Sourcing Policy: Selected Developments and Issues
Congressional research reportFeb 7, 2012
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Sourcing Policy: Selected Developments and
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-name redactedSpecialist in American National Government
February 7, 2012
Congressional Research Service
7-....
www.crs.gov
R42341
CRS Report for Congress
Prepared for Members and Committees of Congress
Sourcing Policy: Selected Developments and Issues
Summary
Dating back to the 1950s, federal sourcing policy generally has focused on the premise that the
government should rely on the private sector for the provision of certain goods and services.
Additionally, it has centered around guidance for conducting public-private competitions to
determine whether federal employees, or contractor employees, should be selected to perform
certain agency functions. The Administration of President George W. Bush, in particular,
emphasized subjecting eligible agency functions to public-private competitions. Branding this
policy, and related guidance, as competitive sourcing, the Bush Administration included it as one
component of the President’s Management Agenda.
During the Administration of President Barack Obama, another strain, or facet, of sourcing policy
surfaced. Labeled multi-sector workforce management by the Administration, it posits that
federal agencies might be susceptible to overreliance on contractors, which could affect the
ability of agencies to maintain control over their missions and operations. OMB’s July 2009
memorandum provides guidance to agencies on how to manage their multi-sector workforces.
The Office of Federal Procurement Policy’s Policy Letter 11-01—by providing a single,
consistent definition of inherently governmental and guidance for identifying and managing
inherently governmental functions, functions closely associated with inherently governmental
functions, and critical functions—complements the Administration’s multi-sector workforce
management policy. This letter was issued in September 2011.
Congressional interest in sourcing policy, generally, has been evident for some time. For example,
in 1998, the Federal Activities Inventory Reform (FAIR) Act (P.L. 105-270) was signed into law.
It requires certain federal agencies to compile, and submit annually to OMB, inventories of their
commercial activities, which are activities that may be performed by federal employees or a
government contractor. Recent signs of interest in sourcing policy include two substantively
similar but identically titled bills that were introduced during the 112th Congress. H.R. 1474 and
S. 785, the Freedom From Government Competition Act, contain provisions that would expand
upon existing policies designed to encourage federal government reliance on the private sector for
the provision of both goods and services.
This report provides an overview of the evolution of federal sourcing policy to date and identifies
the major policy issues before Congress. It is not a legislation tracking report. This report will be
updated as events warrant.
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Contents
Introduction...................................................................................................................................... 1
Background...................................................................................................................................... 3
Key Terms: Commercial and Inherently Governmental ............................................................ 3
Commercial Activities......................................................................................................... 4
Inherently Governmental Functions.................................................................................... 5
The Role of the Private Sector................................................................................................. 11
Recent Developments in the History of Sourcing Policy .............................................................. 18
Competitive Sourcing.............................................................................................................. 18
Commercial Activities Panel’s Sourcing Principles ................................................................ 21
Statutory Requirement for Agencies to Develop Insourcing Guidelines................................. 22
OMB Memorandum on Multi-Sector Workforce Management .............................................. 24
Framework for Managing the Multi-Sector Workforce .................................................... 25
Multi-Sector Workforce Pilot ............................................................................................ 26
Insourcing Guidance ......................................................................................................... 26
Office of Federal Procurement Policy’s Policy Letter 11-01................................................... 28
Policy Issues .................................................................................................................................. 29
Competitive Sourcing, Multi-Sector Workforce Management, and Insourcing ...................... 29
The Federal Government’s Reliance on Contractors............................................................... 31
A Typology of Government Functions .................................................................................... 33
Personnel Sustainment ...................................................................................................... 34
An Institutional Perspective .............................................................................................. 34
Outcomes and Data.................................................................................................................. 35
Cost Considerations................................................................................................................. 39
Cost Analysis..................................................................................................................... 39
Are Cost Savings a Goal of Multi-Sector Workforce Management? ................................ 46
Resources................................................................................................................................. 47
Department of Homeland Security’s Balanced Workforce Strategy ....................................... 48
Concluding Remarks ..................................................................................................................... 51
Tables
Table 1. Definitions of Commercial and Inherently Governmental................................................. 6
Table 2. Policy History of Governmental Reliance on the Private Sector ..................................... 11
Table 3. Selected Features of Competitive Sourcing and Multi-Sector Workforce
Management ............................................................................................................................... 30
Table 4. Conceptual Elements of the Market System and the Public Policy Process .................... 35
Appendixes
Appendix. Selected Sources .......................................................................................................... 52
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Contacts
Author Contact Information........................................................................................................... 53
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Introduction
Sourcing policy refers, generally, to determining which sector—public (government) or private—
will perform an agency’s function(s). Both federal employees and contractor employees have
valid roles to play in performing the work of the federal government. This combined workforce is
known as a blended workforce.1 Determining which sector will perform which functions,
including determining when federal employee performance is, or should be, required can be
challenging, however. Efforts to address this issue, and related questions, have been the subject of
the federal government’s sourcing policy since at least the 1950s.
Sourcing policy is not so much a product of coordinated planning and implementation as it is an
amalgamation of statutory provisions, policy letters, administrative directives,2 and guidance
issued by various presidential administrations. Sourcing policy has been at the root of contentious
debates, which may complicate the somewhat murky picture. This brief overview of the report is
provided to assist in navigating the subject of sourcing policy.
Sourcing policy encompasses two major strains. Delving into the history of sourcing policy is
necessary for understanding the strain that emerged in the 1950s, and for providing context for
the strain that emerged during President Barack Obama’s Administration. The latter strain has not
necessarily displaced, or replaced, the former strain, though it might not always be clear to
outside observers what actions agencies are taking, or are expected to take. The complexity might
be due, at least in part, to the ad hoc fashion in which sourcing policy has evolved and the mix of
government documents involved.
The strain that emerged first, with the issuance of three Bureau of the Budget (BOB) bulletins in
the 1950s, emphasizes governmental reliance on the private sector for the provision of goods and
services.3 An unwritten corollary of this strain of sourcing policy has been that certain functions
performed by federal employees may be subjected to public-private competition. A competition
1
While acknowledging that there is “no common agreement on a definition of the multisector [or blended] workforce,”
a working group of the National Academy of Public Administration (NAPA), provides an expanded description of this
term. The multi-sector workforce consists of “federal, state and local civil servants (whether full- or part-time,
temporary or permanent); uniformed personnel; and contractor personnel [who] often work on different elements of
program implementation, sometimes in the same workplace, but under substantially different governing laws, different
systems for compensation, appointment, discipline, and termination; and different ethical standards.” (National
Academy of Public Administration, Managing Federal Missions With a Multisector Workforce: Leadership for the 21st
Century,” November 16, 2005, p. 1, at https://www.acquisition.gov/comp/aap/documents/
National%20Academy%20of%20Public%20Administration%20%2012%2016%2005.pdf.) Another description says
that the “the type of workplace arrangement” where “contractor personnel work alongside federal employees in the
federal workspace; often performing identical functions … has become known as a ‘blended’ or ‘multisector’
workforce.” (Acquisition Advisory Panel, Report of the Acquisition Advisory Panel to the Office of Federal
Procurement Policy and the United States Congress, January 2007, p. 392, at https://www.acquisition.gov/comp/aap/
finalaapreport.html.) The Obama Administration uses the term multi-sector workforce. (See “OMB Memorandum on
Multi-Sector Workforce Management.”) The Government Accountability Office uses the term total workforce. (U.S.
Government Accountability Office, Civilian Agencies’ Development and Implementation of Insourcing Guidelines,
GAO-10-58R, October 6, 2009, p. 7, at http://www.gao.gov/new.items/d1058r.pdf.) The Department of Homeland
Security uses the term balanced workforce. (See “Department of Homeland Security’s Balanced Workforce Strategy.”)
2
Chief among these is Office of Management and Budget Circular A-76, which is discussed below.
3
The Bureau of the Budget was the precursor to the Office of Management and Budget (OMB). Additional information
regarding these bulletins is provided below.
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determines whether the incumbent workforce would continue to perform the work, or the agency
would award a contract to a private company to perform the work.
Circular A-76, which was issued initially in 1966, continued this policy of governmental reliance
on the private sector and provides guidance and procedures for carrying out public-private
competitions. The Office of Management and Budget has published five revisions to the circular.
The current circular (or revision) was released in May 2003. Generally, the term introduced by
the Administration of President George W. Bush—competitive sourcing—is associated with this
strain of sourcing policy.4
Throughout the history of sourcing policy, only certain functions have been eligible for publicprivate competitions. Beginning with the Bureau of the Budget bulletins published during the
Eisenhower Administration, only agency functions identified as commercial may be subjected to
public-private competitions. Any agency function designated as governmental (or, later,
inherently governmental) must be performed by federal employees.
With the continued emphasis on governmental reliance on the private sector finding expression in
a “[g]overnment policy [that] has favored contracting for goods and services rather than
providing them in-house,”5 the commercial/inherently governmental dichotomy and the focus on
public-private competitions sufficed for a number of years. As the needs of the government
expanded over the years, however, contracting for services grew, both in terms of the amount
spent on contracts and the types of services provided by contractors. Notably, the federal
government’s short-term and long-term responses to the terrorist attacks of September 11, 2001,
involved a significant growth in service contracting. The federal government invaded Afghanistan
and then Iraq; added a new department tasked with safeguarding the homeland; and embarked
upon a raft of new initiatives and programs involving, for example, intelligence, transportation
security, and cybersecurity. Determining who should do the work of the federal government
became more challenging as, for example, certain practices were called into question (e.g., using
companies to conduct passenger screening at airports); controversy swirled around some events
that involved private security contractors (e.g., private security guards reportedly shot Iraqi
civilians in 20076); and concerns surfaced that, in the rush to expand its capabilities, the federal
government was at risk of having contractor employees perform inherently governmental work.
Thus, the second strain of sourcing policy that has emerged focuses on ensuring that the federal
government has the best, or most appropriate, mix of federal employees and contractor
employees. The Obama Administration, through guidance issued by the Office of Management
and Budget, refers to this strain as multi-sector workforce management. Unlike competitive
sourcing, the multisector workforce management strain relies chiefly (though not entirely) on an
expanded typology of functions and associated guidance to determine who—federal employees or
contractor employees—should perform which agency functions. Additions to the existing
typology (commercial functions and inherently governmental functions) are critical functions and
functions closely associated with inherently governmental functions. According to the Obama
Administration’s guidance, multi-sector workforce management was devised to ensure that
4
Any mention of President Bush or the Bush Administration in this report refers to President George W. Bush.
U.S. Commission on Government Procurement, Report of the Commission on Government Procurement, Volume 1,
Washington, DC, December 1972, p. 57.
6
James Glanz and Alissa J. Rubin, “Blackwater Shootings ‘Murder,’ Iraq Says,” New York Times, October 7, 2007, at
http://www.nytimes.com/2007/10/08/world/middleeast/08blackwater.html?pagewanted=all.
5
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agencies’ reliance on contractors is not excessive.7 Restated, this strain focuses on ensuring that
agencies, not contractors, perform inherently governmental functions, and that agencies retain
control over their mission and operations.8
This report begins with a history of sourcing policy that focuses on the terms commercial and
inherently governmental, and the policy of government reliance on the private sector. The
following section examines the two strains of sourcing policy: competitive sourcing and multisector workforce management. The juxtaposition of the Bush Administration’s competitive
sourcing initiative and the Obama Administration’s multi-sector workforce management effort
aids in understanding different, yet potentially complementary, facets of sourcing policy. Policy
issues that may be of interest to the 112th Congress are also discussed.
Background
Key Terms: Commercial and Inherently Governmental
Familiarity with the terms commercial and inherently governmental is integral to understanding
the federal government’s sourcing policy and related issues.9 A commercial activity may be
performed by a contractor employee or a federal employee. An inherently governmental function
may be performed only by federal employees.10 Although, at times or under certain
circumstances, other terms have been used, such as core functions, government-wide sourcing
policy, generally, has relied on this dichotomy: a government function (or activity)11 is either
commercial or inherently governmental.
7
Peter R. Orszag, Director, U.S. Office of Management and Budget, “Managing the Multi-Sector Workforce,” July 29,
2009, p. 1, at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdf.
8
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 Federal Register 56227-56242, September
12, 2011, at http://www.gpo.gov/fdsys/pkg/FR-2011-09-12/pdf/2011-23165.pdf.
9
For the purposes of sourcing policy, commercial has a different meaning than commercial item, which is a term used
in government procurement generally. The definition of commercial item reads in part: A commercial item is “(1) Any
item, other than real property, that is of a type customarily used by the general public or by non-governmental entities
for purposes other than governmental purposes, and—(i) Has been sold, leased, or licensed to the general public; or (2)
Has been offered for sale, lease, or license to the general public....” (48 CFR §2.101(a).)
10
“Contracts shall not be used for the performance of inherently governmental functions.” (48 CFR §7.503(a).)
11
Historically, the words activities and functions have been treated as synonyms. That is, it has been general practice to
use the terms commercial activities and inherently governmental functions. An American Bar Association white paper
attempted to clarify these terms, noting that “people who occupy positions perform functions. Activities are groups of
people who perform functions; i.e., assigned duties, to achieve objectives, including supporting others—at least that is
the sense in which OMB Circular A-76 uses the term ‘activity.’” (Task Force of the American Bar Association Public
Contract Law Section, “Work Reserved for Performance by Federal Government Employees, OFPP Draft Policy Letter
dated March 31, 2010, Issues and Challenges,” white paper, June 16, 2010, p. 4, at http://www.americanbar.org/
content/dam/aba/migrated/contract/wp061610.authcheckdam.pdf.) The Office of Federal Procurement Policy addressed
this issue in the preamble accompanying its policy letter on inherently governmental and critical functions. (See
“Office of Federal Procurement Policy’s Policy Letter 11-01.”) OFPP wrote that it “recognizes that the terms [function,
activity, and position] have different meanings and agrees that more careful use of these terms may help to avoid
inappropriately broad generalizations regarding the characterization of work. A function, for example, often includes
multiple activities, or tasks, some of which may be inherently governmental, some of which may be closely associated
with inherently governmental work, and some may be neither.” (Office of Federal Procurement Policy, “Publication of
the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and
(continued...)
