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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: November 19, 2002

SUBJECT: Office of Management and Budget (OMB); Revision of OMB Circular No. A-76, Performance of Commercial Activities

SOURCE: Federal Register, November 19, 2002, Vol. 67, No. 223, page 69769

AGENCIES: Office of Management and Budget (OMB)

ACTION: Proposed Revision

SYNOPSIS: OMB is proposing major revisions to OMB Circular No. A-76 to expand the use of public-private competitions to all activities performed in-house and through commercial inter-service support agreements (ISSAs), and to incorporate the principles of Federal Acquisition Regulation (FAR) Part 15, Contracting by Negotiation, into the competitive sourcing process.

EDITOR'S NOTE: The changes being proposed to OMB Circular No. A-76 are very similar to those proposed by the Commercial Activities Panel in its final report, "Improving the Sourcing Decisions of the Government." The panel, which was required by Section 832 of the Fiscal Year 2001 National Defense Authorization Act (Public Law 106-398) to study the transfer of commercial activities currently performed by government employees to federal contractors, recommended that the government adopt a procedure based on the procedures in FAR Part 15. For more on the Commercial Activities Panel and its report, see the May 1, 2002, FEDERAL CONTRACT DISPATCH "General Accounting Office; Commercial Activities Panel Final Report."

DATES: Interested parties should submit comments on or before December 19, 2002.

ADDRESSES: Comments may be submitted by e-mail to: A-76comments@omb.eop.gov; by fax to 202-395-5105; or by mail to David C. Childs, Office of Federal Procurement Policy, Office of Management and Budget, 725 17th Street NW, New Executive Office Building, Room 9013, Washington, DC 20503. However, OMB "strongly encourages" respondents to avoid using mail "due to potential delays in OMB's receipt and processing of mail..."

FOR FURTHER INFORMATION CONTACT: David C. Childs, OFPP, NEOB Room 9013, Office of Management and Budget, 725 17th Street, NW, Washington, DC 20503; 202-395-6104.

Copies of the proposed revision to OMB Circular No. A-76; the current OMB Circular No A-76; the Revised Supplemental Handbook; applicable Transmittal Memoranda, Office of Federal Procurement Policy (OFPP) Policy Letter 92-1, Inherently Governmental Functions; and OMB Circular No. A-97, Provision of Specialized or Technical Services to State and Local Units of Government by Federal Agencies Under Title III of the Intergovernmental Cooperation Act of 1968, are also available on the OMB website http://www.whitehouse.gov/OMB/circulars/index.html. Paper copies of any of these documents may be obtained by calling OFPP at 202-695-7479.

SUPPLEMENTARY INFORMATION: To lower government costs and improve program performance, OMB has undertaken major revisions to the processes and practices in OMB Circular No. A-76 that govern how federal agencies determine whether commercial activities will be performed by public or private sources. This effort is closely tied to the initiative in President Bush's management agenda calling for public-private sector competition of 20% of the non-inherently governmental activities required to be compiled by Public Law 105-270, Federal Activities Inventory Reform Act of 1998 (FAIR Act) by the end of Fiscal Year 2003 (September 30, 2003). The government could not achieve this goal using the current A-76 because it is cumbersome and very time-consuming. Therefore, OMB undertook a revision of A-76 to (1) mprove and expand the use of competition in public-private sourcing decisions; (2) better insure fairness, integrity, and transparency in the decision-making process; and (3) strengthen accountability for achieving results.

In addition to making significant changes, OMB is modifying the organization of A-76 to improve clarity and ease of use. The main body of A-76 (which would be a two-page document) lays out the basic policies and responsibilities that agencies must undertake. Guidance for carrying out these responsibilities, and a detailed glossary of acronyms and definition of key terms, are in six attachments:

      Attachment A -- Inventory Process
      Attachment B -- Public-Private Competition
      Attachment C -- Direct Conversion Process
      Attachment D -- Inter-Service Support Agreements
      Attachment E -- Calculating Public-Private Competition Costs
      Attachment F -- Glossary of Acronyms and Definitions of Terms

The following are the key changes in the proposed revision to OMB Circular No. A-76:

• The revised A-76 will require agencies to presume that all activities are commercial in nature unless an activity is justified as inherently governmental (see 4.b. of the Circular and D.1 of Attachment A).
  
