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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: May 29, 2003

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

SOURCE: Federal Register, May 29, 2003, Vol. 68, No. 103, page 32134

AGENCIES: Office of Management and Budget (OMB)

ACTION: Final Revision

SYNOPSIS: OMB is revising OMB Circular No. A-76 to expand the use of public-private competitions to improve performance of commercial activities, and to incorporate the principles of Federal Acquisition Regulation (FAR) Part 15, Contracting by Negotiation, into the public-private competition process.

EDITOR'S NOTE: The revised OMB Circular No. A-76 is available at http://www.whitehouse.gov/omb/circulars/a076/a76_rev2003.pdf.

For more on the proposed revisions to OMB Circular No. A-76, see the November 19, 2002, FEDERAL CONTRACTS DISPATCH "Office of Management and Budget (OMB); Revision of OMB Circular No. A-76, Performance of Commercial Activities."

EFFECTIVE DATE: May 29, 2003.

FOR FURTHER INFORMATION CONTACT: Office of Federal Procurement Policy, NEOB Room 9013, Office of Management and Budget, 725 17th Street, NW, Washington, DC 20503; 202-395-3501 or 7807.

SUPPLEMENTARY INFORMATION: Federal agencies rely on a mix of public and private sector sources to perform a wide variety of commercial activities. OMB Circular No. A-76 establishes the policies and procedures for identifying commercial activities and determining whether these activities should be provided by a private sector provider through a contract, by government personnel, or by another federal agency through a fee-for-service agreement.

Historically, before an agency shifts commercial work from one source to another (for example, to or from performance by government personnel to performance by a contractor or another agency), A-76 has required the agency to conduct a public-private competition in which the cost of performance is compared between the public and private sectors. A-76 has traditionally required agencies to perform a "cost comparison" by:

• Developing a performance work statement (PWS);
  
  
• Creating a management plan to determine the government's "most efficient organization" (MEO);
  
  
• Establishing an in-house government cost estimate that is certified by an independent reviewing official;
  
  
• Issuing a solicitation in accordance with the FAR seeking offers from private sector and other federal agencies (the in-house cost estimate is submitted and evaluated independently);
  
  
• Identifying the best offer submitted in response to the solicitation and comparing it to the in-house estimate; and
  
  
• Making a decision based on the lowest cost alternative, which is subject to review under an administrative appeals process.

In addition, A-76 has recognized a variety of circumstances in which agencies are not required to conduct cost comparisons -- for example, A-76 has allowed agencies to directly convert work to or from the private sector without cost comparison under certain circumstances, such as where an activity was or would be performed by an aggregate of 10 or fewer "full-time-equivalent" (FTE) employees.

One of the initiatives in President Bush's management agenda calls 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 has identified 850,000 FTEs as performing commercial activities -- nearly half of all federal employees. The government could not achieve this goal using the old A-76 because it was cumbersome and very time-consuming.

In conjunction with the president's management agenda, Section 832 of the Fiscal Year 2001 National Defense Authorization Act (Public Law 106-398) required the convening of a panel of experts (the "Commercial Activities Panel") to study the policies and procedures governing the transfer of commercial activities for the federal government from government personnel to a federal contractor. Section 832 required the panel to submit to Congress, by May 1, 2002, a report of the panel on the results of the study, including recommended changes with regard to implementing policies and enactment of legislation. On May 1, 2002, the panel issued its final report, "Improving the Sourcing Decisions of the Government," and it recommended that the government adopt a procedure based on FAR Part 15. (EDITOR'S NOTE: For more on this panel and its final report, see the May 1, 2002, FEDERAL CONTRACTS DISPATCH "General Accounting Office; Commercial Activities Panel Final Report.")

On November 19, 2002, OMB published a proposal for major revisions to A-76. The proposed changes were very similar to those proposed by the Commercial Activities Panel. More than 700 public comments were submitted to OMB (for copies of the comments on the proposed revisions, see http://www.whitehouse.gov/omb/circulars/a076/comments/a76_list.html for e-mail comments, and http://www.whitehouse.gov/omb/circulars/a076/comments/faxed.html for faxed comments). As a result of these comments, significant changes have been made to the final version of A-76.

The organization of A-76 has changed dramatically, with the actual circular consisting of a mere three pages and describes the overarching policy tenets and the scope of agency responsibilities. The procedures for carrying out these policies are contained in three attachments:

• Attachment A, Inventory Process, which describes how agencies develop lists of commercial and inherently governmental activities. (EDITOR'S NOTE: Inherently governmental activities must be performed by public employees.)
  
