# Performance of Inherently Governmental and Critical Functions: The Obama Administration’s Final Policy Letter

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URL: https://www.frixlaw.com/law-library/documents/crs%3AR42039

## Record

- **Collection:** Congressional research report
- **Document type:** CRS Report
- **Published:** October 5, 2011
- **Citation:** R42039

## Text

Performance of Inherently Governmental and
Critical Functions: The Obama
Administration’s Final Policy Letter
name redacted
Legislative Attorney
name redacted
Specialist in American National Government
name redacted
Legislative Attorney
October 5, 2011

Congressional Research Service
7-....
www.crs.gov
R42039

CRS Report for Congress
Prepared for Members and Committees of Congress

Performance of Inherently Governmental and Critical Functions

Summary
On September 12, 2011, the Office of Federal Procurement Policy (OFPP) within the Office of
Management and Budget (OMB) issued its final policy letter on Performance of Inherently
Governmental and Critical Functions. The policy letter is to guide executive branch agencies in
(1) identifying inherently governmental and critical functions; (2) ensuring that only federal
employees perform inherently governmental functions or work that “otherwise needs to be
reserved to the public sector;” and (3) managing functions that are closely associated with
inherently governmental functions and critical functions. The policy letter defines an “inherently
governmental function,” in accordance with the Federal Activities Inventory Reform (FAIR) Act
(P.L. 105-270), as “one that is so intimately related to the public interest as to require
performance by Federal Government employees.” It also defines a critical function as one “that is
necessary to the agency being able to effectively perform and maintain control of its mission and
operations.” The policy letter does not define functions closely associated with inherently
governmental functions, but lists examples of such functions in an Appendix.
The policy letter was issued, in part, in response to Section 321 of the Duncan Hunter National
Defense Authorization Act for FY2009 (P.L. 110-417), which tasked OMB with reviewing
existing definitions of “inherently governmental function” and developing a “single consistent
definition” of this term which would address any deficiencies in existing definitions. President
Obama’s memorandum of March 4, 2009, on government contracting similarly charged OMB
with clarifying when it is “appropriate” to contract out work. OFPP issued a proposed policy
letter in response to these requirements on March 31, 2010. However, the proposed policy letter
differed from the final one in focusing on “work reserved for performance by federal government
employees” and in other ways.
Beyond defining “inherently governmental function” and “critical function,” the final policy letter
articulates that it is the “policy of the Executive Branch to ensure that government action is taken
as a result of informed, independent judgments made by government officials.” In support of this
policy, the letter directs agencies to (1) ensure that work which should be performed by federal
employees is properly reserved for government performance; (2) take steps to employ and train
an adequate number of government personnel to administer contracts when work is contracted
out; and (3) as part of strategic human capital planning, dedicate a sufficient amount of work to
performance by federal employees in order to build competencies, provide for continuity of
operations, and retain institutional knowledge of operations. The policy letter establishes two tests
for identifying inherently governmental functions, the “nature of the function” test and the
“exercise of discretion” test, as well as lists examples of inherently governmental functions.
These include certain security functions, but not routine building security. The policy letter also
directs that, when agencies review outsourced work for potential insourcing, they should place a
lower priority on reviewing certain work performed by small businesses, as well as give small
businesses preference when determining who performs work that will remain in the private sector
after related functions are insourced.
Congressional interest in inherently governmental functions may persist notwithstanding the
issuance of the final policy letter. The Commission on Wartime Contracting included
recommendations based on perceived deficiencies in existing guidance on inherently
governmental functions in its final report to Congress, and several Members of the 112th Congress
have introduced legislation regarding inherently governmental functions (e.g., H.R. 1474; H.R.
1540; H.R. 1949; H.R. 2017; S. 709; S. 785; S. 991; S. 1253; S. 1254; S. 1546; S. 1573).

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Contents
Introduction...................................................................................................................................... 1
Final Policy Letter ........................................................................................................................... 2
Inherently Governmental Functions .......................................................................................... 3
Functions Closely Associated with the Performance of Inherently Governmental
Functions ................................................................................................................................ 4
Critical Functions ...................................................................................................................... 5
Notable Differences Between the Proposed and Final Policy Letters ............................................. 5
Proposed Changes to Existing Law and Policy on Inherently Governmental and Critical
Functions ...................................................................................................................................... 9
Issues for Congress ........................................................................................................................ 13
Implementation of the Policy Letter........................................................................................ 15
Identifying Inherently Governmental and Other Functions .............................................. 15
Resources .......................................................................................................................... 18
Outcomes and Data ........................................................................................................... 19
Relationship Between the Policy Letter and Proposed Legislation......................................... 22

Tables
Table 1. Primary Definitions and Discussions of Inherently Governmental Functions in
Federal Law and Policy Prior to OFPP Policy Letter 11-01 ....................................................... 11
Table A-1. Tabular Comparison of the Lists of Inherently Governmental Functions in the
Proposed and Final Policy Letters .............................................................................................. 24
Table A-2. Tabular Comparison of the Lists of Functions Closely Associated with
Inherently Governmental Functions in the Proposed and Final Policy Letters .......................... 26

Appendixes
Appendix. Inherently Governmental Functions and Functions Closely Associated with
Inherently Governmental Functions ........................................................................................... 24

Contacts
Author Contact Information........................................................................................................... 28

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Introduction
On September 12, 2011, the Office of Federal Procurement Policy (OFPP) within the Office of
Management and Budget (OMB) issued its final policy letter on the Performance of Inherently
Governmental and Critical Functions (“Policy Letter 11-01” or “final policy letter”).1 Scheduled
to take effect on October 12, 2011, the policy letter represents the Obama Administration’s
guidance for executive branch agencies on (1) identifying inherently governmental and critical
functions; (2) ensuring that only federal employees perform inherently governmental functions or
work that “otherwise needs to be reserved to the public sector;” and (3) managing functions that
are closely associated with inherently governmental functions and critical functions. The policy
letter was issued, in part, under the authority of the Duncan Hunter National Defense
Authorization Act for FY2009 (NDAA'09) and President Obama’s memorandum of March 4,
2009, on government contracting.2 Section 321 of NDAA'09 tasked OMB with (1) reviewing
existing definitions of “inherently governmental function” to determine whether such definitions
are “sufficiently focused” to ensure that only government personnel perform inherently
governmental functions or “other critical functions necessary for the mission of a Federal
department or agency;” (2) developing a “single consistent definition” of “inherently
governmental function” that would address any deficiencies in the existing definitions, reasonably
apply to all agencies, and ensure that agency personnel can identify positions that perform
inherently governmental functions; (3) developing criteria for identifying “critical functions” that
should be performed by government personnel; and (4) developing criteria for identifying
positions that government personnel should perform in order to ensure that agencies develop and
maintain “sufficient organic expertise and technical capacity” to perform their missions and
oversee contractors’ work.3 President Obama’s March 4, 2009, memorandum similarly charged
OMB with clarifying when outsourcing is “appropriate.”4
OFPP issued a proposed policy letter in response to these requirements on March 31, 2010.5
However, the proposed policy letter differed from the final one in focusing on “work reserved for
performance by federal government employees” and in other ways discussed below. This report
supersedes an earlier report analyzing the proposed policy letter, CRS Report R41209, Inherently

1

Office of Management and Budget, Office of Federal Procurement Policy, Publication of the Office of Federal
Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76
Fed. Reg. 56227 (Sept. 12, 2011).
2
Id. at 56236. The policy letter also cites as authority for its issuance Section 6(a) of the Office of Federal Procurement
Policy Act, which authorizes the Administrator of OFPP to “provide overall direction of procurement policy and
leadership in the development of procurement systems of the executive agencies.” See 41 U.S.C. §1121(a).
3
P.L. 110-417, §321(a)(1)-(4), 122 Stat. 4411 (Oct. 14, 2008).
4
The White House, Office of the Press Secretary, Government Contracting, Mar. 4, 2009, available at
http://www.whitehouse.gov/the_press_office/Memorandum-for-the-Heads-of-Executive-Departments-and-AgenciesSubject-Government. This memorandum specifically noted that “the line between inherently governmental activities
that should not be outsourced and commercial activities that may be subject to private sector competition has been
blurred and inadequately defined. As a result, contractors may be performing inherently governmental functions.
Agencies and departments must operate under clear rules prescribing when outsourcing is and is not appropriate.” Id.
5
See Office of Management and Budget, Office of Federal Procurement Policy, Work Reserved for Performance by
Federal Government Employees, 75 Fed. Reg. 16188 (Mar. 31, 2010). OFPP published a correction to the proposed
policy letter on April 19, 2010. See 75 Fed. Reg. 20397. However, the correction pertained only to the methods for
submitting comments on the proposed policy letter.

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Governmental Functions and Other Work Reserved for Performance by Federal Government
Employees: The Obama Administration’s Proposed Policy Letter, by (name redacted) et al.
Congressional interest in inherently governmental functions may persist notwithstanding the
issuance of the final policy letter. The Commission on Wartime Contracting included
recommendations based on perceived deficiencies in existing guidance on inherently
governmental functions in its final report to Congress,6 and several Members of the 112th
Congress have introduced legislation regarding inherently governmental functions (e.g., H.R.
1474; H.R. 1540; H.R. 1949; H.R. 2017; S. 709; S. 785; S. 991; S. 1253; S. 1254; S. 1546; S.
1573).

Final Policy Letter
The final policy letter articulates that it is the “policy of the Executive Branch to ensure that
government action is taken as a result of informed, independent judgments made by government
officials.”7 In support of this policy, the letter directs agencies to do three things. First, they must
ensure that work that should be performed by federal employees is properly reserved for
government performance. As discussed below, agency responsibilities under this requirement
depend on whether the work involves an inherently governmental function, a function closely
associated with an inherently governmental function, or a critical function. Second, agencies are
directed to take steps to employ and train an adequate number of government personnel to
administer contracts when work is contracted out, particularly when contractors engage in
functions that are critical or closely associated with an inherently governmental function. Third,
agencies are required, as part of strategic human capital planning, to dedicate a sufficient amount
of work to performance by federal employees in order to build competencies, provide for
continuity of operations, and retain institutional knowledge of operations.
The policy letter also directs agencies, when reviewing outsourced work for potential insourcing,
to place a lower priority on reviewing work performed by small businesses that is not inherently
governmental, particularly if the agency has not met its small business goals.8 Agencies are also
directed to give small businesses preference when determining who performs the private-sector
work that remains after related activities are insourced. Specifically, the letter tells agencies to use
the “rule of two”—which generally requires that a contract be “set aside” for small businesses if
at least two small businesses are capable of performing it at a fair market price9—when deciding
whether small or “large” businesses should perform the remaining private-sector work.10
6

See Commission on Wartime Contracting in Iraq and Afghanistan, Transforming Wartime Contracting: Controlling
Costs, Reducing Risks, Aug. 2011, at 38-63, available at http://www.wartimecontracting.gov/docs/CWC_FinalReportlowres.pdf. Among other things, the Commission found that the existing “inherently governmental standard is
insufficient, offering little or no guidance for deciding whether contracting for non-governmental functions is
appropriate or prudent in contingency operations.” Id. at 39. While the final policy letter apparently addresses the
Commission’s concern that agencies not deem all functions that are not inherently governmental suitable for
contracting out, it arguably does not address other concerns of the Commission, such as “ad hoc legislated
interventions,” decreeing particular functions to be inherently governmental, or inconsistent determinations by
individual agencies as to whether particular functions are inherently governmental. See id. at 41-42, 46.
7
76 Fed. Reg. at 56236.
8
See id. at 56239.
9
See 48 C.F.R. Subpart 9.5.
10
76 Fed. Reg. at 56239-40.

