Implementation of the Federal Activities Inventory Reform Act of 1998 (Public Law 105-270) (``FAIR Act'')

OFFICE OF MANAGEMENT AND BUDGET

Implementation of the Federal Activities Inventory Reform Act of

1998 (Public Law 105-270) (``FAIR Act'')

AGENCY: Office of Management and Budget, Executive Office of the

President.

ACTION: OMB issues final guidance on the implementation of the FAIR

Act.

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SUMMARY: The Office of Management and Budget (OMB) hereby issues

guidance to implement the ``Federal Activities Inventory Reform Act of

1998''.

To facilitate and ensure agency implementation of the ``Federal

Activities Inventory Reform Act of 1998'' (Public Law 105-270) (``FAIR

Act''), OMB is revising its existing guidance on the management of

commercial activities through revisions to OMB Circular A-76,

``Performance of Commercial Activities,'' and to its Supplemental

Handbook. These revisions inform agencies of the FAIR Act's

requirements; implement the statutory requirements of the FAIR Act;

avoid duplication and confusion by conforming guidance to the FAIR Act,

and place the FAIR Act's requirements in the context of the Federal

Government's larger reinvention, competition and privatization efforts.

DATES: This guidance is effective June 24, 1999.

FOR FURTHER INFORMATION CONTACT PERSON: Mr. David Childs, Office of

Management and Budget, NEOB Room 6002, 725 17th Street, NW, Washington,

DC 20503, telephone: (202) 395-6104, FAX: (202) 395-7230.

AVAILABILITY: Copies of the updated versions of OMB Circular A-76, its

Revised Supplemental Handbook and this Transmittal Memorandum 20 are

available from OMB on the Internet at: http://www.whitehouse.gov/OMB/

circulars/index-procure.html

SUPPLEMENTARY INFORMATION:

I. The Federal Activities Inventory Reform Act

On October 12, 1998, President Clinton signed into law the

``Federal Activities Inventory Reform Act of 1998'' (``FAIR Act'' or

``Act''). The FAIR Act directs Federal agencies to submit each year an

inventory of all their activities that are performed by Federal

employees but are not inherently Governmental (i.e., are commercial).

OMB is to review each agency's Commercial Activities Inventory and

consult with the agency regarding its content. Upon the completion of

this review and consultation, the agency must transmit a copy of the

inventory to Congress and make it available to the public. The FAIR Act

establishes an administrative appeals process under which an interested

party may challenge the omission or the inclusion of a particular

activity on the inventory. Finally, the FAIR Act requires agencies to

review the activities on the inventory. Each time that the head of an

executive agency considers contracting with a private sector source for

the performance of such an activity, the head of the executive agency

shall use a competitive process. When conducting cost comparisons,

agencies must ensure that all costs are considered.

In enacting the FAIR Act, Congress did not displace longstanding

Executive Branch policy regarding the performance of commercial

activities. The Federal Government seeks to achieve economy and enhance

productivity and quality through competition to obtain the best service

at least cost to the American taxpayer. This Federal policy regarding

the performance of commercial activities has been provided by OMB

Circular A-76, ``Performance of Commercial

[[Page 33928]]

Activities.'' Specific guidance regarding the implementation of this

policy is provided by the March 1996 Revised Supplemental Handbook to

OMB Circular A-76 and by agency consultation with OMB.

The Act codified some of this guidance in law. In particular, the

FAIR Act codified the pre-existing requirement for agencies to

inventory their commercial activities, as well as the pre-existing

definition of ``inherently governmental function.''

Each time an agency considers changing from Government employee

performance of a commercial activity on the inventory, the FAIR Act

requires that a competitive process be used and that cost comparisons

``shall ensure that all costs * * * are considered and that the costs

considered are realistic and fair''. Here, too, the Act codifies or

defers to pre-existing Executive Branch policy.

II. Implementation of the FAIR Act

OMB Circulars are a well-established vehicle for directing agencies

on the management of their activities. Together, Circular A-76 and its

Supplemental Handbook have established the broad principles, individual

definitions and specific directives on the management of commercial

activities, including the inventory and other items codified by the

FAIR Act. OMB wanted to provide the agencies with prompt and clear

guidance on how to implement the Act within the short time-frame

available. OMB concluded that the best way to provide agencies with

clear and prompt guidance on how to implement the FAIR Act was to

revise the current circular and handbook so that they conform to the

FAIR Act. OMB's goal in drafting these revisions was to ensure that the

agencies fully implement the FAIR Act's requirements, and that the

agencies do so without confusion, wasted effort or delays caused by

uncertainty about the applicability of current guidance.

Accordingly, on March 1, 1999, OMB requested agency and public

comments on proposed revisions to the Handbook to implement the FAIR

Act (64 FR 10031). The proposed revisions would inform agencies of the

FAIR Act requirements and, to avoid confusion, conform the Handbook's

provisions so that they cross-reference and parallel relevant FAIR Act

provisions.

To implement the FAIR Act's inventory requirement, OMB proposed to

make conforming changes to the Handbook's pre-existing inventory

requirement. The changes incorporated the statutory due date of June

30th for agency submissions to OMB and added, to the inventory's

description of each activity, two new data elements required by the

FAIR Act.

In addition, OMB proposed provisions to the Handbook to address the

FAIR Act's other requirements. These provisions:

(1) Reiterated the requirements for OMB to review the commercial

activity inventories and to consult with the agencies regarding them;

for the agencies, after OMB's review-and-consultation is completed, to

send the inventories to Congress and to make them available to the

public; and for the agencies to hear and decide administrative

``challenges'' in which interested parties challenge an agency's

decision to include an activity in (or exclude an activity from) the

inventory; and

(2) Incorporated the FAIR Act's requirement that agencies

``review'' the activities on the inventory; that an agency, each time

it considers contracting with a private sector source for the

performance of an activity listed on the inventory, use a competitive

process to select the source (unless otherwise provided ``in a law

other than this Act, an Executive order, regulations, or any Executive

Branch circular''); and that, when comparing costs, ``all costs * * *

are considered and * * * are realistic and fair.''

OMB proposed that agencies rely on and implement the existing

guidance with respect to the cost-comparison competition requirements

of the FAIR Act. These procedures are well-established and direct

agencies to create a competitive process that compares costs

completely, accurately, and fairly.

OMB received 82 responses to its request for comments: 10 Federal

agencies, 61 industry or trade groups, and 8 employee organizations

responded, in addition to 4 letters from members of Congress. A

discussion of the significant comments, and OMB's responses to those

comments, is provided in the Appendix to this notice.