  
• Agencies will be required to submit annual inventories of their inherently governmental positions (see C.3. of Attachment A). Attachment F provides a more concise definition of "inherently governmental" ("an activity that is so intimately related to the public interest as to mandate performance by government personnel"), and rescinds the more complex description contained in OFPP Letter 92-1 to achieve greater consistency in the identification of inherently governmental positions (OFPP Letter 92-1 itself would be rescinded). The responsibility to develop an inherently governmental activities inventory will be in addition to the general obligation for agencies to prepare comprehensive annual inventories of their commercial activities performed by federal activities, a requirement of the FAIR Act (see C.1. of Attachment A).
  
  
• The "grandfather clause" that currently permits public reimbursable service providers working under commercial ISSAs in existence prior to March 1996 to perform work indefinitely without being subject to competition. Agencies relying on public reimbursable providers will be required to develop plans for competing these commercial ISSAs within five years. All commercial ISSAs that are not competed or directly converted within this timeframe will be terminated, unless specific approval is granted by OMB's Deputy Director for Management (see B.3.of Attachment D).
  
  
• Customer agencies will be required to periodically test the marketplace by recompeting requirements performed by public reimbursable providers, just as they would with private sector contractors. This will help to ensure that all sources, public and private, are appropriately incentivized to perform at their best. Generally, agencies will be required to recompete commercial ISSAs every five years (see C.2.a.(5), C.5.a.(4), and b.(2) of Attachment B). However, there will be limited exceptions to the recompetition requirement: commercial ISSAs will not be subject to competition if the revenue generated to the public reimbursable service provider performing under the ISSA does not exceed $1 million on an annual basis, nor will inherently governmental ISSAs that establish contracts for interagency use (for example, government-wide acquisition contracts (GWACs) or multi-agency contracts) where the public reimbursable provider bears no responsibility to the customer agency for performance of the work and the customer agency is responsible for making all payments directly to the contractor (see paragraph A of Attachment D). (EDITOR'S NOTE: For more on an earlier proposal to address ISSA competitions, see the July 2, 2001, FEDERAL CONTRACTS DISPATCH "Office of Management and Budget Circular No. A-76, Performance of Commercial Activities.")
  
  
• Limitations imposed on federal agencies regarding the reimbursable services they provide to state and local governments, which are based on Section 302 of the Intergovernmental Cooperation Act of 1968 (31 U.S.C. 6505) and are currently implemented in OMB Circular No. A-97, would be incorporated as paragraph H of Attachment D. Circular A-97 states that federal agencies may provide only specialized or technical commercial services to a state or local government under certain conditions. The rescission of A-97 and the incorporation of its requirements in A-76 would place the key policies addressing the appropriate parameters of federal performance of commercial activities in one document.
  
  
• Because the general principles of FAR Part 15 are well established and are familiar to those in the procurement community, agencies will generally be required to comply with the FAR in conducting competitions (see 4.d. of the Circular and C.2. of Attachment B). Examples of FAR-type principles that have been incorporated into the revised A-76 include:
  
  
  • Greater uniformity in the application of basic requirements to private and in-house providers. For instance, in-house offers (referred to in the proposed A-76 as "agency tenders") will be required to respond to a solicitation within the same timeframes required of private sector offerors or public reimbursable tenders or risk elimination from the competition (see C.3.a.(2), (8) and (9) of Attachment B).
    
    
  • Instead of having an independent reviewing official review the agency tender, while all other offerors are reviewed by the source selection evaluation board (SSEB), the SSEB will simultaneously evaluate all tenders simultaneously with all offers (see C.4.a.(1).a, a.(2), and a.(3).a of Attachment B).
    