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The policy letter also imposes other requirements on federal agencies, including (1) implementing
procedures to comply with the letter’s requirements and reviewing those procedures at least once
every two years; (2) ensuring employees have regular training to understand their responsibilities;
(3) conducting periodic reviews of internal management controls; and (4) designating at least one
senior official as accountable for agency compliance with the letter.11

Inherently Governmental Functions
As part of the requirement that certain work be reserved for federal employees, the policy letter
directs agencies to ensure that contractors do not perform inherently governmental functions.12
The letter defines an “inherently governmental function,” in accordance with the Federal
Activities Inventory Reform (FAIR) Act (P.L. 105-270),13 as “one that is so intimately related to
the public interest as to require performance by Federal Government employees.”14 It goes on to
explain that the term includes those functions requiring “the exercise of discretion in applying
Federal Government authority or the making of value judgments in making decisions for the
Federal Government, including judgments relating to monetary transactions and entitlements.”15
The policy letter establishes two tests for identifying inherently governmental functions.16 Under
the “nature of the function” test, functions involving the exercise of U.S. sovereign power are
inherently governmental due to their “uniquely governmental nature” and regardless of any “type
or level of discretion associated with them.”17 Under the “exercise of discretion” test, agencies
may not contract out functions involving an exercise of discretion that would
commit[] the government to a course of action where two or more alternative courses of
action exist and decision making is not already limited or guided by existing policies,
procedures, directions, orders, and other guidance that: (I) identify specified ranges of
acceptable decisions or conduct concerning the overall policy or direction of the action; and
(II) subject the discretionary authority to final approval or regular oversight by agency
officials.18

The policy letter also provides broad examples of the types of functions included in the definition
of inherently governmental function, such as the interpretation and execution of federal law so as
to bind the government to take or not take action; advancing U.S. interests through various
means; and controlling federal employees or the acquisition and use of U.S. property.19
11

See id. at 56240.
Id. at 56236.
13
31 U.S.C. §501 note, at §5(2)(A).
14
76 Fed. Reg. at 56236. Using the FAIR Act definition is arguably in keeping with Section 321 of the Duncan Hunter
National Defense Authorization Act for FY2009 (P.L. 110-417), which tasked OMB with developing a “single
consistent definition” of “inherently governmental function.” See supra note 3 and accompanying text.
15
76 Fed. Reg. at 56236.
16
The proposed policy letter solicited comments on a potential third test, the “principal-agent test,” which would have
required agencies to identify functions as inherently governmental “where serious risks could be created by the
performance of these functions by those outside the government, because of the difficulty of ensuring sufficient control
over such performance.” 75 Fed. Reg. at 16192. However, OFPP ultimately decided not to include this test in the final
policy letter. See 76 Fed. Reg. at 56231 (noting that OFPP instead “made refinements” to the other tests).
17
76 Fed. Reg. at 56237.
18
Id.
19
See id.
12

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Additionally, the letter’s Appendix A lists specific examples of inherently governmental functions
(see Table A-1).20 The letter also explains that the definition would not typically include
gathering information for or providing advice to government officials, or “ministerial functions”
(e.g., building security, operation of cafeterias, housekeeping).
The policy letter requires that agencies take certain steps to ensure they do not contract out
inherently governmental functions.21 Before issuing a solicitation, agencies are required to
determine that none of the requirements are (1) designated as inherently governmental in statute,
(2) listed among the functions included in Appendix A, or (3) qualify as such under either of the
two tests described above. Agencies also must establish that the contractor’s role would not
unduly limit the agency’s ability to consider options or alternative courses of action.
Ongoing agency responsibilities include reviewing contractor performance and agency contract
management.22 If agencies find that contractors are performing inherently governmental
functions, they are instructed to reestablish control over these responsibilities by strengthening
oversight, insourcing the work through the timely development and execution of hiring plans,
refraining from exercising options under the contract,23 or terminating all or part of the contract.24

Functions Closely Associated with the Performance of Inherently
Governmental Functions
As part of the directive that certain work be reserved for federal employees, the policy letter
reiterates existing statutory requirements that agencies give “special consideration” to using
government personnel to perform functions closely associated with the performance of inherently
governmental functions.25 The letter also directs agencies to take care that contractors engaging in
such functions do not cross the line into performing inherently governmental functions.26 The
policy letter does not define functions closely associated with inherently governmental functions,
but lists examples in its Appendix B (see Table A-2).27
Under the policy letter, any agency contracting out a function closely associated with the
performance of an inherently governmental function must determine in writing before issuing a
solicitation that it (1) has given special consideration to having federal employees perform the
work; (2) has the resources to give “special management attention” to the contractor’s
performance and related issues; and (3) will comply with the agency responsibilities laid out in
20

See id. at 56240-41.
See id. at 56238-39.
22
Id. at 56239.
23
An option is a unilateral right in a contract under which the government may, for a specific period, purchase
additional supplies or services or otherwise extend the contract. Federal contracts are generally for one year but can
potentially be extended to five years through agencies’ use of options. 48 C.F.R. §17.204(e). It is always within the
government’s power to decline to exercise an option.
24
See 76 Fed. Reg. at 56239. Such a termination would generally be a termination for convenience, requiring the
government to pay the contractor an agreed-upon amount or, in the absence of such an agreement, (1) the costs incurred
in performing the terminated work, (2) the costs of settling and paying settlement proposals under terminated
subcontracts, and (3) a fair and reasonable profit on work performed. See 48 C.F.R. §49.103.
25
76 Fed. Reg. at 56236, 56238.
26
See id.
27
See id. at 56241.
21

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the policy letter’s Appendix C.28 Appendix C requires agencies do such things as (1) take steps to
“limit or guide” contractors’ exercise of discretion; (2) assign a sufficient number of qualified
government personnel to monitor contractors’ activities; (3) ensure contractors and their work
product are reasonably identified when there is a risk that their personnel or work might be
confused with those of the government; and (4) take steps to avoid or mitigate contractor conflicts
of interest.29

Critical Functions
The policy letter requires that agencies ensure “federal employees perform and/or mange critical
functions to the extent necessary for the agency to operate effectively and maintain control of its
mission and operations.”30 The policy letter defines a critical function as one “necessary to the
agency being able to effectively perform and maintain control of its mission and operations.”31 As
noted in the letter, the functions deemed to be critical will differ among agencies, as well as
within each agency over time.32
Critical functions that are not inherently governmental may be performed by contractors provided
the agency determines in writing, prior to issuing a solicitation, that it has “sufficient internal
capability” (e.g., adequate number of trained employees) so that federal employees maintain
control of missions and operations.33 The agency must also ensure it is cost effective to use
private-sector contractors.34 Additionally, the letter requires that agencies monitor post-award
performance of contracts involving critical functions and take steps to insource these functions
(e.g., developing hiring plans, securing funding for in-house capacity) when internal control of
mission and operations is at risk due to overreliance on contractors.35

Notable Differences Between the Proposed and
Final Policy Letters
The final policy letter differs from the proposed one in several notable ways. Key among these is
its title. While the proposed policy letter was titled “Work Reserved for Performance by Federal
Government Employees,”36 the title of the final letter has been changed to “Performance of
Inherently Governmental and Critical Functions” in order to “more accurately capture its scope
and purpose.”37 OMB made this change, in part, because some commentators asserted that the
proposed policy letter could be construed as concerned “only about ensuring that work is properly
reserved for Federal employees,” as opposed to striking “the right balance between work that may
28

See id. at 56239, 56241-42.
See id. at 56241-42.
30
Id. at 56236.
31
Id.
32
See id. at 56238.
33
Id. at 56238-39.
34
See id.
35
See id. at 56239.
36
75 Fed. Reg. at 16188.
37
76 Fed. Reg. at 56229.
29

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be contracted out and work that must be reserved.”38 As amended, the title of the policy letter
would appear to signal more clearly that its guidance is intended to assist agencies in better
managing their workforce mix in all phases of the contracting process, from requirements
definition through contract administration, not just in determining whether particular functions
must or should be performed in-house.39 In fact, the policy letter arguably can be seen as
supplementing earlier guidance from the Administration about “Managing the Multi-Sector
Workforce,” which is cited in both the preface to and the text of the policy letter.40 Like the policy
letter, this earlier guidance recognized the “vital expertise” that contractors can provide to the
government, while also noting that “overreliance on contractors can lead to erosion of the inhouse capacity that is essential to effective government performance.”41 The earlier guidance also
directed agencies to consider whether particular functions are inherently governmental, critical, or
“essential” in determining whether contractors may or should perform them.42 While this
guidance is arguably broadly consistent with that of the proposed and final policy letters, OMB
did not include the category of “essential” functions in either the proposed or final policy letters.43
The final policy letter also includes in its illustrative list of inherently governmental functions (1)
all combat; (2) security operations in certain situations connected with combat or potential
combat; (3) determinations of the reasonableness of an offeror’s price; (4) final determinations
about a contractor’s performance (including approving award fee determinations and past
performance evaluations);44 and (5) selection of grant and cooperative agreement recipients.45 The
proposed policy letter did not list these specific functions, although it did list functions that could
have been construed as encompassing the additional functions listed in the final policy letter.46
(See Table A-1.) The inclusion of certain security functions, in particular, is arguably significant
because it could limit agencies’ existing discretion to contract out these functions,47 which has
38

Id. at 56230.
For example, as discussed above, the final policy letter identifies specific management responsibilities that agencies
should undertake pre- and post-award to ensure that contractors do not perform functions that may not or should not be
contracted out. Id. at 56238-39. In addition, as is also discussed above, it expressly addresses the role that strategic
human capital planning should play in determining whether government employees perform particular functions. Id. at
56237.
40
See id. at 56235, 56238.
41
Executive Office of the President, Office of Management and Budget, Managing the Multi-Sector Workforce:
Memorandum for the Heads of Departments and Agencies, July 29, 2009, at 1, available at
http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdf.
42
Id., at Attachment 1, pg. 2.
43
Certain proposed legislation introduced in the 112th Congress would, however, retain a category of “mission essential
functions.” See Correction of Long-Standing Errors in Agencies’ Unsustainable Procurements (CLEAN-UP) Act, H.R.
1949, §2(3) (“The term ‘mission-essential functions’ refers to functions that, although neither necessarily inherently
governmental nor necessarily closely related to an inherently governmental function, are nevertheless considered by
executive agency officials to be more appropriate for performance by Federal employees.”); S. 991, §2(3) (same).
44
Agencies are generally required to evaluate and document contractors’ performance on all contracts whose value
exceeds $150,000. See generally CRS Report R41562, Evaluating the “Past Performance” of Federal Contractors:
Legal Requirements and Issues, by (name redacted).
45
76 Fed. Reg. at 56229.
46
For example, the proposed policy letter’s categories of “awarding contracts” and “administering contracts” could
have been broadly construed to include determining the reasonableness of an offeror’s price and making final
determinations about a contractor’s performance.
47
See infra note 87 and accompanying text. The proposed policy letter had noted that physical security involving guard
services and “the use of deadly force, including combat, security operations performed in direct support of combat, and
security that could evolve into combat” are difficult to “properly classify,” and it invited comments on “[w]hat specific
steps should be taken to address this challenge” and “[w]hat should guidance say—in place of, or in addition to, the
(continued...)
39