After considering all comments received on the proposed guidance,

OMB is issuing final guidance to the agencies for implementing the FAIR

Act. The guidance consists of changes to the A-76 Circular, itself, as

well as its Supplemental Handbook.

In order to implement the FAIR Act, OMB is making several changes

to the guidance as proposed on March 1:

OMB has revised Circular A-76, itself, in addition to the

Supplemental Handbook, to conform to the requirements of the FAIR Act;

To ensure that agencies comply with the FAIR Act's requirement for

review on an inventory within a reasonable time, OMB will now require

annual reports that will, among other things, discuss the

implementation, status, and results of the FAIR Act process;

OMB has clarified that agencies should, as appropriate, permit

employee involvement in the development of the inventory;

OMB is revising agency reporting requirements so that reporting is

clearer on activities that have been converted from contract

performance to in-house performance or retained in-house as a result of

a cost-comparison.

With the issuance of these revisions, agencies have been provided

guidance for implementing the FAIR Act. OMB will continue, as it has in

the past, to consult with individual agencies and provide informal

guidance as necessary.

III. Executive Branch Management of Commercial Activities Generally

Implementing the FAIR Act is only a part of the Government's

reinvention and management responsibilities. Improving the quality, and

reducing the cost, of commercial activities is an integral part of

managing the Nation's resources. The agencies and OMB have an ongoing

responsibility to ensure that these activities are performed in a

manner that is cost-effective and in the best interest of the taxpayer.

Developing an inventory of each agency's commercial activities is a

necessary first step in pursuing this objective, one that has now been

codified by the FAIR Act. Once these inventories are developed, they

will then be reviewed, by the agencies and OMB, to identify ways to

improve the performance of the Federal Government's commercial

activities.

Equally important, however, is how the agencies manage these

activities after they are identified. In order better to manage

commercial activities, OMB revised the Supplemental Handbook in 1996.

The Revised Supplemental Handbook seeks the most cost-effective means

of obtaining commercial support services and provided new

administrative flexibility in the Government's ``make or buy'' decision

process. The revision modified and, in some cases, eliminated cost

comparison requirements for recurring commercial activities and the

establishment of new or expanded interservice support agreements;

reduced reporting and other administrative burdens; provided for

enhanced employee participation; eased transition requirements to

facilitate employee placement; maintained a level playing field for

cost comparisons between Federal, interservice support agreement and

private sector offers, and improved accountability and oversight

[[Page 33929]]

to ensure that the most cost effective decision is implemented.

As part of this guidance, OMB is now taking the additional step of

requiring agencies to submit annual reports that will discuss the

implementation, status, and results of the FAIR Act process. As we

develop experience with the FAIR Act and these procedures, we will

consider whether additional guidance is needed, either for

implementation of the FAIR Act in particular or on management of

commercial activities in general.

Jacob J. Lew,

Director.

June 14, 1999.

Circular No. A-76 (Revised)

Transmittal Memorandum No. 20

To The Heads of Executive Departments and Agencies

Subject: Implementing the Federal Activities Inventory Reform Act

Through Conforming Changes to OMB Circular No. A-76 and its March

1996 Revised Supplemental Handbook.

This Transmittal Memorandum implements the statutory

requirements of the Federal Activities Inventory Reform Act (``The

FAIR Act''), Public Law 105-270. As part of its longstanding role in

the review and oversight of agency management and the allocation of

resources, OMB has established policies regarding the performance of

commercial activities by Federal agencies. These policies are

outlined in OMB Circular No. A-76 and its Revised Supplemental

Handbook. The FAIR Act reinforced these policies and procedures;

codified certain requirements with respect to the development by

agencies of an annual commercial activities inventory, and added an

opportunity for interested parties to challenge the contents of the

annual inventory.

The changes to the Circular's Revised Supplemental Handbook

(Attachment 1) inform agencies of the FAIR Act's requirements;

implement the statutory requirements of the FAIR Act; avoid

duplication and confusion by conforming the Supplemental Handbook to

the provisions of the FAIR Act; and place the FAIR Act's

requirements in the context of the Federal Government's larger

reinvention, competition and privatization efforts. As a result of

these changes, the Circular is also being updated with conforming

changes necessary to reflect the requirements of the FAIR Act

(Attachment 2). The previous OMB Circular A-76 was published in the

August 16, 1983, Federal Register at pages 37110-37116. The March

1996 Revised Supplemental Handbook was issued through Transmittal

Memorandum 15, published in the April 1, 1996, Federal Register at

pages 14338-14346.

Under the FAIR Act, agencies are required to submit their

commercial activity inventories to OMB by June 30th of each year,

starting this year. THE FIRST FAIR ACT INVENTORIES ARE, THEREFORE,

DUE IN TWO WEEKS. OMB looks forward to working with the agencies

during our review of these inventories, and stands ready to assist

the agencies as the Executive Branch moves forward in its

implementation of the FAIR Act.

Questions regarding the FAIR Act or this guidance may be

addressed to Mr. David Childs (phone: (202) 395-6104, Fax: (202)

395-7230).

Jacob J. Lew,

Director.

Attachments

Attachment 1.--Revisions to the OMB Circular A-76 March 1996 Revised

Supplemental Handbook

1. The Introduction to the Supplemental Handbook (p. iii) is

revised to reflect the fact that challenges to the activities listed

in the Commercial Activities Inventory are permitted under the FAIR

Act, by adding to the end of the last sentence on page iii the

following:

``* * * and as set forth in Appendix 2, Paragraph G, consistent

with Section 3 of the Federal Activities Inventory Reform Act of

1998 (FAIR Act, P.L. 105-270).''

2. Part I, Chapter 1, paragraphs A, B.1 and F, of the

Supplemental Handbook (pp. 3, 5) are revised to reflect the

requirements of the FAIR Act. As revised, paragraphs A, B.1 and F

read as follows:

``A. General

This Part sets forth the principles and procedures for managing

the Government's acquisition of recurring commercial support

activities, implementing the ``Federal Activities Inventory Reform

Act of 1998'' (``The FAIR Act''), P.L. 105-270, and Circular A-76.

Exhibit 1 summarizes the conditions that permit conversion to or

from in-house, contract or Inter-Service Support Agreement (ISSA)

performance. The requirements of the FAIR Act apply to the following

executive agencies: (1) An executive department named in 5 U.S.C.

101, (2) a military department named in 5 U.S.C. 102, and (3) an

independent establishment as defined in 5 U.S.C. 104. The

requirements of the FAIR Act do not apply to: (1) The General

Accounting Office, (2) a Government corporation or a Government

controlled corporation as defined in 5 U.S.C. 103, (3) a non-

appropriated funds instrumentality if all of its employees are

referred to in 5 U.S.C. 2105(c), or (4) Depot-level maintenance and

repair of the Department of Defense as defined in 10 U.S.C. 2460.''

