows human 
capital offices to make use of high-volume providers' investments and 
capabilities that realize economies of scale. For instance, OPM is 
leading the effort to collapse the operations of 22 executive branch 
agencies that currently run payroll systems into what will eventually 
be only two systems at a projected savings of $1.1 billion through 
fiscal year 2012.[Footnote 13] We reported that it is evident that cost 
savings can be found by reducing the number of payroll systems operated 
and maintained by the federal government and avoiding the costs of 
updating or modernizing those systems, but have noted the significant 
challenges in realistically estimating the financial savings from this 
initiative.[Footnote 14] Likewise, although cost savings estimates were 
not available, agency officials regarded consolidating the purchase of 
human resource information systems and specialized services that would 
be expensive to duplicate internally, such as purchasing commercial-
off-the-shelf software or using a specialized provider of employee 
assistance programs, as a way to reduce individual costs to the agency. 
In prior work on how companies were taking strategic approaches to 
acquiring services, we noted one tactic involved using a companywide 
approach to procuring services. When the companies analyzed their 
spending on services, they realized that individual units of the 
company were buying similar services from numerous providers, often at 
greatly varying prices. In some cases, after this analysis, thousands 
of suppliers were reduced to a few, enabling the companies to negotiate 
lower rates.[Footnote 15]

Common examples of the types of tier I activities for which the eight 
agencies used ASD are: 

* payroll processing,

* components of human resource information technology,

* employee assistance programs,

* health screening and wellness services,

* employee fitness programs, and: 

* drug and alcohol testing.[Footnote 16]

As previously noted, federal agencies have used ASD for tier I human 
capital activities for a number of years. NAPA reported in 1997 that 
human capital outsourcing by federal agencies was already substantial 
in these areas.[Footnote 17] All of the agencies used ASD for some of 
their tier I activities, and most of the agencies reported using ASD 
for their payroll administration and at least some component of their 
information technology. NGA, for example, partnered with another agency 
to share contracts for human capital information technology development 
and maintenance. NGA said that the arrangement allowed it to access 
expertise not resident in-house and promoted knowledge transfers 
between the two agencies. Using ASD for traditional employee services 
was also common among the selected agencies. Many of them used ASD for 
their employee assistance programs, wellness and fitness centers, 
health units, or drug and alcohol testing, often using interagency 
services to provide these functions. By going to outside providers for 
these specialized services, agency officials believed that they were 
able to focus more on core activities in addition to gaining 
efficiencies by joining other agencies' efforts. A DOE official, for 
example, said that the department used ASD for its fitness centers to 
avoid liability issues so that, for example, if an employee were 
injured using the center it would not be the responsibility of the 
department. DOE also reported joining another department's large 
contract for drug and alcohol testing to reduce its workload by not 
having to commit resources to contracting for the service itself. 
Officials also said they gained the benefit of having a neutral third-
party provider, which was believed to be important because employees 
may be less likely to use services such as employee assistance programs 
when internally provided due to confidentiality issues.

Agencies Regarded ASD Use for Tier II Activities as a Way to Free Staff 
to Focus on Core Activities: 

All of the selected agencies used ASD for at least one of their tier II 
activities, which involve the implementation of human capital policy 
and strategy, including advisory services. Common examples of the 
agencies' ASD tier II activities are: 

* training development and delivery,

* classification and staffing support,

* classification appeals and reviews,

* equal employment opportunity (EEO) and administrative investigations,

* recruitment, and: 

* mediation.[Footnote 18]

Many of these activities entail services dealing with recruiting, 
developing, and retaining employees, and they occupy the middle ground 
between the primarily technical work in tier I and the increased 
strategic focus needed for tier III activities. Drivers for this tier 
of activities included freeing staff to focus on core activities and 
supplementing a lack of staff to perform the activity. Tier II 
activities often involve partial outsourcing, using ASD for only a 
component of the human capital function, whereas a tier I activity such 
as drug testing may be completely outsourced. NGA's Training and 
Doctrine Directorate, for example, used OPM's TMA program to select and 
evaluate providers for its Leadership Program. The agency used a 
combination of in-house expertise and contractors to design and deliver 
the leadership training.

Within tier II activities, components of training development and 
delivery were the most frequently cited human capital activities for 
which the agencies used ASD. NAPA's 1997 report also noted outsourcing 
of training by federal agencies as substantial.[Footnote 19] As one 
example, USDA turned to a private sector contractor to help develop the 
design for a corporate leadership development program to prepare upper-
level managers for future leadership roles at USDA. One of the 
rationales for relying on a contractor was that the contractor had the 
research edge on best practices gleaned from completing needs 
assessments with other organizations. In addition to using the private 
sector, several agencies used the training services of providers such 
as the USDA Graduate School and the Federal Executive Institute. OPM is 
also working on another training tool for federal agencies to use. E-
Training, one of OPM's e-government initiatives, is designed to create 
a governmentwide e-Training environment to support the development of 
the federal workforce and provide a single source for on-line training 
and strategic human capital development for all federal employees. OPM 
expects that its initiative will allow agencies to focus their own 
training efforts on unique needs, thus maximizing the effectiveness of 
their expenditures on workforce performance.

Agencies also used ASD for tier II activities such as investigations, 
mediation, classification and staffing, and recruiting. FWS, for 
example, contracted for classification appeals and studies, EEO and 
administrative investigations, and mediations. The agency maintained 
that ASD was useful in this case because, given the sporadic nature of 
some of these activities, it could contract for services only when it 
needed them. MMS contracted with a retired employee to perform 
staffing, classification, and employee relations functions. Two of the 
agencies used ASD for some component of their recruitment function. For 
example, although the contract is new and NGA has not yet directly 
tracked changes due to this initiative, the agency anticipates that 
contracting for some of its recruitment activities will provide better 
customer service and help confront reduced human capital staffing.