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An agency may choose to subject a commercial activity to a public-private competition. The
competition is held to determine who will perform the work in the future: the incumbent
workforce (usually federal employees) or the competitor (usually a contractor). Office of
Management and Budget (OMB) Circular A-76 provides the policy and guidance governing
public-private competitions.12
As discussed below, a description of commercial activity appeared initially in a 1955 Bureau of
the Budget (BOB) bulletin and a definition was published in 1966. A written definition of
inherently governmental was first published in 1979.13
Commercial Activities
Bureau of the Budget Bulletin 55-4 may have been the first policy document that addressed the
idea that a government activity may be commercial in nature. The relevant passage is as follows:
In determining whether an activity is “commercial” in nature and “could be procured …
through ordinary business channels,” reference may be made to the Standard Industrial
Classification Manual and to ordinary business practice with respect to procurement of
services or products. The inclusion of an activity in the manual will be generally considered
indicative that it may be procured commercially. There will be excluded from coverage as
noncommercial, however, those functions which are a part of the normal management
responsibilities of a Government agency or a private business of comparable size (such as
accounting, personnel work, and the like).14
Eleven years later, the Bureau of the Budget provided a definition of commercial activity. The
definition, which was included in the original Circular A-76, reads as follows:
A Government commercial or industrial activity is one which is operated and managed by an
executive agency and which provides for the Government’s own use a product or service that
is obtainable from a private source.15
The word industrial was dropped with the publication of the 1983 revision to Circular A-76.
The current definition of commercial activity, which features the term recurring service, may be
found in the 2003 version of Circular A-76.
[A commercial activity is a] recurring service that could be performed by the private sector.
This recurring service is an agency requirement that is funded and controlled through a
contract, fee-for-service agreement, or performance by government personnel. Commercial
(...continued)
Critical Functions,” p. 56233.) Determining the appropriate circumstances under which to use the term activity or
function is beyond the scope of this report. Hence, this report adheres to longstanding practice and uses the terms
commercial activity and inherently governmental function.
12
The circular may be found at http://www.whitehouse.gov/sites/default/files/omb/assets/about_omb/
a76_incl_tech_correction.pdf.
13
The Bureau of the Budget was the predecessor to the Office of Management and Budget.
14
U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products or Services for
Governmental Use,” Bulletin No. 55-4, January 15, 1955, p. 2.
15
U.S. Bureau of the Budget, “Policies for Acquiring Commercial or Industrial Products and Services for Government
Use,” Circular No. A-76, March 3, 1966, p. 1. (Underlining in original.)
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activities may be found within, or throughout, organizations that perform inherently
governmental activities or classified work.16
Under the Federal Activities Inventory Reform (FAIR) Act (P.L. 105-270), agencies are required
to submit inventories of their commercial activities to OMB by June 30 of each year. An agency’s
inventory is to include, for each activity listed, the “number of full-time employees [FTEs] (or its
equivalent)” needed for government performance.17
Inherently Governmental Functions
A definition of the term governmental function did not appear in a sourcing policy document until
1979, 24 years after the term commercial was introduced. The definition of governmental
function, which was included in the 1979 revision to Circular A-76, was as follows:
A “Governmental function” is a function which must be performed in-house due to a special
relationship in executing governmental responsibilities. Such governmental functions can fall
into several categories: (1) Discretionary application of Government authority…. (2)
Monetary transactions and entitlements…. (3) In-house core capabilities….18
The term commonly used today, inherently governmental function, appeared initially in the Office
of Federal Procurement Policy’s (OFPP’s) Policy Letter 92-1, which was issued in September
1992. (The letter was superseded by the 2003 revision to Circular A-76.) Policy Letter 92-1
provided the following definition:
As a matter of policy, an “inherently governmental function” is a function that is so
intimately related to the public interest as to mandate performance by Government
employees. These functions include those 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: (1)
the act of governing, i.e., the discretionary exercise of Government authority, and (2)
monetary transactions and entitlements.19
Currently, there are three primary definitions of inherently governmental, which may be found in
Circular A-76,20 48 CFR §2.101(a),21 and Section 5(1)(A) and (B) of the FAIR Act.22 Charged
16
U.S. Office of Management and Budget, “Performance of Commercial Activities,” Circular No. A-76 (Revised),
May 29, 2003, p. D-2, at http://www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a076/
a76_incl_tech_correction.pdf.
17
Section 2(a) of P.L. 105-270. A full-time equivalent is the “staffing of Federal civilian employee positions, expressed
in terms of annual productive work hours (1,776) rather than annual available hours that includes non-productive hours
(2,080 hours).” (U.S. Office of Management and Budget, “Performance of Commercial Activities,” Circular No. A-76
(Revised), May 29, 2003, p. D-5.)
18
U.S. Office of Management and Budget, “Acquiring of Commercial or Industrial Products and Services Needed by
the Government; Policy Revision,” April 5, 1979. (This is the March 29, 1979 revision of Circular A-76.) (Italics in
original.) The full description of the third category is as follows: “(3) In-house core capabilities in the area of research,
development, and testing, needed for technical analysis and evaluation and technology base management and
maintenance. However, requirements for such services beyond the core capability which has been established and
justified by the agency are not considered governmental functions.” (Ibid.) (Italics in original.)
19
Office of Federal Procurement Policy, “Inherently Governmental Functions,” Policy Letter 92-1, September 23,
1992, p. 2, at http://www.whitehouse.gov/omb/procurement_policy_letter_92-01/.
20
See p. A-2 of Circular A-76, at http://www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a076/
a76_incl_tech_correction.pdf.
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with developing a single consistent definition of inherently governmental,23 however, OFPP
selected the FAIR Act definition, which it included in its 2011 policy letter on inherently
governmental functions and critical functions.24 This definition reads as follows:
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…. 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.25
Under the Bush Administration, OMB required agencies to submit inventories of their civilian
inherently governmental positions when they submitted their commercial activities inventories to
OMB each year.26
Table 1 provides the definitions and descriptions of commercial and inherently governmental that
have been used at various times since 1955. The current definition of commercial may be found
in Circular A-76 (2003) while the current definition of inherently governmental may be found in
P.L. 105-270, which is the Federal Activities Inventory Reform (FAIR) Act.
Table 1. Definitions of Commercial and Inherently Governmental
1955-Present
Document (year)
Bulletin 55-4 (1955)
Definition or Description of
Commercial Activity
Definition or Description of
Inherently Governmental
“In determining whether an activity is
‘commercial’ in nature and ‘could be
procured … through ordinary
business channels,’ reference may be
made to the Standard Industrial
Classification Manual and to ordinary
business practice with respect to
procurement of services or products.
The inclusion of an activity in the
manual will be generally considered
indicative that it may be procured
commercially. There will be excluded
from coverage as noncommercial,
however, those functions which are a
No entry.
(...continued)
21
See also Subpart 7.5 of Tile 48 of the Code of Federal Regulations.
22
While certain elements of all three definitions are the same, or similar, such as the phrase intimately related to the
public interest, there is variation among other terms used in the definitions, including function and activity, employees
and personnel, and government and Federal Government. A particularly notable difference, some commentators would
suggest, is that the 2003 circular mentions the exercise of substantial discretion while neither of the other two
definitions includes the modifier substantial.
23
Section 321 of P.L. 110-417.
24
See “Office of Federal Procurement Policy’s Policy Letter 11-01.”
25
Section 5(2)(A) and (B) of P.L. 105-270.
26
Sean O’Keefe, Deputy Director, U.S. Office of Management and Budget, “Year 2001 Inventory of Commercial
Activities,” memorandum M-01-16, April 3, 2001, p. 1, http://www.whitehouse.gov/sites/default/files/omb/
memoranda/m01-16.pdf.
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Document (year)
Definition or Description of
Commercial Activity
Definition or Description of
Inherently Governmental
part of the normal management
responsibilities of a Government
agency or a private business of
comparable size (such as accounting,
personnel work, and the like).”
Bulletin 57-7 (1957)
“In determining whether an activity is
‘commercial’ in nature and ‘can be
procured … through ordinary
business channels,’ reference may be
made to the Standard Industrial
Classification Manual, to the
availability of the service or product
on a competitive basis, and to
ordinary business practice with
respect to procurement thereof. The
inclusion of an activity in the manual
will be generally considered indicative
that it may be procured through
ordinary business channels. There will
be excluded as noncommercial,
however, those functions which are a
part of the normal management
responsibilities of a Government
agency or a private business of
comparable size (such as accounting,
personnel work, and the like)….”
No entry.
Bulletin 60-2 (1959)
“‘Commercial-industrial activity … for
its own use’ includes the provision of
services or products primarily for the
use of a Government agency (whether
the providing agency or other
agencies), but excludes, for the
purpose of this Bulletin, activities
producing a service or product
primarily for the public or agency
employees. Also excluded are
functions which are a part of the
normal management responsibilities of
a Government agency or a private
firm of a comparable size (such as
accounting, personnel work, and the
like). In determining whether an
activity is ‘commercial-industrial’ in
nature and ‘can be procured from
private enterprise through ordinary
business channels,’ reference may be
made to the Standard Industrial
Classification Manual….”
No entry.
Circular A-76 (1966)
“A Government commercial or
industrial activity is one which is
operated and managed by an
executive agency and which provides
for the Government’s own use a
product or service that is obtainable
from a private source.”
No entry.
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Definition or Description of
Commercial Activity
Definition or Description of
Inherently Governmental
Circular A-76 (1967)
“A Government commercial or
industrial activity is one which is
operated and managed by an
executive agency and which provides
for the Government’s own use a
product or service that is obtainable
from a private source.”
No entry.
Circular A-76 (1979)
“A ‘Government commercial or
industrial activity’ is one which is
operated and managed by a Federal
executive agency and which provides a
product or service that could be
obtained from a private source. A
representative, but not
comprehensive, listing of such
activities is provided in Attachment A
[of this circular]. An activity can be
identified with an organization or a
type of work, but must be (1)
separable from other functions so as
to be suitable for performance either
in-house or by contract; and (2) a
regularly needed activity of an
operational nature, not a one-time
activity of short duration associated
with support of a particular project.”
“A ‘Governmental function’ is a
function which must be performed inhouse due to a special relationship in
executing governmental
responsibilities. Such governmental
functions can fall into several
categories: (1) Discretionary application
of Government authority…. (2) Monetary
transactions and entitlements…. (3) Inhouse core capabilities.”a
Circular A-76 (1983)
A commercial activity is one which is
operated by a Federal executive
agency and which provides a product
or service which could be obtained
from a commercial source. A
commercial activity is not a
Governmental function. A
representative list of such activities is
provided in Attachment A [of this
circular]. A commercial activity also
may be part of an organization or a
type of work that is separable from
other functions or activities and is
suitable for performance by contract.”
“A Governmental function is a function
which is so intimately related to the
public interest as to mandate
performance by Government
employees. These functions include
those activities which require either
the exercise of discretion in applying
Government authority or the use of
value judgment in making decisions for
the Government. Services or
products in support of Governmental
functions, such as those listed in
Attachment A [of this circular] are
commercial activities and are normally
subject to this Circular. Governmental
functions normally fall into two
categories: 1) The act of governing….
(2) Monetary transactions and
entitlements….”
Document (year)
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Document (year)
Definition or Description of
Commercial Activity
Definition or Description of
Inherently Governmental
OFPP Policy Letter 92-1 (1992)
No entry.
“As a matter of policy, an ‘inherently
governmental function’ is a function
that is so intimately related to the
public interest as to mandate
performance by Government
employees. These functions include
those 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: (1) the act of governing,
i.e., the discretionary exercise of
Government authority, and (2)
monetary transactions and
entitlements.”
P.L. 105-270 (1998)b
No entry.
“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….
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.”
Circular A-76 (1999)
“A commercial activity is one which is
operated by a Federal executive
agency and which provides a product
or service that could be obtained
from a commercial source. Activities
that meet the definition of an
inherently Governmental function
provided below [in this circular] are
not commercial activities…. A
commercial activity also may be part
of an organization or a type of work
that is separable from other functions
or activities is suitable for
performance by contract.”
“An inherently Governmental function
is a function which is so intimately
related to the public interest as to
mandate performance by Government
employees. Consistent with the
definitions provided in the Federal
Activities Inventory Reform Act of
1998 [P.L. 105-270] and OFPP Policy
Letter 92-1, these functions include
those activities which require either
the exercise of discretion in applying
Government authority or the use of
value judgments in making decisions
for the Government. Services or
products in support of inherently
Governmental functions, such as
those listed in Attachment A [of this
circular], are commercial activities and
are normally subject to this Circular.
Inherently Governmental functions
normally fall into two categories: (1)
The act of governing…. (2) Monetary
transactions and entitlements….”
48 CFR §2.101(b) (2001)c
No entry.
“Inherently governmental function
means, as a matter of policy, a
function that is so intimately related
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Document (year)
Definition or Description of
Commercial Activity
Definition or Description of
Inherently Governmental
to the public interest as to mandate
performance by Government
employees. This definition is a policy
determination, not a legal
determination. 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.”
Circular A-76 (2003)
“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.”
“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 discretion in
applying government authority and/or
in making decisions for the
government. Inherently governmental
activities normally fall into two
categories: the exercise of sovereign
government authority or the
establishment of procedures and
process related to the oversight to
monetary transactions or
entitlements.”
Sources: U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products
or Services for Governmental Use,” Bulletin No. 55-4, January 15, 1955, p. 2; U.S. Bureau of the Budget,
“Commercial-Industrial Activities of the Government Providing Products or Services for Governmental Use,”
Bulletin No. 57-7, February 5, 1957, p. 1; U.S. Bureau of the Budget, “Commercial-Industrial Activities of the
Government Providing Products or Services for Governmental Use,” Bulletin No. 60-2, September 21, 1959, p. 1
(underlining in original); U.S. Bureau of the Budget, “Policies for Acquiring Commercial or Industrial Products
and Services for Government Use,” Circular No. A-76, March 3, 1966, p. 1 (underlining in original); U.S. Bureau
of the Budget, “Policies for Acquiring Commercial or Industrial Products and Services for Government Use,”
Circular No. A-76 (Revised), August 30, 1967, p. 1 (underlining in original); U.S. Office of Management and
Budget, “Acquiring of Commercial or Industrial Products and Services Needed by the Government; Policy
Revision,” 44 Federal Register 20558, April 5, 1979 (This is the March 29, 1979 revision of Circular A-76.) (italics
in original); U.S. Office of Management and Budget, “Issuance of OMB Circular No. A-76 (Revised) ‘Performance
of Commercial Activities’,” 48 Federal Register 37114, August 16, 1983 (This is the August 4, 1983 revision of
Circular A-76.) (italics in original); Office of Federal Procurement Policy, “Inherently Governmental Functions,”
Policy Letter 92-1, September 23, 1992, p. 2, at http://www.whitehouse.gov/omb/procurement_policy_letter_9201/; 48 CFR §2.101(a) (italics in original); §5(2)(A) and (B) of P.L. 105-270; U.S. Office of Management and
Budget, “Performance of Commercial Activities,” Circular No. A-76, August 4, 1983 (Revised 1999), pp. 2-3
(underlining in original); U.S. Office of Management and Budget, “Performance of Commercial Activities,”
Circular No. A-76 (Revised), May 29, 2003, pp. A-2-A-3, at http://www.whitehouse.gov/sites/default/files/omb/
assets/omb/circulars/a076/a76_incl_tech_correction.pdf; 48 CFR §2.101(b).