``B. Inherently Governmental Activities

1. Inherently Governmental activities are not subject to the

FAIR Act, Circular A-76 or this Supplemental Handbook. As a matter

of policy, an inherently Governmental activity is one that is so

intimately related to the exercise of the public interest as to

mandate performance by Federal employees. The Office of Federal

Procurement Policy (OFPP) Policy Letter 92-1, dated September 23,

1992 (Federal Register, September 30, 1992, page 45096), provides

guidance on the identification of inherently Governmental activities

(see Appendix 5). This guidance conforms to the definition provided

at Section 5, paragraph 2, of the FAIR Act.''

``F. Commercial Activities Inventory

As required by the FAIR Act, Circular A-76 and this Supplemental

Handbook, each agency will maintain a detailed inventory of all in-

house commercial activities performed by its Government employees.

This inventory, as described at Appendix 2 of this Supplement, and

any supplemental information requested by OMB, will be submitted not

later than June 30 of each year. Agencies should, as appropriate,

permit employee involvement in the development of this Commercial

Activities Inventory.''

3. Part II, Chapter 1, Paragraph A.1 of the Supplemental

Handbook (p. 17) is revised by adding a reference to the FAIR Act.

As revised, Paragraph A.1 reads as follows:

``1. Part II provides generic and streamlined cost comparison

guidance to comply with the provisions of the FAIR Act and Circular

A-76. This includes guidance for developing in-house costs based

upon the Government's Most Efficient Organization (MEO) and other

adjustments to the contract and inter-service support agreement

(ISSA) price. It also sets out the principles for development of

cost-based performance standards or other measures that are

comparable to those used by commercial sources. Appendices 6 and 7

provide sector-specific cost comparison guidance.''

4. The title of Appendix 2 of the Supplemental Handbook (p. 38)

and the corresponding entry in the Table of Contents are revised

from ``OMB Circular No. A-76 Inventory'' to ``Commercial Activities

Inventory.'' Portions of this inventory are now required by the FAIR

Act, as a matter or law.

5. Paragraph A of Appendix 2 of the Supplemental Handbook (p.

38) is revised in several ways. The introductory sentences now refer

to the FAIR Act's requirements for a Commercial Activities Inventory

and incorporate its due date (June 30th) for submission to OMB of

each agency's inventory. Two data elements are added to the

inventory's description of an activity. These additional data

elements (g and h, below) correspond to the new data elements

required under Section 2(a) (1) and (3) of the FAIR Act. In

addition, the existing data element for ``Location / organization

unit'' is being separated into two elements (``Location'' and

``Organization Unit''). Finally, a concluding sentence is added to

clarify that agencies have the flexibility to automate and structure

the inventory so long as all the listed data elements are included.

As revised, Paragraph A reads as follows:

``A. Annual Inventory Submission

In accordance with the FAIR Act, Circular A-76 and this

Handbook, each agency must submit to OMB, by June 30 of each year, a

detailed Commercial Activities Inventory of all commercial

activities performed by in-house employees, including, at a minimum,

the following:

a. Organization unit.

b. State(s).

c. Location(s).

d. FTE.

e. Activity function code.

f. Reason code.

[[Page 33930]]

g. Year the activity first appeared on FAIR Act Commercial

Activities Inventory (initial value will be 1999).

h. Name of a Federal employee responsible for the activity or

contact person from whom additional information about the activity

may be obtained.

i. Year of cost comparison or conversion (if applicable).

j. CIV/FTE savings (if applicable).

k. Estimated annualized Cost Comparison dollar savings (if

applicable).

l. Date of completed Post-MEO Performance Review (if

applicable).

Agencies have the discretion to automate and to structure the

initial submission of the detailed inventory as they believe most

appropriate, so long as the inventory includes each of these data

elements. Agencies must transmit an electronic version of the

inventory to OMB as well as two paper copies. The electronic version

should be in a commonly used software format (commercial off-the-

shelf spreadsheet, database or word processing format). OMB

anticipates issuing additional guidance on the structure and format

of future inventory submissions, based on the experience gained from

the first annual review and consultation process.''

6. To reflect the FAIR Act's requirement that information on

full time employees (or its equivalent) be included, paragraph C of

Appendix 2 of the Supplemental Handbook (p. 38) has been revised as

follows:

``C. FTE

Enter the number of authorized full-time employees or FTE (as

applicable) in the commercial activity function or functions as of

the date of the inventory. Employees performing inherently

Governmental activities are not reported in the Commercial

Activities Inventory.''

7. Paragraph E ``A-76 Reason Codes'' of Appendix 2 of the

Supplemental Handbook (p. 38) is retitled ``Reason Codes.'' The

phrase ``agency A-76 inventories'' is changed to ``Commercial

Activities Inventory'' and ``Reason code E'' is revised and a new

reason code ``I'' is added as follows:

``E Indicates that the function is retained in-house as a result

of a cost comparison.''

``I Indicates the function is being performed in-house as a

result of a cost comparison resulting from a decision to convert

from contract to in-house performance.''

8. Appendix 2 of the Supplemental Handbook (p. 38) is further

revised by adding three new paragraphs. New paragraph ``G''

describes the review and publication of the detailed agency

Commercial Activities Inventory and the challenge-and-appeals

process pertaining to its content, as required by the FAIR Act. The

new paragraph ``H'' includes the FAIR Act's requirements that

agencies review the commercial activities in their inventories and

use a competitive process or established cost comparison procedures

each time an agency considers contracting with a private-sector

source for the performance of an activity on the inventory. New

paragraph ``I'' alerts agencies to the requirement for an annual

Report on Agency Management of Commercial Activities. The new

paragraphs read as follows:

``G. Inventory Review and Publication; Challenges and Appeals

1. Review and Publication: In accordance with Section 2 of the

FAIR Act, OMB will review the agency's Commercial Activities

Inventory and consult with the agency regarding its content. After

this review is completed, OMB will publish a notice in the Federal

Register stating that the inventory is are available to the public.

Once the notice is published, the agency will transmit a copy of the

detailed Commercial Activities Inventory to Congress and make the

materials available to the public through its Washington, DC or

headquarters offices.

2. Challenges and Appeals: Under Section 3 of the FAIR Act, an

agency's decision to include or exclude a particular activity from

the Commercial Activities Inventory is subject to administrative

challenge and, then, possible appeal by an ``interested party.''