Agencies Regarded ASD Use for Tier III Activities as a Way to Gain 
Access to Expertise: 

Tier III activities, which involve the formulation of human capital 
strategy and policy support, represent a more recent application of ASD 
for human capital activities. Examples of the agencies' tier III ASD 
activities are: 

* strategic workforce planning,

* skills gap analysis,

* strategic human capital management planning,

* organizational assessment survey,

* performance management system,

* pay compensation, and: 

* benchmarking.[Footnote 20]

These activities involved expanding their base of expertise and gaining 
access to new ideas and methodologies. All but one of the agencies 
reported using ASD for some activities within tier III, often using 
private sector providers.

Several agencies noted that the use of ASD for tier III activities 
enabled their human capital offices to obtain access to the right mix 
of skills quickly in order to meet critical deadlines, thereby 
providing the agency with new tools and capabilities. USITC, for 
example, through OPM's TMA program, contracted for initiatives in 
strategic workforce planning. The agency used contractors to help 
define its human capital vision and models and to develop occupation 
guides and a human capital plan. USDA teamed with a contractor to 
conduct a skills gap analysis to identify critical workforce skills and 
analyze skills gaps. USDA reported that the contractor provided third-
party objectivity in retrieving and assessing information, used its own 
technology to analyze data, and produced a model based on its own 
scientific expertise that assisted USDA managers in determining 
workforce skills needs for closing the gaps in the next 5 years. USCG 
contracted for the use of OPM's Organizational Assessment Survey after 
sporadic, unsatisfactory in-house attempts to manage the survey 
development, administration, data collection, analysis, and required 
reporting. Instead of investing in three full-time employees 
supplemented by six part-time employees that USCG believed would be 
needed to manage an annual survey, it reduced the resources needed to 
manage the survey effort to one full-time employee supplemented by two 
part-time employees. According to an agency official, the estimated 
annual cost for the project was reduced by approximately $300,000.

The Mint Is Engaged in a Human Capital Competitive Sourcing Initiative: 

All of the above examples of ASD for the three tiers of activities 
concerned were specific activities that were outsourced to a variety of 
different providers. Within private sector human capital offices, 
however, there is a beginning trend toward aggregating multiple human 
capital activities into one ASD contract. The 2002 Conference Board 
report on human resources outsourcing trends found that although most 
of the companies they surveyed used more than one source provider, 12 
percent of the companies surveyed outsourced the bulk of their human 
capital functions to a single provider and 9 percent were in the 
process of doing so or plan to over the next 3 years.[Footnote 21] 
Aggregating activities into one contract can result in better 
contracting leverage. This is riskier, however, in terms of the 
complexity of the arrangement and the assumption that one vendor can 
deliver and maintain the same level of service previously provided in-
house or by a variety of different providers.

The Mint was the only one of the eight selected agencies currently 
considering using one ASD provider for the majority of its human 
capital activities through a competitive sourcing initiative governed 
by the Office of Management and Budget's (OMB) Circular No. A-76. The 
initiative involves all of the Mint's human capital functions except 
employee and labor relations and policy, and the agency expects to 
complete the competitive sourcing study no later than February 2005. 
Although a Mint official reported challenges maintaining morale and 
staff during the formal cost comparison, the agency expects that the 
study will eventually result in reduced costs. Our work looking at the 
progress selected agencies were making in establishing competitive 
sourcing programs also found that ensuring and maintaining morale was a 
challenge for those agencies.[Footnote 22] NAPA reported that trust 
between agency leaders and employees can be shaken by the consideration 
of nontraditional staffing.[Footnote 23] In addition, employees may 
suffer stress-induced illness, increased absenteeism, hostility, and 
depression, other symptoms of changed organizations. The report noted 
that providing an authoritative source for employees to get accurate 
information minimizes the unknown and helps control rumors and 
miscommunication.

Selected Agencies Approached Their Management of ASD in Similar Ways 
and Shared Similar Lessons Learned: 

We examined the agencies' management of ASD by looking at their 
approaches to three phases of contract management. The phases included 
(1) making the sourcing decision, (2) developing the contract and 
selecting the provider, and (3) monitoring the provider's performance. 
Our review also identified some of the lessons the agencies learned and 
the role that OPM plays in assisting agencies with their management of 
ASD.

Agencies Approached Sourcing Decisions in a Similar Way on a Conceptual 
Level but Showed Differences in Practice: 

To make a sourcing decision, organizations need to determine whether 
internal capability or external expertise can more effectively meet 
their needs. The Commercial Activities Panel, chaired by the 
Comptroller General of the United States, noted that determining 
whether the public or the private sector would be the most appropriate 
provider of the services the government needs is an important, and 
often highly charged, question.[Footnote 24] The report also stated 
that determining whether internal or external sources should be used 
has proved difficult for agencies because of systems and budgeting 
practices that (1) do not adequately account for total costs and (2) 
inhibit the government's ability to manage its activities in the most 
effective manner possible. In prior work examining the competitive 
sourcing initiatives of selected agencies, we reported that several 
agencies had developed strategic and transparent sourcing 
approaches.[Footnote 25] The approaches included the comprehensive 
analysis of factors such as mission impact, potential savings, risks, 
current level of efficiency, market conditions, and current and 
projected workforce profiles. To make good human capital sourcing 
decisions, NAPA's ASD report also suggested identifying constraints on 
the process, such as the lack of capacity within the organization to 
manage the ASD contract and the legal, regulatory, and ethical issues 
related to the governmental nature of the work.[Footnote 26]

The selected agencies reported similarities on a conceptual level in 
how they made their sourcing decisions. Officials generally agreed 
about which human capital activities were suitable candidates for ASD. 
Their considerations were consistent with the Commercial Activities 
Panel sourcing principles. For example, agency officials recognized 
that some activities are inherently governmental[Footnote 27] or are 
functions that should be performed by federal workers and that both 
quality and cost factors should be considered.[Footnote 28] The general 
consensus was that virtually any activity could be an ASD candidate as 
long as it did not require an intimate knowledge of the agency or 
involve oversight or decision-making authority that should belong with 
the agency. There was also general consensus that ASD should be 
considered in situations where it could improve quality without 
increasing costs or keep the same quality at a lower cost and in 
situations where activities cannot be accomplished with the agency's 
current skills and resources. Some of the agencies excluded from ASD 
any activity directly related to policy, while one official maintained 
that policy development, as opposed to policy decision making, was 
appropriate for ASD.