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been of significant concern to some Members of Congress and commentators.48 The final policy
letter similarly includes in its illustrative list of functions closely associated with inherently
governmental functions certain acquisition-related functions that were not explicitly addressed in
the proposed policy letter (e.g., conducting market research, developing inputs for independent
government cost estimates), although such functions were arguably encompassed within other
functions listed by the proposed policy letter (e.g., services in support of acquisition planning,
assistance in contract management).49 (See Table A-2.) Relatedly, the final policy letter would
establish a comprehensive checklist of activities that agencies should undertake whenever they
determine that contractor performance of a function closely associated with an inherently
governmental function is appropriate.50 The proposed policy letter did not include such a
checklist, although actions included in the final policy letter’s checklist generally were also
included in the proposed policy letter’s discussion of contracting out functions closely associated
with inherently governmental functions.51
In addition, the final policy letter differs from the proposed policy letter in that it distinguishes
between “functions” and “activities” and cautions that, “in many cases, functions include multiple
activities that may be of a different nature.”52 Some commentators had criticized the proposed
policy letter on the grounds that it used the terms “function,” “position,” and “activity”
inconsistently and without defining them.53 In responding to this concern, when drafting the final
policy letter, OFPP arguably made clear that agencies’ primary focus in determining whether
particular work must or should be performed by government personnel is at the activity level.54
Such a focus could result in agencies’ disaggregating current functions and/or positions to ensure
that the specific activities comprising them are performed by the appropriate persons.55 Similarly,
the final policy letter also departs from the proposed policy letter by explicitly noting that
(...continued)
draft guidance or currently existing federal regulations and policies—to address the use (if any) of contractors
performing any [such] functions.” 75 Fed. Reg. at 16192.
48
See, e.g., P.L. 110-417, §831, 122 Stat. 4534 (expressing the sense of Congress that “security operations for the
protection of resources (including people, information, equipment, and supplies) in uncontrolled or unpredictable highthreat environments should ordinarily be performed by members of the Armed Forces if they will be performed in
highly hazardous public areas where the risks are uncertain and could reasonably be expected to require deadly force,”
and requiring that regulations to be issued under Section 862(a) of the National Defense Authorization Act for FY2008
ensure that private security contractors are not authorized to perform inherently governmental functions in areas of
combat operations); Laura D. Francis, Speakers, Members Debate Whether Federalizing FPS Workforce Will Solve
Persistent Problems, 93 Fed. Cont. Rep. 302 (April 20, 2010).
49
75 Fed. Reg. at 16197.
50
76 Fed. Reg. at 56241-42.
51
See 75 Fed. Reg. at 16195.
52
76 Fed. Reg. at 56229.
53
See, e.g., Task Force of the American Bar Association Public Contract Law Section, Privatization, Outsoucing and
Financing Transactions and Battlespace Committees, Work Reserved for Performance by Federal Government
Employees: OFPP Policy Letter Dated March 31, 2010: Issues and Challenges, June 16, 2010, at 4-5, available at
http://www.americanbar.org/content/dam/aba/migrated/contract/wp061610.authcheckdam.pdf.
54
76 Fed. Reg. at 56229.
55
The preface to the final policy letter includes a chart which shows how four functions—budget development, policy
and regulatory development, human resources management, and acquisition planning, execution and management—
could be broken down into activities that must be performed by federal employees because they are inherently
governmental and other functions. Id. at 56234. It also notes that “analyzing work from the perspective of the number
of positions required to perform an activity enables an agency to differentiate those tasks that may require rebalancing
from those that do not.” Id.

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agencies’ focus in determining whether particular functions are “critical” is upon their mission
and operations, which means that the functions identified as critical could differ between agencies
and over time.56 Some commentators had previously noted that this could be the result of agency
determinations as to critical or “mission essential functions,”57 but the proposed policy letter did
not directly address the issue. In addition, the final policy letter reorganizes and consolidates
certain guidance as to the management of inherently governmental and other functions that was
included in the proposed policy letter, but presented more diffusely.58 OMB’s reported goal here
is to “more clearly recognize that oversight of these functions [is] interrelated and should not be
stovepiped.”59
Finally, Policy Letter 11-01 directs agencies to give certain preferences to small businesses when
insourcing particular functions.60 Small businesses were reportedly significantly affected by the
Department of Defense’s insourcing initiatives in 2009-2010,61 and the Obama Administration’s
Interagency Taskforce on Federal Contracting Opportunities for Small Business recommended
that the “relationship between policies that address the rebalancing of agencies’ relationship with
contractors and small business contracting policies” be clarified.62 The final policy letter responds
to this concern, which was not addressed in the proposed policy letter, by directing agencies,
when prioritizing what outsourced work should be reviewed for potential insourcing, to
place a lower priority on reviewing work performed by small businesses when the work is
not inherently governmental and where continued contractor performance does not put the
agency at risk of losing control of its mission or operations, especially if the agency has not

56

Id. at 56229.
See, e.g., CRS Report R40641, Inherently Governmental Functions and Department of Defense Operations:
Background, Issues, and Options for Congress, by (name redacted), (name redacted), and (name redacted) at 2930 (“[T]ying functions more closely to agency operations than to the public interest could result in situations where a
function is categorized differently by different agencies. For example, translators would not necessarily be mission
essential for the Interior Department, although they might be for the State Department. Similarly, translators could be
essential for some DOD missions, but not for others.”). See also Conner Bros. Constr. Co. v. Geren, 550 F.3d 1368,
1377 (Fed. Cir. 2008) (noting that military officials characterized operation of the dining facilities and custodial
services—functions typically performed by contractors—as “mission essential” when troops were restricted to base
while preparing to deploy). The category of “mission essential functions” is not included in the policy letter, but
appears in certain legislation proposed in the 112th Congress. See infra note 127 and accompanying text.
58
76 Fed. Reg. at 56229.
59
Id.
60
Id.
61
See, e.g., Matthew Weigelt, Defense Officials Hone Their Insourcing Strategy, Wash. Tech., Feb. 3, 2010, available
at http://washingtontechnology.com/blogs/acquisitive-mind/2010/02/dod-insourcing-initiative.aspx (describing one
small business that lost 20% of its workforce to the government as a result of insourcing); U.S. Chamber of Commerce
et al., Letter to the President, Aug. 19, 2010, available at http://www.techamerica.org/content/wp-content/uploads/
2010/08/Coalition_Letter_President_Obama-Insourcing_Moratorium_8-19-2010.pdf (urging the Administration to
“issue a revision to [its] insourcing agenda calling for an immediate moratorium on all insourcing efforts throughout
the Federal government” due to the effects of insourcing on small businesses). For more on DOD’s insourcing
initiatives, see Matthew Weigelt, Army Vows to Cut 7,000 Contractor Jobs This Year, Wash. Tech., Feb. 23, 2010,
available at http://washingtontechnology.com/articles/2010/02/23/army-insourcing-core-governmental-functions.aspx
(reporting that the Secretary of the Army testified in February 2010 that the Army intended to insource 7,162 positions
in FY2010 and 11,084 positions in FY2011 through FY2015).
62
Report of the Interagency Task Force on Federal Contracting Opportunities for Small Business, at 7 (Sept. 23, 2010),
available at http://www.sba.gov/idc/groups/public/documents/sba_homepage/contracting_task_force_report.pdf.
57

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recently met, or currently is having difficulty meeting, its small business goals, including any
of its socioeconomic goals.63

In addition, the final policy letter directs agencies that are insourcing part of a contracted function
that is currently being performed by small and “large” businesses to apply the “rule of two” in
determining whether small or other businesses perform the contracted work that remains in the
private sector.64 The “rule of two” generally requires that acquisitions be set aside for
competitions in which only small businesses may compete when two or more responsible small
businesses are capable of performing the work at fair market price.65 The letter also instructs
agencies to consider whether work that is currently not being performed by small businesses and
is reduced as part of insourcing should be totally or partially set aside for small businesses.66 Use
of the rule of two in the latter context (i.e., in determining who should perform particular work) is
standard practice for executive branch agencies.67 However, it is less clear whether and how
agencies might apply the rule of two in determining whether to terminate existing contracts or
deciding which of several incumbent contractors should continue performing any work that
continues to be outsourced when certain functions are insourced.

Proposed Changes to Existing Law and Policy on
Inherently Governmental and Critical Functions
The preface to Policy Letter 11-01 proposes—but does not itself make—certain changes to
regulations and other policy documents that could bring greater uniformity to existing guidance
on inherently governmental and related functions.68 In the preface, OMB indicates that it is
adopting the definition of “inherently governmental function” given in the Federal Activities
Inventory Reform (FAIR) Act for purposes of the policy letter, and that the “definition provided
by th[e] policy letter will replace existing definitions in regulation and policy, including the
63

76 Fed. Reg. at 56239.
Id.
65
See 48 C.F.R. §19.502-2(b)(1)-(2).
66
76 Fed. Reg. at 56240. An acquisition is totally set aside for small businesses when only they are eligible to compete.
When a total set-aside is not appropriate, a procurement generally can be partially set aside for small businesses if (1)
the requirement is severable into two or more economic production runs or reasonable lots; (2) the contracting officer
reasonably expects one or more small businesses have the technical competence and productive capacity to satisfy the
set-aside portion of the requirement at a fair market price; and (3) the acquisition is not subject to simplified acquisition
procedures. 48 C.F.R. §19.502-3(a)(1)-(4).
67
See generally CRS Report R41945, Small Business Set-Aside Programs: An Overview and Recent Developments in
the Law, by (name redacted) and (name redacted).
68
Policy Letter 11-01 itself does not purport to have the force and effect of law, although it could potentially be found
to do so if OFPP intended to be bound or has employed the guidelines in a manner such that they are binding as a
practical matter. See, e.g., United States v. Alameda Gateway Ltd., 213 F.3d 1161, 1168 (9th Cir. 2000); Chiron Corp.
v. Nat’l Transp. Safety Bd., 198 F.3d 935, 943-44 (D.C. Cir. 1999); Troy Corp. v. Browner, 120 F.3d 277, 287 (D.C.
Cir. 1997); Am. Portland Cement Alliance v. Envt’l Prot. Agency, 101 F.3d 772, 776 (D.C. Cir. 1996). OMB Circular
A-76, discussed below, has also generally been found to lack the force and effect of law. See, e.g., U.S. Dep’t of Health
& Human Servs. v. Fed. Labor Relations Auth. (FLRA), 844 F.2d 1087 (4th Cir. 1988); Defense Language Inst. v.
FRLA, 767 F.2d 1398 (9th Cir. 1985). However, some federal courts of appeals have found that particular versions of
OMB Circular A-76 have meet certain conditions necessary for the Circular to have the force and effect of law. See
Labat-Anderson, Inc. v. United States, 65 Fed. Cl. 570, 578 (2005) (finding that the 2003 version of OMB Circular A76 was issued pursuant to a grant of statutory authority); Diebold v. United States, 947 F.2d 787, 800 (6th Cir. 1991)
(reaching the same conclusion about the 1983 version of OMB Circular A-76).
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Federal Acquisition Regulation (FAR).”69 The reference to “existing definitions in … policy”
would appear to be a reference to OMB Circular A-76, which articulates the “longstanding policy
of the federal government ... to rely on the private sector for needed commercial services” and
establishes procedures for agencies to use in determining whether their commercial activities
should be performed under contracts with the private sector or in-house by agency personnel.70
By adopting the FAIR Act’s definition of “inherently governmental functions” and then
modifying the FAR and/or OMB Circular A-76 to incorporate this definition, Policy Letter 11-01
arguably would help standardize the various definitions and descriptions of inherently
governmental functions currently given in federal law and policy. While the differences between
the FAIR Act, the FAR, and OMB Circular A-76 at present are arguably slight, as Table 1
illustrates, some have suggested that these differences nonetheless make it more difficult for
agencies to make appropriate decisions about whether federal employees or contractors may or
should perform particular functions.71 However, the final policy letter does not directly address
other provisions of law giving alternate definitions of “inherently governmental function” or
designating particular functions as inherently governmental or commercial. There are several
such provisions, including two statutory definitions of “inherently governmental function”
outside the FAIR Act72 and numerous statutory declarations that specific functions are inherently
governmental or commercial.73 Some commentators, including the Commission on Wartime
Contracting in its final report, have identified the existence of the latter type of provisions as an
impediment to “produc[ing] predictable and consistent results on the legal baseline of
permissibility” of contracting out particular functions,74 but because these designations are based
69

