Following is a summary of new policies taking effect October 12 on several aspects of contracting-out policy.
SUMMARY
The Office of Federal Procurement Policy (OFPP) in the Office of
Management and Budget (OMB) is issuing a policy letter to provide to Executive
Departments and agencies guidance on managing the performance of inherently
governmental and critical functions. The guidance addresses direction to OMB in the
Presidential Memorandum on Government Contracting, issued on March 4, 2009, to
clarify when governmental outsourcing of services is, and is not, appropriate, consistent
with section 321 of the Duncan Hunter National Defense Authorization Act (NDAA) for
Fiscal Year 2009 (Public Law 110-417). Section 321 requires OMB to: (i) create a single
definition for the term “inherently governmental function” that addresses any deficiencies
in the existing definitions and reasonably applies to all agencies; (ii) establish criteria to
be used by agencies to identify “critical” functions and positions that should only be
performed by Federal employees; and (iii) provide guidance to improve internal agency
management of functions that are inherently governmental or critical. The Presidential
Memorandum is available at http://www.whitehouse.gov/the_press_office/Memorandumfor-
the-Heads-of-Executive-Departments-and-Agencies-Subject-Government/. Section
321 may be found at http://www.dod.gov/dodgc/olc/docs/2009NDAA_PL110-417.pdf.
A. Overview
OFPP is issuing a policy letter to provide guidance on managing the performance of
inherently governmental and critical functions. The policy letter is intended to
implement direction in the President’s March 4, 2009, Memorandum on Government
Contracting that requires OMB to “clarify when governmental outsourcing for services is
and is not appropriate, consistent with section 321 of Public Law 110-417 (31 U.S.C. 501
note).” The policy letter:
Clarifies what functions are inherently governmental and must always be performed
by Federal employees. The policy letter provides a single definition of “inherently
governmental function” built around the well-established statutory definition in the
Federal Activities Inventory Reform Act (FAIR Act), Public Law 105-270. The
FAIR Act defines an activity as inherently governmental when it is so intimately
related to the public interest as to mandate performance by Federal employees. The
definition provided by this policy letter will replace existing definitions in regulation
and policy, including the Federal Acquisition Regulation (FAR). The policy letter
provides examples and tests to help agencies identify inherently governmental
functions.
Explains what agencies must do when work is “closely associated” with inherently
governmental functions. Specifically, when functions that generally are not
considered to be inherently governmental approach being in that category because of
the nature of the function and the risk that performance may impinge on Federal
officials’ performance of an inherently governmental function, agencies must give
special consideration to using Federal employees to perform these functions. If
contractors are used to perform such work, agencies must give special management
attention to contractors’ activities to guard against their expansion into inherently
governmental functions. The policy letter includes examples to help agencies
identify closely associated functions and a checklist of responsibilities that must be
carried out when agencies rely on contractors to perform these functions.
Requires 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. The policy letter holds an agency responsible for
making sure it has an adequate number of positions filled by Federal employees with
appropriate training, experience, and expertise to understand the agency’s
requirements, formulate alternatives, manage work product, and monitor any
contractors used to support the Federal workforce. Federal officials must evaluate, on
a case-by-case basis, whether they have sufficient internal capability, taking into
account factors such as the agency’s mission, the complexity of the function, the need
for specialized staff, and the potential impact on mission performance if contractors
were to default on their obligations.
Outlines a series of agency management responsibilities to strengthen accountability
for the effective implementation of these policies. Agencies must take specific
actions, before and after contract award, to prevent contractor performance of
inherently governmental functions and overreliance on contractors in “closely
associated” and critical functions. Agencies are also required to develop agency-level
procedures, provide training, and designate senior officials to be responsible for
implementation of these policies.