Notwithstanding the broad conceptual agreement among the agencies, they 
showed differences in their choices of human capital ASD activities. 
This may be partially due to differences in the activities they deemed 
to be essential to the agency or to the human capital office. The USITC 
Human Resources Director, for example, noted that USITC staffing was a 
function that required intimate knowledge of the agency and one that it 
would not consider for ASD. Private sector research also indicates that 
some companies are reluctant to outsource activities such as employee 
communications, assessment, and recruiting because they are critical to 
the company's corporate culture and provide a "personal 
touch."[Footnote 29] The differences may also be due to variations in 
existing capacity and in how ASD was used in the agencies' overall 
human capital strategy. FWS, for example, noted that as the agency 
continues to identify areas for consolidation and efficiency, it sees 
its use of ASD increasing as a means to provide better customer service 
and supplement human capital skills not present in the current 
workforce. Several of the agencies, NGA and USITC in particular, 
remarked that ASD was integral to their overall human capital strategy. 
In fact, an NGA official said that the agency was established in 1996 
with a design that encouraged the use of ASD. On the other hand, USDA 
stated that it used ASD primarily to meet critical deadlines.

Lesson learned: Understand the complexity and requirements of the 
activity prior to making an ASD decision. In order to strategically and 
objectively make a sourcing decision, several agency officials 
emphasized the importance of laying out ASD requirements and goals and 
letting these expectations guide the process. In order to do this and 
to manage for results, they underscored the importance of knowing as 
much as possible about the complexity and requirements of the activity 
before making an ASD decision. As a USCG human capital official 
expressed it, throwing a "problem" over the transom to a provider and 
waiting for a "solution" to be thrown back is not a viable model. 
Similarly, a human capital official from MMS said that in cases where 
ASD did not work well, there was a lack of a clear vision about the 
work to be done, and a NAPA panel report examining human capital 
outsourcing experiences noted that from the contractor's viewpoint, 
poorly defined requirements are a major flaw in government management 
of outsourcing.[Footnote 30] To help solve this problem, one of the 
leading commercial practices for outsourcing of information technology 
(IT) services includes incorporating lessons learned from peers who 
have engaged in similar sourcing decisions.[Footnote 31]

Agencies Approached Developing Their Contracts and Selecting Their 
Providers Similarly: 

The ASD contract defines the legal terms of the relationship between 
the agency and the provider and sets the expectations for service 
levels and delivery of essential services. These critical requirements 
are captured in the contract as fundamental expectations. The 
development of the contract is the foundation on which the relationship 
with the provider is built, and once the agency understands the 
essential contractual requirements, it can begin to identify providers 
that can meet its needs.[Footnote 32] According to the NAPA human 
capital ASD report, the scope of the activity being converted to ASD 
and its relative criticality to the agency mission should determine the 
level of effort needed to develop the contracts and select the 
providers.[Footnote 33]

Human capital officials from the agencies reported using similar 
methods to develop their ASD contracts and select their providers. 
Officials said that they followed the guidance provided by the contract 
and procurement office representative who solicited the bids and 
awarded the contract. NGA stated that its general strategy was to rely 
on agency subject matter experts who created detailed statements of 
work. For example, the agency expert in the interpreting field provided 
the expertise needed for cost comparison, evaluation, and program 
management for NGA's interpreting services. Officials listed reputation 
and experience of the provider as important factors in the selection 
process. Some agencies noted using the panel award approach to select 
providers. To select its employee assistance program provider, for 
example, NGA assembled a panel comprised of agency officials who 
conducted interviews with each of the candidates and required the 
finalists to make presentations. Some officials stressed the importance 
of using established contract vehicles, such as GSA's contract schedule 
or OPM's TMA program, because it made the procurement process easier. 
Agencies also noted that joining other agencies' contracts reduced the 
administrative effort needed on their part in terms of contract 
development.

Lesson learned: Articulating ASD contract terms that are flexible but 
include identified outcomes and measurable performance standards is an 
essential requirement for meeting ASD objectives. After determining 
what the use of ASD should accomplish, several agencies shared the 
importance of translating these expectations in the ASD contract into 
flexible terms with measurable outcomes. Accordingly, an essential part 
of the contract is to define the level and quality of service required 
of the ASD provider as well as specific evaluation criteria. A Mint 
official said that performance-based contracts with metrics and quality 
assurance plans helped the agency ensure that expectations were met. 
Congress and OMB have also encouraged greater use of performance-based 
contracting, which emphasizes spelling out the desired end result, 
while leaving the manner in which the work is to be performed up to the 
contractor. Other attributes of performance-based contracting include 
measurable performance standards; quality assurance plans that describe 
how the contractor's performance will be evaluated; and positive and 
negative incentives, when appropriate.[Footnote 34] In developing 
contracts and selecting providers, leading commercial practices for 
acquiring IT services also suggest that the contract must be flexible 
enough to adapt to changes.[Footnote 35] The practices note that the 
contract should include clauses for issues such as resolving disputes 
promptly, conducting regularly scheduled meetings, and declaring a 
significant event that can lead to a change in the contract. A Mint 
contract, for example, specified how the contract would be changed if 
access to desired data was not an option.