Section 3(b) of the FAIR Act defines ``interested party'' as:

a. A private sector source that (A) is an actual or prospective

offeror for any contract or other form of agreement to perform the

activity; and (B) has a direct economic interest in performing the

activity that would be adversely affected by a determination not to

procure the performance of the activity from a private sector

source.

b. A representative of any business or professional association

that includes within its membership private sector sources referred

to in a. above.

c. An officer or employee of an organization within an executive

agency that is an actual or prospective offeror to perform the

activity.

d. The head of any labor organization referred to in section

7103(a) (4) of title 5, United States Code that includes within its

membership officers or employees of an organization referred to in

c. above.

3. An interested party may submit to an executive agency an

initial challenge to the inclusion or exclusion of an activity

within 30 calendar days after publication of OMB's Federal Register

notice stating that the inventory is available. The challenge must

set forth the activity being challenged with as much specificity as

possible, and the reasons for the interested party's belief that the

particular activity should be reclassified as inherently

Governmental (and therefore be deleted from the inventory) or as

commercial (and therefore be added to the inventory) in accordance

with OFPP Policy Letter 92-1 on inherently Governmental functions

(see Appendix 5) or as established by precedent (such as when other

agencies have contracted for the activity or undergone competitions

for this or similar activities).

4. The agency head may delegate the responsibility to designate

the appropriate official(s) to receive and decide the initial

challenges. As mandated by the FAIR Act, the deciding official must

decide the initial challenge and transmit to the interested party a

written notification of the decision within 28 calendar days of

receiving the challenge. The notification must include a discussion

of the rationale for the decision and, if the decision is adverse,

an explanation of the party's right to file an appeal.

5. An interested party may appeal an adverse decision to an

initial challenge within 10 working days after receiving the written

notification of the decision. The agency head may delegate the

responsibility to receive and decide appeals to the official

identified in paragraph 9.a of the Circular (or an equivalent senior

policy official), without further delegation. Within 10 working days

of receipt of the appeal, the official must decide the appeal and

transmit to the interested party a written notification of the

decision together with a discussion of the rationale for the

decision. The agency must also transmit to OMB and the Congress a

copy of any changes to the inventory that result from this process,

make the changes available to the public and publish a notice of

public availability in the Federal Register.''

``H. Agency Review and Use of Inventory

Section 2(d) of the FAIR Act requires that each agency, within a

reasonable time after the publication of the notice that its

inventories are publicly available, review the activities on the

detailed commercial activities inventory. Agencies will report to

OMB on this process as part of the Report on Agency Management of

Commercial Activities required under Paragraph I, below. In

addition, Section 2(d)-(e) of the FAIR Act provides that, each time

the head of the executive agency considers contracting with a

private-sector source for the performance of an activity included on

the inventory, the agency must use a competitive process to select

the source and must ensure that, when a cost comparison is used or

otherwise required for the comparison of costs, all costs are

considered and the costs considered are realistic and fair. In

carrying out these requirements, agencies must rely on the guidance

contained in Circular A-76 and this Supplemental Handbook to

determine if cost comparisons are required and what competitive

method is appropriate. All competitive costs of in-house and

contract performance are included in the cost comparison, when such

comparison is required, including the costs of quality assurance,

technical monitoring, liability insurance, retirement benefits,

disability benefits and overhead that may be allocated to the

function under study or may otherwise be expected to change as a

result of changing the method of performance.''

``I. Annual Report on Agency Management of Commercial Activities

As part of ongoing agency responsibility to manage their

performance of commercial activities and ongoing OMB oversight, OMB

will require agencies to report annually on such management. The

content of the reports is likely to vary depending upon the progress

made by each agency in reviewing their inventory and on the

experience OMB gains from the first round of inventory submissions,

review, challenges and appeals mandated by the FAIR Act. OMB

anticipates issuing subsequent guidance if it determines that

supplemental reports or other information is needed for future

inventory submissions to assure that agencies have

[[Page 33931]]

correctly implemented all of the provisions of the FAIR Act and

taken advantage of the management information inherent in the

detailed Commercial Activities Inventory.''

Attachment 2.--Executive Office of the President, Office of Management

and Budget, Washington, DC 20503

August 4, 1983 (Revised 1999).

Circular No. A-76

To the Heads of Executive Departments and Establishments

Subject: Performance of Commercial Activities

1. Purpose. This Circular establishes Federal policy regarding

the performance of commercial activities and implements the

statutory requirements of the Federal Activities Inventory Reform

Act of 1998, Public Law 105-270. The Supplement to this Circular

sets forth the procedures for determining whether commercial

activities should be performed under contract with commercial

sources or in-house using Government facilities and personnel.

2. Rescission. OMB Circular No. A-76 (Revised), dated March 29,

1979; and Transmittal Memoranda 1 through 14 and 16 through 18.

3. Authority. The Budget and Accounting Act of 1921 (31 U.S.C. 1

et seq.), The Office of Federal Procurement Policy Act Amendments of

1979. (41 U.S.C. 401 et seq.), and The Federal Activities Inventory

Reform Act of 1998. (P. L. 105-270).

4. Background.

a. 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.

b. This national policy was promulgated through Bureau of the

Budget Bulletins issued in 1955, 1957 and 1960. OMB Circular No. A-

76 was issued in 1966. The Circular was previously revised in 1967,

1979, and 1983. The Supplement (Revised Supplemental Handbook) was

previously revised in March 1996 (Transmittal Memorandum 15).

5. Policy. 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.

When conducting cost comparisons, agencies must ensure that all

costs are considered and that these costs are realistic and fair.

b. Retain Governmental Functions In-House. Certain functions are

inherently 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 and its Supplement, 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.

6. Definitions. For purposes of this Circular:

a. 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 are

not commercial activities. A representative list of commercial

activities is provided in Attachment A. 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.

b. A conversion to contract is the changeover of an activity

from Government performance to performance under contract by a

commercial source.

c. A conversion to in-house is the changeover of an activity

from performance under contract to Government performance.

d. A commercial source is a business or other non-Federal

activity located in the United States, its territories and

possessions, the District of Columbia or the Commonwealth of Puerto

Rico, which provides a commercial product or service.

e. 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 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 judgment in making decisions for the Government.