76 Fed. Reg. at 56227.
See OMB, Circular No. A-76 Revised, May 29, 2003, at §4, available at http://www.whitehouse.gov/omb/circulars/
a076/a76_incl_tech_correction.html. This is the current version of OMB Circular A-76. There are several prior
versions of the Circular, under this and other names, dating back to the 1950s. See CRS Report R40641, Inherently
Governmental Functions and Department of Defense Operations: Background, Issues, and Options for Congress, by
(name redacted), (name redacted), and (name redacted).
71
See, e.g., Duncan Hunter National Defense Authorization Act for Fiscal Year 2009: Report of the Committee on
Armed Services of the House of Representatives on H.R. 5658 Together with Additional Views, 110th Cong., 2d Sess.,
at 333-34 (2008) (noting that the task of determining which functions are inherently governmental “is made even more
difficult by the lack of a single definition and accompanying guidance on what constitutes an ‘inherently governmental
function.’”).
72
See National and Community Service Trust Act of 1993, P.L. 103-82, §196, 107 Stat. 785 (Sept. 21, 1993) (codified
at 42 U.S.C. §12651g(a)(1)(C)(iii)) (“As used in this subparagraph, the term ‘inherently governmental function’ means
any activity that is so intimately related to the public interest as to mandate performance by an officer or employee of
the Federal Government.”); A Bill to Authorize Appropriations for Fiscal Years 2004 and 2005 for the United States
Coast Guard, and for Other Purposes, P.L. 108-293, §302, 118 Stat. 1028 (Aug. 9, 2004) (codified at 33 U.S.C.
§1223(e)) (same). Other statutes incorporate by reference a definition of “inherently governmental function” provided
by another statute or policy document. See, e.g., 10 U.S.C. §2330a(g)(4) (“The term ‘inherently governmental
functions’ has the meaning given that term in section 2383(b)(2) of this title.”). Section 2382(b)(2) of Title 10 does not
itself define “inherently governmental function.” Rather, it incorporates by reference the definition of “inherently
governmental function” provided in the FAR. See 48 C.F.R. §2.101.
73
See, e.g., Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009, P.L. 110-329, §521,
122 Stat. 3574 (Sept. 30, 2008) (noting that the instructor staff at the Federal Law Enforcement Training Center
perform inherently governmental functions); Government Performance and Results Act of 1993, P.L. 103-62, 107 Stat.
285 (Aug. 3, 1993) (codified at 5 U.S.C. §306; 31 U.S.C. §§1115-1116; & 39 U.S.C. §2805) (classifying the
preparation of agency strategic plans and program performance reports as an inherently governmental function);
National Air Traffic Controllers Ass’n v. Sec’y of the Dep’t of Trans., 2011 U.S. App. LEXIS 16852, at *10 (6th Cir.,
Aug. 16, 2011) (finding that amendments made to 49 U.S.C. §47124(b)(2) in 2003 demonstrate Congress’s intent that
certain air traffic control activities are commercial functions that may be contracted to private entities).
74
Transforming Wartime Contracting, supra note 6, at 47.
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in statute, the executive branch cannot remove or modify them in the same way that it can amend
the FAR and/or OMB Circular A-76.75
Table 1. Primary Definitions and Discussions of Inherently Governmental Functions
in Federal Law and Policy Prior to OFPP Policy Letter 11-01
A comparison of the FAIR Act, the FAR, and OMB Circular A-76
FAIR Act

FARa

OMB Circular A-76

The term “inherently
governmental function” means a
function that is so intimately
related to the public interest as to
require performance by Federal
Government employees....

“Inherently governmental function”
means, as a matter of policy, a
function that is so intimately related
to the public interest as to mandate
performance by Government
employees. This definition is a policy
determination, not a legal
determination.

An inherently governmental activity is
an activity that is so intimately related
to the public interest as to mandate
performance by government
personnel. These activities require the
exercise of substantial discretione in
applying government authority and/or
in making decisions for the
government.

Functions included.—The term
includes activities that require
either the exercise of discretion in
applying Federal Government
authority or the making of value
judgments in making decisions for
the Federal Government,
including judgments relating to
monetary transactions and
entitlements.
An inherently governmental
function involves, among other
things, the interpretation and
execution of the laws of the
United States so as—
(i) to bind the United States to
take or not to take some action
by contract, policy, regulation,
authorization, order, or
otherwise;
(ii) to determine, protect, and
advance United States economic,
political, territorial, property, or
other interests by military or
diplomatic action, civil or criminal
judicial proceedings, contract
management, or otherwise;
(iii) to significantly affect the life,
liberty, or property of private
persons;
(iv) to commission, appoint,
direct, or control officers or
employees of the United States;b

An inherently governmental function
includes activities that require either
the exercise of discretion in applying
Government authority, or the making
of value judgments in making decisions
for the Government. Governmental
functions normally fall into two
categories: the act of governing, i.e.,
the discretionary exercise of
Government authority, and monetary
transactions and entitlements.
(1) An inherently governmental
function involves, among other things,
the interpretation and execution of
the laws of the United States so as
to—
(i) Bind the United States to take or
not to take some action by contract,
policy, regulation, authorization,
order, or otherwise;
(ii) Determine, protect, and advance
United States economic, political,
territorial, property, or other
interests by military or diplomatic
action, civil or criminal judicial
proceedings, contract management, or
otherwise;
(iii) Significantly affect the life, liberty,
or property of private persons;
(iv) Commission, appoint, direct, or
control officers or employees of the

Inherently governmental activities
normally fall into two categories: the
exercise of sovereign government
authority or the establishment of
procedures and processes related to
the oversight of monetary
transactions or entitlements.
An inherently governmental activity
involves:
(1) Binding the United States to take
or not to take some action by
contract, policy, regulation,
authorization, order, or otherwise;
(2) Determining, protecting, and
advancing economic, political,
territorial, property, or other
interests by military or diplomatic
action, civil or criminal judicial
proceedings, contract management, or
otherwise;
(3) Significantly affecting the life,
liberty, or property of private
persons; or
(4) Exerting ultimate control over the
acquisition, use, or disposition of
United States property (real or
personal, tangible or intangible),
including establishing policies or
procedures for the collection, control,
or disbursement of appropriated and

75
Executive Orders have, at times, classified particular functions as inherently governmental, and these designations
could be removed without congressional action. Compare Executive Order 13180, 65 Fed. Reg. 77493 (Dec. 11, 2000)
(designating the “provision of air traffic services” as an inherently governmental function) with Executive Order 13264,
67 Fed. Reg. 39243 (June 7, 2002) (removing this designation). However, there do not appear to be any such executive
orders currently in effect.

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FAIR Act

FARa

or

United States;b or

(v) to exert ultimate control over
the acquisition, use, or disposition
of the property, real or personal,
tangible or intangible, of the
United States, including the
collection, control, or
disbursement of appropriated and
other Federal funds.c

(v) Exert ultimate control over the
acquisition, use, or disposition of the
property, real or personal, tangible or
intangible, of the United States,
including the collection, control, or
disbursement of Federal funds.d

OMB Circular A-76
other federal funds.f

Source: Congressional Research Service, based on 31 U.S.C. §501 note, at §5; 48 C.F.R. §2.101; and OMB
Circular A-76, supra note 70, at Appendix A, §B.1.a.
a.

This is the definition given in Subpart 7.5 of the FAR, which addresses “Inherently Governmental Functions.”
Subpart 7.3 of the FAR, which addresses “Contractor Versus Government Performance,” incorporates the
definition of OMB Circular A-76 by reference. See 48 C.F.R. §7.301 (“Definitions of ‘inherently
governmental activity’ and other terms applicable to this subpart are set forth at Attachment D of the
Office of Management and Budget Circular No. A-76 (Revised), Performance of Commercial Activities,
dated May 29, 2003 (the Circular).”).

b.

This function is not included on the list of inherently governmental functions given in OMB Circular A-76.

c.

The FAIR Act then gives a similar listing of “functions excluded” from the definition of inherently
governmental functions. This listing includes gathering information or providing advice, opinions,
recommendations, or ideas to federal government officials, as well as any function that is primarily
ministerial and internal in nature, such as building security, mail operations, and warehouse operations.

d.

The FAR also notes that “[i]nherently governmental functions do not normally include gathering information
for or providing advice, opinions, recommendations, or ideas to Government officials. They also do not
include functions that are primarily ministerial and internal in nature, such as building security, mail
operations, operation of cafeterias, housekeeping, facilities operations and maintenance, warehouse
operations, motor vehicle fleet management operations, or other routine electrical or mechanical services.”
48 C.F.R. §2.101.

e.

Some commentators have suggested that the addition of “substantial” to OMB Circular A-76 in 2003
represented a significant change in the definition of inherently governmental functions and facilitated the
contracting out of allegedly inherently governmental functions by the Bush Administration. See, e.g., Am.
Fed'n of Gov't Employees, Privatization: Cleaning Up the Mess, Feb. 9, 2009, available at http://www.afge.org/
index.cfm?page=2005LegislativeConferenceIssuePapers&fuse=Content&ContentID=1745 (“OMB officials
illegally watered down the statutory definition when they overhauled the A-76 Circular” in 2003). However,
OFPP Policy Letter 92-1 also referred to the exercise of “substantial discretion” as characterizing inherently
governmental functions, and the Bush Administration’s revision of OMB Circular A-76 incorporated and
superseded Policy Letter 92-1. See OMB, Policy Letter 92-1, Sept.. 23, 1992, available at
http://www.whitehouse.gov/omb/procurement_policy_letter_92-01.

f.

OMB Circular A-76 further notes that “[w]hile inherently governmental activities require the exercise of
substantial discretion, not every exercise of discretion is evidence that an activity is inherently
governmental.” It also provides a definition of “commercial activities,” which is lacking in the other sources
discussed here. See OMB Circular A-76, supra note 70, at Appendix A, §B.2.

