OMB: Competitive sourcing spends $1 to save $20

Every dollar spent on competitive sourcing during fiscal 2004 will produce $20 in savings during the next five years, according to an Office of Management and Budget report released today.

Competitive sourcing, a controversial part of the President's Management Agenda, encourages agency officials to cut costs by competing federal jobs deemed not to be inherently governmental with private-sector bids for the same work. Information technology functions were the second most competed sector of jobs subject to competitive-sourcing studies in fiscal 2004.

Competition with the private sector is a spur to improve efficiency, the report states. An analysis of the data shows that competitions involving two or more private-sector bidders generated about $10,000 more in savings per full-time equivalent studied than competitions with only one or no private-sector bidders, it states.

Agencies conducted 217 competitions, involving 12,573 full-time equivalents, in the last fiscal year, generating savings of $1.4 billion during the next five years, the report states.

But those numbers were disputed by the American Federation of Government Employees, a union representing 600,000 federal workers.

“OMB has historically underestimated the costs of conducting privatization reviews,” said John Threlkeld, AFGE’s Capitol Hill lobbyist. For example, a study at the Commerce Department’s National Logistics Support Center cost more than $40,000 per employee reviewed, Threlkeld said.

“If only OMB devoted as much time to ensuring agencies accurately track the costs of conducting privatization reviews as it does trumpeting wholly projected and completely unverified savings estimates,” he added.

Fears that competitive sourcing undermines the federal workforce are refuted by the fact that 91 percent of all competitions in fiscal 2004 were won by the in-house bidding team, the report states.

But evening out the win rate is on OMB’s agenda for the coming months. David Safavian, administrator of the Office of Federal Procurement Policy, told an audience in late April that the largest challenge to competitive sourcing “is to make sure that the private sector maintains an interest in this process. With the 91 percent in-house win rate, it is sometimes difficult to get the outside [vendors] to come to the table and compete."

The full report had not yet been posted on OMB's Web site.

About the Author

David Perera is a special contributor to Defense Systems.

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