Services or products in support of inherently Governmental

functions, such as those listed in Attachment A, are commercial

activities and are normally subject to this Circular. Inherently

Governmental functions normally fall into two categories:

(1) The act of governing; i.e., the discretionary exercise of

Government authority. Examples include criminal investigations,

prosecutions and other judicial functions; management of Government

programs requiring value judgments, as in direction of the national

defense; management and direction of the Armed Services; activities

performed exclusively by military personnel who are subject to

deployment in a combat, combat support or combat service support

role; conduct of foreign relations; selection of program priorities;

direction of Federal employees; regulation of the use of space,

oceans, navigable rivers and other natural resources; direction of

intelligence and counter-intelligence operations; and regulation of

industry and commerce, including food and drugs.

(2) Monetary transactions and entitlements, such as tax

collection and revenue disbursements; control of the Treasury

accounts and money supply; and the administration of public trusts.

f. A cost comparison is the process of developing an estimate of

the cost of Government performance of a commercial activity and

comparing it, in accordance with the requirements of the Supplement,

to the cost to the Government for contract performance of the

activity.

g. Directly affected parties are Federal employees and their

representative organizations and bidders or offerors on the instant

solicitation.

h. Interested parties for purposes of challenging the contents

of an agency's Commercial Activities Inventory under the Federal

Activities Inventory Reform Act of 1998 are:

(1) A private sector source that (A) is an actual or prospective

offeror for any contract or other form of agreement to perform the

activity; and (B) has a direct economic interest in performing the

activity that would be adversely affected by a determination not to

procure the performance of the activity from a private sector

source.

(2) A representative of any business or professional association

that includes within its membership private sector sources referred

to in (1) above.

(3) An officer or employee of an organization within an

executive agency that is an actual or prospective offeror to perform

the activity.

(4) The head of any labor organization referred to in section

7103(a)(4) of Title 5, United States Code that includes within its

membership officers or employees of an organization referred to in

(3) above.

7. Scope.

a. Unless otherwise provided by law, this Circular and its

Supplement shall apply to all executive agencies and shall provide

administrative direction to heads of agencies.

b. This Circular and its Supplement apply to printing and

binding only in those agencies or departments which are exempted by

law from the provisions of Title 44 of the U.S. Code.

c. This Circular and its Supplement shall not:

(1) Be applicable when contrary to law, Executive Orders, or any

treaty or international agreement;

(2) Apply to inherently Governmental functions as defined in

paragraph 6.e.;

(3) Apply to the Department of Defense in times of a declared

war or military mobilization;

(4) Provide authority to enter into contracts;

(5) Authorize contracts which establish an employer-employee

relationship between the Government and contractor employees. An

employer-employee relationship involves close, continual supervision

of individual contractor employees by Government employees, as

distinguished from general oversight of contractor operations.

However,

[[Page 33932]]

limited and necessary interaction between Government employees and

contractor employees, particularly during the transition period of

conversion to contract, does not establish an employer-employee

relationship.

(6) Be used to justify conversion to contract solely to avoid

personnel ceilings or salary limitations;

(7) Apply to the conduct of research and development. However,

severable in-house commercial activities in support of research and

development, such as those listed in Attachment A, are normally

subject to this Circular and its Supplement; or

(8) Establish and shall not be construed to create any

substantive or procedural basis for anyone to challenge any agency

action or inaction on the basis that such action or inaction was not

in accordance with this Circular, except as specifically set forth

in Part 1, Chapter 3, paragraph K of the Supplement, ``Appeals of

Cost Comparison Decisions'' and as set forth in Appendix 2,

Paragraph G, consistent with Section 3 of the Federal Activities

Inventory Reform Act of 1998.

d. The requirements of the Federal Activities Inventory Reform

Act of 1998 apply to the following executive agencies:

(1) An executive department named in 5 USC 101,

(2) A military department named in 5 USC 102, and

(3) An independent establishment as defined in 5 USC 104.

e. The requirements of the Federal Activities Inventory Reform

Act of 1998 do not apply to the following entities or activities:

(1) The General Accounting Office,

(2) A Government corporation or a Government controlled

corporation as defined in 5 USC 103,

(3) A non-appropriated funds instrumentality if all of its

employees are referred to in 5 USC 2105(c), or

(4) Depot-level maintenance and repair of the Department of

Defense as defined in 10 USC 2460.

8. Government Performance of a Commercial Activity. Government

performance of a commercial activity is authorized under any of the

following conditions:

a. No Satisfactory Commercial Source Available. Either no

commercial source is capable of providing the needed product or

service, or use of such a source would cause unacceptable delay or

disruption of an essential program. Findings shall be supported as

follows:

(1) If the finding is that no commercial source is capable of

providing the needed product or service, the efforts made to find

commercial sources must be documented and made available to the

public upon request. These efforts shall include, in addition to

consideration of preferential procurement programs (see Part I,

Chapter 1, paragraph C of the Supplement) at least three notices

describing the requirement in the Commerce Business Daily over a 90-

day period or, in cases of bona fide urgency, two notices over a 30-

day period. Specifications and requirements in the solicitation

shall not be unduly restrictive and shall not exceed those required

of in-house Government personnel or operations.

(2) If the finding is that a commercial source would cause

unacceptable delay or disruption of an agency program, a written

explanation, approved by the assistant secretary or designee in

paragraph 9.a. of the Circular, must show the specific impact on an

agency mission in terms of cost and performance. Urgency alone is

not adequate reason to continue in-house operation of a commercial

activity. Temporary disruption resulting from conversion to contract

is not sufficient support for such a finding, nor is the possibility

of a strike by contract employees. If the commercial activity has

ever been performed by contract, an explanation of how the instant

circumstances differ must be documented. These decisions must be

made available to the public upon request.

(3) Activities may not be justified for in-house performance

solely on the basis that the activity involves or supports a

classified program or the activity is required to perform an

agency's basic mission.

b. National Defense.

(1) The Secretary of Defense shall establish criteria for

determining when Government performance of a commercial activity is

required for national defense reasons. Such criteria shall be

furnished to OMB, upon request.

(2) Only the Secretary of Defense or his designee has the

authority to exempt commercial activities for national defense

reasons.

c. Patient Care. Commercial activities performed at hospitals

operated by the Government shall be retained in-house if the agency

head, in consultation with the agency's chief medical director,

determines that in-house performance would be in the best interests

of direct patient care.

d. Lower cost. Government performance of a commercial activity

is authorized if a cost comparison prepared in accordance with the

Supplement demonstrates that the Government is operating or can

operate the activity on an ongoing basis at an estimated lower cost

than a qualified commercial source.