The final policy letter would also establish a definition of “critical function,”76 which is currently
lacking in federal law, although it is unclear whether this definition would be given solely in the
policy letter, or whether the FAR and/or OMB Circular A-76 would also be amended to
incorporate it. Legislation has been introduced in the 112th Congress that would create and define

76

76 Fed. Reg. at 56236.

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a category of “mission essential functions” that must be performed by government employees,77
and some commentators consider mission-essential functions to be critical ones.78
The policy letter does not define functions closely associated with inherently governmental
functions, which are elsewhere defined as “services and actions” that, while not themselves
inherently governmental, “approach being in that category because of the nature of the function,
the manner in which the contractor performs the contract, or the manner in which the Government
administers contract performance.”79 Currently, agencies are required by statute to give “special
consideration” to using federal employees to perform functions closely associated with the
performance of inherently governmental functions,80 and the final policy letter explicitly notes
this requirement.81 The final policy letter also lists nine examples of functions closely associated
with inherently governmental functions.82 While this listing is not identical to the listing of 19
examples of functions closely associated with inherently governmental functions currently given
in the FAR, it is substantially similar to it, as Table A-2 illustrates,83 and OMB’s proposed
amendments to the FAR could replace the FAR’s current listing with the final policy letter.
However, like existing law, the final policy letter would not prohibit agencies from contracting
out such functions,84 as certain legislation introduced in the 112th Congress would do.85

Issues for Congress
Implementation of Policy Letter 11-01 could raise a number of issues of interest to Congress,
including whether the policy letter’s guidance results in different determinations by agencies
77

See infra note 127 and accompanying text.
See, e.g., Roger D. Carstens, Michael A. Cohen & Maria Figueroa Küpçü, Changing the Culture of Pentagon
Contracting 12-13 (2008); Geoffrey Emeigh, Law Professor Suggests Focus on “Core,” Not “Inherently
Governmental,” Functions, 89 Fed. Cont. Rep. 649 (June 17, 2008); Orszag Stresses Importance of Procurement
Reform for Effective, Efficient Government, 91 Fed. Cont. Rep. 173 (March 10, 2009).
79
48 C.F.R. §7.503(d). Several statutes, particularly ones relating to Department of Defense procurements, incorporate
by reference the FAR’s definition of functions closely associated with inherently governmental functions. See, e.g., 10
U.S.C. §2330a(g)(3) (defining functions closely associated with inherently governmental functions by reference to 10
U.S.C.§2383(b)(3)); 10 U.S.C. §2463(e) (same). Section 2383(b)(3) of Title 10 of the United States Code does not
itself define functions closely associated with inherently governmental functions. Rather, it incorporates by reference
the definition of 48 C.F.R. §7.503(d).
80
Omnibus Appropriations Act, 2009, P.L. 111-8, div. D, §736(b)(2)(A)(ii), 123 Stat. 690 (Mar. 11, 2009) (civilian
agencies); National Defense Authorization Act for FY2008, P.L. 110-181, div. A, §324(a)(1), 122 Stat. 60 (Jan. 28,
2008) (codified at 10 U.S.C. §2463(b)(1)(B)) (defense agencies).
81
The policy letter explicitly incorporates this requirement in its text, as well as directs that, when contractors perform
functions closely associated with inherently governmental functions, agencies are to “provide greater attention and an
advanced degree of management oversight of the contractors’ activities to ensure that contractors’ duties do not expand
to include performance of inherently governmental functions.” 76 Fed. Reg. at 56236.
82
76 Fed. Reg. at 56241.
83
However, the final policy letter does include a number of functions supporting acquisition that are not explicitly
addressed in the FAR, such as conducting market research, developing inputs for government cost estimates, drafting
statements of work and other pre-award documents, drafting price negotiations memoranda, and contract management.
Compare 76 Fed. Reg. at 56241 with 48 C.F.R. §7.503(d). As is noted in Table A-2, the proposed policy letter’s listing
of functions closely associated with inherently governmental functions reproduced almost verbatim that in the FAR.
84
See, e.g., Gulf Group, Inc. v. United States, 61 Fed. Cl. 338, 341, n.7 (2004) (treating items on the FAR’s list of
“functions approaching inherently governmental” as capable of being contracted out by agencies).
85
See infra note 127 and accompanying text.
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about whether to perform in-house particular functions whose performance by contractors has
been of concern to some Members of recent Congresses.86 Certain security functions performed
by contractors are likely to be of particular interest here because the final policy letter arguably
limits agencies’ discretion to contract out some security functions by designating them as
inherently governmental.87 However, it remains to be seen whether listing these functions as
inherently governmental precludes certain uses of private security contractors, or whether the
debate merely shifts from one over whether security functions are inherently governmental to one
over whether particular activities constitute “combat,” which is a term that factors heavily in the
descriptions of all the security functions designated as inherently governmental. Moreover, some
Members of the 112th Congress have introduced legislation that is arguably inconsistent with the
final policy letter. The enactment of any such legislation would obviously affect agency
implementation of the final policy letter. However, even if not enacted, proposed legislation may
signal potential differences of opinion between some Members of Congress and the
Administration regarding sourcing policy that could prompt additional congressional oversight of
agency actions.

86
See, e.g., Concurrent Resolution on the Budget for FY2010, S. Con. Res. 13-42, 111th Cong. (requiring the
Department of Defense (DOD) to “review the role that contractors play in operations, including the degree to which
they are performing inherently governmental functions”); Department of Homeland Security Appropriations Act, 2010,
P.L. 111-83, §520, 123 Stat. 2171 (Oct. 28, 2009) (classifying the functions of the Federal Law Enforcement Training
Center instructor staff as inherently governmental); Duncan Hunter National Defense Authorization Act for FY2009,
P.L. 110-417, §831, 122 Stat. 4534 (Oct. 14, 2008) (expressing Congress’s sense that that interrogation of enemy
prisoners of war, civilian internees, retained persons, other detainees, terrorists, or criminals captured, confined, or
detained during or in the aftermath of hostilities is an inherently governmental function and cannot appropriately be
transferred to private sector contractors); National Defense Authorization Act for FY2008, P.L. 110-181, §802, 122
Stat. 206-07 (Jan. 28, 2008) (requiring DOD to ensure that DOD’s acquisition workforce is of the appropriate size and
skill level to accomplish inherently governmental functions related to the acquisition of major systems and defining a
“lead system integrator” as “a prime contractor under a contract for the procurement of services the primary purpose of
which is to perform acquisition functions closely associated with inherently governmental functions with respect to the
development or production of a major system”); P.L. 110-181, §841, 122 Stat. 230-34 (requiring the Commission on
Wartime Contracting to make specific recommendations regarding, among other things, the process for determining
which functions are inherently governmental in contingency operations, including whether providing security in an area
of combat operations is inherently governmental).
87
The policy letter designates as inherently governmental functions (1) security operations performed in direct support
of combat as part of a larger integrated armed force; (2) security operations performed in environments where, in the
judgment of the responsible Federal official, there is significant potential for the security operations to evolve into
combat; and (3) security that entails augmenting or reinforcing others (whether private security contractors, civilians, or
military units) that have become engaged in combat. 76 Fed. Reg. at 56240. The designation of these functions as
inherently governmental is a marked departure from current law, which generally leaves agencies with broad discretion
in determining whether particular functions are inherently governmental. See, e.g., Arrowhead Metals, Ltd. v. United
States, 8 Cl. Ct. 703, 717 (1985) (finding that coinage of money is inherently governmental, but that the U.S. Mint has
discretion to determine whether the stamping of blanks constitutes coinage). Some commentators had previously
asserted that security functions were inherently governmental functions under the FAIR Act, the FAR, and/or OMB
Circular A-76 because they involve protecting and advancing U.S. interests by “military … action, or otherwise,” as
well as significantly affect the life, liberty, or property of private persons. However, such arguments were generally
unavailing in changing agency practice, or in disturbing the award or proposed award of agency contracts for security
services. See, e.g., Department of Defense, Office of General Counsel, Request to Contract for Private Security
Companies in Iraq, Jan. 10, 2006 (copy on file with authors) (permitting the use of contractors to protect persons or
property, so long as the services they provide do not involve “uniquely military functions”); Brian X. Scott, Comp.
Gen. B-298370 (Aug. 18, 2006) (rejecting the allegation that the proposed award involved “uniquely governmental”
functions on the grounds that DOD regulations and the provisions of the Defense Federal Acquisition Regulation
Supplement permitted the contracts for armed security services under certain conditions).

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Implementation of the Policy Letter
With the publication of Policy Letter 11-01, agencies have much-needed, final guidance regarding
how to differentiate among inherently governmental functions, functions closely associated with
inherently governmental functions, and critical functions, and how to address possible contractor
performance of the latter two types of functions. Yet, compliance with the policy letter could be
challenging. Agency personnel are expected to understand and apply an expanded typology of
functions, and additional resources may be required to carry out successfully management
responsibilities outlined in the letter. Finally, while some observers are concerned that the policy
letter might lead to widespread insourcing, it is unclear whether any data will be collected
regarding agencies’ activities, including the outcomes of their efforts.

Identifying Inherently Governmental and Other Functions
Until the publication of OFPP’s policy letter, written sourcing policy had divided agency
functions into two categories: commercial and inherently governmental.88 This dichotomy has its
origins in three Bureau of the Budget bulletins that were issued in the 1950s.89 With the
publication of Policy Letter 11-01, two new categories have been added: critical functions, and
functions closely associated with inherently governmental functions (“closely associated”).
Inherently governmental is the only category where federal employee performance is mandated.90
Contractor employees, federal employees, or a combination of the two may perform commercial,
critical, or “closely associated” functions, though the policy letter provides guidance for each of
the latter two categories that addresses the circumstances under which contractor performance
may be appropriate.
Proper identification of agency functions may depend, at least in part, on whether agencies have
sufficient personnel with the requisite knowledge and expertise to review agency functions,
contracts, and work performed by contractors. Agency personnel’s determinations might have
significant implications for their agency, the federal government generally, and the private sector.

Inherently Governmental and “Closely Associated” Functions
The policy letter’s instructions regarding the identification of inherently governmental functions
are, in some respects, explicit. The letter directs agency personnel to review the illustrative list of
inherently governmental functions found in Appendix A of the policy letter and statutory
provisions that designate certain functions as inherently governmental. Accomplishing these steps
may reinforce agency personnel’s understanding of the term inherently governmental, clarify how
to use the list in Appendix A, and remind personnel to determine which agency functions, if any,
have been designated as inherently governmental by statute. By comparison, Subpart 7.5 of the
88
Sourcing policy involves determining which sector, public (government) or private, will perform which functions,
including determining when federal employee performance is required.
89
The Bureau of the Budget was the precursor to the Office of Management and Budget. The three bulletins are as
follows: U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products or
Services for Governmental Use,” Bulletin No. 55-4, Jan. 15, 1955; U.S. Bureau of the Budget, “Commercial-Industrial
Activities of the Government Providing Products or Services for Governmental Use,” Bulletin No. 57-7, Feb. 5, 1957;
and, U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products or Services
for Governmental Use,” Bulletin No. 60-2, Sept. 21, 1959.
90
48 C.F.R. §7.503(a).