OFPP will work with the Federal Acquisition Regulatory Council, the Defense
Acquisition Regulations Council and the Civilian Agency Acquisition Council to develop
and implement appropriate changes to the FAR to implement this policy letter. In
addition, OFPP will review other relevant policy documents, such as guidance in OMB
Circular A-76 implementing the FAIR Act, and take appropriate action to ensure they
conform to the policies in this letter. Finally, OFPP will work with the Federal
Acquisition Institute and the Defense Acquisition University on appropriate training
materials for the acquisition workforce and other affected stakeholders.
B. Summary of proposed and final policy letters
The Presidential Memorandum on Government Contracting required the Director of
OMB to develop guidance addressing when governmental outsourcing of services is, and
is not, appropriate. The Memorandum states that the line between inherently
governmental activities that should not be outsourced and commercial activities that may
be subject to private-sector performance has become blurred, which may have led to the
performance of inherently governmental functions by contractors and, more generally, an
overreliance on contractors by the government. It directs OMB to clarify when
outsourcing is, and is not, appropriate, consistent with section 321 of the NDAA for
Fiscal Year (FY) 2009.
Section 321 directs OMB to: (1) create a single, consistent definition for the term
“inherently governmental function” that addresses any deficiencies in the existing
definitions and reasonably applies to all agencies; (2) develop criteria for identifying
critical functions with respect to the agency’s mission and operations; (3) develop criteria
for determining positions dedicated to critical functions which should be reserved for
Federal employees to ensure the department or agency maintains control of its mission
and operations; (4) provide criteria for identifying agency personnel with responsibility
for (a) maintaining sufficient expertise and technical capability within the agency, and (b)
issuing guidance for internal activities associated with determining when work is to be
reserved for performance by Federal employees; and (5) solicit the views of the public
regarding these matters.
1. Proposed policy letter
OMB’s OFPP issued a proposed policy letter on March 31, 2010, entitled “Work
Reserved for Performance by Federal Government Employees,” to implement the
requirements of the President’s Memorandum and section 321 (75 Fed. Reg. 16188-97).
The proposed policy letter, which was issued after OFPP reviewed current laws,
regulations, policies, and reports addressing the definition of inherently governmental
functions, as well as feedback from a public meeting held in the summer of 2009,
proposed to consolidate in one document a number of policies, definitions, and
procedures associated with identifying when work must be performed by Federal
employees that are currently addressed in multiple guidance documents, including the
Federal Acquisition Regulation (FAR), OMB Circular A-76, and various OMB memoranda.
The document proposed the following policy actions to address inherently governmental
functions, functions closely associated with inherently governmental functions, and functions
that are critical to the agencies’ mission and operations.
a. Proposed steps to address inherently governmental functions:
Create a single definition for the term “inherently governmental function” by
directing agencies to adhere to the statutory definition for this term set forth in the
FAIR Act and eliminate variations of this definition found in other documents, such
as the FAR and OMB Circular A-76.
Preserve a long-standing list of examples set out in the FAR of the most common
inherently governmental functions, such as the determination of agency policy, hiring
of Federal employees, and awarding of Federal contracts.
Refine existing criteria (e.g., addressing the exercise of discretion) and provide new
ones (e.g., focused on the nature of the function), to help an agency decide if a
particular function that is not identified on the list of examples is, nonetheless,
inherently governmental.
b. Proposed steps to address functions closely associated with inherently governmental
functions:
Reiterate requirements in the Omnibus Appropriations Act, 2009 (Public Law 111-8)
to give special consideration to Federal employee performance of functions closely
associated with inherently governmental ones.
Reinforce and refine guidance in the FAR and Attachment A of OMB Circular A-76
requiring special management attention when contractors perform functions closely
associated with inherently governmental functions to guard against their expansion
into inherently governmental functions. Steps might entail providing clearer
prescriptions in the statement of work of what the contractor may and may not do,
and ensuring adequate and adequately trained personnel to oversee the contractor’s
work.