9. Action Requirements. To ensure that the provisions of this

Circular and its Supplement are followed, each agency head shall:

a. Designate an official at the assistant secretary or

equivalent level and officials at a comparable level in major

component organizations to have responsibility for implementation of

this Circular and its Supplement within the agency.

b. Establish one or more offices as central points of contact to

carry out implementation. These offices shall have access to all

documents and data pertinent to actions taken under the Circular and

its Supplement and will respond in a timely manner to all requests

concerning inventories, schedules, reviews, results of cost

comparisons and cost comparison data.

c. Be guided by Federal Acquisition Regulation (FAR) Subpart

24.2 (Freedom of Information Act) in considering requests for

information.

d. Implement this Circular and its Supplement with a minimum of

internal instructions. Cost comparisons shall not be delayed pending

issuance of such instructions.

e. Ensure the reviews of all existing in-house commercial

activities are completed within a reasonable time in accordance with

the Federal Activities Inventory Reform Act of 1998 and the

Supplement.

10. Annual Reporting Requirement. As required by the Federal

Activities Inventory Reform Act of 1998 and Appendix 2 of the

Supplement, no later than June 30 of each year, agencies shall

submit to OMB a Commercial Activities Inventory and any supplemental

information requested by OMB. After review and consultation by OMB,

agencies will transmit a copy of the Commercial Activities Inventory

to Congress and make the contents of the Inventory available to the

public. Agencies will follow the process provided in the Supplement

for interested parties to challenge (and appeal) the contents of the

inventory.

11. OMB Responsibility and Contact Point. All questions or

inquiries should be submitted to the Office of Management and

Budget, Room 6002 NEOB, Washington, DC 20503. Telephone number (202)

395-6104, FAX (202) 395-7230.

12. Effective Date. This Circular and the changes to its

Supplement are effective immediately.

Attachment A:--OMB Circular No. A-76, Examples of Commercial

Activities

Audiovisual Products and Services

Photography (still, movie, aerial, etc.)

Photographic processing (developing, printing, enlarging, etc.)

Film and videotape production (script writing, direction, animation,

editing, acting, etc.)

Microfilming and other microforms

Art and graphics services

Distribution of audiovisual materials

Reproduction and duplication of audiovisual products

Audiovisual facility management and operation

Maintenance of audiovisual equipment

Automatic Data Processing

ADP services--batch processing, time-sharing, facility management,

etc.

Programming and systems analysis, design, development, and

simulation

Key punching, data entry, transmission, and teleprocessing services

Systems engineering and installation

Equipment installation, operation, and maintenance

Food Services

Operation of cafeterias, mess halls, kitchens, bakeries, dairies,

and commissaries

Vending machines

Ice and water

Health Services

Surgical, medical, dental, and psychiatric care

Hospitalization, outpatient, and nursing care

Physical examinations

Eye and hearing examinations and manufacturing and fitting glasses

and hearing aids

[[Page 33933]]

Medical and dental laboratories

Dispensaries

Preventive medicine

Dietary services

Veterinary services

Industrial Shops and Services

Machine, carpentry, electrical, plumbing, painting, and other shops

Industrial gas production and recharging

Equipment and instrument fabrication, repair and calibration

Plumbing, heating, electrical, and air conditioning services,

including repair

Fire protection and prevention services

Custodial and janitorial services

Refuse collection and processing

Maintenance, Overhaul, Repair, and Testing

Aircraft and aircraft components

Ships, boats, and components

Motor vehicles

Combat vehicles

Railway systems

Electronic equipment and systems

Weapons and weapon systems

Medical and dental equipment

Office furniture and equipment

Industrial plant equipment

Photographic equipment

Space systems

Management Support Services

Advertising and public relations services

Financial and payroll services

Debt collection

Manufacturing, Fabrication, Processing, Testing, and Packaging

Ordnance equipment

Clothing and fabric products

Liquid, gaseous, and chemical products

Lumber products

Communications and electronics equipment

Rubber and plastic products

Optical and related products

Sheet metal and foundry products

Machined products

Construction materials

Test and instrumentation equipment

Office and Administrative Services

Library operations

Stenographic recording and transcribing

Word processing/data entry/typing services

Mail/messenger

Translation

Management information systems, products and distribution

Financial auditing and services

Compliance auditing

Court reporting

Material management

Supply services

Other Services

Laundry and dry cleaning

Mapping and charting

Architect and engineer services

Geological surveys

Cataloging

Training--academic, technical, vocational, and specialized Operation

of utility systems (power, gas, water steam, and sewage)

Laboratory testing services

Printing and Reproduction

Facility management and operation

Printing and binding--where the agency or department is exempted

from the provisions of Title 44 of the U.S. Code

Reproduction, copying, and duplication

Blueprinting

Real Property

Design, engineering, construction, modification, repair, and

maintenance of buildings and structures; building mechanical and

electrical equipment and systems; elevators; escalators; moving

walks

Construction, alteration, repair, and maintenance of roads and other

surfaced areas

Landscaping, drainage, mowing and care of grounds

Dredging of waterways

Security

Guard and protective services

Systems engineering, installation, and maintenance of security

systems and individual privacy systems

Forensic laboratories

Special Studies and Analyses

Cost benefit analyses

Statistical analyses

Scientific data studies

Regulatory studies

Defense, education, energy studies

Legal/litigation studies

Management studies

Systems Engineering, Installation, Operation, Maintenance, and

Testing

Communications systems--voice, message, data, radio, wire,

microwave, and satellite

Missile ranges

Satellite tracking and data acquisition

Radar detection and tracking

Television systems--studio and transmission equipment, distribution

systems, receivers, antennas, etc.

Recreational areas

Bulk storage facilities

Transportation

Operation of motor pools

Bus service

Vehicle operation and maintenance

Air, water, and land transportation of people and things

Trucking and hauling

Appendix--Summary of Comments Received

OMB received 82 responses to its March 1, 1999, Federal Register

request for comments: 10 Federal agencies; 61 industry or trade

groups, and 8 employee organizations responded, in addition to 4

letters from members of Congress. A discussion of the significant

comments, and OMB's responses (including resulting changes that have

been made to Circular A-76 and its Supplemental Handbook), is

provided below.

1. The Development and Submission of the Commercial Activities

Inventory

OMB received a number of comments regarding the proposed

revisions to Appendix 2 of the Supplemental Handbook that address

the requirement in Section 2(a) of the FAIR Act that agencies

develop and submit to OMB, by June 30th of each year, ``a list of

activities performed by Federal Government sources for the executive

agency that, in the judgment of the head of the executive agency,

are not inherently Governmental functions.''

a. Comment: One agency commenter stated that it would be

burdensome for the agency to include in the agency's inventory the

name of a Federal employee with respect to each listed commercial

activity.