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FAR states that contractors may not perform inherently governmental functions and contains a list
of functions to be considered inherently governmental, but does not explicitly instruct agency
personnel on how to apply the list.
Pursuant to Policy Letter 11-01, if a function neither appears in the list found at Appendix A nor is
designated as inherently governmental in a statute, then agency personnel are to turn to the
definition itself, and, in particular, apply the “nature of the function” test and the “level of
discretion” test (unless the nature of the function test is sufficient, as noted in the policy letter).
Generally, agency personnel may have some experience determining whether a function is
inherently governmental. First, Subpart 7.5 of the FAR indicates that agency personnel are to
determine whether functions are inherently governmental. Second, under President George W.
Bush, OMB required agencies to submit lists of their inherently governmental functions when
they submitted their annual inventories of commercial activities91 to OMB pursuant to the Federal
Activities Inventory Reform (FAIR) Act.92 Yet, there are some differences between the relevant
Bush Administration initiative and the Obama Administration’s initiative. During the former
administration, the unit of analysis was agency functions; agencies may have used the definition
of inherently governmental found in OMB Circular A-76 (which differs somewhat from the
definition in the FAIR Act); and the inherently governmental inventory was a component of the
administration’s competitive sourcing initiative.93 Under the Obama Administration, the units of
analysis are agency functions and contractor performance (and possibly contracts); agencies are
to use the FAIR Act definition of inherently governmental; and identifying inherently
governmental functions implements, in part, the policy of “ensur[ing] that government action is
taken as a result of informed, independent judgments made by government officials.”94 These
differences between the competitive sourcing initiative and the policy letter might necessitate a
revised approach, or perspective, on the part of agency personnel, and perhaps some training.
Policy Letter 11-01 also addresses, but does not define, functions “closely associated” with
inherently governmental functions, though it does include a list of examples in Appendix B.
These are functions that “may approach being [in the category of inherently governmental]
because of the nature of the function and the risk that performance may impinge on Federal
officials’ performance of an inherently governmental function.”95 Although the policy letter does
not reserve this category for performance by federal employees, civilian agencies subject to the
FAIR Act are required to give special consideration to using agency employees to perform
“closely associated” functions.96 Since this is a new category, agency personnel may need training
91

A commercial activity “is a recurring service that could be performed by the private sector and is resourced,
performed, and controlled by the agency through performance by government personnel, a contract, or a fee-for-service
agreement. A commercial activity is not so intimately related to the public interest as to mandate performance by
government personnel. Commercial activities may be found within, or throughout, organizations that perform
inherently governmental activities or classified work.” OMB Circular A-76, supra note 70, at A-3.
92
Sean O’Keefe, Deputy Director, U.S. Office of Management and Budget, “Year 2001 Inventory of Commercial
Activities,” at 1 (Apr. 3, 2001), available at http://www.whitehouse.gov/sites/default/files/omb/assets/omb/memoranda/
m01-16.pdf. The FAIR Act requires certain agencies, which are identified in the statute, to submit to OMB an annual
inventory of their commercial activities. See 31 U.S.C. §501 note.
93
Competitive sourcing is “the process of opening the government’s commercial activities to the discipline of
competition [and it was] … one of the five main initiatives of ... [the President’s] Management Agenda [(PMA)] for
improving the performance of government.” Office of Mgmt. & Budget, Performance of Commercial Activities, 67
Fed. Reg. 69772 (Nov. 19, 2002.)
94
76 Fed. Reg. at 56236.
95
Id. at 56238.
96
Omnibus Appropriations Act, FY2009, P.L. 111-8, §736, 123 Stat. 689-90 (Mar. 11, 2009).

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to aid them in identifying these functions and determining the appropriate workforce (federal
employees, contractor employees, or both) for each function. OFPP provides, at Appendix C of
the policy letter, a checklist that describes agencies’ responsibilities when contractors perform
“closely associated” functions.

Critical Functions
Completing the expansion of the typology of agency functions is the addition of critical functions.
Agency personnel may have some familiarity with this category (and the category of “closely
associated” functions) given that both were included in the proposed OFPP policy letter that was
published in March 2010. On the other hand, agency staff might not be able to rely on
competitive sourcing experience in classifying what are, in effect, commercial functions. The
focus of competitive sourcing is to identify commercial functions eligible for public-private
competition. An agency assigns a reason code to each commercial function appearing on the
inventory it submits to OMB, and the purpose of the codes is to indicate whether a function is
eligible for competition, and, if not, why.97 Not only does implementation of the policy letter
present agency personnel with a different perspective—some commercial functions might be
critical, and federal employee performance of some portion of critical functions might be
necessary—but it also asks agency personnel to determine the level of criticality. Determining
whether a function is critical, and, if so, whether the agency has sufficient internal capability,
“requires the exercise of informed judgment by agency officials.”98
As suggested by the preface to the policy letter, identifying critical functions probably will be
done on a case-by-case basis:
A function’s criticality is dependent on an agency’s mission and operations … which will
differ between agencies and potentially within agencies over time. Whether an agency is
over reliant on a contractor to perform a critical function also will vary from agency to
agency depending on its current internal capabilities compared to those needed to maintain
control of its mission and operations.99

Although each agency will need to determine how to apply the guidance provided in the policy
letter when examining each potentially critical function, interagency discussions and sharing of
information might facilitate each agency’s efforts to identify critical functions. The Chief
Acquisition Officers Council (CAOC) has established a working group on Multi-Sector
Workforce Management,100 which might be an appropriate venue for discussions.101

97

Reason code A indicates that a commercial function is not appropriate for private sector performance, while code F
indicates that a statutory provision prohibits contractor performance. The remaining four reason codes are used to
indicate the function is appropriate for a competition (code B), or to show why a public-private competition is not
appropriate at the time the inventory is submitted to OMB. Reason code C indicates that a competition is in progress;
code D indicates that federal employees are performing the work as the result of a competition held within the past five
years; and code E indicates that an agency-approved restructuring decision (e.g., closure or realignment) is pending.
Office of Mgmt. & Budget, “Reason Codes for Commercial Activities,” available at http://www.whitehouse.gov/omb/
procurement_fair_2004_reason_codes.
98
76 Fed. Reg. at 56238.
99
Id. at 56233.
100
In July 2009, OMB issued a memorandum on multi-sector workforce management. OMB wrote: “Federal agencies
use both federal employees and private sector contractors to deliver important services to citizens. Agency management
practices must recognize the proper role of each sector’s labor force and draw on their respective skills to help the
(continued...)

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Resources
Considering the responsibilities and tasks described in the policy letter, some agencies might
discover that they need additional personnel to implement fully the letter’s provisions. At a
minimum, agency personnel will be needed to perform pre-award and post-award tasks; address
small business contracting under certain circumstances as specified in the policy letter; develop
agency procedures and training and accomplish other management responsibilities; and, if the
agency has contractors performing “closely associated” functions, also perform the tasks found in
Appendix C.102 Furthermore, additional federal employees may be needed to perform an
inherently governmental function that is currently performed by a contractor’s employees;
perform all, or a portion, of a critical function; administer contracts; or oversee and manage
contractors and their performance. Options for ensuring sufficient personnel are available to
accomplish these tasks and responsibilities include recruiting, hiring, and training new
employees, or re-allocating incumbent employees (which also may necessitate implementing
training), either temporarily or permanently depending upon the circumstances.
The policy letter addresses personnel issues with its discussion of strategic human capital
planning. In brief, this provision directs agencies to ensure they are able to build competencies,
retain institutional knowledge, and maintain continuity of operations using federal employees;
maintain sufficient personnel to manage every contractor’s performance and evaluate every
contractor’s work products and services; and address the size and quality of their acquisition
workforces. Agencies are also to consider how available funding, or decisions involving “a
specified level of government employee authorizations (or military end strength),” might affect
their ability to use federal employees “to perform work that should be reserved for performance
by such employees and take appropriate action if there is a shortfall.”103
Some of the crucial responsibilities and tasks described in the policy letter, such as managing
contractors and paying special attention to contractors who are performing “closely associated”
functions, will need to be performed by agencies’ acquisition workforces. Although acquisition
staff already perform some of these tasks, the expansion of the typology of agency functions and
the accompanying guidance and responsibilities might tax a workforce that has been understaffed
and undertrained since the 1990s.104 In 2007, the Acquisition Advisory Panel reported that “a
significant mismatch [existed] between the demands placed on the acquisition workforce and the
personnel and skills available within that workforce to meet those demands.”105 Testifying in fall
2010, the head of the Office of Federal Procurement Policy summarized the problem as follows:
(...continued)
government operate at its best.” Managing the Multi-Sector Workforce, supra note 41, at 1.
101
See http://caoc.gov/index.cfm?function=c_source for the CAOC multi-sector workforce management website.
102
76 Fed. Reg. at 56238-39, 56241-42.
103
Id. at 56237.
104
See Steven L. Schooner & David J. Berteau, “Emerging Policy and Practice Issues (2010),” Legal Studies Research
Paper No. 529, George Washington University Law School, at pg. 9-6 (Dec. 1, 2010) (“We agree with those who assert
that the government has not hired an appropriate number of new acquisition professionals in any year since the 1980’s.
Accordingly, a disproportionate share of the existing workforce is aging and, in large part, retirement-eligible; most of
that workforce was neither hired nor trained to primarily purchase services using flexible contractual vehicles. In
addition … the volume of purchasing exploded during the last decade. Thus, the government faces a problem of
enormous proportions.”).
105
Report of the Acquisition Advisory Panel to the Office of Federal Procurement Policy and the United States
Congress, 327 (Jan. 2007), available at https://www.acquisition.gov/comp/aap/finalaapreport.html.

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As this Commission [Commission on Wartime Contracting] and the Gansler Commission
have reported, the federal government has not invested in the acquisition workforce enough
to allow it to adequately cope with the growth in contract spending or the increased
complexity of agencies’ missions. From 2001 to 2008, contract spending more than doubled
to over 500 billion dollars, while the size of the acquisition workforce – both civilian and
106
defense – remained relatively flat.

If an agency’s acquisition workforce is not at full strength in terms of both size and capability,
and it is not able to augment this segment of its workforce, then its ability to comply fully with
the policy letter might be compromised.

Outcomes and Data
What are the possible outcomes of implementing Policy Letter 11-01 and related documents?107
The list might include the strengthening of an agency’s internal capacity, allocating additional
agency personnel to contract management and oversight functions, and insourcing.
Insourcing warrants special mention. Some commentators might focus on this possible outcome
while failing to acknowledge the other possibilities, thus conflating the policy letter with
insourcing. Similarly, some observers might conflate competitive sourcing with one particular
possible outcome of public-private competition—outsourcing.108 OFPP notes in its policy letter,
though, that “insourcing is intended to be a management tool—not an end in itself—to address
certain types of overreliance on contractors.”109 Moreover, determining that a contractor’s
employees are performing inherently governmental functions might not necessarily lead to
insourcing. Addressing this possibility, the policy letter states: “In some cases, government
control over, and performance of, inherently governmental responsibilities can be reestablished
by strengthening contract oversight using government employees with appropriate subject matter
expertise and following the protocols identified in FAR 37.114.”110 Testifying in September 2011,
the head of OFPP stated that “the policy letter should not lead to a widespread shift away from
contractors.”111 His reasoning is as follows:
Most agencies have been informally following many of the overarching principles of the
policy letter for more than a year and there has not been a significant shift to date. In
addition, … agencies may, with proper management and oversight tools, rely on contractors
to perform functions closely associated with inherently governmental functions. They may
106
“Statement of the Honorable Daniel I. Gordon, Administrator for Federal Procurement Policy, Office of
Management and Budget, Before the Commission on Wartime Contracting,” at 1 (Sept. 16, 2010), available at
http://www.whitehouse.gov/sites/default/files/omb/legislative/testimony/ofpp/2010-09-16_Gordon-OFPP.pdf.
107
Related documents include, e.g., OMB’s memorandum on managing the multi-sector workforce, see supra note 41,
and Section 736 (Division D) of P.L. 111-8, Omnibus Appropriations Act, FY2009.
108
Another possible outcome is retaining the work in-house.
109
76 Fed. Reg. at 56234.
110
Id. at 56239. Subpart 37.114 of the FAR provides guidance regarding certain types of service contracts that “require
special management attention to ensure that they do not result in performance of inherently governmental functions by
the contractor and that Government officials properly exercise their authority.”
111
“Statement of the Honorable Daniel I. Gordon, Administrator for Federal Procurement Policy, Office of
Management and Budget, Before the Subcommittee on Oversight of Government Management, the Federal Workforce,
and the District of Columbia, Committee on Homeland Security and Governmental Affairs, United States Senate”
(Sept. 20, 2011) available at http://hsgac.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_
ID=57f164be-8e05-4fce-ae55-d47b3b1e6f8d.

