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Following are excerpts from a CRS report examining the issue of which jobs are deemed "inherently governmental" and restricted to performance by in-house federal employees.

Summary

An "inherently governmental function" is one that, as a matter of law and policy, must be performed by federal government employees and cannot be contracted out because it is "intimately related to the public interest." Concerned that the existence of multiple and/or inconsistent definitions of "inherently governmental functions" might be partly responsible for the alleged contracting out of inherently governmental functions by the Department of Defense (DOD) and other agencies, the 110th Congress enacted legislation (P.L. 110-417) requiring the Office of Management and Budget (OMB) to develop a "single consistent definition" of "inherently governmental functions." This definition is to "ensure that the head of each … agency is able to identify each position within that department or agency that exercises an inherently governmental function." By statute, OMB is to report on its definition by October 14, 2009. H.R. 1436, H.R. 2142, H.R. 2177, H.R. 2647, H.R. 2682, H.R. 2868, H.R. 2736, S. 629, S. 924, and S. 1033.

The current debate over which functions are inherently governmental is part of a larger debate about the proper role of the federal government vis-à-vis the private sector. This debate is as old as the Constitution, which prohibits privatization of certain functions (e.g., Congress’s legislative function), a prohibition courts enforce under various judicial tests (e.g., nondelegation, functions "affected with the public interest," etc.). Since the 1920s, federal contracting has been a primary arena for the public/private debate, with the executive and legislative branches contesting (1) which functions the government must perform because they are inherently governmental; (2) which functions the government should perform because they are closely related to inherently governmental functions or for some policy reason; and (3) which functions should be left to the private sector. DOD functions are often central to debates over which functions are inherently governmental because of the specific functions DOD performs; its prominent role in federal contracting; and its unique workforce, which blends military and civilian personnel.

Two main definitions of "inherently governmental functions" currently exist within federal law and policy. One is a statutory definition, enacted as part of the Federal Activities Inventory Reform (FAIR) Act of 1998. This definition states that an inherently governmental function is "a function so intimately related to the public interest as to require performance by Federal Government employees." The other is a policy-oriented definition contained in OMB Circular A-76. This definition states that an inherently governmental activity is "an activity that is so intimately related to the public interest as to mandate performance by government personnel." Other statutes and regulations that define inherently governmental functions do so either by reproducing the language of the FAIR Act or OMB Circular A-76, or by incorporating the definitions of the FAIR Act or OMB Circular A-76 by reference.

Congress has several options if it is concerned that deficiencies in the existing definitions of inherently governmental functions may lead agencies to improperly contract out inherently governmental functions. Options include (1) relying upon recent statutory changes and/or the policies of the Obama Administration, which proposes to limit contracting out generally, to effect desired changes in agency contracting; (2) changing the existing definition of "inherently governmental functions"; (3) placing limits on contracting out or use of appropriated funds; (4) addressing structural factors potentially prompting agencies to rely on contractors; (5) providing for more effective oversight of executive branch contracting decisions; and (6) focusing more on questions of contracting policy (i.e., what functions should the government perform?) than on contracting law (i.e., what functions must the government perform?). The 111th Congress is considering several bills addressing inherently governmental functions, including

Background

The current debate over which functions are inherently governmental is part of a larger debate about the proper role of the federal government vis-à-vis the private sector that is as old as the Republic itself. All government functions can arguably be divided into three categories: those that must be performed by government employees, those that should be performed by government employees, and those suitable for private sector performance. However, the size and content of these categories have fluctuated throughout American history. The "must" category has arguably experienced the least fluctuation, whereas the "should" and "private" categories have significantly increased or diminished over time with changes in administrations or even within administrations (e.g., moving from peacetime to war). The "Background" section surveys the history of this public/private debate, focusing particularly upon how it has played out in the context of federal contracting.