Response: This data element is specifically required by Section

2(a)(3) of the FAIR Act itself.

b. Comment: Several commenters asked for changes to the data

elements to prevent any implication that agency savings could only

be achieved by ``outsourcing'' (converting work from in-house to

contract performance) but not by ``insourcing'' (converting work

from contract to in-house performance). Specifically, the commenters

asked that OMB delete the commercial activity data element for

``CIV/FTE Savings'' (item g, of the Supplemental Handbook's Appendix

2). The commenters also asked for savings information to be

collected when a conversion is from contract to in-house

performance. Finally, the commenters asked that agencies provide, as

part of the data that is collected pursuant to paragraph ``F'' in

Appendix 2 of the Handbook, aggregate data on the numbers of

contractor employees performing work for the agency.

Response: The cost-comparison process under Circular A-76

provides a level playing field for agencies to determine whether

savings would result from a conversion of work, whether that

conversion is from in-house to contract performance or from contract

to in-house performance. Moreover, the cost-comparison process can

result in savings even if no conversion occurs. The commercial

activity data element for ``CIV/FTE Savings'' reflects the number of

civilian FTE saved as a result of conducting a cost comparison,

whether the function is retained in-house or converted to contract.

This data element, therefore, is not meant to suggest that savings

can only occur through outsourcing.

With respect to the request for additional information on

savings that result from conversions from contract to in-house

performance, the inventories will include an additional data element

(a ``reason code'') to identify those commercial activities that are

``being performed in-house as a result of a cost comparison

resulting in a decision to convert from contract to in-house

performance'' (new reason code ``I''). A corresponding change has

been made to limit reason code ``E'' to functions retained in-house

as a result of a cost comparison. The request for information on the

aggregate number of agency contractor employees is beyond the scope

of the FAIR Act, which is limited to performance of commercial

activities by Federal employees.

c. Comment: Several commenters suggested that additional

``reason codes'' be included that would identify commercial

functions that, in the agency's view, should not be subject to

conversion to contract because of its need for a cadre of highly

[[Page 33934]]

skilled employees, in a specialized technical or scientific

development area, to ensure that a minimum in-house capability

(``core capability'') in the area is maintained.

Response: The inclusion of a function on the agency's inventory

of commercial activities does not mean that the agency is required

to compete the function for outsourcing. Rather, the FAIR Act in

Section 2(d) requires each agency to review its inventory of

commercial activities. Presumably, this review would include

consideration of outsourcing, consolidation, privatization, other

reinvention alternatives or maintaining the status quo. Not all

commercial activities performed by Federal employees should be

performed by the private sector, though all such activities should

be inventoried under the provisions of the FAIR Act and Circular A-

76. The decision as to which commercial functions represent ``core

capabilities,'' and thus should be retained in-house, remains with

the agency head. Accordingly, a specific reason code for ``core

capability'' was not added to the inventory.

d. Comment: A number of commenters requested that the inventory

be expanded to include inherently Governmental positions, along the

lines of the information requested of the agencies on May 12, 1998

(Memorandum M-98-10, ``Inventory of Commercial Activities'').

Response: The FAIR Act requires agencies to develop an inventory

of the agency activities that ``are not inherently Governmental

functions.'' The FAIR Act does not request any information on

inherently Governmental activities; its focus is limited to

commercial activities.

As part of its pre-FAIR Act oversight function to evaluate how

agencies determine what functions performed by Federal employees are

classified as commercial, OMB requested summary information from

agencies that also included functions they classified as not

commercial (i.e., inherently Governmental functions). When OMB

conducts its FAIR Act review and consultation on the Commercial

Activities Inventory submissions, it will do so in light of the

information gained from its review of the agencies' responses to

OMB's Memorandum M-98-10.

e. Comment: Several commenters expressed their views as to which

positions in the Department of Defense should be designated as

inherently Governmental and, therefore, excluded from the Commercial

Activities Inventory.

Response: Under the FAIR Act, the agency head makes the

determination of which activities are to be excluded from the

Commercial Activities Inventory because they are ``inherently

Governmental'', as defined by the Act and existing guidance. Part of

OMB's review of the agencies' submissions will be to review these

judgments, and to consult with the agencies on them.

f. Comment: One commenter interpreted the Act's use of the term

``full-time employees (or its equivalent)'' to mean that the Act

applied only to civilian employees and, thus, to exclude military

positions from the Act's Commercial Activities Inventory

requirement.

Response: All activities of the Federal Government that ``are

not inherently Governmental'' are to be inventoried under the FAIR

Act. This requirement is not limited to civilian employees.

Accordingly, military personnel performing commercial activities are

subject to the FAIR Act and must be inventoried. For clarity, the

data element FTE described in Appendix 2, paragraph ``C'' has been

clarified to include ``authorized full-time employees or FTE (as

applicable).''

g. Comment: Several commenters stated that agencies should, in

accordance with the principles of Executive Order 12871 (``Labor-

Management Partnerships''), permit employee involvement in the

development of the agencies' inventories of commercial activities.

Response: Executive Order 12871 does apply. Agencies should seek

employee input in the development of the Commercial Activities

Inventory, as appropriate, and the guidance has been revised to say

so. It remains up to the agency head to make the determination

whether a function is commercial or inherently Governmental in

nature. The FAIR Act also provides that Federal employees and their

representatives are ``interested parties'' who may challenge the

contents of the inventory.

2. OMB's Review of the Commercial Activities Inventory and the

Availability of the Inventories to the Public

a. Comment: Under Section 2(b) of the FAIR Act, OMB ``shall

review the executive agency's list for a fiscal year and consult

with the head of the executive agency regarding the contents of the

final list for that fiscal year.'' When that review and consultation

is completed, the inventory is then made available to the public

under Section 2(c), with a notice of availability published by OMB

in the Federal Register. Several commenters expressed concern that

the FAIR Act did not establish a timetable for OMB's review of

agency inventories or their availability for public review.

Response: OMB intends to complete its review and consultation in

a timely manner. Since this is a new process, OMB cannot set a firm

timetable at this time. However, it is anticipated that the review

and consultation should take about 60 days after OMB receives the

agency inventory and any requested supplemental information. The

notice of the inventory's public availability would be published

within a few days thereafter.

b. Comment: Several commenters stated that, if an employee's

activities are considered commercial and are therefore included on

the agency's list, the Handbook should require timely notification

to those employees.

Response: In accordance with Section 2(c) of the FAIR Act, OMB

will publish a notice in the Federal Register when the inventories

are available to the public (after the completion of OMB's review-

and-consultation). The FAIR Act and the revised Handbook require

each agency to make its inventory available to the public, which, of

course, includes its employees and their representatives.