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also permit contractors to perform critical functions that are core to the agency as long as the
agency has the in-house capability to maintain control of its mission and operations.
Moreover, in many cases, overreliance on contractors may be corrected by allocating
additional resources to contract management. In other words, rebalancing does not require an
agency to insource.112

Additionally, in cases where insourcing might be the appropriate response, practical, or other
considerations, might mitigate against some possibilities. For example, when considering
insourcing a function, agencies are advised to place a lower priority on reviewing certain work
performed by small businesses. Additionally, agencies are to apply the “rule of two” for work that
remains in the private sector when “part of [the] contracted function to be insourced is currently
being performed by small and the large businesses.”113 Small business goals might reinforce these
considerations if agencies are reluctant to take steps that could compromise their ability to
achieve those goals.114 OFPP also advises agencies on how to respond when they are unable to
reestablish control of inherently governmental functions through other means and thus “need to
insource work on an accelerated basis.” While termination of the contract is a possibility, OFPP
also indicates it is possible to synchronize the insourcing with the non-exercise of an option
period in the contract.115
Regarding contractor performance of critical functions that, the agency has determined, puts its
internal control of mission and operations at risk, the policy letter does not mention accelerated
insourcing as an option. Moreover, the possibility that insourcing could momentarily disrupt
agency operations might, depending upon the nature of the (critical) function or the particular
circumstances, mitigate against any effort to insource the function, or a portion of it. Additionally,
an agency might need time to “secure the necessary funding” to establish or supplement “the
needed in-house capacity” and to recruit, hire, and train new personnel, or retrain incumbent
personnel.116
This discussion raises the question of whether OFPP might consider having agencies compile data
about their outcomes, and submit the information to a centralized database. Possible options
include having agencies expand their multi-sector workforce inventories, or add data about
outcomes to their service contracts inventories; modifying the Federal Procurement Data System
(FPDS) through the addition of appropriate data elements; or creating a new, stand-alone system.
Regarding the three existing data collection systems or initiatives, functionality and accessibility
vary.
In its memorandum on managing the multi-sector workforce, OMB required each federal agency
subject to the Chief Financial Officers Act (P.L. 101-576) to develop a multi-sector workforce
planning pilot. In conducting the pilot, each agency was to “[d]evelop a multi-sector workforce
inventory that [would map] out the current workload and how in-house and contracted labor
[were] … used by the organization to meet [the] … workload.”117 The inventory was to include

112

Id.
76 Fed. Reg. at 56239.
114
See http://www.sba.gov/content/small-business-goaling for additional information about small business goals.
115
76 Fed. Reg. at 56239. A contract may have a base period (e.g., one year) and one or more option periods.
116
Id.
117
Managing the Multi-Sector Workforce, supra note 41, at 1 (attachment 2).
113

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•

[T]he number and location of full-time federal employee equivalents (FTEs)118
and contractor employees (for the latter, counting either full-time employees or
hours worked) for each function performed by the organization.

•

[H]ow work is classified: (i) inherently governmental, (ii) critical and requiring
performance by federal employees, (iii) critical and requiring performance by
either federal employees or contractors with appropriate management, or (iv)
essential but non-critical;119 and

•

[T]he associated funding source.120

While OMB stated in its memorandum that agencies “should … prepare an appropriate
summary” of their pilots “to share with the public,” whether some or all agencies included their
inventories is unknown.121
Agencies that complied with this requirement have some experience, then, in assessing a selected
portion of their multi-sector workforce. As agency staff gain additional experience in reviewing
their agencies’ total (or multi-sector) workforces, categorizing functions, and carrying out the
other tasks outlined in OFPP’s policy letter, they might identify information that could be useful
to agencies and considered for inclusion in an expanded multi-sector workforce inventory.
With the exception of DOD, all agencies subject to the FAIR Act are required to compile
inventories of their service contracts annually and submit the information to OMB.122 As
summarized by OFPP in November 2010, this inventory must include the following elements:
•

a description of the services purchased by the executive agency;

•

a description of the role the services played in achieving agency objectives;

•

the organizational component of the executive agency administering the contract,
and the organizational component of the agency whose requirements are being
met through contractor performance of the service;

•

the total dollar amount obligated for services under the contract and the funding
source for the contract;

•

the total dollar amount invoiced for services under the contract;

•

the contract type and date of award;

•

the name of the contractor and place of performance;

•

the number and work location of contractor employees, expressed as full-time
equivalent for direct labor, compensated under the contract;

118

A full-time equivalent is the “staffing of Federal civilian employee positions, expressed in terms of annual
productive work hours (1,776).” Performance of Commercial Activities, supra note 93, at D-5.
119
This memorandum was written prior to the publication of OFPP’s proposed and final policy letters, neither of which
includes “essential but non-critical” functions. Hence, this category may no longer be applicable.
120
Managing the Multi-Sector Workforce, supra note 41, at 2 (attachment 2).
121
Id.
122
Sec. 743 (Division C) of P.L. 111-117, Consolidated Appropriations Act FY2010, as amended. Sec. 807 of P.L.
110-181, National Defense Authorization Act for FY2008, contains the statutory requirement for DOD to compile
inventories of its service contracts.

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•

whether the contract is a personal services contract; and

•

whether the contract was awarded on a noncompetitive basis, regardless of date
of award.123

Agencies’ service contracts inventories are available on their websites.124 Some, if not all, of the
data included in the service contract inventory might be useful in gaining a better understanding
of an agency’s multi-sector workforce, particularly if these data were combined with information
about the type(s) of function(s) (i.e., critical, “closely associated,” or commercial) a contractor is
performing.
The Federal Procurement Data System (FPDS) is the federal government’s system for agencies to
report information about their contract actions.125 FPDS is available to the public, and users may
retrieve data by conducting searches of the database. FPDS includes some of the same
information as the service contract inventory, and also contains a relatively large amount of
additional procurement information, such as the solicitation number, effective date of the contract
action, and contracting officer’s determination of business size.126
Developing a data collection system (whether based on an existing system or data collection
effort, or a newly established system) that includes information about agencies’ efforts to classify
properly their functions might yield benefits. Perhaps a system could be developed that would aid
an agency’s acquisition, human resources, and financial management personnel plan, manage,
and evaluate their efforts to comply with the policy letter. Making the system available to the
public might facilitate transparency, particularly if it were to include information, or training, that
would aid in understanding the information. Finally, collecting data, and making it publicly
available, possibly could alleviate some concerns regarding the outcomes of agencies’
determinations and decisions. Data might aid in dispelling misperceptions and supporting, or
disproving, anecdotal evidence.

Relationship Between the Policy Letter and Proposed Legislation
Members of the 112th Congress have introduced several bills that would address inherently
governmental and related functions in ways which are arguably inconsistent with the final policy
letter. For example, the Correction of Long-Standing Errors in Agencies’ Unsustainable
Procurements (CLEAN-UP) Act, which has been introduced in identical versions in the House
and Senate, would require that federal employees perform functions closely associated with
123

Daniel I. Gordon, Administrator, OFPP, “Service Contract Inventories,” Appendix A (Nov. 5, 2010), available at
http://www.whitehouse.gov/sites/default/files/omb/procurement/memo/service-contract-inventories-guidance11052010.pdf.
124
Id. at 2. See, for example, the Department of Homeland Security’s FY2010 inventory, at http://www.dhs.gov/
xlibrary/assets/ ... /service-contract-inventory-dhs-2010.xls, and the Department of Transportation’s FY2010 inventory,
at http://www.dot.gov/ost/m60/serv_contract_inv.htm.
125
FPDS is available at https://www.fpds.gov. A contract action is “any oral or written action that results in the
purchase, rent, or lease of supplies or equipment, services, or construction using appropriated dollars over the micropurchase threshold, or modifications to these actions regardless of dollar value. Contract action does not include grants,
cooperative agreements, other transactions, real property leases, requisitions from Federal stock, training
authorizations, or other non-FAR based transactions.” 48 C.F.R. §4.601.
126
Global Computer Enterprises, GSA Federal Procurement Data System-Next Generation (FPDS-NG) Data Element
Dictionary, (version 1.4.2, Aug. 30, 2011), available at https://www.fpds.gov/downloads/Version_1.4.2_specs/
FPDSNG_DataDictionary_V1.4.2.pdf. See the table of contents for a complete list of the FPDS data elements.

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inherently governmental functions and critical functions, as well as inherently governmental ones
(H.R. 1949, S. 991). It would also require agencies to implement certain procedures that would
give preference to federal employees’ performance of particular functions.127 In contrast, the
Freedom from Government Competition Act, which has also been introduced in identical versions
in the House and Senate, would establish a statutory basis for the government’s policy of “not
compet[ing] with its citizens” and “rely[ing] on commercial sources to supply the products or
services that the government needs” (H.R. 1474, S. 785). It would also require federal agencies to
take one or more of the following four steps with respect to goods and services that can be
provided by private sources and that are not inherently governmental or necessary for national
defense or homeland security: (1) divesting federal involvement in providing the good or service;
(2) awarding a contract to a private sector entity using “competitive procedures,” as defined by
the Competition in Contracting Act (CICA) of 1984;128 (3) converting the activity to performance
by a qualified Indian tribe or Native Hawaiian Organization;129 and/or (4) conducting a publicprivate competition pursuant to OMB Circular A-76.
Other legislation introduced in the 112th Congress would also address inherently governmental
functions, including by designating particular functions as inherently governmental;130 mandating
specific reductions in the number of contractors performing inherently governmental or closely
associated functions for certain agencies;131 limiting agencies’ ability to conduct public-private
competitions;132 and expressing the sense of Congress that DOD should not convert a function
from performance by a contractor to performance by DOD civilian employees unless the function
is inherently governmental or the conversion is necessary to comply with DOD’s general
personnel policy (H.R. 1540, §965).

127

For example, Section 6 would require that agencies consider “using, on a regular basis, Federal employees to
perform new functions,” while Section 7 would require that agencies reduce the total number of contractor employees
performing “functions at risk” by specified percentages each year for the next six years.
128
For more on CICA, see CRS Report R40516, Competition in Federal Contracting: An Overview of the Legal
Requirements, by (name redacted).
129
Certain provisions of federal law authorize the “direct conversion” of functions to performance by such entities. A
“direct conversion” is one made without completing the public-private competition process normally required by OMB
Circular A-76. See generally CRS Report R40855, Contracting Programs for Alaska Native Corporations: Historical
Development and Legal Authorities, by (name redacted), (name redacted), and (name redacted).
130
See, e.g., S. 1546, §105 (development of guidance regarding independent verification and validation of the integrity
and quality of major acquisitions); H.R. 2017, §520 (functions performed by the instructor staff of the Federal Law
Enforcement Training Center); S. 709, §3 (approving certain security vulnerability assessments or site security plans).
131
S. 1254, §823 (requiring the Secretaries of the military departments and the heads of defense agencies to eliminate
any contractor positions identified as performing inherently governmental functions and reduce by 10% in each of
fiscal years 2012 and 2013 funding for contracts for the performance of functions closely associated with inherently
governmental functions, among other things). Similar provisions are included in S. 1253, §823.
132
S. 1573, §741 (prohibiting agencies from beginning, planning for, or announcing studies or public-private
competitions regarding the conversion to contractor performance of functions performed by government employees
until certain reports regarding inherently governmental, closely associated with inherently governmental, and critical
functions are submitted to OMB).

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Appendix. Inherently Governmental Functions and Functions Closely
Associated with Inherently Governmental Functions
Table A-1. Tabular Comparison of the Lists of Inherently Governmental Functions in the Proposed and Final Policy Letters
Significant differences between the proposed and final policy letters are highlighted in bold, italic font.
Proposed Policy Lettera

Final Policy Letterb

1. The direct conduct of criminal investigation.

1. The direct conduct of criminal investigation.

2. The control of prosecutions and performance of adjudicatory functions
(other than those relating to arbitration or other methods of alternative
dispute resolution).

2. The control of prosecutions and performance of adjudicatory functions (other than those
relating to arbitration or other methods of alternative dispute resolution).