The debate over DOD functions generally corresponds to the overall public/private debate; however, it sometimes reflects unique aspects of DOD or its procurement system. First, because DOD has two distinct workforces, military and civilian, capable of performing functions, DOD must determine which workforce will perform functions in the "must" or "should" categories. Where functions in the "must" category are concerned, DOD has to determine whether it matters which DOD employees, military or civilian, perform the function. Similarly, where functions in the "should category" are concerned, DOD must determine not only whether the function should be performed in-house or by the private sector, but also which workforce will perform functions deemed appropriate for in-house performance. Second, DOD relies upon ammunition and armaments in its operations, items which some commentators at various periods of time have thought should be manufactured by defense agencies in arsenals or Navy shipyards, for example, instead of by the private sector. The arguments for in-house manufacturing of DOD materiels have varied over the years, but have included the claim that manufacturing of weapons is an inherently governmental function and thus falls within the "must" category. However, such arguments appear to confuse considerations of national defense policy (i.e., the security of having an in-house supply of important products), which might argue for placing the function in the "should" category, with functions "intimately related to the public interest." Third, the federal government has consistently maintained two parallel acquisition systems, civilian and defense, wherein the rules for DOD are not always identical to those for the rest of the federal government.

Current Definitions of "Inherently Governmental Functions"

Two main definitions of inherently governmental functions currently exist within federal law and policy. One is a statutory definition, enacted as part of the Federal Activities Inventory Reform (FAIR) Act of 1998. This definition states that an inherently governmental function is "a function so intimately related to the public interest as to require performance by Federal Government employees." The other is a policy-oriented definition contained in Office of Management and Budget (OMB) Circular A-76. This definition states that an inherently governmental activity is "an activity that is so intimately related to the public interest as to mandate performance by government personnel." Other statutes and regulations that define inherently governmental functions do so either by reproducing the language of the FAIR Act or OMB Circular A-76, or by incorporating the definitions of the FAIR Act or OMB Circular A-76 by reference. The Federal Acquisition Regulation (FAR) is a prime example of this. The FAR does not provide its own definition of inherently governmental functions; rather, it incorporates the definition of OMB Circular A-76 by reference.

In addition to these definitions, there are numerous statutory, regulatory, and policy provisions designating specific functions as inherently governmental or commercial. These provisions also help establish the meaning of "inherently governmental functions" by specifying what is—and is not—included within that category. Similarly, while not offering their own definitions of inherently governmental functions, the Government Accountability Office (GAO) and the federal courts have tests for identifying inherently governmental functions that they use in designating specific functions as inherently governmental or commercial.

This section surveys the current definitions of inherently governmental functions, as well as the functions that have been designated as inherently governmental or commercial by statute, regulation, policy, or GAO or judicial decision. It addresses (1) statutory definitions and declarations; (2) policy-based definitions and declarations; (3) definitions and declarations from administrative law, including GAO decisions; and (4) designations in federal court decisions.

Statutory Definitions and Declarations

The FAIR Act provides the primary statutory definition of inherently governmental functions. There are, however, several other statutory definitions of inherently governmental functions and "functions closely associated with inherently governmental functions." Some of these definitions mirror the definitions of the FAIR Act or OMB Circular A-76, while others incorporate the definitions of the FAIR Act or OMB Circular A-76 by reference. There are also numerous statutory provisions declaring that specific functions are inherently governmental.

The FAIR Act

The FAIR Act provides the primary statutory definition of inherently governmental functions. Originally introduced as the Freedom from Government Competition Act of 1997, the FAIR Act was designed to promote executive agencies’ compliance with OMB Circular A-76. OMB Circular A-76 predated the FAIR Act and expressed the federal government’s general policy of relying on competitive private enterprises to supply the commercial products and services it needs. OMB Circular A-76 also provided procedures for agencies to conduct cost comparisons to determine whether the government or private enterprises should perform specific activities on the government’s behalf. However, although OMB Circular A-76 established policies and procedures, it reportedly failed to result in public-private competitions for performance of commercial activities, or agencies’ contracting with the private sector for performance of their commercial activities. The FAIR Act sought to address this situation by requiring agencies to compile annual lists of all commercial activities they perform and make these lists available to Congress and the public. The FAIR Act does not require agencies to contract out any particular activities, however. It requires only that agencies use competitive processes to select the source when they consider contracting with private sector sources for performance of certain activities performed by government employees.