3. ``Competition'' and ``Cost Comparison'' Provisions

a. Comment: Section 2(d) of the FAIR Act provides that,

``[w]ithin a reasonable time after'' an agency's inventory has been

made available to the public, the head of the agency ``shall review

the activities on the list.'' Several commenters recommended that

OMB define what constitutes a ``reasonable time'' for the agency to

review its inventory of commercial activities. One commenter

suggested a time frame of 1 to 2 years, depending on the number of

commercial activities on an agency's inventory. One commenter also

suggested that agencies should be required to publish for public

comment their timetable for reviewing the inventory.

Response: The FAIR Act does not provide a definition of the

phrase ``reasonable time.'' OMB believes that agencies should

conduct such review in conjunction with their larger ongoing review

of all functions for possible re-engineering, privatization,

consolidation or other reinvention under the NPR and the Government

Performance and Results Act. As part of its ongoing oversight of

agency management of commercial activities performance, OMB will now

require agencies to provide annual reports to OMB on the FAIR Act

process, including their review and use of the Commercial Activities

Inventory.

b. Comment: Several commenters took issue with the statement in

the preamble to the proposal that ``the FAIR Act requires agencies *

* * to review the activities on the list for possible performance by

the private sector.'' (64 FR 10031) They pointed out that Section

2(d) of the FAIR Act does not specify a particular purpose for the

review.

Response: The FAIR Act inventory provides information that can

assist the agency in considering a wide variety of options for how

to satisfy its commercial activity needs that are performed by

Federal employees. These options include both the possibility of the

private sector fulfilling the need (through such actions as direct

conversion, competition, and privatization), as well as continued

agency reliance on Federal employees (with, perhaps, improvements

that can flow from process changes suggested in the competition).

c. Comment: Several commenters interpreted Section 2(d) of the

FAIR Act as permitting the direct conversion, without a cost

comparison, of any commercial activity on the list (of any size or

type) to performance by the private sector. In their view, FAIR does

not preclude an agency from utilizing any of the processes allowed

by law, including private-private competition as prescribed in FAR

Part 8, 15 and 36. Other commenters expressed concern that the

proposed revisions to the Supplemental Handbook required public-

private cost comparisons in situations where such cost comparisons

are not presently required.

Response: The FAIR Act envisions the use of competition to

select a source when an agency considers contracting with a private

sector source for performance of an activity on the list, but the

law did not modify existing policies regarding the conduct of

competitions. Existing guidance provides guidelines for determining

when cost

[[Page 33935]]

comparisons are required and, if required, how they are conducted.

d. Comment: Several commenters viewed the FAIR Act as

prohibiting an agency from converting commercial work from contract

to in-house performance under any condition.

Response: The FAIR Act addresses only inventories of commercial

activities that are performed by Federal employees. It does not

address commercial activities that are performed through contract

and, therefore, does not address the conversion of contract work to

in-house performance.

e. Comment: Several commenters stated their view that the FAIR

Act requires substantial changes to the Circular A-76 costing rules

so that they incorporate ``all costs,'' and in particular the costs

listed in the parenthetical in Section 2(e) (i.e., the costs of

quality assurance, technical monitoring of the performance of such

function, liability insurance, employee retirement and disability

benefits, and all other overhead costs).

Response: Existing guidance already requires agencies, in

conducting cost comparisons, to consider all the fair and reasonable

costs addressed in Section 2(e) of the FAIR Act. (See 64 FR 10032).

The Supplemental Handbook requires consideration of all costs to the

taxpayer that could be expected to change as a result of a

conversion to or from performance by in-house or contract employees.

f. Comment: Several commenters suggested that public-private

competitions must be based on ``best-value'' principles. They were

concerned that OMB's proposed guidance relies on ``cost-only

competitions,'' thus ignoring the potential use of the best-value

approach in the cost comparison process.

Response: Existing guidance is not limited to ``cost-only

competitions.'' It also allows for best value tradeoffs between cost

and other factors. The competitive-source selection process outlined

at Part 1, Chapter 3, paragraph H of the Supplemental Handbook

permits use of the best value source selection approach in the

context of public-private competition.

4. The FAIR Act ``Challenge'' Process

a. Comment: Section 3 of the FAIR Act provides for an

administrative ``challenge'' process under which ``interested

parties'' may challenge the agency's omission, or inclusion, of an

activity on its FAIR Act inventory. Under this process, an ``initial

decision'' is rendered by an agency official designated by the

agency head. The interested party may then file an appeal of an

adverse decision to the agency head. Several commenters suggested

that, in the case of an appeal, the agency should publish its

initial decision and the appeal in the Federal Register and request

comments of other interested parties so that they may be considered

by the agency head. It was further suggested that the final appeal

should be reviewed by OMB, the Small Business Administration, the

General Accounting Office, and relevant congressional appropriations

and authorization committee staff.

Response: The requested procedures would go far beyond the FAIR

Act. In addition, since Section 3 provides the agency head with 10

days to decide an appeal, there is not sufficient time for the

agency to solicit, receive, and consider public comments.

5. Implementing the FAIR Act Via Revisions to A-76 & the Supplemental

Handbook

Comment: A number of commenters suggested that OMB use an

alternative vehicle to implement the FAIR Act guidance, such as

issuing regulations or a separate circular, rather than making

changes to the existing guidance on the performance of commercial

activities contained in OMB Circular A-76 and its Supplemental

Handbook.

Response: Circulars are a well-established vehicle for directing

agencies on management of their activities. Circular A-76 already

establishes the broad principles and the Revised Supplemental

Handbook provides the specific definitions and direction on

management of commercial activities, including the inventory and

other activities that are codified by the FAIR Act. For this reason,

it makes much more sense to revise the existing guidance than to

develop a new circular. More importantly, however, OMB wanted to

provide the agencies with prompt and clear guidance on how to

implement the Act within the short time frame available and without

confusion or wasted effort on the part of the agencies. Without

revising the Handbook to conform to the FAIR Act, repetitive and

competing guidance would exist in a number of areas. For example,

the Handbook already requires agencies to develop an annual

inventory of their commercial activities and specifies what

information (data elements) is to be included. It also contains

guidance for when and how agencies are to conduct cost comparisons

and what costs should be included. These are all specific areas

addressed by the FAIR Act. Ironically, the confusion that could

result from issuing a new circular might slow agencies down rather

than speeding them up.

Revising the Circular and Supplemental Handbook so that they

conform to the FAIR Act is the best way to provide agencies with

clear and prompt guidance on how to implement the Act.

[FR Doc. 99-16129 Filed 6-23-99; 8:45 am]

BILLING CODE 3110-01-P