How Much Competition Is Enough?


November 2009

How Much Competition Is Enough?


As President Obama's review of federal contracting continues, the private sector could take a hit. Though the president has cited adding competition to the procurement system as one goal of his review, some members of Congress are trying to limit the role of private enterprise in the federal government.

Two bills (H.R. 2736, S. 924) would bar agencies from awarding contracts using rules outlined by the Office of Management and Budget's Circular A-76 until a number of changes were made to A-76. Circular A-76 states that services that are not inherently governmental should be subject to competition to ensure that Americans receive maximum value for their tax dollars.

H.R. 2736 and S. 924, dubbed the CLEAN-UP Act, would require the A-76 awards process to be reworked to

  • Charge federal-employee bidders only for overhead costs;
  • Eliminate automatic recompetition of contracts won by federal employees;
  • Include the full cost of conducting a competition, including previously uncounted costs such as those for preliminary planning, consultants, and for diverting federal employees from their actual jobs to work on studies; and
  • Limit a standard study to two years, from the beginning of the preliminary planning process to the rendering of the award decision. 

The bill's Senate sponsor, Barbara Mikulski (D-MD), was also a driving force behind a provision in the FY10 National Defense Authorization Act, which would suspend current and future A-76 studies for three years, until the Administration reviews the entire process. The bill's summary refers to concerns that A-76 studies are too resource-intensive and take too long, putting unfair strain on federal employees whose jobs are being competed, and it stipulates that A-76 studies should be completed in a maximum of 18 months. The summary also claims, "Public-private initiatives have not been proven to save the taxpayer money." The defense authorization bill has passed both chambers of Congress and will head into conference, where the House and Senate will work to reconcile an amendment before passing a final bill to the president for signature.

While both of these bills seek to cut government spending by eliminating poorly performing contractors—a worthwhile reform—eliminating private competition altogether may, ironically, increase government spending. Currently, federal employees bidding against the private sector have won 83% of competitions. The savings, however, come from federal employees' having to compete with the private sector for those contracts. Eliminating competition—or allowing federal employees to continue contracts for an indefinite period of time without automatic recompetition—could weaken performance incentive, leaving the government with the same problem it is trying to solve.

The philosophy that competition is essential to getting the best value for taxpayers is central to the Freedom from Government Competition Act (H.R. 2682, S.1167), which would require federal agencies to compete with the private sector for readily-available goods and services. The bill would codify the "Yellow Pages" test, meaning any goods or services that could be found in the Yellow Pages should be subject to market competition (barring those goods and services that are "inherently governmental"). As proof of the bill's necessity, the bill's sponsors, Senator John Thune (R-SD) and Rep. Jimmy Duncan (R-TN), point to the 1998 Federal Activities Inventory Reform Act, which required every federal agency to inventory activities performed by federal employees and differentiate those that were commercial in nature from those that were inherently governmental.

The Clinton Administration identified more than 850,000 federal employee positions that were deemed commercial out of a total non-uniformed, non-postal federal workforce of 1.7 million. Since 1998, however, less than 10 percent of those 850,000 positions have been reviewed.

Interestingly, at a time when much of the federal government is looking inward, many states are turning to outsourcing to cut costs. Last year, Pennsylvania Governor Ed Rendell accepted a $12.8 billion bid to lease the Pennsylvania Turnpike, the largest toll-road privatization deal in U.S. history. The privatization prize, however, goes to Chicago Mayor Richard Daley, who has leased the Skyway toll road and four downtown parking garages in the past and recently has solicited bids for Midway Airport, the downtown parking meter system, and recycling facilities.