Notes:
a.
The full description of the third category is as follows: “(3) In-house core capabilities in the area of research,
development, and testing, needed for technical analysis and evaluation and technology base management and
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maintenance. However, requirements for such services beyond the core capability which has been
established and justified by the agency are not considered governmental functions.” (U.S. Office of
Management and Budget, “Acquiring of Commercial or Industrial Products and Services Needed by the
Government; Policy Revision,” 44 Federal Register 20558, April 5, 1979 (This is the March 29, 1979 revision
of Circular A-76.) (Italics in original.)
b.
P.L. 105-270 is the Federal Activities Inventory Reform (FAIR) Act.
c.
See also Subpart 7.5, “Inherently Governmental Functions,” of Title 48 of the Code of Federal Regulations
for, among other things, “a list of examples of functions considered to be inherently governmental functions
or which shall be treated as such.” (48 CFR §7.503(c).)
The Role of the Private Sector
Governmental reliance on businesses for the provision of goods and services has a long history in
the United States and pre-dates the ratification of the Constitution and the establishment of the
nation. The colonies relied on merchants, farmers, and craftsmen for supplying their troops during
the French and Indian War and the Revolutionary War.27
The federal government’s written policy of relying on the private sector for the provision of
goods and services has its origins in three Bureau of the Budget bulletins issued in the 1950s.
OMB Circular A-76, first published in 1966 and revised several times over the years, continues
this policy.28 Most of these documents also identify, or describe, circumstances under which
federal employee performance of commercial functions was, or is, permitted. Table 2 contains
excerpts from the three bulletins, the original Circular A-76, and all of the revised versions of
Circular A-76.
Table 2. Policy History of Governmental Reliance on the Private Sector
Bureau of the Budget Bulletins and OMB Circular A-76
Document
(date)
Bureau of the Budget Bulletin No.
55-4
(January 15, 1955)
Policy Statementa
Circumstances Under Which
Government Performance of a
Commercial Function May Be
Permittedb
The “Federal Government will not
start or carry on any commercial
activity to provide a service or
product for its own use if such
product or service can be procured
from private enterprise through
An agency head may authorize an
exception to this policy “only where it
is clearly demonstrated in each case
that it is not in the public interest to
procure such product or service from
private enterprise.”c
27
James F. Nagle, History of Government Contracting (Washington, DC: George Washington University, 1999), pp.
12 and 16.
28
An excerpt from a 1962 report to President John F. Kennedy presents another perspective on the relationship
between the federal government and contractors. The Bell Report, which was named for the Director of the Bureau of
the Budget, David Bell, “(1) declared that reliance on contractors and grantees ‘blurred the traditional dividing line
between the private and public sectors of our Nation’; (2) deemed it ‘axiomatic’ that government officials (i.e., civil
and special services and appointees) must do the work and maintain the competence required to account for all
government work; and (3) warned that, without corrective action, a brain drain into the contractor workforce would
result.” (Report to the President on Government Contracting for Research and Development (Bell Report), in Systems
Development and Management: Hearings Before a Subcommittee of the Committee on Government Operations, House
of Representatives, 87th Congress, 191-263 app. I (1962), cited in Dan Guttman, “Governance by Contract:
Constitutional Visions; Time for Reflection and Choice,” Public Contract Law Journal, vol. 33, no. 2 (Winter 2004), p.
327.
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Document
(date)
Policy Statementa
Circumstances Under Which
Government Performance of a
Commercial Function May Be
Permittedb
ordinary business channels.”
Bureau of the Budget Bulletin No.
57-7
(February 5, 1957)
Same as BOB No. 55-4.
Same as BOB No. 55-4.
Bureau of the Budget Bulletin No.
60-2
(September 21, 1959)
Same as BOB No. 55-4.
“Compelling reasons for exceptions
to the general policy include national
security; relatively large and
disproportionately higher costs; and
clear unfeasibility.”e
Bureau of the Budget Circular A76
(March 3, 1966)
“The guidelines in this Circular are in
furtherance of the Government’s
general policy of relying on the private
enterprise system to supply its
needs.”
“Because the private enterprise
system is basic to the American
economy, the general policy
establishes a presumption in favor of
Government procurement from
commercial sources.”d
“A Government commercial or
industrial activity may be authorized
only under one or more of the
following conditions: a. Procurement
of a product or service from a
commercial source would disrupt or
materially delay an agency’s
program…. b. It is necessary for the
Government to conduct a commercial
or industrial activity for purposes of
combat support or for individual and
unit retraining of military personnel or
to maintain or strengthen mobilization
readiness. c. A satisfactory
commercial source is not available and
cannot be developed in time to
provide a product or service when it
is needed…. d. The product or
service is available from another
Federal agency…. e. Procurement of
the product or services from a
commercial source will result in
higher cost to the Government….”
“In some instances, … it is in the
national interest for the Government
to provide directly the products and
services it uses.”
Bureau of the Budget Circular A76
(August 30, 1967)
Same as the March 3, 1966, circular.
Same as the March 3, 1966, circular.
Office of Management and Budget
Circular A-76 (March 29, 1979)
“In a democratic free enterprise
economic system, the Government
should not compete with its citizens.
The private enterprise system,
characterized by individual freedom
and initiative, is the primary source of
national economic strength. In
recognition of this principle, it has
been and continues to be the general
policy of the Government to rely on
competitive private enterprise to
“No Satisfactory Commercial Source
Available…. National Defense…. Higher
Cost.”f
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Document
(date)
Policy Statementa
Circumstances Under Which
Government Performance of a
Commercial Function May Be
Permittedb
supply the products and services it
needs.”
“This policy builds on three equally
valid policy precepts: a. Rely on the
Private Sector. The Government’s
business is not to be in business.
Where private sources are available,
they should be looked to first to
provide the commercial or industrial
goods and services needed by the
Government to act on the public’s
behalf. b. Retain Certain Governmental
Functions In-House. Certain functions
are inherently governmental in nature,
being so intimately related to the
public interest as to mandate
performance by Federal employees. c.
Aim for Economy; Cost Comparisons.
When private performance is feasible
and no overriding factors require inhouse performance, the American
people deserve and expect the most
economical performance and,
therefore, rigorous comparison of
contract costs versus in-house costs
should be used, when appropriate, to
decide how the work will be done.”f
Office of Management and Budget
Circular A-76 (August 4, 1983)
“In the process of governing, the
Government should not compete with
its citizens. The competitive
enterprise system, characterized by
individual freedom and initiative, is the
primary source of national economic
strength. In recognition of this
principle, it has been and continues to
be the general policy of the
Government to rely on commercial
sources to supply the products and
services the Government needs.”
“a. No Satisfactory Commercial
Source Available…. b. National
Defense…. c. Patient Care…. d.
Lower cost.”g
“It is the policy of the United States
Government to: a. Achieve Economy
and Enhance Productivity.
Competition enhances quality,
economy, and productivity. Whenever
commercial sector performance of a
Government operated commercial
activity is permissible, in accordance
with this Circular and its Supplement,
comparison of the cost of contracting
and the cost of in-house performance
shall be performed to determine who
will do the work. b. Retain
Governmental Functions In-House.
Certain functions are inherently
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Document
(date)
Policy Statementa
Circumstances Under Which
Government Performance of a
Commercial Function May Be
Permittedb
Governmental in nature, being so
intimately related to the public
interest as to mandate performance
only by Federal employees. These
functions are not in competition with
the commercial sector. Therefore,
these functions shall be performed by
Government employees. c. Rely on
the Commercial Sector. The Federal
Government shall rely on
commercially available sources to
provide commercial products and
services. In accordance with the
provisions of this Circular, the
Government shall not start or carry
on any activity to provide a
commercial product or service if the
product or service can be procured
more economically from a commercial
source.”f
Office of Management and Budget
Circular A-76 (August 4, 1983
(revised 1999))h
Same as August 4, 1983 circular.i
Same as August 4, 1983 circular.
Commercial Activities Panel,j
Improving the Sourcing Decision
of the Government, Final Report
(April 2002)
Not applicable.
“It is clear that government workers
need to perform certain warfighting,
judicial, enforcement, regulatory, and
policymaking functions, and the
government may need to retain an inhouse capability even in functions that
are largely outsourced. Certain other
capabilities, such as adequate
acquisition skills to manage costs,
quality, and performance and to be
smart buyers of products and
services, or other competencies such
as those directly linked to national
security, also must be retained inhouse to help ensure effective mission
execution.”
Office of Management and Budget
Circular A-76 (May 29, 2003)
“The longstanding policy of the federal
government has been to rely on the
private sector for needed commercial
services. To ensure that the American
people receive maximum value for
their tax dollars, commercial activities
should be subject to the forces of
competition.”
Although this revision does not
identify any circumstances or
conditions under which federal
employee performance of a
commercial function might be
permitted, it provides a means for
agencies to exempt commercial
functions from being subjected to
public-private competition.k
Sources: U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products
or Services for Governmental Use,” Bulletin No. 55-4, January 15, 1955, p. 1; U.S. Bureau of the Budget,
“Commercial-Industrial Activities of the Government Providing Products or Services for Governmental Use,”
Bulletin No. 57-7, February 5, 1957, p. 1; U.S. Bureau of the Budget, “Commercial-Industrial Activities of the
Government Providing Products or Services for Governmental Use,” Bulletin No. 60-2, September 21, 1959, pp.
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1-3; U.S. Bureau of the Budget, “Policies for Acquiring Commercial or Industrial Products and Services for
Government Use,” Circular No. A-76, March 3, 1966, pp. 1-3; U.S. Bureau of the Budget, “Policies for Acquiring
Commercial or Industrial Products and Services for Government Use,” Circular No. A-76 (Revised), August 30,
1967, pp. 1-3; U.S. Office of Management and Budget, “Acquiring of Commercial or Industrial Products and
Services Needed by the Government; Policy Revision,” 44 Federal Register 20557-20559, April 5, 1979 (This is the
March 29, 1979 revision of Circular A-76.); U.S. Office of Management and Budget, “Issuance of OMB Circular
No. A-76 (Revised) ‘Performance of Commercial Activities’,” 48 Federal Register 37114-37115, August 16, 1983
(This is the August 4, 1983 revision of Circular A-76.); U.S. Office of Management and Budget, “Performance of
Commercial Activities,” Circular No. A-76, August 4, 1983 (Revised 1999), p. 1; U.S. Office of Management and
Budget, “Performance of Commercial Activities,” Circular No. A-76 (Revised), May 29, 2003, at
http://www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a076/a76_incl_tech_correction.pdf;
Commercial Activities Panel, Improving the Sourcing Decisions of the Government, Final Report, April 2002, p. 46, at
http://archive.gao.gov/f0502/a03209.pdf.
Notes:
a.
If the document includes, in addition to the policy statement, relevant explanatory material, the additional
material is included here.
b.
These are the circumstances identified explicitly in the document. Under the 1966 circular and each
revision, federal employees may perform a commercial function if the outcome of the public-private
competition indicates that the work should be performed by federal employees.
c.
When reviewing commercial activities, several rules, including the following, applied: “In determining
whether an activity is ‘commercial’ in nature and ‘could be procured … through ordinary business channels,’
reference may be made to ordinary business practice with respect to procurement of services or products.
The inclusion of an activity in the manual will be generally considered indicative that it may be procured
commercially. There will be excluded from coverage as noncommercial, however, those functions which are
a part of the normal management responsibilities of a Government agency or a private business of
comparable size (such as accounting, personnel work, and the like).” (U.S. Bureau of the Budget,
“Commercial-Industrial Activities of the Government Providing Products or Services for Governmental
Use,” Bulletin No. 55-4, January 15, 1955, p. 2.)
d.
Although this statement does not appear in the paragraph labeled “Policy,” it reveals the fundamental
reason for the presumption in favor of using the private sector to supply the government.
e.
(1) “There are instances … when for reasons of national security, an activity cannot be turned over to
private industry. These activities may include, but are not necessarily limited to, functions which must be
performed by Government personnel in order to provide them with vital training and experience for
maintaining combat units in readiness….” (2) “Continuation of Government operation on the ground that
procurement through commercial sources would involve higher costs may be justified only if the costs are
analyzed on a comparable basis and the differences are found to be substantial and disproportionately
large….” (3) “Certain products or services may be found to be clearly unfeasible to procure from private
enterprise through ordinary business channels due to the fact that the product or service is: (1) An integral
function of the basic mission of the agency, or (2) Not available in the particular instance, nor likely to
become available commercially in the foreseeable future because of the Government’s unique or highly
specialized requirements or geographic isolation of the installation, or (3) Administratively impractical to
contract for commercially.” (U.S. Bureau of the Budget, “Commercial-Industrial Activities of the
Government Providing Products or Services for Governmental Use,” Bulletin No. 60-2, September 21,
1959, pp. 2-4.)
f.
Italics in original.
g.
Although the 1979 circular uses the term “higher cost” and the 1983 circular uses the term “lower cost,”
the meaning, as follows, is the same in both circulars: government performance of a commercial function is
authorized if the cost of agency performance is lower than the cost of contractor performance.
h.
OMB has noted that it was the supplement to Circular A-76—not the circular itself—that was revised in
1999. (U.S. Office of Management and Budget, “Performance of Commercial Activities,” 67 Federal Register
69771, November 19, 2002.)
i.