Agencies Also Approached Monitoring Performance in Similar Ways: 

The monitoring phase of ASD management involves ensuring that the ASD 
provider is meeting performance requirements. The previous phases 
addressed the extensive preparation that must precede the ASD 
provider's assuming responsibility for an activity. Monitoring includes 
examining performance data for specific activities and making sure that 
the overall objectives for using ASD are being met. According to 
commercial practices, organizations need to examine internal service 
levels as well as maintain an external view of the performance of other 
ASD providers to make certain that their current relationship is still 
advantageous to the organization.[Footnote 36]

The agencies reported both formal and informal ways of monitoring their 
ASD contracts. A contracting officer's technical representative (COTR) 
or a designee generally performed the formal oversight on an ongoing 
basis with line managers being in position to perform the informal 
monitoring. DOE, for example, described monitoring its human capital 
processing functions by having a COTR work in conjunction with the 
program or technical monitors, DOE's office of procurement, and the 
direct customers to ensure that problems were resolved and needs and 
expectations met. NGA looked at the measures built into its quality 
assurance plans, which included descriptions of the deliverables, 
performance standards, acceptable quality levels, and methods used to 
assure quality, such as random testing. The agency also noted that it 
periodically checks prices with outside service providers to make sure 
it is not paying more than the market rate for the contracted services. 
An MMS human capital official said that accountability for monitoring 
the overall success of the ASD strategy for a particular function 
belongs to the line manager responsible for that function, who 
determines if program goals are being met.

Many of the agencies said that they used performance measures as part 
of their ASD monitoring process. The types of metrics used varied with 
the types of ASD human capital activities, but generally included 
elements of quality or timeliness. For projects dealing with human 
capital strategy and policy support, agencies mentioned that along with 
quality, their measures included timely completion and evaluation of 
interim deliverables during the project. The USITC Human Resources 
Director stressed that when using ASD for a specific project, it was 
important to incorporate ongoing milestones into the contract as 
markers for how well the project is progressing. Agencies using ASD for 
training and development activities also reported using similar 
measures to monitor the success of the activities. For example, NGA and 
DOE stated that they used a multilevel training evaluation 
model[Footnote 37] to assess the effectiveness of the methodology, 
media, and delivery mechanisms used by their ASD providers. Several of 
the agencies used client satisfaction surveys to gauge the quality of 
their employee services provided through ASD. USCG, for example, used 
surveys and had one-to-one contact with members who used its employee 
assistance program.

Lesson Learned: Creating a relationship with the ASD provider is key to 
resolving issues that may arise in addressing concerns and directing 
work. Human capital officials emphasized that smooth and constructive 
interaction between the agency and the ASD provider at an operational 
level is crucial to achieving the expectations of the ASD arrangement. 
Relationship management goes beyond the structure of the contract and 
if a good relationship exists between the agency and the ASD provider, 
many problems that may arise can be worked out. As the USITC Human 
Resources Director remarked, the agency needs to have the capacity to 
manage relationships, not just contracts, with ASD providers. In 
looking at leading commercial practices for outsourcing IT services, we 
included relationship management as one of three critical success 
factors contributing to successful outsourcing, a capability that must 
be present to implement good outsourcing practices.[Footnote 38] The 
Director of OPM also emphasized the importance of program managers' 
ability to work inside partnerships and relationships to help develop a 
new paradigm of government-contractor relationships. She said that OPM 
plans to analyze human capital contracts that were poorly managed and 
use those lessons to improve the process.[Footnote 39]

OPM Has a Central Role in Assisting Agencies' Management of ASD: 

OPM has a central role in agencies' management of ASD by providing 
assistance and guidance in operating human capital programs. As the 
President's agent and adviser for human capital activities, OPM's 
overall goal is to aid federal agencies in adopting human resources 
management systems that improve their ability to build successful, 
high-performance organizations. The agency's five e-government 
initiatives are examples of this effort. In addition, several agencies 
used OPM's TMA program to help them manage their ASD efforts. The TMA 
contracting vehicle assists government agencies with training and human 
capital technical assistance projects. (See fig. 2 for more details.) 
OPM's TMA program may be appropriate when agencies have a need for (1) 
outside expertise to help define human capital needs and frame 
requirements, (2) help doing something the agency has never done 
before, (3) short-term help to get a specific task accomplished because 
internal resources are not available, (4) long-term supplemental 
assistance to accomplish ongoing, mission-critical objectives and 
activities, and (5) plans to competitively source certain learning or 
human capital activities or functions. USITC, for example, used TMA to 
screen and qualify a select group of contractors to assist the agency 
in its workforce planning initiatives. The agency's Human Resources 
Director said TMA facilitated USITC's ability to appropriately identify 
a contractor that could work best in the agency's culture. She also 
noted that the TMA program assists smaller agencies in gaining clout 
with contractors because of the program's large volume of contracts.

Figure 2: Description of OPM's Training and Management Assistance 
Program: 

[See PDF for image] 

[End of figure] 

OPM also plays a role in assisting agencies' management of ASD through 
its authority to oversee management of human capital activities. The 
Director of OPM has called for more rigorous oversight of federal 
contracts used to acquire personnel management services for agencies 
and their employees.[Footnote 40] In addition, to ensure professional 
oversight of contracts, OPM has instructed the Federal Executive 
Institute and the management development centers to begin to train and 
retrain a new cadre of program managers with the skills necessary to 
manage relationships and establish partnerships with their peers in the 
procurement industry. The CHCO Academy, created by OPM to educate chief 
human capital officers about human capital management issues, included 
outsourcing human resource services as one of its agenda topics.