Preserve a long-standing list of examples set out in the FAR of the most common
functions closely associated with inherently governmental functions, such as support
for policy development or support for the selection of contractors.
c. Proposed steps to address critical functions:
Recognize a new category of work, “critical functions,” which must be evaluated to
determine the extent to which performance by Federal employees is required. Define
the term as a function that is “necessary to the agency being able to effectively
perform and maintain control of its mission and operations.”
Hold an agency responsible for making sure that, for critical functions, it has an
adequate number of positions filled by Federal employees with appropriate training,
experience, and expertise to understand the agency’s requirements, formulate
alternatives, manage work product, and monitor any contractors used to support the
Federal workforce. To meet this responsibility, require Federal officials to evaluate,
on a case-by-case basis, whether they have sufficient internal capability, taking into
account factors such as the agency’s mission, the complexity of the function, the need
for specialized staff, and the potential impact on mission performance if contractors
were to default on their obligations.
Make clear that, so long as agencies have the internal capacity needed to maintain
control over their operations, they are permitted to allow contractor performance of
positions within critical functions (subject to any other applicable legal or regulatory
requirements).
Finally, the proposed policy letter would require agencies to take specific actions, before
and after contract award, to prevent contractor performance of inherently governmental
functions and overreliance on contractors in the performance of “closely associated” and
critical functions. Agencies would also be required to develop agency-level procedures,
provide training, and designate senior officials to be responsible for implementation of
these policies. The proposed policy letter emphasized the need for a shared responsibility
between the acquisition, program and human capital offices within the agency to
effectively implement its provisions.
The proposed policy letter was published in the Federal Register on March 31, 2010 (75
Fed. Reg. 16188-97) for public comment. OFPP encouraged respondents to offer their
views on a series of questions to elicit feedback on some of the more difficult or pressing
policy challenges, such as whether and how best to use the “discretion” test to identify
inherently governmental functions, how best to explain the difference between critical
functions and functions that are closely associated with the performance of inherently
governmental functions, and how to properly classify certain functions related to
acquisition support and security.
For additional background on the proposed policy letter, see discussion in the preamble at
75 Fed. Reg.16188-94.
2. Final policy letter
Based on public comments received in response to the proposed policy letter (which are
discussed in greater detail below), and additional deliberations within the Executive
Branch, OFPP has refined the proposed policy letter to:
Rename the policy letter “Performance and Management of Inherently Governmental
and Critical Functions” to more accurately capture its scope and purpose;
Add to the illustrative list of inherently governmental functions the following: (i) all
combat, (ii) security operations in certain situations connected with combat or
potential combat, (iii) determination of an offer’s price reasonableness, (iv) final
determinations about a contractor’s performance, including approving award fee
determinations or past performance evaluations and taking action based on those
evaluations, and (v) selection of grant and cooperative agreement recipients;
Clarify the illustrative list of functions closely associated with the performance of
inherently governmental functions to expressly recognize a variety of work to support
Federal acquisitions that includes conducting market research, developing inputs for
independent government cost estimates, drafting the price negotiations memorandum
and collecting information, performing an analysis or making a recommendation for a
proposed performance rating to assist the agency in determining its evaluation of a
contractor’s performance;
Establish a comprehensive responsibilities checklist for functions closely associated
with inherently governmental functions;
Caution that, in many cases, functions include multiple activities that may be of a
different nature – some activities within a function may be inherently governmental,
some may be closely associated, and some may be neither – and by evaluating work
at the activity level, an agency may be able to more easily differentiate tasks within a
function that may be performed only by Federal employees from those tasks that can
be performed by either Federal employees or contractors;
Clarify that determining the criticality of a function depends on the mission and
operations, which will differ between agencies and within agencies over time;
Establish that if an agency makes a decision to insource some portion of a function
that is currently being performed for the agency by a combination of small and large
businesses, the “rule of two” should be applied to determine who will perform the
work that remains in the private sector (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); and
Reorganize and consolidate the discussion of management associated with inherently
governmental, closely associated, and critical functions to more clearly recognize that
oversight responsibilities for these functions are interrelated and should not be stovepiped.