3. The command of military forces, especially the leadership of military
personnel who are members of the combat, combat support or combat
service support role.
4. The conduct of foreign relations and the determination of foreign policy.
5. The determination of agency policy, such as determining the content and
application of regulations, among other things.
6. The determination of Federal program priorities or budget requests.
7. The direction and control of Federal employees.
8. The direction and control of intelligence and counter-intelligence
operations.
9. The selection or non-selection of individuals for Federal Government
employment.
10. The approval of position descriptions and performance standards for
Federal employees.
11. The determination of what Government property is to be disposed of
and on what terms (although an agency may give contractors authority to
dispose of property at prices with specified ranges and subject to other
reasonable conditions deemed appropriate by the agency).
12. In Federal procurement activities with respect to prime contracts: (a)
determining what supplies or services are to be acquired by the
Government (although an agency may give contractors authority to acquire
supplies at prices within specified ranges and subject to other reasonable

CRS-24

3. The command of military forces, especially the leadership of military personnel who are
performing a combat, combat support or combat service support role.
4. Combat.
5. Security provided under any of the circumstances set out below. This provision should
not be interpreted to preclude contractors taking action in self-defense or defense of
others against the imminent threat of death or serious injury. (a) Security operations
performed in direct support of combat as part of a larger integrated armed force. (b)
Security operations performed in environments where, in the judgment of the responsible
Federal official, there is significant potential for the security operations to evolve into
combat. Where the U.S. military is present, the judgment of the military commander
should be sought regarding the potential for the operations to evolve into combat. (c)
Security that entails augmenting or reinforcing others (whether private security
contractors, civilians, or military units) that have become engaged in combat.
6. The conduct of foreign relations and the determination of foreign policy.
7. The determination of agency policy, such as determining the content and application of
regulations.
8. The determination of budget policy, guidance, and strategy.
9. The determination of Federal program priorities or budget requests.
10. The selection or non-selection of individuals for Federal Government employment, including
the interviewing of individuals for employment.
11. The direction and control of Federal employees.
12. The direction and control of intelligence and counter-intelligence operations.

Proposed Policy Lettera
conditions deemed appropriate by the agency); (b) participating as a voting
member on any source selection boards; (c) approval of any contractual
documents, to include documents defining requirements, incentive plans,
and evaluation criteria; (d) awarding contracts; (e) administering contracts
(including ordering changes in contract performance or contract quantities,
taking action based on evaluations of contractor performance, and accepting
or rejecting contractor products or services); (f) terminating contracts; (g)
determining whether contract costs are reasonable, allocable, and allowable;
and (h) participating as a voting member on performance evaluation boards.
13. The approval of agency responses to Freedom of Information Act
requests (other than routine responses that, because of statute, regulation,
or agency policy, do not require the exercise of judgment in determining
whether documents are to be released or withheld), and the approval of
agency responses to the administrative appeals of denials of Freedom of
Information Act requests.
14. The conduct of administrative hearings to determine the eligibility of any
person for a security clearance, or involving actions that affect matters of
personal reputation or eligibility to participate in government programs.
15. The approval of federal licensing actions and inspections.
16. The determination of budget policy, guidance, and strategy.
17. The collection, control, and disbursement of fees, royalties, duties, fines,
taxes and other public funds, unless authorized by statute, such as title 31
U.S.C. 952 (relating to private collection contractors) and title 31 U.S.C.
3718 (relating to private attorney collection services), but not including: (a)
collection of fees, fines, penalties, costs or other charges from visitors to or
patrons of mess halls, post or base exchange concessions, national parks,
and similar entities or activities, or from other persons, where the amount
to be collected is easily calculated or predetermined and the funds collected
can be easily controlled using standard cash management techniques, and (b)
routine voucher and invoice examination.
18. The control of the Treasury accounts.
19. The administration of public trusts.
20. The drafting of Congressional testimony, responses to Congressional
correspondence, or agency responses to audit reports from the Inspector
General, the Government Accountability Office, or other federal audit
entity.

CRS-25

Final Policy Letterb
13. The approval of position descriptions and performance standards for Federal employees.
14. The determination of what government property is to be disposed of and on what terms
(although an agency may give contractors authority to dispose of property at prices with
specified ranges and subject to other reasonable conditions deemed appropriate by the agency).
15. In Federal procurement activities with respect to prime contracts: (a) determining what
supplies or services are to be acquired by the government (although an agency may give
contractors authority to acquire supplies at prices within specified ranges and subject to other
reasonable conditions deemed appropriate by the agency); (b) participating as a voting member
on any source selection boards; (c) approving of any contractual documents, including documents
defining requirements, incentive plans, and evaluation criteria; (d) determining that prices are
fair and reasonable; (e) awarding contracts; (f) administering contracts (including ordering
changes in contract performance or contract quantities, making final determinations about a
contractor’s performance, including approving award fee determinations or past performance
evaluations and taking action based on those evaluations, and accepting or rejecting contractor
products or services); (g) terminating contracts; (h) determining whether contract costs are
reasonable, allocable, and allowable; and (i) participating as a voting member on performance
evaluation boards.
16. The selection of grant and cooperative agreement recipients including: (a) approval of
agreement activities, (b) negotiating the scope of work to be conducted under
grants/cooperative agreements, (c) approval of modifications to grant/cooperative
agreement budgets and activities, and (d) performance monitoring.
17. The approval of agency responses to Freedom of Information Act requests (other than
routine responses that, because of statute, regulation, or agency policy, do not require the
exercise of judgment in determining whether documents are to be released or withheld), and the
approval of agency responses to the administrative appeals of denials of Freedom of Information
Act requests.
18. The conduct of administrative hearings to determine the eligibility of any person for a
security clearance, or involving actions that affect matters of personal reputation or eligibility to
participate in government programs.
19. The approval of Federal licensing actions and inspections.
20. The collection, control, and disbursement of fees, royalties, duties, fines, taxes and other
public funds, unless authorized by statute, such as title 31 U.S.C. 952 (relating to private
collection contractors) and title 31 U.S.C. 3718 (relating to private attorney collection services),
but not including: (a) collection of fees, fines, penalties, costs or other charges from visitors to or
patrons of mess halls, post or base exchange concessions, national parks, and similar entities or
activities, or from other persons, where the amount to be collected is predetermined or can be
readily calculated and the funds collected can be readily controlled using standard cash
management techniques, and (b) routine voucher and invoice examination.

Proposed Policy Lettera

Final Policy Letterb
21. The control of the Treasury accounts.
22. The administration of public trusts.
23. The drafting of official agency proposals for legislation, Congressional testimony, responses to
Congressional correspondence, or responses to audit reports from an inspector general, the
Government Accountability Office, or other Federal audit entity.
24. Representation of the government before administrative and judicial tribunals, unless a
statute expressly authorizes the use of attorneys whose services are procured through contract.

Source: Congressional Research Service, based on 76 Fed. Reg. at 56240-41; 75 Fed. Reg. at 16196-97.
a.

The listing of inherently governmental functions given in the proposed policy letter is identical to that given in the FAR. See 48 C.F.R. §7.503(c).

b.

The final policy letter’s listing of inherently governmental functions notes that functions may consist of multiple activities, not all of which are inherently governmental.

Table A-2. Tabular Comparison of the Lists of Functions Closely Associated with Inherently Governmental Functions in the
Proposed and Final Policy Letters
Significant differences between the proposed and final policy letters are highlighted in bold, italic font.
Proposed Policy Lettera

Final Policy Letterb

1. Services that involve or relate to budget preparation, including workforce modeling,
fact finding, efficiency studies, and should-cost analyses.

1. Services in support of inherently governmental functions, including, but not limited
to the following:

2. Services that involve or relate to reorganization and planning activities.

(a) performing budget preparation activities, such as workload modeling, fact finding,
efficiency studies, and should-cost analyses.

3. Services that involve or relate to analyses, feasibility studies, and strategy options to
be used by agency personnel in developing policy.
4. Services that involve or relate to the development of regulations.
5. Services that involve or relate to the evaluation of another contractor’s
performance.
6. Services in support of acquisition planning.
7. Assistance in contract management (particular where a contractor might
influence official evaluations of other contractors' offers).
8. Technical evaluation of contract proposals.
9. Assistance in the development of statements of work.
10. Support in preparing responses to Freedom of Information Act requests.
11. Work in any situation that permits or might permit access to confidential business

CRS-26

(b) undertaking activities to support agency planning and reorganization.
(c) providing support for developing policies, including drafting documents, and
conducting analyses, feasibility studies, and strategy options.
(d) providing services to support the development of regulations and legislative
proposals pursuant to specific policy direction.
(e) supporting acquisition, including in the areas of: i) acquisition planning, such
as by—I) conducting market research, II) developing inputs for government cost
estimates, and III) drafting statements of work and other pre-award documents;
ii) source selection, such as by—I) preparing a technical evaluation and
associated documentation; II) participating as a technical advisor to a source
selection board or as a nonvoting member of a source selection evaluation
board; and III) drafting the price negotiations memorandum; and iii) contract
management, such as by—I) assisting in the evaluation of a contractor's

Proposed Policy Lettera

Final Policy Letterb

information and/or any other sensitive information (other than situations covered by
the National Industrial Security Program described in FAR 4.402(b)).

performance (e.g., by collecting information performing an analysis, or making a
recommendation for a proposed performance rating), and II) providing support
for assessing contract claims and preparing termination settlement documents.

12. Dissemination of information regarding agency policies or regulations, such as
attending conferences on behalf of an agency, conducting community relations
campaigns, or conducting agency training courses.

(f) Preparation of responses to Freedom of Information Act requests.

13. Participation in any situation where it might be assumed that participants are
agency employees or representatives.

2. Work in a situation that permits or might permit access to confidential business
information or other sensitive information (other than situations covered by the
National Industrial Security Program described in FAR 4.402(b)).

14. Participation as technical advisors to a source selection board or as nonvoting
members of a source evaluation board.

3. Dissemination of information regarding agency policies or regulations, such as
conducting community relations campaigns, or conducting agency training courses.

15. Service as arbitrators or provision of alternative dispute resolution (ADR) services.

4. Participation in a situation where it might be assumed that participants are agency
employees or representatives, such as attending conferences on behalf of an agency.

16. Construction of buildings or structures intended to be secure from electronic
eavesdropping or other penetration by foreign governments.
17. Provision of inspection services.
18. Drafting of legal advice and interpretations of regulations and statutes to
government officials.
19. Provision of special non-law-enforcement security activities that do not directly
involve criminal investigations, such as prisoner detention or transport and nonmilitary national security details.

5. Service as arbitrators or provision of alternative dispute resolution (ADR) services.
6. Construction of buildings or structures intended to be secure from electronic
eavesdropping or other penetration by foreign governments.
7. Provision of inspection services.
8. Provision of legal advice and interpretations of regulations and statutes to
government officials.
9. Provision of non-law-enforcement security activities that do not directly involve
criminal investigations, such as prisoner detention or transport and non-military
national security details.

Source: Congressional Research Service, based on 76 Fed. Reg. at 56241; 75 Fed. Reg. at 16197.
a.

The listing of functions closely associated with inherently governmental functions given in the proposed policy letter is identical to that given in the FAR. See 48 C.F.R.
§7.503(d).

b.

The final policy letter’s listing of functions closely associated with inherently governmental functions notes that functions may consist of multiple activities, not all of
which are inherently governmental.

CRS-27

Performance of Inherently Governmental and Critical Functions

Author Contact Information
(name redacted)
Legislative Attorney
[redacted]@crs.loc.gov, 7-....

[Text truncated at 120,000 characters. The full text is on the page linked above.]

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3AR42039. Public record. Not legal advice.