While OPM has made efforts to help agencies with their human capital 
ASD initiatives, there are additional opportunities to assist the 
agencies in compiling, analyzing, and disseminating information on 
federal agencies' use of ASD for human capital activities. Several 
agency officials noted that having a clearinghouse of ASD information, 
such as posting information on ASD projects and providers, and more 
communication sharing in general would help them manage their ASD 
projects. They observed that joining other agencies with existing 
contracts can be an effective strategy and that communication among 
agencies about the reputation of ASD providers plays a role in their 
selection process. An NGA official noted that (1) partnering with other 
federal agencies could provide a venue to learn from each other versus 
developing individually and (2) agencies could learn more from each 
other's ASD accomplishments and mistakes. OMB, for example, is 
developing a competitive sourcing data-tracking system to facilitate 
the sharing of competitive sourcing information by allowing agencies to 
identify planned, ongoing, and completed competitions across the 
government. The agency plans to use the system to generate more 
consistent and accurate statistics, including those on costs and 
related savings.[Footnote 41] The importance of sharing information 
about human capital ASD efforts has recently gained attention as a few 
agencies have signed large contracts for human capital services. 
Legislation creating the CHCO Council also highlighted the importance 
of this activity by detailing that one of the responsibilities of the 
Council is to advise and coordinate agency activities for improving the 
quality of human resources information.[Footnote 42]

Conclusions: 

Recent studies looking at private sector organizations suggest that ASD 
use for human capital activities is being leveraged to achieve a 
variety of strategic and tactical objectives within human capital 
offices. The range of human capital activities and the reported 
objectives for the selected agencies' use of ASD indicated the same. 
Although more evaluation needs to be done, the agencies' use of ASD for 
activities such as strategic human capital management and workforce 
planning showed that ASD provides access to new skills, expertise, and 
technology that can facilitate implementation of new human capital 
initiatives. Likewise, freeing human capital staff from transactional 
and administrative tasks such as payroll administration and training 
delivery pointed to cost savings and an improved ability to focus on 
mission-critical activities.

Given its potential benefits, it appears that, similar to its use in 
the private sector, the use of ASD for human capital activities will 
increase among federal agencies. There currently is not, however, a 
widely shared body of knowledge about federal agencies' use of ASD for 
human capital activities. By sharing experiences and lessons learned, 
agencies may be able to tap into the benefits of using ASD while 
avoiding some of the problems. Although OPM's TMA program appears to 
help agencies manage their use of ASD, OPM could supply another 
necessary link to the agencies by providing comprehensive information 
about how to use ASD for human capital activities. The CHCO Council 
could be an excellent vehicle to assist in this area.

Recommendation for Executive Action: 

Given the need expressed by agency officials about the importance of 
sharing data and lessons learned concerning the use of ASD for human 
capital activities and consistent with OPM's ongoing efforts in this 
regard, we recommend that the Director of OPM take the following 
action: 

* Work with the CHCO Council to create additional capability within OPM 
to research, compile, and analyze information on the effective and 
innovative use of ASD and strengthen its role as a clearinghouse for 
information about when, where, and how ASD is being used for human 
capital activities and how ASD can be used to help agency human capital 
offices meet their requirements. OPM should work with the CHCO Council 
to disseminate the type of spending data that human capital offices 
could use to leverage their buying power, reduce costs, and provide 
better management and oversight of their ASD providers. Such data would 
include the types of human capital services being acquired, which ASD 
providers are being used for specific services, how results are being 
measured, and how much is being spent on specific ASD activities.

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Director of OPM, the 
Secretary of Agriculture, the Secretary of Defense, the Secretary of 
Energy, the Secretary of Homeland Security, the Secretary of the 
Interior, the Chairman of the International Trade Commission, and the 
Director of the Mint. We received written comments from OPM and the 
Department of the Interior, which are included in appendixes III and 
IV. OPM stated that the report contained a good model for looking at 
human capital ASD use and that the recommendation was consistent with 
the agency's concern for human capital contracting, for which OPM has 
the lead. OPM expressed concern, however, that we had not addressed the 
role of its human capital officers in helping agencies improve their 
human capital practices or how agencies ensure that their ASD providers 
comply with regulatory and statutory requirements. We did not assess 
the actions of the OPM human capital officers because their role did 
not surface in our interviews with agency officials about their use of 
ASD for human capital activities. Regarding the concern of ensuring 
functions provided through ASD meet appropriate federal regulatory and 
statutory requirements, we agree with OPM's concern and believe our 
recommendation can help address this important issue OPM raises. In 
addition, the Department of the Interior suggested that it would be 
helpful if GAO or OPM followed this report with a further study that 
would examine the quality and value of various ASD products and 
providers to allow for comparisons of similar services. We believe that 
our recommendation will also help address this concern. Based on 
comments from DOE that we received by e-mail, we clarified our 
definition of core activities. DOE also suggested an alternative way to 
group human capital activities. We believe that the framework is 
adequate for the discussion and summary for which it was intended. The 
Department of Defense, USCG, and USDA noted that they had no comments 
on the report. USITC and the Mint had several technical comments that 
we incorporated.

As agreed with your offices, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 15 days 
after its date. At that time, we will provide copies of this report to 
other interested congressional parties, the Director of OPM, and the 
federal agencies and offices discussed in this report. We will also 
make this report available at no charge on the GAO Web site at 
[Hyperlink, http://www.gao.gov].

If you have any questions about this report, please contact me or 
William Doherty on (202) 512-6806 or at mihmj@gao.gov or 
dohertyw@gao.gov. Other contributers are acknowledged in appendix V.

Signed by: 

J. Christopher Mihm: 
Managing Director, Strategic Issues: 

[End of section]

Appendixes: 

[End of section]

Appendix I: Objectives, Scope, and Methodology: 

The objectives of this report were to: 

* identify the human capital activities selected agencies are 
accomplishing through the use of alternative service delivery (ASD) 
optionsand the basis on which they decided to use it and: 

* describe how the use of ASD is being managed and the lessons learned 
by the selected agencies.