Although the FAIR Act’s primary focus is upon commercial activities performed by government agencies, it defined inherently governmental functions in order to contrast them with commercial activities. The FAIR Act’s definition of inherently governmental functions is itself brief: "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." This definition is, however, followed by lengthy lists of functions included in and excluded from the definition of inherently governmental functions under the act.

The FAIR Act describes the "functions included" within its definition of inherently governmental function as ones 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." The act then gives a non-exclusive list of examples of the types of "functions included." These are:

     -1. 1. binding the United States to take, or not to take, action by contract, policy, regulation, authorization, order or otherwise;

  -1.    2. determining, protecting, and advancing U.S. economic, political, territorial, property, or other interests by military or diplomatic action, civil or criminal judicial proceedings, contract management, or otherwise;

  -1.    3. significantly affecting the life, liberty, or property interests of private persons;

  -1.    4. commissioning, appointing, directing or controlling officers or employees of the United States; or

  -1.    5. exerting ultimate control over the acquisition, use, or disposition of the real or personal, tangible or intangible, property of the United States, including the collection, control or disbursement of appropriated and other federal funds.

 

The FAIR Act further describes the "functions excluded" from its definition of inherently governmental functions as those involving (1) gathering information for or providing advice, opinions, recommendations, or ideas to federal officials, or (2) any function that is primarily ministerial and internal in nature. It concludes by giving examples of ministerial and internal functions, which include building security, mail operations, cafeteria operations, housekeeping, facilities operations and maintenance, warehouse operations, motor vehicle fleet management operations, or other routine electrical or mechanical services.

The FAIR Act’s definition of inherently governmental functions and listing requirements apply to all executive branch agencies named in 5 U.S.C. § 101, all military departments named in 5 U.S.C. § 102, and all independent establishments as defined in 5 U.S.C. § 104. However, the FAIR Act explicitly exempts from the act’s requirements (1) GAO; (2) government corporations or government-controlled corporations, as defined in 5 U.S.C. § 103; (3) non-appropriated funds instrumentalities, as described in 5 U.S.C. § 2105(c); (4) certain depot-level maintenance and repair activities of the Department of Defense, as described in 10 U.S.C. § 2460; and (5) agencies with fewer than 100 full-time employees as of the first day of the fiscal year.

Other Statutory Definitions

In addition to the FAIR Act, other statutes have "definitions" sections that include "inherently governmental functions" or "functions closely associated with inherently governmental functions."

Two of these statutes provide a definition of inherently governmental functions that, while closely related to the definitions of the FAIR Act and OMB Circular A-76, does not reproduce either of these definitions verbatim. The Coast Guard appropriations authorization act for FY2004 and FY2005 and the National and Community Service Trust Act of 1993 both define an inherently governmental function as:

… any activity that is so intimately related to the public interest as to mandate performance by an officer or employee of the Federal Government, including an activity that requires either the exercise of discretion in applying the authority of the Government or the use of judgment in making a decision for the Government.

The verb "mandate" in this definition matches the verb in the definition of OMB Circular A-76, but this definition departs from the definition of OMB Circular A-76 by using "officer or employee of the Federal Government" where OMB Circular A-76 uses "Federal Government employees." This definition also specifically incorporates the functions of exercising discretion and using judgment that are mentioned in OMB Circular A-76 and are among the "functions included" within the FAIR Act’s definition of inherently governmental functions.

Outside of the Coast Guard appropriations authorization act for FY2004 and FY2005 and the National and Community Service Trust Act of 1993, however, no statute provides a definition of inherently governmental functions different from that in the FAIR Act or OMB Circular A-76. Many statutes incorporate the definition from OMB Circular A-76 by reference when defining inherently governmental functions. Several of these statutes also use the related term, "functions closely associated with inherently governmental functions," but likewise incorporate the definition of OMB Circular A-76 by reference.