There are two differences between the policy statements of the 1983 revision and the 1999 revision. Under
the heading Achieve Economy and Enhance Productivity, the 1999 revision includes an additional sentence,
which reads as follows: “When conducting cost comparisons, agencies must ensure that all costs are
considered and that these costs are realistic and fair.” Under the heading Rely on the Commercial Sector,
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the 1999 revision includes the following reference to the supplement to Circular A-76: “In accordance with
the provisions of this Circular and its Supplement, the Government….” (U.S. Office of Management and
Budget, Circular No. A-76, August 4, 1983 (Revised 1999), pp. 1-2.) (Underlining included in original.)
j.
See “Commercial Activities Panel’s Sourcing Principles” for additional information about the panel.
k.
Pursuant to the Federal Activities Inventory Reform (FAIR) Act (P.L. 105-270), each agency subject to the
statute is required to submit an inventory of its commercial functions to OMB annually. For each function
listed, an agency applies the appropriate reason code, which indicates whether the function is eligible or is
not eligible for a Circular A-76 competition. Reason code A is used to identify a commercial function that
“is not appropriate for private sector performance pursuant to a written determination by the [agency’s]
CSO [competitive sourcing official].” Agencies are required to make the written justifications available to
OMB and the public if requested to do so. (U.S. Office of Management and Budget, Circular No. A-76
(Revised), May 29, 2003, p. A-3, at http://www.whitehouse.gov/sites/default/files/omb/assets/about_omb/
a76_incl_tech_correction.pdf.)
Although either government employees or contractor employees may perform commercial
functions, government reliance on the private sector has been the foundation of written sourcing
policy, as shown by the material presented in Table 2. Some observers would suggest that
contractor performance has been considered the rule while federal employee performance of
commercial activities has been treated as an exception. The presumption of, or preference for,
contractor performance, they would add, is supported by the following language, which is
contained in the policy statement in Circular A-76:
A [public-private] competition is not required for private sector performance of a new
requirement…. Before government personnel may perform a new requirement, a [publicprivate] competition shall be used to determine whether government personnel should
perform the commercial activity.29
In sum, if an agency has a new function (i.e., a new requirement) to perform, it may procure the
services of a contractor, in accordance with applicable statutes and the Federal Acquisition
Regulation (FAR). If, instead, the agency considers using its employees to perform the work, then
it must conduct a public-private competition, which will determine whether federal employees or
contractor employees will perform the work.
Several of the documents listed in Table 2 provide a similar rationale—the importance of the
nation’s private enterprise system—for government reliance on the private sector. BOB Bulletin
60-2 states that, “[b]ecause the private enterprise system is basic to the American economy, the
general policy establishes a presumption in favor of Government procurement from commercial
sources.”30 Circular A-76 (1979 revision) echoed the theme found in Bulletin 60-2, stating that
the private sector “is the primary source of national economic strength.”31 The same reference to
29
U.S. Office of Management and Budget, “Performance of Commercial Activities,” Circular No. A-76 (Revised), May
29, 2003, p. 2. (Italics added to aid in identifying relevant language.) A new requirement is an “agency’s newly
established need for a commercial product or service that is not performed by (1) the agency with government
personnel; (2) a fee-for-service agreement with a public reimbursable source; or (3) a contract with the private sector.
An activity that is performed by the agency and is reengineered, reorganized, modernized, upgraded, expanded, or
changed to become more efficient, but still essentially provides the same service, is not considered a new requirement.
New ways of performing existing work are not new requirements.” (Ibid., pp. D-6-D-7.)
30
U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products or Services for
Governmental Use,” Bulletin No. 60-2, September 21, 1959, p. 1.
31
U.S. Office of Management and Budget, “Acquiring of Commercial or Industrial Products and Services Needed by
the Government; Policy Revision,” 44 Federal Register 20557-20558, April 5, 1979 (This is the March 29, 1979,
revision of Circular A-76.)
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the importance of the private sector also appeared in the 1983 and 199932 revisions of Circular A76.
The 2003 revision to Circular A-76 does not include a rationale for relying on the private sector,
but it does acknowledge that reliance on the private sector for commercial services has been the
longstanding policy of the federal government. At the time this revision was published, OMB
offered the following explanation regarding the absence of a statement about governmental
reliance on the private sector:
Deletion of the “reliance” statement from the revised Circular is not intended to denigrate
this contribution.33 Nor does this action signal a retreat from the Administration’s
commitment to a market-based government that is unafraid of competition, innovation, and
choice. The deletion is simply meant to avoid a presumption that the government should not
compete for work to meet its own needs. Such a suggestion conflicts with the Circular’s
main function of providing policies and procedures to determine the best service provider—
irrespective of the sector the provider represents.34
The justification for competitive sourcing found in the 2003 revision is based partly on market
ideology and partly on financial considerations. It states, “To ensure that the American people
receive maximum value for their tax dollars, [agencies’] commercial activities should be subject
to the forces of competition.”35
Despite this difference from statements in previous versions of Circular A-76, the presumption in
favor of private sector performance of commercial activities and a belief in the importance of the
private sector as a rationale for competitive sourcing remain, at least for some. Two similar bills
introduced during the 112th Congress, H.R. 1474 and S. 785, appear to reflect this perspective.
H.R. 1474, Freedom from Government Competition Act of 2011, states, in part, the following:
In the process of governing, the Federal Government should not compete with its citizens.
The competitive enterprise system, characterized by individual freedom and initiative, is the
primary source of national economic strength. In recognition of this principle, it has been and
continues to be the general policy of the Federal Government—(1) to rely on commercial
sources to supply the products and services the Government needs; (2) to refrain from
providing a product or service if the product or service can be procured more economically
from a commercial sources; and (3) to utilize Federal employees to perform inherently
governmental functions….36
The material in Table 2 also shows that, with the exception of the 2003 circular, sourcing policy
documents acknowledged the need for, and permitted, exceptions to the policy of governmental
reliance on the private sector for the provision of commercial goods and services. Among the
reasons cited for permitting exceptions are national security, public interest, cost, disruption to an
32
The 1999 version may not be referred to as such. The title page of the 1999 version includes the following: “(August
4, 1983 (revised 1999)).”
33
The words “this contribution” refers to the following statement by OMB: “Without the private sector, the
government would not be able to meet the many needs of our citizenry.” (U.S. Office of Management and Budget,
“Performance of Commercial Activities,” 68 Federal Register 32136, May 29, 2003.)
34
Ibid.
35
U.S. Office of Management and Budget, “Performance of Commercial Activities,” Circular No. A-76 (Revised),
May 29, 2003, p. 1.
36
Section 4(a) of H.R. 1474 (112th Congress).
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agency’s program. Particular functions singled out for federal employee performance were
combat support, patient care, and national defense. For its part, the Commercial Activities Panel
(CAP) noted that federal employees need to perform “certain warfighting, judicial, enforcement,
regulatory, … policymaking …” and acquisition functions.37 Thus, while governmental reliance
on the private sector has been embedded in written sourcing policy since the 1950s, so, too, has
the acknowledgment (and associated exemptions) that, under certain circumstances, federal
employee performance of commercial activities may be preferable to contractor performance.
Recent Developments in the History of Sourcing
Policy
Competitive Sourcing
The historically predominant strain of sourcing policy—which focuses on governmental reliance
on the private sector, Circular A-76, and public-private competitions38—was designated one of
the components of President George W. Bush’s President’s Management Agenda (PMA), and, as
such, was named competitive sourcing.39 The Administration viewed competitive sourcing as “the
process of opening the government’s commercial activities to the discipline of competition”40 and
envisioned that “[o]pening Government functions to competition to the fullest extent possible is
the best way to ensure market-based pricing and encourage innovation….”41 The Administration’s
plans for competitive sourcing included “[e]xpanding [the number of] A-76 competitions.”42 To
that end, in early 2001, the Office of Management and Budget directed agencies to conduct
public-private competitions, or direct conversions,43 for at least 5% of the full-time equivalents44
37
Commercial Activities Panel, Improving the Sourcing Decisions of the Government, Final Report, April 2002, p. 46,
at http://archive.gao.gov/f0502/a03209.pdf. For more information about the panel, see “Commercial Activities Panel’s
Sourcing Principles.”
38
Generally, public-private competitions have involved subjecting an agency’s commercial activity to a competition,
the outcome of which will determine whether agency employees continue to perform the work, or a contractor will take
over the function (for the duration of the contract awarded by the agency).
39
An example of the focus on competing agencies’ functions (commercial activities) may be found in a statutory
provision that authorized the establishment of the Commercial Activities Panel (CAP). Convened by the Comptroller
General pursuant to Section 832 of P.L. 106-398, Floyd D. Spence National Defense Authorization Act of FY2001, the
Commercial Activities Panel was directed “to study the policies and procedures governing the transfer of commercial
activities for the Federal Government from Government personnel to a Federal contractor….” (§832(a) of P.L. 106398.)
40
U.S. Office of Management and Budget, “Performance of Commercial Activities,” 67 Federal Register 69772,
November 19, 2002, at http://www.gpo.gov/fdsys/pkg/FR-2002-11-19/pdf/02-29472.pdf. OMB’s reports on
competitive sourcing touted the net savings, cost avoidance, and performance improvements that resulted from publicprivate competitions. (For example, see U.S. Office of Management and Budget, Report on Competitive Sourcing
Results, Fiscal Year 2006, May 2007, at http://www.whitehouse.gov/sites/default/files/omb/assets/procurement/
cs_report_fy2006.pdf.)
41
Executive Office of the President, A Blueprint for New Beginnings, A Responsible Budget for America’s Priorities
(Washington: GPO, 2001), p. 181, at http://www.gpoaccess.gov/usbudget/fy02/pdf/blueprnt.pdf.
42
Mitchell E. Daniels, Jr., Director, U.S. Office of Management and Budget, “Performance Goals and Management
Initiatives for the FY2002 Budget,” memorandum M-01-11, February 14, 2001, p. 1 (attachment), at
http://www.whitehouse.gov/omb/memoranda_m01-11/.
43
Some Circular A-76 revisions issued prior to 2003 permitted an agency to convert a commercial activity with 10 or
fewer full-time equivalents to contract, in-house, or interservice support agreement performance without conducting a
(continued...)
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[FTEs] listed on their commercial activities inventories in FY2002.45 At the same time, OMB
noted that the President was committed to subjecting “at least one-half of the Federal positions
[FTEs] listed” on FAIR Act inventories to public-private competitions.46 A little over two years
later, the Administration dropped its government-wide competitive sourcing goals in favor of
agency-specific targets, according to the head of the Office of Federal Procurement Policy.47
The PMA included a scorecard for tracking each agency’s progress on the PMA initiatives. In
December 2003, for example, OMB described the criteria an agency was required to fulfill in
order to receive a “green” rating for competitive sourcing.
“An agency will earn a ‘green’ status when it has:
•
an OMB approved ‘green’ competition plan to compete commercial activities
available for competition
•
publicly announced standard competitions in accordance with the schedule
outlined in the agency ‘green’ competition plan
•
since January 2001, completed at least 10 competitions (no minimum number of
positions required per competition)
•
in the past year, completed 90% of all standard competitions in a 12-month time
frame
•
in the past year, completed 95% of all streamlined competitions in a 90-day
timeframe
•
in the past year, canceled fewer than 10% of publicly announced standard and
streamlined competitions
•
OMB-approved justifications for all categories of commercial activities exempt
from competition.”48
(...continued)
public-private competition. (U.S. Office of Management and Budget, Circular No. A-76 Revised Supplemental
Handbook, Performance of Commercial Activities, March 1996, p. 4, at http://www.whitehouse.gov/sites/default/files/
omb/assets/agencyinformation_circulars_procurement_pdf/a076supp.pdf.)
44
A full-time equivalent is “[t]he staffing of Federal civilian employee positions, expressed in terms of annual
productive work hours (1,776)....” (U.S. Office of Management and Budget, “Performance of Commercial Activities,”
Circular No. A-76 (Revised), May 29, 2003, p. D-5.)
45
Sean O’Keefe, Deputy Director, U.S. Office of Management and Budget, “Performance Goals and Management
Initiatives for the FY2002 Budget,” memorandum M-01-15, March 9, 2001, p. 1, at http://www.idmanagement.gov/
smartcard/information/m01-15.pdf. The Bush Administration’s competitive sourcing targets may have been only the
second time an Administration imposed targets, or goals, for conducting public-private competitions. In Executive
Order 12615, President Ronald Reagan required agencies, beginning in FY1989, to “conduct annual studies
[competitions] of not less than 3 percent of the department or agency’s total civilian population, until all identified
potential commercial activities have been studied.” (Executive Order 12615, “Performance of Commercial Activities,”
52 Federal Register 44853, November 23, 1987.)
46
O’Keefe, “Performance Goals and Management Initiatives for the FY2002 Budget,” p. 1.
47
U.S. Congress, Senate Committee on Governmental Affairs, Subcommittee on Oversight of Government
Management, the Federal Workforce, and the District of Columbia, Then and Now: An Update on the Bush
Administration’s Competitive Sourcing Initiative, 108th Cong., 1st sess., July 24, 2003, S.Hrg. 108-244 (Washington:
GPO, 2004), p. 61.
48
Clay Johnson III, Deputy Director for Management, U.S. Office of Management and Budget, “Development of
(continued...)
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As mentioned above, whereas the FAIR Act only required agencies to submit inventories of their
commercial activities to OMB, the Bush Administration imposed a similar requirement regarding
inherently governmental functions. An OMB memorandum dated April 3, 2001, requested
agencies to submit a report that listed their inherently governmental positions when they
submitted their FAIR Act commercial activities inventories.49 This requirement continued
throughout the Bush Administration.50
In a major undertaking, OMB completed a revision of Circular A-76 in 2003. The result is a
circular that includes, for example, the inventory process for commercial activities and inherently
governmental functions; two types of competitions (standard and streamlined);51 and a provision
allowing the use of negotiated contracting, such as a lowest price technically acceptable source
selection, or tradeoff source selection process under certain circumstances.52 Another change was
the exclusion of language that had appeared in the 1999 circular that had explicitly permitted
government performance of national defense and patient care commercial activities, and in
circumstances where a satisfactory commercial source was not available. A comprehensive
summary of changes made to the circular may be found in the Federal Register notice that
accompanied the publication of the 2003 revision.53
Some commentators might suggest that the Bush Administration did not support the possibility
that work performed by a contractor could be subjected to public-private competition. Section
842(b) of H.R. 3058, which was enacted as P.L. 109-115, Transportation, Treasury, Housing and
Urban Development, the Judiciary, the District of Columbia, and Independent Agencies
Appropriations Act for FY2006, directed that Circular A-76 contain procedures for subjecting
activities performed by contractors to public-private competitions (with the possibility that a
competition could result in insourcing). 54 The text of Section 842(b) is as follows:
(...continued)
‘Green’ Plans for Competitive Sourcing,” memorandum, December 22, 2003, p. 3 (Attachment B), at
http://www.whitehouse.gov/sites/default/files/omb/procurement/comp_sourc-green_plans122203.pdf.