To address these objectives, we first synthesized information from a 
literature review including articles, studies, and reports on the use 
of ASD for human capital activities in both public and private sector 
organizations. We also gathered information from a variety of sources, 
such as our past work on agencies' contracting efforts and other 
reports on federal agencies' use of ASD, to characterize the ASD 
options currently being used by federal agencies to accomplish their 
human capital activities.

On the basis of this work, we identified a set of federal agencies 
varying in size and mission that were using ASD for at least some of 
their human capital activities. We consulted with human capital experts 
from George Washington University, the National Academy of Public 
Administration, and a private sector consultant for federal contract 
management to assess whether they thought particular agencies in this 
set would yield examples of ASD use for human capital activities. On 
the basis of their suggestions and our previous research, we focused on 
ASD practices in eight federal agencies: the Department of Energy 
(DOE), the Department of the Interior's U.S. Fish and Wildlife Service 
(FWS) and Minerals Management Service (MMS), the National Geospatial-
Intelligence Agency (NGA), the U.S. Coast Guard (USCG), the U.S. 
Department of Agriculture's (USDA) headquarters, the U.S. International 
Trade Commission (USITC), and the U.S. Mint's headquarters. The agency 
selection process was not designed to produce findings that could be 
considered representative of the use of ASD for human capital 
activities in the federal government as a whole, but rather to provide 
illustrative examples of how the selected agencies were using ASD.

We conducted semistructured interviews with human capital officials 
from the selected agencies to gather information on (1) the human 
capital activities for which the agencies were using ASD, (2) the basis 
of their decisions, (3) how they were managing the use of ASD, and (4) 
the lessons they had learned. Some agencies provided documents such as 
final ASD projects, project plans, interagency service agreements, and 
contracts, which we reviewed. We did not verify the agencies' cost 
savings estimates. After reviewing and analyzing the agencies' material 
and responses to our interview questions, we developed a framework for 
organizing and discussing their use of ASD for human capital 
activities. (See fig. 1.) As shown in our framework, the activities are 
grouped into three overlapping tiers based on whether the activity had 
more of a technical or a strategic focus. We then identified the 
primary drivers and the primary ASD options used for each tier. Our 
work was conducted from August 2003 through February 2004 in accordance 
with generally accepted government auditing standards.

[End of section]

Appendix II: Examples of Alternative Service Delivery Options Available 
to Federal Agencies for Accomplishing Human Capital Activities: 

Federal agencies have a variety of types of ASD options available to 
help them accomplish their human capital activities. The options 
include mechanisms that provide reimbursable services from one agency 
to another and contracting with the private sector. Agencies also 
provide reimbursable services that help other agencies gain access to 
private sector contracts. The options listed below are some examples of 
ASD mechanisms used by federal agencies to accomplish their human 
capital activities.

Intragovernmental Revolving Fund Services: 

Intragovernmental revolving (IR) funds provide common support services 
required by many federal agencies. An IR fund conducts continuing 
cycles of businesslike activity within and between government agencies. 
It charges for the sale of products or services and uses the 
collections to finance its operations, usually without a requirement 
for annual appropriations. Each IR fund is established by law. 
Generally, the specific legal authorities creating IR funds authorize 
these funds to enter into intragovernmental transactions and provide 
flexibility by allowing the client agency's fiscal year funds to remain 
obligated, even after the end of the fiscal year, to pay for the goods 
or services when delivered.

One businesslike entity providing human capital services is the U.S. 
Department of Agriculture's National Finance Center (NFC) in New 
Orleans. NFC provides a variety of other federal agencies with 
automated information systems services for personnel, payroll, and 
voucher and invoice payment systems and services.

Franchise Fund Services: 

The Government Management Reform Act of 1994 authorized the Office of 
Management and Budget (OMB) to designate six franchise fund pilots to 
provide common administrative services on a fully reimbursable basis. 
Franchise funds are a type of intragovernmental revolving fund that 
were created to be fully self-supporting competitive businesslike 
entities within the federal government. The franchise fund pilots are 
located in the Departments of Commerce, Health and Human Services, the 
Interior, the Treasury, Veterans Affairs, and at the Environmental 
Protection Agency. The six pilots provide a variety of common services, 
such as acquisition management, financial management services, and 
employee assistance programs. The legal authorities creating the 
franchise funds are similar to those of other IR funds. However, most 
of the franchise funds have the specific authority to carry over into 
the next fiscal year up to 4 percent of the annual income of the fund 
for capital equipment and financial management improvements. Most other 
IR funds do not have this authority.

The Treasury franchise fund service, for example, contains multiple 
business units operating under the brand name FedSource. FedSource 
offers various human capital services such as recruitment, employee 
assistance, position classification, and alternative dispute 
resolution through contracts with multiple vendors experienced in 
providing human capital services in the federal sector.

Cooperative Administrative Support Unit Services: 

Cooperative administrative support units (CASU) have provided services 
since 1986 and most operate under the authority of the Economy Act of 
1932 as amended. CASUs are entrepreneurial organizations that provide 
the full range of support services on a reimbursable basis to federal 
agencies. Federal agencies in a local community identify services that 
they would like to share under the leadership of one or more host 
agencies. The host agency is reimbursed for all costs incurred in 
providing the services to customer agencies. Several CASUs provide 
services in conjunction with a franchise fund and operate under the 
authority of the franchise fund, which allows them to make use of 
provisions more expansive than those of the Economy Act, including 
permitting the customer agency's fiscal year funds to remain obligated 
to pay for services when delivered, even after the end of the fiscal 
year.

The Southeast Regional CASU (SER-CASU) is an example of a chartered 
unit within the National CASU Network. SER-CASU offers human capital 
services, such as employee assistance program support and training 
services.