Statutory Declarations of Specific Functions as Inherently Governmental

Several provisions of federal law declare that specific functions are inherently governmental without defining inherently governmental functions. Sometimes, specific functions are defined as inherently governmental without reference to the FAIR Act or the employees performing the functions at the time of the statute’s enactment. Examples of such functions are (1) the preparation of agency strategic plans and program performance reports under the Government Performance and Results Act of 1993 and (2) functions connected with the operation and maintenance of hydroelectric power-generating facilities at water resources projects of the Army Corps of Engineers. At other times, specific groups of employees, who were performing certain functions at the time of the statute’s enactment, are classified as inherently governmental for purposes of the FAIR Act. Examples include federal employees at the National Energy Technology Laboratory and instructor staff at the Federal Law Enforcement Training Center. At yet other times, Congress effectively renders certain functions inherently governmental, at least temporarily, without classifying them as such, by providing that appropriated funds cannot be expended to contract them out. Finally, Congress sometimes signals its concerns about the executive branch’s classification of specific functions without either enacting legislation designating the functions as inherently governmental or precluding the use of appropriated funds to contract the functions out. Congress can do this by expressing its sense that certain functions are inherently governmental, or by imposing additional restrictions—beyond those in the FAIR Act, OMB Circular A-76, or the FAR—upon contracting out activities that are arguably closely associated with inherently governmental functions.

Alternatively, but more rarely, Congress expresses its sense that certain functions are commercial, or appropriates funds to contract out activities that some commentators might seek to classify as inherently governmental.

Policy-Based Definitions and Declarations

OMB Circular A-76 provides the other main definition of inherently governmental functions used in federal law and policy. Office of Federal Procurement Policy Letter 92-1, which provided another significant policy-based definition of inherently governmental functions, was superseded by the 2003 revision of OMB Circular A-76. Another policy document, Department of Defense Instruction Number 1100.22, in its revision of April 6, 2007, both provides a basic definition of inherently governmental functions and designates numerous DOD functions as inherently governmental or commercial.

OMB Circular A-76

Like its predecessors, the current OMB Circular A-76 "establishes federal policy for the competition of commercial activities." It both (1) articulates the "longstanding policy of the federal government … to rely on the private sector for needed commercial services" and (2) establishes procedures for agencies to use in determining whether their commercial activities should be performed under contracts with the private sector or in-house by agency personnel. Although pre-2003 versions of OMB Circular A-76 focused on listing only commercial activities, the current version of OMB Circular A-76 requires agencies to list all activities they perform and classify these activities as commercial or inherently governmental. All activities classified as inherently governmental under OMB Circular A-76 must be performed by government personnel. Only those activities classified as commercial can be considered for contracting out.

Even in its pre-2003 versions, before agencies were required to list and classify inherently governmental activities, OMB Circular A-76 defined inherently governmental functions when characterizing them as the opposite of commercial activities. The definition in OMB Circular A-76 is itself brief, like the definition in the FAIR Act. The current version of OMB Circular A-76 says only that "An inherently governmental activity is an activity that is so intimately related to the public interest as to mandate performance by government personnel." However, OMB Circular A-76, also like the FAIR Act, follows its brief definition of inherently governmental functions with clarification and examples. The paragraph within the current version of OMB Circular A-76 that defines inherently governmental functions continues by stating:

[Inherently governmental] 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 processes related to the oversight of monetary transactions or entitlements. An inherently governmental activity involves:

(1) Binding the United States to take or not to take some action by contract, policy, regulation, authorization, order, or otherwise;

(2) Determining, protecting, and advancing economic, political, territorial, property, or other interests by military or diplomatic action, civil or criminal judicial proceedings, contract management, or otherwise;

(3) Significantly affecting the life, liberty, or property of private persons; or

(4) Exerting ultimate control over the acquisition, use, or disposition of United States property (real or personal, tangible or intangible), including establishing policies or procedures for the collection, control, or disbursement of appropriated and other federal funds.

This language largely corresponds to that of the FAIR Act’s examples of "functions included" in its definition of inherently governmental functions.