49
O’Keefe, “Year 2001 Inventory of Commercial Activities,” p.1.
50
For example, see Angela B. Styles, Administrator, Office of Federal Procurement Policy, “Year 2002 Inventory of
Commercial Activities,” memorandum M-02-04, February 27, 2002, pp. 1-2, at http://www.whitehouse.gov/sites/
default/files/omb/memoranda/m02-04.pdf; Angela B. Styles, Administrator, Office of Federal Procurement Policy,
“Year 2003 Inventories of Commercial and Inherently Governmental Activities,” memorandum M-03-09, March 14,
2003, p. 1, at http://www.whitehouse.gov/omb/memoranda_m03-09/; Clay Johnson III, Deputy Director for
Management, U.S. Office of Management and Budget, “2004 Inventories of Commercial and Inherently Governmental
Activities,” memorandum M-04-09, April 6, 2004, p. 1, at http://georgewbush-whitehouse.archives.gov/omb/
memoranda/fy04/m04-09.pdf; Paul A. Denett, Administrator, Office of Federal Procurement Policy, “2007 Inventories
of Commercial and Inherently Governmental Activities,” memorandum M-07-14, May 3, 2007, p. 1, at
http://georgewbush-whitehouse.archives.gov/omb/memoranda/fy2007/m07-14.pdf.
51
If a commercial activity has 65 or fewer full-time equivalents (FTEs), the agency may use either a streamlined
competition, or a standard competition. If a commercial activity has more than 65 FTEs, the agency is required to use a
standard competition. (U.S. Office of Management and Budget, “Performance of Commercial Activities,” Circular No.
A-76 (revised), May 29, 2003, p. B-1.)
52
Generally, prior to the 2003 revision, source selection decisions were made on the basis of cost. The 2003 revision
permits, for example, the use of lowest price technically acceptable source selection, which means the “performance
decision shall be based on the lowest cost of all offers and [agency] tenders determined to be technically acceptable,” or
the tradeoff source selection process (under certain circumstances) when an agency “wishes to consider” non-cost, or
non-price, factors, in addition to cost, or price, when making a source selection decision. (Ibid., pp. B-13-B-14.)
53
See U.S. Office of Management and Budget, “Performance of Commercial Activities,” May 29, 2003, pp. 3213432142.
54
Unlike other terms common to sourcing policy, such as inherently governmental and commercial, it appears that
(continued...)
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Nothing in Office of Management and Budget Circular A-76 shall prevent the head of an
executive agency from conducting a public-private competition to evaluate the benefits of
converting work from contract performance to performance by Federal employees in
appropriate instances. The Circular shall provide procedures and policies for these
competitions that are similar to those applied to competitions that may result in the
conversion of work from performance by Federal employees to performance by a contractor.
The Bush Administration’s response to this provision provides some insight into its views on the
matter. As reported in a 2005 Federal Times article, an OMB official at the time offered the
following comments: “‘We believe the insourcing language [in H.R. 3058, which was enacted as
P.L. 109-115] is unnecessary…. We will continue to provide for fair and reasonable processes for
agencies to consider insourcing when it can benefit taxpayers…. However we have no plans to
alter the focus of the competitive sourcing initiative to emphasize insourcing.’”55 No changes
were made to Circular A-76 following the enactment of H.R. 3058.
Commercial Activities Panel’s Sourcing Principles
In early 2001, during the same period that the Bush Administration launched its competitive
sourcing initiative, the Comptroller General, as directed by statute, convened what came to be
called the Commercial Activities Panel (CAP). The panel included, among others, the
Administrator of OFPP, the Director of the Office of Personnel Management (OPM), the Under
Secretary of Defense for Acquisition, Technology and Logistics, and the heads of the American
Federation of Government Employees and the National Treasury Employees Union.56
Section 832 of P.L. 106-398, Floyd D. Spence National Defense Authorization Act of FY2001,
tasked the panel with “study[ing] the policies and procedures governing the transfer of
commercial activities for the Federal Government from Government personnel to a Federal
contractor” and producing a report on the results of its study. In addition to addressing these
policies and procedures, the panel developed “a set of principles that it believes should guide
sourcing policy.”57
The Panel believes that federal sourcing policy should:
1. Support agency missions, goals, and objectives.
2. Be consistent with human capital practices designed to attract, motivate, retain, and reward
a high performing federal workforce.
3. Recognize that inherently governmental and certain other functions should be performed
by federal workers.
(...continued)
there is no governmentwide definition of insourcing. Fundamentally, to insource a function is to shift work that is being
performed, or has been performed, by a contractor to a federal agency.
55
Tichakorn Hill, “OMB Rebuffs Provision to Bring Contracted Work Back In House,” Federal Times.com, July 27,
2005. (This article is no longer available from the Federal Times website.)
56
For a complete list of members of the panel, see the final report, at http://archive.gao.gov/f0502/a03209.pdf.
57
Commercial Activities Panel, Improving the Sourcing Decisions of the Government, p. 33.
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4. Create incentives and processes to foster high-performing, efficient, and effective
organizations throughout the federal government.
5. Be based on a clear, transparent, and consistently applied process.
6. Avoid arbitrary full-time equivalent (FTE) or other arbitrary numerical goals.
7. Establish a process that, for activities that may be performed by either the public or the
private sector, would permit public and private sources to participate in competitions for
work currently performed in-house, work currently contracted to the private sector, and new
work, consistent with these guiding principles.
8. Ensure that, when competitions are held, they are conducted as fairly, effectively, and
efficiently as possible.
9. Ensure that competitions involve a process that considers both quality and cost factors.
10. Provide for accountability in connection with all sourcing decisions.58
Statutory Requirement for Agencies to Develop Insourcing
Guidelines
Whereas competitive sourcing was a hallmark of the Bush Administration and component of the
President’s Management Agenda, his successor’s first year in office saw the enactment of a
provision involving insourcing. This was a significant development since, as indicated above, the
Bush Administration did not appear to support the possibility that work performed by a contractor
could, or should, be insourced. Pursuant to Section 736 (Division D) of P.L. 111-8, Omnibus
Appropriations Act for FY2009, civilian agencies are required to draft and implement their own
insourcing guidelines and procedures.
Section 736 (Division D) of P.L. 111-8,59 amends Section 739 (Division D) of P.L. 110-161,
Consolidated Appropriations Act of FY2008. To aid in tracking the changes effected by Section
736, which struck Section 739(b) and inserted new language, the following convention is used in
this report: Section 739(b) of P.L. 110-161, as amended. The following is a summary of Section
739, as amended.
General Consideration of Federal Employee Performance
Each agency’s guidelines are to include instructions or procedures that ensure that consideration
is given, on a regular basis, to using federal employees to perform new functions and functions
being performed by contractor employees that could be performed by agency employees.60
58
Ibid., pp. 6-9.
This provision does not apply to the Department of Defense (DOD). (Section 739(b)(6) of P.L. 110-161, as
amended.) Section 324 of P.L. 110-181, National Defense Authorization Act for FY2008, added Section 2463 to Title
10 of the U.S. Code, which requires the Under Secretary of Defense for Personnel and Readiness to develop and
implement insourcing guidelines.
60
Section 739(b)(1) of P.L. 110-161, as amended.
59
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Special Consideration of Federal Employee Performance
As part of their insourcing guidelines, agencies are required to include guidance and procedures
for providing special consideration to using agency employees to perform certain types of
functions.61 This list includes any function that
1. is being performed by a contractor and that has been performed at any time by
government employees within the past 10 years;
2. is closely associated with the performance of an inherently governmental
function;
3. “has been performed pursuant to a contract awarded on a non-competitive basis”;
or
4. using criteria specified in this provision, has been performed poorly.62
An agency is to give special consideration to using federal employees for any new requirement,
and particularly for a new requirement that is closely associated with an inherently governmental
function, or is similar to an activity that federal employees performed previously.63
Precluding Public-Private Competition under Certain Circumstances
Although Section 739(b)(3) of P.L. 110-161, as amended, does not address insourcing directly or
explicitly, it does involve federal employee performance of agency functions. This provision
prohibits conducting a public-private competition before the agency (1) “assign[s] the
performance of [a new agency] function to Federal employees”; (2) “convert[s] [any agency
function where special consideration was given to using federal employees] to performance by
Federal employees”; or, (3) “expand[s] the scope of [a] function” performed by federal
employees.64
Deadline for Agencies
Agencies were required to implement their guidelines and procedures within 120 days after the
date of enactment of Section 736 (Division D) of P.L. 111-8.65 (The date of enactment was March
11, 2009.) The Government Accountability Office (GAO) reported that, as of July 9, 2009, none
of the nine civilian agencies it had visited had finalized their guidelines.66 Among the reasons
agencies gave for not meeting the deadline were that they had been waiting for OMB to issue
61
A statutory provision precludes agencies from subjecting agency functions to public-private competition under
certain circumstances. An agency “may not conduct a public-private competition under … Circular A-76 or any other
provision of law or regulation before—(A) in the case of a new agency function, assigning the performance of the
function to Federal employees; (B) in the case of any agency function described in [§739(b)(2)], converting the
function to performance by Federal employees; or (C) in the case of an agency function performed by Federal
employees, expanding the scope of the function.” (Section 739(b)(3) of P.L. 110-161, as amended.)
62
Section 739(b)(2)(A) of P.L. 110-161, as amended.
63
Section 739(b)(2)(B) of P.L. 110-161, as amended.
64
Section 739(b)(3) of P.L. 110-161, as amended.
65
Section 739(b)(4) of P.L. 110-161, as amended.
66
U.S. Government Accountability Office, Civilian Agencies’ Development and Implementation of Insourcing
Guidelines, p. 6.
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insourcing guidance (which occurred in July 2009), or they did not have sufficient capacity to
address “multiple management initiatives” while also performing their regular duties.67
OMB Memorandum on Multi-Sector Workforce Management
With the release of an OMB memorandum, in July 2009, regarding the multi-sector workforce,
the Obama Administration initiated a systematic effort to develop policy and guidance for
managing a workforce that consists of both federal employees and government contractors.68
Recognizing that each sector’s workforce contributes to the work of the federal government,
OMB advised that “[c]urrent policies and practices must be improved so that agencies
consistently identify the proper role of each sector and achieve the best mix of public and private
labor resources to serve the American people.”69 This approach, which focuses on the appropriate
composition of the government’s multi-sector workforce, marks a significant change from an
emphasis on competitive sourcing.
Of particular concern to the Administration, and others, was the possibility that contractor
employees might be performing inherently governmental work. Inherently governmental
functions are reserved for performance by federal employees. President Barack Obama
summarized the issue, as follows, in his March 2009 memorandum on government contracting:
Government outsourcing for services also raises special concerns. For decades, the Federal
Government has relied on the private sector for necessary commercial services used by the
Government, such as transportation, food, and maintenance. Office of Management and
Budget Circular A-76, first issued in 1966, was based on the reasonable premise that while
inherently governmental activities should be performed by Government employees,
taxpayers may receive more value for their dollars if non-inherently governmental activities
that can be provided commercially are subject to the forces of competition. However, 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.70
Concerns regarding the proper role of contractors, or, alternatively, concerns regarding the ability
of agencies to retain control over their operations, including the performance of inherently
67
Ibid., pp. 6-7. OMB required each agency subject to its July 29, 2009, memorandum on the multi-sector workforce to
“[c]onduct a pilot human capital analysis of at least one program, project, or activity, where the agency has concerns
about the extent of reliance on contractors.” (Orszag, “Managing the Multi-Sector Workforce,” p. 2.)
68
The memorandum is available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m09-26.pdf.
69
Orszag, “Managing the Multi-Sector Workforce,” p. 1.
70
President Barack Obama, “Government Contracting,” memorandum, March 4, 2009, p. 2, at
http://www.whitehouse.gov/the_press_office/Memorandum-for-the-Heads-of-Executive-Departments-and-AgenciesSubject-Government. In a July 2009 memorandum, the Director of OMB expanded on President Obama’s comments:
“In particular, overreliance on contractors can lead to the erosion of the in-house capacity that is essential to effective
government performance. Such overreliance has been encouraged by one-sided management priorities that have
publicly rewarded agencies for becoming experts in identifying functions to outsource and have ignored the costs
stemming from loss of institutional knowledge and capability and from inadequate management of contracted
activities.” (Orszag, “Managing the Multi-Sector Workforce,” p. 1.)
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governmental functions, were raised previously by the Acquisition Advisory Panel.71 In its final
report, the panel summarized the issue as follows:
… [A]lthough federal law prohibits contracting for activities and functions that are
inherently governmental, uncertainty about the proper scope and application of this term has
led to confusion, particularly with respect to service contracting outside the ambit of OMB
Circular A-76. Moreover, as the federal workforce shrinks, there is a need to assure that
agencies have sufficient in-house expertise and experience to perform critical functions,
make critical decisions, and manage the performance of their contractors.72
In its memorandum, OMB required agencies (1) to develop a framework for managing the multisector workforce; (2) conduct “a pilot human capital analysis”; and (3) comply with OMB
guidance in developing their insourcing guidelines and procedures. The following subsections
contain summaries of these three requirements.
Later guidance found in OFPP’s Policy Letter 11-01, which was published subsequently in the
Federal Register, does not appear to be entirely consistent with the guidance in this
memorandum. (See below for a brief discussion of the policy letter.) However, it seems likely that
agencies are expected to make sourcing determinations based on the policy letter, though whether
OMB (or OFPP) has explicitly addressed the existence of two sets of guidance and reconciled the
differences is unknown.
Framework for Managing the Multi-Sector Workforce
OMB’s framework comprises workforce planning, sourcing determination, and management.