Interagency Contract Service Programs: 

Federal agencies also use fee-for-service interagency contract service 
programs. The programs are being used in a wide variety of situations, 
from those in which a single agency provides limited contracting 
assistance to an all-inclusive approach in which the provider agency's 
contracting office handles all aspects of the procurement. The 
increased use of interagency contract service programs has come about 
as a result of reforms and legislation passed in the 1990s, which 
allowed agencies to streamline the acquisition process, operate more 
like businesses, and offer increasing types of services to other 
agencies.

The Office of Personnel Management's Training and Management Assistance 
(TMA) program is an example of an interagency contract service program. 
The TMA program operates under the IR fund established by 5 U.S.C. § 
1304(e). It is an expedited contracting process for federal agencies 
seeking human capital management and development in areas such as 
knowledge management, training, and workforce planning. For a fee, 
clients access project managers, technology, and prequalified 
contractors with the intended result of time and cost savings compared 
to the agency undertaking its own procurement actions.

Contracting for Services: 

Contracting can be defined as the hiring of private sector firms or 
nonprofit organizations to provide a good or service for the 
government. In contrast to the use of IR funds, CASUs, and interagency 
contract service programs, the agency uses its own contracting 
authority to enter into a contract with a company and manages the 
contract.

For example, the Department of Homeland Security has awarded a contract 
to a company to help design a human capital strategic plan, which would 
assist the department in aligning its human capital requirements with 
its mission needs.

Partnerships: 

Partnerships can be defined as voluntary alliances with other 
organizations. They do not necessarily involve the exchange of funds. 
For example, the Census Bureau's Partnership and Data Services program 
continues and expands upon more than 140,000 organizational 
partnerships established during Census 2000. During the census, the 
Bureau relied on its extensive network of partners at the national, 
state, and local levels to help recruit employees for more than half a 
million temporary jobs.

[End of section]

Appendix III: Comments from the Office of Personnel Management: 

UNITED STATES OFFICE OF PERSONNEL MANAGEMENT: 
WASHINGTON, DC 20415-1000:

OFFICE OF THE DIRECTOR:

JUN 09 2004:

Mr. J. Christopher Mihm:
Managing Director, Strategic Issues: 
U.S. General Accounting Office: 
441 G Street, NW:
Washington, DC 20548:

Dear Mr. Mihm:

Thank you for providing the Office of Personnel Management (OPM) the 
opportunity to review and respond to your proposed report entitled 
Human Capital: Selected Agencies' Use of Alternative Service Delivery 
(ASD) Options for Human Capital Activities (GAO-04-679).

The report contains a good model for looking at three tiers of what GAO 
calls "Human Capital Activities," though the activities span the 
continuum from basic human resources management systems to strategic 
human capital planning. The descriptions and analyses of "Tier 1, 11, 
and 111" are useful in imparting some order to the wide array of ASD 
arrangements that exist among Federal agencies.

The report recommends OPM work with the Chief Human Capital Officers 
Council to research, compile, and analyze information on ASD use in 
Government and strengthen its role as a clearinghouse for information 
about how ASD can best be used to assist agencies in leveraging buying 
power, reducing costs. and obtaining the highest returns on 
investments. This recommendation is consistent with my concern for the 
contracting workforce overseeing human resources/human capital 
contracts for which OPM has the lead, Additionally. OPM will continue 
to demonstrate our strong leadership role in setting policy and 
standards. and in providing guidance to agencies. A major outcome of 
this leadership role would be the identification of "best-in-class" 
providers for human capital activities and the identification of 
accepted industry-wide standards for such activities.

We are concerned, however, that the report does not reflect the ongoing 
efforts of our Human Capital Officers (HCO) to help agencies improve 
their Human Capital practices, regardless of the level of ASD 
involvement. Our HCOs work closely with agencies and expect their 
agencies to keep them fully informed as to their efforts in planning 
for ASD options. Additionally, the report does not address how agencies 
ensure that their ASD providers comply with regulatory requirements. In 
other words, while agencies may obtain the services through a variety 
of sources, agencies remain accountable for ensuring compliance with 
regulatory and statutory requirements, such as veterans' preference, 
merit system principles and prohibited personnel practices.

As agencies consider outsourcing their HC Programs, OPM is developing 
guidance to ensure non-Government entities perform these functions in 
ways that are accountable and transparent on behalf of the Government.

We appreciate this opportunity to respond to you in this matter, If you 
need further information, you may contact Marta Brito Perez, Associate 
Director for OPM's Human Capital Leadership and Merit System 
Accountability Division by phone at 242-606-1575, or email at 
marta.perez@opm.gov.

Sincerely,

Signed by: 

Kay Coles James: 
Director:

[End of section]

Appendix IV: Comments from the Department of the Interior: 

United States Department of the Interior:

OFFICE OF THE ASSISTANT SECRETARY:

POLICY, MANAGEMENT AND BUDGET:
Washington, DC 20240

JUN 7 2004:

Mr. Bill Doherty:
Assistant Director, Strategic Issues:
U.S. General Accounting Office 
441 G Street, N.W.
Washington, D.C. 20548:

Dear Mr. Doherty:

We appreciate having the opportunity to review the Draft Report 
entitled, "Human Capital: Selected Agencies' Use of Alternative Service 
Delivery Options for Human Capital Activities" (GAO-04-679). Our 
general comments to the draft report are as follows:

We believe it would be helpful if the General Accounting Office or the 
Office of Personnel Management would follow up with a further study 
that examines the quality and value of various Alternative Service 
Delivery (ASD) products and providers. As the report mentions, the 
subject agencies are paying widely differing amounts for the same 
services; for example, use of expertise and use of technology. Also, 
the report mentions the quality of the services received varies 
greatly. At present, there is no mechanism that allows for an easy 
objective comparison of providers for like services.