    
  • Exchanges between public tenders and the government in accordance with the general principles set forth in the FAR Part 15 for exchanges between the government and the private sector (see C.4.a(3)(a). of Attachment B).
    
    
  • Ability to conduct cost-technical tradeoffs in certain circumstances, including the ability to eliminate an agency tender from the competitive range (see below).
    
    
  • Post-award accountability for in-house performance similar to that expected of private sector contractors. Agencies relying on an in-house provider or a public reimbursable provider will be required to document changes to the solicitation, track actual costs, and terminate for failure to perform (see C.5.a.(4) of Attachment B).
  
  
• Cost comparisons have been the traditional focus of A-76, and the term connotes a cost-only decision. The revised A-76 would allow agencies to take quality and innovation into account in best value competitions. Therefore, "cost comparison" is dropped from the proposed A-76 and replaced with "competition."
  
  The new focal point will be on "standard competitions," or direct conversions when appropriate. The revised A-76's guidance is broader and more accommodating than that in the current A-76. For example, when conducting a standard competition, agencies will have three options for considering non-cost factors:
  
  
  1. An agency may conduct a low price technically acceptable source selection where the performance decision is based on the low cost of offers that have been determined to be technically acceptable (see C.4.a.(3).b of Attachment B).
     
     
  2. If an agency wishes to have the flexibility of considering alternative performance levels that sources may wish to propose, the agency may conduct a "phased evaluation process." During the first phase, when technical factors are considered, the in-house provider, public reimbursable providers, and private sector offerors may propose performance standards different from those specified in the solicitation. If the agency determines that the proposed alternative performance standards are appropriate and are within the agency's current budget, the agency could issue a formal amendment to the solicitation and allow revised submissions. The technically qualified offerors and the in-house offeror would then compete based on price against the revised performance standard (see C.4.a.(c).2. of Attachment B).
     
     
  3. If non-cost factors are likely to play a more dominant role, agencies may conduct an "integrated evaluation process" with cost-technical tradeoffs similar to those authorized by FAR Part 15. Like the FAR Part 15 process, private sector offers, public reimbursable providers and in-house providers may submit higher performance standards than the solicitation. If the in-house offer is not among the most highly rated proposals, it could be eliminated from the competitive range. Given the special considerations that must be taken into account with a public-private competition, the revised A-76 recognizes this integrated evaluation technique may not be appropriate for all needs, so the revised A-76 limits its usage to (1) information technology activities currently performed by federal employees, (2) contracted commercial activities, new requirements, or segregable expansions wghere an agency tender will be submitted, or (3) any other commercial activities where the agency's assistant secretary or equivalent level official with responsibility for implementing A-76 (called the "4.e official" after the paragraph in the Circular) receives approval from OMB prior to issuance of the solicitation (see C.4.a(c)1 of Attachment B).
  
  
• To avoid any appearance of a conflict of interest, the team that is formed to write the solicitation will be separated from the one established to develop the agency tender. In addition, the members of the agency's most efficient organization (MEO) team, directly affected personnel (and their representatives), and any individual with detailed knowledge of the MEO or agency cost estimate in the agency tender will not be allowed to be members of the SSEB (see D.2. of Attachment B).
  
  
• Agencies will be required to establish a program office responsible for the daily implementation and enforcement of A-76 (see C.1.b.(5) of Attachment B).
  
  
• The revised A-76 states that a standard competition is to be completed within one year of the public announcement that a competition will be conducted (see C.1.b.(3) of Attachment B).
  
  
• To make sure public providers are subjected to the same oversight that private providers routinely face, customer agencies will be required to document changes in the solicitation and agency tender and track actual costs. Before exercising an option for additional performance, the agency will be required to determine that performance by the in-house, public reimbursable, or private contract provider meets the requirements of the solicitation and that continued performance is advantageous to the agency (see C.5.b.(2) of Attachment B).

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

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