Under workforce planning, an agency reviews its mission, goals, functions, workload, and desired
performance standards to determine its workforce needs, specifically the size and skills of its
workforce. Next, agency personnel determine which functions must be performed by federal
employees, and which ones may be performed by either federal employees or contractor
employees. OMB provides a table with three categories of functions—inherently governmental,
critical, and essential—and indicates, for each category, which sector may perform the work. If
the table indicates that either federal employees or contractors may do the work, then the agency
is required to conduct a cost analysis “that addresses the full costs of government and private
sector performance and provides ‘like comparisons’ of costs that are of a sufficient magnitude to
influence the final decision on the most cost effective” option.73
Management, the third component of OMB’s framework, involves facilitating collaboration
across the agency, providing for processes that address and integrate the interests and needs of
organizational components involved in managing the multi-sector workforce, and ensuring that
the agency’s senior leadership is engaged in multi-sector workforce management.74
71
Section 1423 of the Services Acquisition Reform Act (SARA) of 2003, which was enacted as part of P.L. 108-136,
National Defense Authorization Act, FY2004, authorized the establishment of this panel. It is also known as the
“SARA panel.”
72
Acquisition Advisory Panel, Report of the Acquisition Advisory Panel to the Office of Federal Procurement Policy
and the United States Congress, p. 392.
73
Orszag, “Managing the Multi-Sector Workforce,” pp. 1-2 (attachment 1).
74
Ibid., p. 2 (attachment 1).
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Multi-Sector Workforce Pilot
Each agency that is subject to the Chief Financial Officers Act was required to conduct a pilot
human capital analysis of “at least one organization, program, project or activity … where there
are concerns about the extent of reliance on contractors and take appropriate steps to address any
identified weaknesses.”75 Conducting the analysis involves reviewing the multi-sector
management framework, identifying an agency official “who will be responsible for the pilot,”
“select[ing] an organization for study,” developing an inventory of the workforce that currently
performs the function to be studied, analyzing the difference between the configuration of the
incumbent workforce and the configuration of the desired workforce (“gap analysis”), and
documenting the procedures and tools used in carrying out the analysis.76 After performing the
gap analysis, if an agency had identified a discrepancy between the status quo and the optimal
configuration of the workforce, the agency was to develop plans to remedy the situation. OMB
noted, by way of example, that a remedy might involve bolstering contract management,
recruiting and hiring additional federal employees, or insourcing.77 Each agency was to report on
its pilot(s) to OMB by April 30, 2010.78
OMB reported in December 2009 that 24 agencies had launched pilot projects.79 Approximately
one-third of the pilots involved acquisition offices or functions, and another third involved
information technology functions. The remaining pilots involved a variety of functions, such as
federal financial audits, management support, and foreign labor certification processing.80 Most
of the nine agencies that had IT pilots “reported that they are heavily reliant on contractors and
question whether the agency has the ability to maintain control of its mission and operations.
Frequent turnover of contractors at some of the agencies has caused further concern that
institutional and technical knowledge will be lost.”81
Insourcing Guidance
As envisioned by the Obama Administration, insourcing is a tool agencies may use to achieve the
“best mix” of federal employees and contractor employees.82 Although insourcing is not
necessarily a new phenomenon,83 it appears that Section 739 (Division D) of P.L. 110-161, as
amended, and this OMB memorandum represent an initial effort to develop insourcing policy.
75
Ibid., p. 1 (attachment 2)
Ibid., pp. 1-2 (attachment 2).
77
Ibid., p. 2 (attachment 2).
78
Ibid., p. 3 (attachment 2).
79
U.S. Office of Management and Budget, Acquisition and Contracting Improvement Plans and Pilots: Saving Money
and Improving Government, December 2009, p. 8, at http://www.whitehouse.gov/sites/default/files/omb/assets/
procurement_gov_contracting/Acquisition_Contracting_Improvement_Plans.pdf.
80
Ibid., pp. 9-10.
81
Ibid., p. 9.
82
Orszag, “Managing the Multi-Sector Workforce,” p. 1 (attachment 3).
83
A Federal Times news article reports that the first insourcing case that involved a public-private competition
occurred in the mid-1980s. Officials with the General Services Administration (GSA) believed that a contractor
performing building maintenance “was charging too much.” A public-private competition was held, and GSA
employees won the competition, “saving GSA millions of dollars.” (Tichakorn Hill, “Competitive Sourcing Manager
Also ‘Insourcing’ Advocate,” Federal Times.com, January 26, 2006.)
76
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Agency personnel will also need to consult OFPP Policy Letter 11-01, which addresses
insourcing and is discussed below.
General Management Responsibilities
The OMB memorandum notes that many agency officials share responsibility for making
insourcing decisions; advises agency personnel that they should review contractors’ activities on
an ongoing basis; and recommends that any inherently governmental work, or unauthorized
personal services,84 being performed by a contractor be insourced. Additionally, it advises
agencies to be ready to develop sufficient in-house capability when “internal control of mission
and operations is at risk” because of the use of contractors, and alerts agencies that they must
have sufficient resources to manage and oversee contractors.85
General Consideration of Federal Employee Performance
Addressing a requirement found in Section 739(b)(2) of P.L. 110-161, as amended, OMB advises
agencies that ongoing management reviews that involve the improvement of agency operations
should include an evaluation of functions that could be candidates for insourcing.86 Notably,
OMB states that the evaluation should include “a cost analysis that addresses the full costs of
performance and provides ‘like comparisons’ of relevant costs to determine the most cost
effective source of support.”87 OMB states that a cost analysis is unnecessary in situations where
agency managers determine that “performance and risk considerations in favor of federal
employee performance will clearly outweigh cost considerations.” To assist in determining
whether a cost analysis is needed, an agency’s insourcing guidelines should include factors to use
in evaluating performance and risk considerations and provide examples of factors.88
Special Consideration of Federal Employee Performance
The statutory requirement regarding special consideration generally requires an agency to
evaluate a specific type of function to determine whether it is a candidate for insourcing.89 To aid
agencies in determining when a function described in Section 739(b)(2)(A) of P.L. 110-161, as
amended, ought to be a candidate for insourcing, OMB provides the following two questions for
agencies to use:
84
“‘Personal services contract’ means a contract that, by its express terms or as administered, makes the contractor
personnel appear to be, in effect, Government employees.” (48 C.F.R. §2.101(a).)
85
Orszag, “Managing the Multi-Sector Workforce,” pp. 1-2 (attachment 3).
86
Another tool that may aid an agency in identifying functions to be considered for insourcing is the agency’s own
service contract inventory, which is required by Section 743 of P.L. 111-117. Section 743(e)(4) requires an agency
head to use the agency’s inventory to “identify contracts that should be considered for conversion to” federal
government employee performance or an alternative acquisition approach. Section 743(e)(2)(B)-(D) and (E) requires an
agency head, upon reviewing the information in the agency’s inventory, to ensure that the agency is not using
contractor employees to perform inherently governmental functions, or perform critical functions in such a way that the
agency’s control of its mission and operations could be undermined; is monitoring “functions that are closely
associated with inherently governmental functions”; and has established a system for ensuring that activities being
performed by contractor employees have not evolved into inherently governmental work.
87
Orszag, “Managing the Multi-Sector Workforce,” p. 2 (attachment 3).
88
Ibid., pp. 2-3 (attachment 3).
89
Ibid., p. 3 (attachment 3).
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•
“Does the fact that the work is performed by contractors cause the agency to lack
sufficient internal expertise to maintain control of its mission and operations?” If
the agency’s answer is “yes,” then it should begin the insourcing process. If the
answer is “no,” then the agency should address the second question.
•
“Does preliminary analysis suggest that public sector performance is more cost
effective and that it is feasible to hire federal employees to perform the
function?” If the agency’s answer is “yes,” then a more detailed analysis of
insourcing options should be undertaken. If the agency’s answer is “no,” “the
agency should not in-source unless performance and risk considerations in favor
of federal employee performance will clearly outweigh cost considerations.”90
If an agency’s responses indicate the work should be performed by its employees, but it has
encountered difficulties in providing a sufficient in-house workforce, the agency should award a
temporary contract and continue its recruiting efforts. The contract continues until federal
employees can be hired.91
Another scenario OMB addressed in its memorandum is when an agency has identified a poorlyperforming contractor. The contracting officer must document what the incumbent contractor has
done, if anything, to remedy its performance problems. If the contractor has not taken sufficient
action to improve performance, the agency has two options: conduct another competition, or
consider insourcing. The agency should use the two questions listed above to determine which is
the appropriate option.92
Office of Federal Procurement Policy’s Policy Letter 11-01
Another document that may aid agencies in managing their multi-sector workforces is OFPP’s
policy letter on inherently governmental and critical functions, which was published in the
Federal Register on September 12, 2011.93 Written to fulfill a requirement of Section 321 of P.L.
110-417,94 Duncan Hunter National Defense Authorization Act of FY2009, and respond to the
President’s March 4, 2009, memorandum,95 the proposed letter provides definitions of inherently
governmental and critical, and policy and guidance for inherently governmental functions,
functions closely associated with inherently governmental functions (“closely associated”), and
critical functions. The policy letter
[c]larifies what functions are inherently governmental and must always be performed by
Federal employees … [e]xplains what agencies must do when work is “closely associated”
with inherently governmental functions … [r]equires agencies to identify their ‘critical
functions’ in order to ensure they have sufficient internal capability to maintain control over
functions that are core to the agency’s mission and operations … [and] [o]utlines a series of
90
Ibid., p. 4 (attachment 3).
Ibid.
92
Ibid.
93
The policy letter is available at http://www.federalregister.gov/articles/2011/09/12/2011-23165/publication-of-theoffice-of-federal-procurement-policy-ofpp-policy-letter-11-01-performance-of.
94
31 U.S.C. §501 note.
95
The March 4, 2009, memorandum on government contracting is available at http://www.whitehouse.gov/
the_press_office/Memorandum-for-the-Heads-of-Executive-Departments-and-Agencies-Subject-Government/.
91
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agency management responsibilities to strengthen accountability for the effective
implementation of these policies.96
An inherently governmental function is “a function that is so intimately related to the public
interest as to require performance by Federal Government employees.”97 A critical function is “a
function that is necessary to the agency being able to effectively perform and maintain control of
its mission and operations. Typically, critical functions are recurring and long-term in duration.”98
For additional information regarding this policy letter, see CRS Report R42039, Performance of
Inherently Governmental and Critical Functions: The Obama Administration’s Final Policy
Letter, by (name redacted), (name redacted), and (name redacted).
Policy Issues
Competitive Sourcing, Multi-Sector Workforce Management, and
Insourcing
Multi-sector workforce management, as envisioned by the Obama Administration, might be the
first systematic effort to address a previously unexamined area, or facet, of sourcing policy.
Competitive sourcing, generally, continued the strain of sourcing policy that had been in effect for
over 50 years, which promoted reliance on the private sector and public-private competitions for
agency work that had been identified as commercial. Sourcing policy history does not indicate,
however, that any Administration prior to the Obama Administration had considered whether the
policy of reliance on the private sector might have unintended consequences for the federal
government, or had facilitated a comprehensive review of agencies’ activities and contractors’
activities with an eye toward mitigating possible adverse consequences. In its final report on
federal government acquisition, the Acquisition Advisory Panel stated that “there has been little,
if any, attention paid to the … issue … [of] whether agencies are inappropriately contracting out
functions that, while not necessarily inherently governmental in a strict sense, have traditionally
been performed by federal workers and are critical to the performance of the agency’s mission.”99
Competitive sourcing and multi-sector workforce management are not necessarily contradictory,
or mutually exclusive, policies. Each represents a different, albeit related, facet of sourcing
policy. Whereas an emphasis on the importance of the private sector informs competitive
sourcing, safeguarding the government’s responsibilities—its missions and operations—
underpins multi-sector workforce management. Moreover, the latter approach also (1) expands
the circumstances under which federal employees ought to perform, or be permitted to perform,
commercial functions (i.e., an agency retains control of its mission and operations); (2)
recommends that enhanced government management and oversight of contractors is needed under
96
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,” pp. 56227-56228. (Italics in original.)
97
Ibid., p. 56236.
98
Ibid.
99
Acquisition Advisory Panel, Report of the Acquisition Advisory Panel to the Office of Federal Procurement Policy
and the United States Congress, p. 399.
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certain circumstances; and (3) seeks to ensure that only federal employees perform inherently
governmental functions.
Given the longstanding emphasis on governmental reliance on the private sector, the ideas
underpinning multi-sector workforce management may be unfamiliar. “Established processes and
procedures are geared toward outsourcing,” according to a 2009 GAO publication, and “shifting
to insourcing and a ‘total workforce’ approach—that considers both contractors and federal
employees—will take time and requires flexibility to meet the needs of any agency within an
ever-changing environment.”100
Although the two approaches to sourcing are not necessarily mutually exclusive, developing a
clear, coherent, integrated policy (including implementation guidelines) that strikes a balance
between reliance on the private sector and safeguarding the government’s operations and mission
might be a challenging undertaking.
Competitive sourcing and multi-sector workforce management share a common problem: the
conflation of the name of the policy with a possible outcome of the policy. For example,
competitive sourcing is the policy while outsourcing is a specific type of possible outcome.
Nevertheless, some might refer to competitive sourcing effort as outsourcing. Similarly, multisector workforce management is the policy while insourcing is a specific type of possible
outcome. Yet, some observers might conflate the two and refer to the policy as insourcing. The
statutory requirement (§739(b)(1)(A) of P.L. 110-161, as amended) for agencies to develop
insourcing guidelines and OMB’s related guidance (see “Insourcing Guidance”) might contribute
to the mislabeling of multi-sector workforce management as insourcing. Another possibility is
that unfamiliarity with the nuance, details, and complexities of a policy might lead some to adopt
an erroneous term. The problem with using outsourcing and insourcing to refer to competitive
sourcing and multi-sector workforce management, respectively, is that they are inaccurate, and
thus potentially misrepresent the policy (and associated implementation efforts), which could sow
confusion and create misunderstandings. Additionally, depending upon one’s perspective, the
misuse of the terms insourcing and outsourcing could possibly create, or reinforce, negative
perceptions of the policies themselves.
To aid in understanding the relationship between policy and outcomes, and several of the key
distinctions between competitive sourcing and multi-sector workforce management, Table 3
displays selected features of these two sourcing policies.
Table 3. Selected Features of Competitive Sourcing and Multi-Sector Workforce
Management
Policy
Purpose
Primary Mechanism
Possible Outcomes
Competitive Sourcing governmental reliance
on the private sector
Subject agencies’
commercial activities to
competition.