Again, thank you for providing the opportunity to review and comment on 
this report. If you have any questions, please call Ms. Angela Herring, 
Minerals Management Service's Audit Liaison Officer, at (202) 208-3976.

Sincerely,

Signed for: 

P. Lynn Scarlett
Assistant Secretary, Policy, Management and Budget: 

[End of section]

Appendix V: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

J. Christopher Mihm, (202) 512-6806 or mihmj@gao.gov William J. 
Doherty, (202) 512-6806 or dohertyw@gao.gov: 

Acknowledgments: 

Judith Kordahl and Caroline Villanueva also made key contributions to 
this report.

(450196): 

FOOTNOTES

[1] U.S. General Accounting Office, Human Capital: Selected Agency 
Actions to Integrate Human Capital Approaches to Attain Mission 
Results, GAO-03-446 (Washington, D.C.: Apr. 11, 2003).

[2] Commercial Activities Panel, Final Report: Improving the Sourcing 
Decisions of the Government (Washington, D.C.: 2002).

[3] The National Geospatial-Intelligence Agency (NGA) was formerly 
known as the National Imagery and Mapping Agency (NIMA).

[4] We are using the construct of "tiers" of activities to discuss 
similar types of human capital activities that are not discrete 
categories, but rather groups of like activities with some degree of 
overlap among the tiers. 

[5] We use the term "core activities" throughout the report to refer to 
those areas where the human capital office can add strategic value and 
act as a strategic partner with the agency.

[6] See, for example, U.S. General Accounting Office, Information 
Technology: Leading Commercial Practices for Outsourcing of Services, 
GAO-02-214 (Washington, D.C.: Nov. 30, 2001).

[7] The CHCO Council, headed by the Director of OPM, is responsible for 
advising and coordinating agencies' efforts concerning modernization of 
their human resources systems, improvement of the quality of human 
resources information, and legislation on human resources operations 
and organizations.

[8] Lisa Gelman and David Dell, HR Outsourcing Trends (New York: The 
Conference Board: 2002). 

[9] Corporate Leadership Council, Strategic HR Outsourcing: A 
Quantitative Assessment of Outsourcing Prevalence and Effectiveness 
(Washington, D.C.: Corporate Executive Board: December 2003).

[10] Edward E. Lawler III and Susan Albers Mohrman, Creating a 
Strategic Human Resources Organization: An Assessment of Trends and New 
Directions, Center for Effective Organizations, Marshall School of 
Business, University of Southern California, Stanford University Press 
(Stanford, Calif.: 2003). 

[11] National Academy of Public Administration, Alternative Service 
Delivery: A Viable Strategy for Federal Government Human Resources 
Management (Washington, D.C.: November 1997).

[12] U.S. General Accounting Office, 2000 Census: Review of Partnership 
Program Highlights Best Practices for Future Operations, GAO-01-579 
(Washington, D.C.: Aug. 20, 2001).

[13] The e-payroll initiative is one of OPM's five e-government 
initiatives aimed at transforming the way human capital functions and 
services are carried out in the federal government.

[14] U.S. General Accounting Office, Electronic Government: Progress 
and Challenges in Implementing the Office of Personnel Management's 
Initiatives, GAO-03-1169T (Washington, D.C.: Sept. 23, 2003).

[15] U.S. General Accounting Office, Best Practices: Taking a Strategic 
Approach Could Improve DOD's Acquisition of Services, GAO-02-230 
(Washington, D.C.: Jan. 18, 2002).

[16] GAO analysis of agency data.

[17] NAPA, Alternative Service Delivery.

[18] GAO analysis of agency data.

[19] NAPA, Alternative Service Delivery.

[20] GAO analysis of agency data.

[21] Gelman and Dell, Outsourcing Trends.

[22] U.S. General Accounting Office, Competitive Sourcing: Greater 
Emphasis Needed on Increasing Efficiency and Improving Performance, 
GAO-04-367 (Washington, D.C.: Feb. 27, 2004).

[23] NAPA, Alternative Service Delivery.

[24] Commercial Activities Panel, Improving the Sourcing Decisions. 

[25] GAO-04-367.

[26] NAPA, Alternative Service Delivery.

[27] An "inherently governmental" activity is an activity that is so 
intimately related to the public interest as to mandate performance by 
government personnel.

[28] Commercial Activities Panel, Improving the Sourcing Decisions.

[29] Gelman and Dell, Outsourcing Trends.

[30] National Academy of Public Administration, Advancing the 
Management of Homeland Security, Lifting the Winner's Curse and 
Avoiding Buyer's Remorse: Lessons from HR Outsourcing Experiences 
(Washington, D.C.: June 25, 2003).

[31] GAO-02-214.

[32] GAO-02-214.

[33] NAPA, Alternative Service Delivery.

[34] U.S. General Accounting Office, Contract Management: Guidance 
Needed for Using Performance-Based Service Contracting, GAO-02-1049 
(Washington, D.C.: Sept. 23, 2002).

[35] GAO-02-214.

[36] GAO-02-214.

[37] U.S. General Accounting Office, Human Capital: A Guide for 
Assessing Strategic Training and Development Efforts in the Federal 
Government, GAO-04-546G (Washington, D.C.: March 2004). 

[38] GAO-02-214.

[39] Remarks by Kay Coles James, Director, U.S. Office of Personnel 
Management, Human Resource Outsourcing World Conference and Exposition, 
New York Hilton, July 30, 2003.

[40] Remarks by Kay Coles James, Director, U.S. Office of Personnel 
Management, Human Resource Outsourcing World Conference and Exposition, 
New York Hilton, July 30, 2003.

[41] GAO-04-367.

[42] Title XIII of Pub. L. No. 107-296, Nov. 25, 2002, Chief Human 
Capital Officers Act of 2002, codified at U.S.C. ch 14. 

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