Conduct a public-private
competition.
- Enter into a fee-forservice agreement.a
- No change in source.
- Outsource.
- Retain in-house.
100
U.S. Government Accountability Office, Civilian Agencies’ Development and Implementation of Insourcing
Guidelines, p. 7.
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Policy
Purpose
Primary Mechanism
Possible Outcomes
Multi-Sector Workforce
Management –
determine the best mix
of federal employees and
contractors
Determine the appropriate
mix, or composition, of
agencies’ multi-sector
workforces.
Review an agency’s
functions and work
performed by contractor
employees.
- Bolster internal capability.
- Establish, or enhance,
oversight of contractors.
- Insource.
- No change in source.
Source: U.S. Office of Management and Budget, “Performance of Commercial Activities,” Circular No. A-76
(Revised), May 29, 2003, at http://www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a076/
a76_incl_tech_correction.pdf; President Barack Obama, “Government Contracting,” memorandum, March 4,
2009, at http://www.whitehouse.gov/the_press_office/Memorandum-for-the-Heads-of-Executive-Departmentsand-Agencies-Subject-Government/.; Peter R. Orszag, Director, U.S. Office of Management and Budget,
“Managing the Multi-Sector Workforce,” July 29, 2009, at http://www.whitehouse.gov/sites/default/files/omb/
assets/memoranda_fy2009/m-09-26.pdf.); 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 Federal Register 56233, September 12, 2011, at http://www.gpo.gov/fdsys/pkg/FR-2011-09-12/pdf/
2011-23165.pdf.
Notes:
a.
A fee-for-service agreement is a “formal agreement between agencies, in which one agency provides a
service (a commercial activity) for a fee paid by another agency. The agency providing the services is
referred to in … [Circular A-76] as a public reimbursable source.” (U.S. Office of Management and Budget,
“Performance of Commercial Activities,” Circular No. A-76 (Revised), May 29, 2003, p. D-5, at
http://www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a076/a76_incl_tech_correction.pdf.)
The Federal Government’s Reliance on Contractors
As already discussed, governmental reliance on the private sector has been, and continues to be, a
policy of the federal government. Concern has arisen among some observers, though, that
reliance on the private sector under certain circumstances might create an unacceptable risk for
government agencies.
“Overreliance on contractors” has been identified by the Obama Administration as an issue that
warrants attention.101 In his 2009 memorandum on the multi-sector workforce, the Director of
OMB advised agencies to “be alert to situations in which excessive reliance on contractors
undermines the ability of the federal government to accomplish its missions.”102 Administration
and GAO documents, and academic publications, suggest that the each of the following either
contribute to excessive reliance on contractors or are consequences of this phenomenon:
101
A GAO report that was published in 2010 catalogued some of the concerns that have arisen regarding reliance on
contractors. “Government contracting has more than doubled to reach over $500 billion annually since [2002]. This
increased reliance on contractors to perform agency missions increases the risk that government decisions can be
influenced by contractor employees, which can result in a loss of control and accountability. Agencies buy services that
range from basic operational support, such as custodial and landscaping, to more complex professional and
management support services, which may closely support inherently governmental functions. Such services include
acquisition support, budget preparation, and intelligence services…. The closer contractor services come to supporting
inherently governmental functions, the greater this risk of influencing the government’s control over and accountability
for decisions that may be based, in part, on contractor work.” (U.S. Government Accountability Office, Sourcing
Policy: Initial Agency Efforts to Balance the Government to Contractor Mix in the Multisector Workforce, GAO-10744T, May 20, 2010, p. 3, at http://www.gao.gov/new.items/d10744t.pdf.)
102
Orszag, “Managing the Multi-Sector Workforce,” p. 1.
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•
Lack of in-house capacity; 103
•
Loss of institutional knowledge;104
•
Inadequate management of contractors and their work;105
•
Contractor performance of inherently governmental functions;106
•
Loss of control over mission and operations, and loss of accountability; or107
•
Restriction on the size of government (“more specifically, [limiting] the number
of government employees”).108
If overreliance exists, it is possible that the Bush Administration’s emphasis on competitive
sourcing contributed to this phenomenon. Following the conclusion of President Bush’s tenure,
OMB stated that overreliance on contractors was “encouraged by one-sided management
priorities that … publicly rewarded agencies for becoming experts in identifying functions to
outsource….”109 For example, OMB issued memoranda that required agencies to submit
103
Ibid. A failure to invest in “human capital planning, recruitment, hiring, and training that are necessary for building
strong internal capacity … [can force agencies] to rely excessively on contractors because internal capacity is lacking.”
(Ibid.) GAO echoed this assessment in 2010, writing that “the increased reliance on contractors to perform the work of
government is in part attributed to difficulties in hiring for certain hard-to-staff positions, training and retaining
government employees.” (U.S. Government Accountability Office, Sourcing Policy: Initial Agency Efforts to Balance
the Government to Contractor Mix in the Multisector Workforce, p. 8.) The government’s acquisition workforce, which
is reportedly understaffed and undertrained, is a notable example of agencies’ reliance on contractors. GAO stated that
agencies “have relied increasingly” on contractors for acquisition activities, as “the capacity and capability of the …
acquisition workforce” has failed to keep pace “with increased spending for increasingly complex purchases.” (Ibid.)
The lack of sufficient internal capacity has been identified as a chronic problem facing the federal government. In its
final report to OFPP and Congress, the Acquisition Advisory Panel “recognized a significant mismatch between the
demands placed on the acquisition workforce and the personnel and skills available within that workforce to meet those
demands.” (Acquisition Advisory Panel, Report of the Acquisition Advisory Panel to the Office of Federal Procurement
Policy and the United States Congress, p. 327.) Steven Schooner and Daniel Greenspahn have noted that “government
lacks sufficient qualified acquisition, contract management, and quality control personnel to handle the growth in
service contracts, and the existing personnel lack the qualifications and experience necessary for them to perform a
complicated, highly discretionary task over extended periods of time.” (Steven L. Schooner and Daniel S. Greenspahn,
“Too Dependent on Contractors? Minimum Standards for Responsible Governance,” Journal of Contract Management,
summer 2008, p. 16.)
104
Orszag, “Managing the Multi-Sector Workforce,” p. 1.
105
Ibid. “[T]his problem—pervasive reliance upon contractors without sufficient qualified personnel to properly
manage contractual relationships—bedevils the entire federal government.” (Schooner and Greenspahn, “Too
Dependent on Contractors? Minimum Standards for Responsible Governance,” p. 17.)
106
“[T]he 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.” (Obama, “Government Contracting,” p. 1.)
107
U.S. Government Accountability Office, Initial Agency Efforts to Balance the Government to Contractor Mix in the
Multisector Workforce, p. 3. The Commission on Wartime Contracting in Iraq and Afghanistan identified a similar list
of indicators of overreliance on government contractors. The Commission wrote: “Indicators of over-reliance include
contracting that: 1. Extends to functions that law or regulation require government personnel perform, 2. Creates
unreasonable risks to mission objectives of other key U.S. interests, 3. Erodes federal agencies’ ability to self-perform
core capabilities, or 4. Overwhelms the government’s ability to effectively manage and oversee contractors.”
(Commission on Wartime Contracting in Iraq and Afghanistan, Transforming Wartime Contracting: Controlling Costs,
Reducing Risks, August 2011, p. 19, at http://www.wartimecontracting.gov/docs/CWC_FinalReport-lowres.pdf.)
108
Schooner and Greenspahn, “Too Dependent on Contractors? Minimum Standards for Responsible Governance,” p.
10.
109
Orszag, “Managing the Multi-Sector Workforce,” p. 1.
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inventories of their inherently governmental activities to OMB; established a governmentwide
target for competitive sourcing (which was later revised to agency-specific targets); and assigned
color-coded ratings to agencies’ competitive sourcing efforts.110
Recognizing some potential pitfalls of relying on government contractors, the Acquisition
Advisory Panel observed that “some agencies have contracted out substantive, mission-critical
functions, often without considering the potential adverse implications of such a step for the
future.”111 The panel noted that while there may be advantages to using lead system integrator
(LSI) contracts, possible adverse “consequences include the loss of institutional memory, the
inability to be certain whether the contractor is properly performing the specified work at a proper
price, and the inability to be sure that decisions are being made in the public interest rather than in
the interest of the contractors performing the work.”112 GAO has noted that “increased reliance on
contractors to perform agency missions increases the risk that government decisions can be
influenced by contractor employees, which can result in a loss of control and accountability….
The closer contractor services come to supporting inherently governmental functions, the greater
this risk….”113 Other risks of relying “heavily” on contractors include “[i]nterference with an
agency’s ability to accomplish its mission; [h]arm being inflicted upon the public, the
government, and others; [l]oss of public confidence in the government; and … [e]xcessive
expenditure of public funds.”114
A Typology of Government Functions
Another development in sourcing policy is the expansion of the typology of government
functions. Until the issuance of OFPP’s Policy Letter 11-01 in September 2011, sourcing policy
included only a simple dichotomy of functions. An agency function was either inherently
governmental or commercial. Policy Letter 11-01 added the categories of critical functions and
functions closely associated with inherently governmental functions, thus creating a more
nuanced typology that recognizes the complexities of the responsibilities of federal agencies.115
110
Daniels, “Performance Goals and Management Initiatives for the FY2002 Budget”; Sean O’Keefe, Deputy Director,
U.S. Office of Management and Budget, “Performance Goals and Management Initiatives for the FY2002 Budget,”
memorandum M-01-15, March 9, 2001, at http://www.whitehouse.gov/sites/default/files/omb/assets/omb/memoranda/
m01-15.pdf; Sean O’Keefe, Deputy Director, U.S. Office of Management and Budget, “Year 2001 Inventory of
Commercial Activities,” memorandum M-01-16, April 3, 2001, at http://www.whitehouse.gov/sites/default/files/omb/
assets/omb/memoranda/m01-16.pdf; Mitchell E. Daniels, Jr., Director, U.S. Office of Management and Budget,
“Implementation of the President’s Management Agenda and Presentation of the FY2003 Budget Request,”
memorandum M-02-02, October 30, 2001, at http://www.whitehouse.gov/omb/memoranda_m02-02/.
111
Acquisition Advisory Panel, Report of the Acquisition Advisory Panel to the Office of Federal Procurement Policy
and the United States Congress, p. 399.
112
Ibid. Lead system integrators, as described by GAO, “are prime contractors with increased program management
responsibilities. These responsibilities have included greater involvement in requirements development, design, and
source selection of major system and subsystem subcontractors.” (U.S. Government Accountability Office, Defense
Acquisitions: Future Combat Systems Challenges and Prospects for Success, GAO-05-442T, March 15, 2005, pp. 9-10,
at http://armed-services.senate.gov/statemnt/2005/March/Francis%2003-16-05.pdf.)
113
U.S. Government Accountability Office, Initial Agency Efforts to Balance the Government to Contractor Mix in the
Multisector Workforce, p. 3.
114
Schooner and Greenspahn, “Too Dependent on Contractors? Minimum Standards for Responsible Governance,” p.
14.
115
The term functions closely associated with inherently governmental functions had been used prior to the publication
of Policy Letter 11-01. However, the policy letter provides written, government-wide guidance for this category, which
did not exist previously.
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Going forward, the addition of other categories could further refine sourcing policy. One
possibility is a personnel sustainment category. Another, different possibility, is to consider
whether institutional characteristics, processes, or values might, when combined, warrant
consideration when determining which sector, public or private, ought to perform a particular
function.
Personnel Sustainment
A personnel sustainment category might facilitate agencies’ efforts to meet their human resources
needs and objectives, thus ensuring they are better equipped to perform their missions and
conduct operations. Designating certain positions within an agency as personnel sustainment
positions, which could be used to ensure that they are filled by federal employees, might further
an agency’s efforts to recruit, retain, and train agency employees, and provide opportunities for
career development and leadership development. For example, to create, or maintain, a
sustainable career path, or a leadership development path for would-be senior executives, an
agency might determine that it needs to retain certain tasks or functions. Although Policy Letter
11-01 does not suggest the creation of this category, its commentary on strategic human capital
planning is consistent with the notion that an agency’s personnel needs and objectives warrant
consideration in workforce planning. The policy letter requires agencies to “dedicate a sufficient
amount of work to performance by Federal employees in order to build competencies (both
knowledge and skills).” Continuity of operations and knowledge of operations are two additional
reasons identified by OFPP for agencies to have their employees perform the work of the
agency.116
An Institutional Perspective
Employing an institutional perspective, one would ask whether the type of sector, or institution
(federal agency or private business), might be relevant in determining whether federal employee
performance is warranted, or contractor performance is preferred. Government and government
agencies are different in a number of ways from the private sector and businesses. “The notion
that the qualities of government agencies, nonprofits, and profit-making institutions differ is a
commonplace. As a corollary, each attracts a workforce most comfortable with these qualities.
Research centers such as the Brookings Institution’s Center for Public Service periodically
confirm the public’s disparate images of the qualities of these institutions and their
workforces.”117 What, if anything, about federal agencies might suggest that, under certain
circumstances, agency performance is preferable to contractor performance of a particular
function? Conversely, what, if anything, about private firms might suggest that, under certain
circumstances, contractor performance is preferable to federal employee performance of a
particular function? Is it possible that certain features of an organization, such as its structure;
culture; incentives for employees; applicable statutes and regulations; relationships between
management and employees; lines of authority; accountability mechanisms; procedures and
policies that promote transparency; and extent, or type, of discretion, or flexibility, enjoyed by
personnel, when combined, would suggest that, under certain circumstances or for certain agency
functions, contractor performance—or federal employee performance—is preferable?
116
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,” p. 56237.
117
Dan Guttman, “Governance By Contract: Constitutional Visions; Time for Reflection and Choice,” p. 351.
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Additionally, depending on the particular function or circumstances, might it be useful to consider
citizens’ views and expectations of each type of institution, or sector?
Rogene Buchholz’s formulation of the conceptual elements of the market system and the public
policy process, which are presented in Table 4, provide some insight for this discussion. Although
her comparison focuses on system and process, it identifies some of the key differences between
the government and the private sector.
Table 4. Conceptual Elements of the Market System and the Public Policy Process
Market System
Public Policy Process
Exchange Process
Political Process
Private Goods and Services
Public Goods and Services
Economic Value System
Diverse Value System
Self-interest
Public Interest
The Invisible Hand
The Visible Hand
Economic Roles (Producers-Consumers-InvestorsEmployees)
Political Roles (Politicians-Citizens-Public Interest Groups)
Consumer Sovereignty
Citizen Sovereignty
Profits as Reward
Power as Reward
Business as the Major Institution
Government as the Major Institution
Operating Principles: Efficiency, Productivity, Growth
Operating Principles: Justice, Equity, Fairness
Source: Rogene A. Buchholz, Business Environment and Public Policy: Implications for Management and Strategy, 4th
ed. (Englewood Cliffs, NJ: Prentice Hall, 1992), p. 73.
Outcomes and Data118
What are the possible outcomes of implementing multi-sector workforce management and related
policies? 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. As discussed above, some commentators might focus on this
possible outcome while failing to acknowledge the other possibilities, thus conflating multi-sector
workforce management with insourcing. Similarly, some observers might conflate competitive
sourcing with one particular possible outcome of public-private competition—outsourcing.119
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.”120 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
118
This section is excerpted from CRS Report R42039, Performance of Inherently Governmental and Critical
Functions: The Obama Administration’s Final Policy Letter, by (name redacted), (name redacted), and (name red
acted). A few minor revisions were made to this section so that it would conform to the purpose and text of this report.
119
Another possible outcome is retaining the work in-house.
120
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,” p. 56234.
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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.”121 Testifying in September 2011, the head of OFPP stated that “the policy letter
should not lead to a widespread shift away from contractors.”122 His reasoning was 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
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.123
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”124 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.”125 Small business goals might
reinforce these considerations if agencies are reluctant to take steps that could compromise their
ability to achieve those goals.126 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.127
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
121
Ibid., p. 56239. FAR 37.114 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.”
122
Daniel I. Gordon, “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,” September 20, 2011, p. 5, at http://www.hsgac.senate.gov/subcommittees/oversight-of-governmentmanagement/hearings/intelligence-community-contractors-are-we-striking-the-right-balance-.
123
Ibid.
124
As described by the Office of Federal Procurement Policy, the “rule of two” requires “that acquisitions be reserved
for award to small businesses, or certain subsets of small businesses, if there are two or more responsible small
businesses capable of performing the work at fair market prices.” (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,” p. 56229.)
125
Ibid., p. 56239.
126
See http://www.sba.gov/content/small-business-goaling for additional information regarding small business goals.
127
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,” p. 56239. A contract may have a base
period (e.g., one year) and one or more option periods.
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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.128
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. Without complete,
detailed, accurate information, the outcomes and consequences of the policy might not be known,
or understood. Both supporters and critics of the policy might rely on unverifiable, anecdotal, or
inaccurate information in supporting, or criticizing, the policy and the implementation therof.
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, standalone 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.”129 The inventory was to include
•
[T]he number and location of full-time federal employee equivalents (FTEs) 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;130 and
•
[T]he associated funding source.131
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.132
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
128
Ibid.
Orszag, “Managing the Multi-Sector Workforce,” p. 1 (attachment 2).
130
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 apply.
131
Orszag, “Managing the Multi-Sector Workforce,” p. 2 (attachment 2).
132
Ibid.
129
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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.133 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 compensated under the
contract, expressed as full-time equivalent for direct labor;
•
whether the contract is a personal services contract; and
•
whether the contract was awarded on a noncompetitive basis, regardless of date
of award.134
Agencies’ service contracts inventories are available on their websites.135 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.136 FPDS is available to the public, and users may
retrieve data by conducting searches of the database. FPDS includes some of the same
133
Section 743 (Division C) of P.L. 111-117, as amended. DOD is subject to a similar statutory requirement, which
may be found in Section 807 of P.L. 110-181, National Defense Authorization Act for FY2008.
134
Daniel I. Gordon, Administrator, Office of Federal Procurement Policy, “Service Contract Inventories,”
memorandum, November 5, 2010, Appendix A, at http://www.whitehouse.gov/sites/default/files/omb/procurement/
memo/service-contract-inventories-guidance-11052010.pdf.
135
Ibid., p. 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.
136
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 CFR §4.601.)
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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.137
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
agency personnel—particularly those in acquisition, human resources, and financial
management—in planning, managing, and evaluating 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. Additional resources might be
needed, however, to develop such a system, and data alone might not be sufficient in addressing
some parties’ concerns about agencies’ decisions.
Cost Considerations
Cost Analysis
Both the July 29, 2009, OMB memorandum and OFPP’s Policy Letter 11-01 provide guidance for
using cost analysis, under certain, though different, circumstances, to aid in determining which
sector, public or private, should perform a particular agency function. If an agency determines
that a cost analysis is necessary, it might encounter several challenges, including the lack of a
generally accepted definition of cost of government performance and cost of contractor
performance, a standard process for performing cost analysis, resources needed to collect data,
and methodological and practical challenges.138
In attachment 3 of the multi-sector workforce management memorandum, which provides
guidance for implementing Section 736 (Division D) of P.L. 111-8, Omnibus Appropriations Act,
FY2009, OMB addresses the subject of cost analysis. Under the heading “General consideration
of federal employee performance,” OMB writes that, in reviewing the possible use of federal
employees for certain functions, agency evaluations should include, among other things, “a cost
analysis that addresses the full costs of performance and provides ‘like comparisons’ of relevant
costs to determine the most cost effective source of support.”139 In Policy Letter 11-01, OFPP uses
similar language in describing what an agency should do if it has sufficient resources to control
its mission and operations and there is additional critical work to be performed by either federal
employees or contractor employees. OFPP’s policy letter states that, with regard to critical
functions, “[i]f an agency has sufficient internal capability to control its mission and operations,
137
Global Computer Enterprises, GSA Federal Procurement Data System-Next Generation (FPDS-NG) Data Element
Dictionary, August 30, 2011, version 1.4.2, 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 FPDS data elements.
138
As discussed in “Competitive Sourcing”, Section 842(b) of P.L. 109-115 stated that Circular A-76 should “provide
procedures and policies” for conducting public-private competitions involving work performed by contractors, but the
Bush Administration did not revise the circular to reflect this statutory requirement.
139
Orszag, “Managing the Multi-Sector Workforce,” p. 2 (attachment 3).
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the extent to which additional work is performed by Federal employees should be based on cost
considerations. Supporting cost analysis should address the full costs of government and private
sector performance and provide like comparisons of costs that are of a sufficient magnitude to
influence the final decision on the most cost effective source of support for the organization.”140
Neither document includes a definition of full costs or any guidance on how to conduct a cost
analysis. GAO reported that, regarding the OMB memorandum, “confusion as to when a cost
analysis is needed and the appropriate procedures to conduct one makes it hard to define what
procedures are necessary to sufficiently address the cost issue. OMB’s criteria do not specify the
procedures for conducting a cost analysis or define what constitutes full cost of performance.”141
A possible consequence is the lack of standardization among agencies’ policies, including
determinations regarding which costs to include and which costs to exclude. On the other hand,
the decentralized development of guidelines permits agencies to tailor procedures to their
particular functions, which might lead to better cost analysis methodologies.
OFPP “agrees that additional guidance” for conducting cost analyses “may be beneficial” and
said that it “is reviewing the need for such guidance….”142 If OFPP, OMB, or another agency
develops guidance for use government-wide, perhaps the plan will (1) define the “full costs of
government and private sector performance”;143 (2) state explicitly what costs are included and
what costs are excluded; and (3) explain the reasons for including and excluding certain costs. A
well-thought-out definition of full costs of performance would likely help to ensure that the
results of a cost analysis are valid—i.e., that the cost analysis measures what it purports to
measure. The development and consistent use of a rigorous, detailed methodology would likely
aid in producing results that are reliable.
Information needed for cost analyses may not be readily available, or an agency may not be able
to identify, gather, and maintain data. GAO’s effort to compare the costs of using federal
employees and contractor employees for security services in Iraq is an example of this problem.
Although it had planned to include both DOD and the State Department in its study, GAO
eventually dropped DOD because it was not able to provide needed information. The Defense
Department was unable to provide “the number and rank of military personnel that would be
needed to meet contract requirements,” or “information on the cost to train personnel to perform
the security functions.” Defense Department officials informed GAO that it would have “to form
a team from several DOD organizations which would need to analyze each specific contract’s
requirements to determine the number and rank of personnel needed to meet the requirements.”144
Having eliminated DOD from its study, GAO opted for comparing the State Department’s “base
140
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,” p. 56239.
141
U.S. Government Accountability Office, Civilian Agencies’ Development and Implementation of Insourcing
Guidelines, p. 7.
142
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,” p. 56235. OFPP also stated in the
preamble accompanying Policy Letter 11-01 that an appropriate place for additional cost analysis guidance might be a
supplement to the insourcing guidance found in attachment 3 to OMB’s memorandum on the managing the multi-sector
workforce. (Ibid.)
143
Ibid., p. 56239.
144
U.S. Government Accountability Office, Warfighter Support: A Cost Comparison of Using State Department
Employees versus Contractors for Security Services in Iraq, March 4, 2010, p. 2, http://www.gao.gov/new.items/
d10266r.pdf.
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year obligated amounts for the four task orders and one security contract to total annual costs that
the State Department said it would likely incur if the department were to provide the [security]
services—based on the State Department’s assumptions.” The department assumed it would have
to recruit, hire, and train new employees; all new hires would be US citizens; the employees
would serve in Iraq for one year; and it would use same number of employees as the contractor.145
In conducting a comparison of agency costs and contractor costs, GAO included “salary, benefits,
overseas costs, training, recruitment, background screenings, and support.”146 Administrative
costs—“awarding the task orders and contract and providing oversight”—were omitted because
the State Department “was unable to provide an estimate of these costs.”147 Finally, GAO found
that “some costs [related to federal employee performance]… are difficult to quantify, [including
the costs of] developing new career fields, providing additional overhead, and building new
housing.”148
The government’s experience with Circular A-76—specifically the development of the overhead
rate that is used in public-private competitions—is yet another example of data problems facing
government agencies. Since actual overhead costs were not documented, OMB selected 12% as
the overhead rate for the government’s in-house cost estimates, which was “near the midpoint of
overhead rates” that had been “suggested by government agencies and private sector groups.”149
In its 1998 report on the 12% overhead rate, GAO noted that “[w]hile the 12-percent rate
represents an appropriate move toward including overhead costs in government cost estimates,
until actual overhead costs are captured, the magnitude of savings expected will be uncertain and
the results of A-76 studies are apt to continue to be controversial.”150 The overhead rate remains
12%.151
Although the context and circumstances differ, the following five cases illustrate some of the
methodological and practical difficulties that might hinder efforts to calculate the cost of
government or contractor performance, or, relatedly, capture the amount of savings a sourcing
decision is expected to yield. These five cases also illustrate the diversity among methodologies.
Generally, the information presented here is an excerpt. See the applicable study or report for a
complete description of the methodology that was developed or used.
Government Accountability Office
Under the Bush Administration, OMB required agencies to report the estimated savings they
expected from their competitive sourcing efforts. The Government Accountability Office
examined the Labor Department’s efforts to calculate its estimated savings for the period FY2004
through FY2007. GAO found that the department had excluded from its calculations “the time inhouse staff spent on competition activities, precompetition planning, certain transition costs, and
postcompetition review activities.” After noting that OMB had not required agencies to report
145
Ibid.
Ibid., pp. 2-3.
147
Ibid., p. 3.
148
Ibid., p. 4.
149
U.S. General Accounting Office, Defense Outsourcing: Better Data Needed to Support Overhead Rates for A-76
Studies, GAO/NSIAD-98-62, February 27, 1998, p. 3, at http://www.gao.gov/archive/1998/ns98062.pdf.
150
Ibid.
151
U.S. Office of Management and Budget, “Performance of Commercial Activities,” Circular No. A-76 (Revised),
May 29, 2003, p. C-4.
146
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these costs, GAO stated that its “analysis show[ed] that these costs can be substantial and that
excluding them overstates savings achieved by competitive sourcing.”152 GAO’s reasoning was
that, although “these staff are already paid by the government, their time spent away from regular
work duties represents a cost that is attributable to the competition process.”153
Transportation Security Administration
The Transportation Security Administration (TSA) conducted a comparison of the cost of
screening services at Screening Partnership Program (SPP) airports and non-SPP airports. 154 In its
examination of the cost comparison, GAO found that TSA failed to include some costs that
should be attributed to the government, including “workers’ compensation and general liability
insurance, … [also, the comparison] did not reflect the income received by the government from
corporate income taxes paid by SPP contractors.”155 GAO also noted that “[s]pecific procedures
and information used in … [TSA’s] cost study were not described in sufficient detail to allow a
knowledgeable person to carry out the procedures and to replicate the results in their entirety.”156
In short, the results were not replicable.
Commission on Wartime Contracting
A mandate of the Commission on Wartime Contracting157 was to “study federal agency
contracting for the reconstruction, logistical support of coalition forces, and the performance of
security functions … in Iraq and Afghanistan.”158 The commission’s August 2011 report includes,
in Appendix F, the methodology it used for “[c]omparing costs of contingency-support services
performed by military service members, federal civilians, and contractors.”159 The commission’s
“general concept for measuring support costs associated with a contingency [was] to count those
incremental costs that would be incurred in supporting a contingency operation—costs that would
152
U.S. Government Accountability Office, Department of Labor: Better Cost Assessments and Departmentwide
Performance Tracking Are Needed to Effectively Manage Competitive Sourcing Program, GAO-09-14, November 21,
2008, p. 5, at http://www.gao.gov/new.items/d0914.pdf.
153
Ibid., p. 20.
154
Under the Screening Partnership Program, a commercial airport in the United States may apply to use private-sector
screeners, in lieu of federal employees. (Transportation Security Administration, “Program Overview, Screening
Partnership Program,” at http://www.tsa.gov/what_we_do/optout/what_is_spp.shtm.)
155
U.S. Government Accountability Office, Aviation Security: TSA’s Cost and Performance Study of Private-Sector
Airport Screening, GAO-09-27R, January 9, 2009, p. 24, at http://www.gao.gov/new.items/d0927r.pdf. A subsequent
GAO report noted that TSA had revised its cost analysis procedure and, among other changes, it now includes
“workers’ compensation, general liability insurance, certain retirement costs, and a corporate tax adjustment to reflect
revenue received by the government from corporate income taxes paid by SPP contractors….” (U.S. Government
Accountabil
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