  
• Attachment B, Public-Private Competition, which identifies the required steps for conducting competitions between the public and private sectors (for example, planning, soliciting, negotiating), making performance decisions, and tracking implementation.
  
  
• Attachment C, Calculating Public-Private Competition Costs, which defines how agencies determine the cost of public sector performance and compare these costs to a private sector offer.

A fourth attachment, Attachment D, Acronyms, Definitions, and Index, provides a detailed glossary and index of key terms used in A-76 and its attachments.

The following are the significant changes between the old A-76 and the new A-76 (as well as with the proposed A-76):

• The new A-76 does not contain the statement that the government should not compete with its citizens. This deletion is meant to avoid the presumption that the government should not compete for work to meet its own needs. Such a presumption would conflict with A-76's main purpose of providing policies and procedures for determining the best service provider, irrespective of whether the provider is the government or private industry.
  
  
• The new A-76 contains a provision that makes clear an agency shall not perform work as a contractor or subcontractor to the private sector. See paragraph 4.l of A-76.
  
  
• The old A-76 did not have any standard timeframes for conducting competitions. This allowed agencies to extend competitions indefinitely. The new A-76 establishes 12 months as the time for conducting a standard competition -- that is, from the date the competition is publicly announced to the date a decision is made. (A standard competition is the general competition process in which an agency selects a provided based on formal offers submitted in response to an agency solicitation.) However, the agency's competitive sourcing official (CSO) may extend the period by six months with notification of OMB. See Attachment B, paragraph D.1. (EDITOR'S NOTE: The proposed A-76 would have permitted the CSO to waive the 12 months completion period and set an alternative completion date, with notification of OMB, if the competition was particularly complex.)
  
  The proposed A-76 called for the new streamlined competition procedure for activities involving 65 or fewer FTEs (see below) to be conducted within 15 days. This was considered unrealistic by many respondents, so the new A-76 establishes 90 days as the time for conducting a streamlined competition, though the CSO may grant a 45-day extension. If an agency cannot complete a streamlined competition within the time limit, the agency must either convert the streamlined competition to a standard competition or request an extension from OMB using the deviation procedure in paragraph 5.c of A-76.
  
  
• The new A-76 calls for agencies to make public announcements in FedBizOpps (http://www.FedBizOpps.gov) of the beginning of competitions, performance decisions made at the end of competitions, and cancellations of announced competitions. See paragraph B of Attachment B.
  
  
• The old A-76 permitted agencies to perform "direct conversions" (that is, the conversion from government performance to private sector performance without competition) for activities performed by 10 or fewer FTEs. The proposed A-76 would have permitted direct conversions, but the new A-76 eliminates direct conversions.
  
  
• Streamlined competitions may be used for activities of 65 or fewer FTEs. Agencies are free to use streamlined acquisition tools, such as the General Services Administration's Federal Supply Schedules (see Federal Acquisition Regulation Subpart 8.4, Federal Supply Schedules) to obtain proposals from the private sector. See paragraph D of Attachment B.
  
  
• The proposed A-76 would not have allowed agencies to enter into new contracts for contractor support when developing their "most economic organizations" (MEO). The new A-76 permits agencies to acquire contract support for developing their MEOs through new contracts. However, agencies will not be permitted to enter into new MEO subcontracts if doing so would result in the direct conversion of work performed by government employees. See paragraph D.4.a(1)(a) of Attachment B.
  
  
• The new A-76 requires agencies to track the results of competitions, regardless of whether the service provider is a government agency or the private sector. Agencies will be expected to implement a quality assurance surveillance plan, record the actual cost of performance, and collect performance information that may be considered in future competitions. See paragraph E.4. of Attachment B.
  
  
• Attachment A of the new A-76 refines and expands guidance on the establishment of inventories under the FAIR Act (the FAIR Act requires agencies to prepare annual inventories of the commercial activities performed by their employees). These refinements include the following:
  
  
  • Agencies must categorize all activities performed by government personnel as either commercial or inherently governmental (see paragraph A.5 of Attachment A).
    
    
  • Agencies must choose one of six reason codes to explain why their personnel are performing a commercial activity. The reason codes are similar to, but more simplified than, the codes in the proposed A-76. Also, the CSO must prepare awritten justification if the agency concludes that the activity is eligible but not appropriate for private sector performance (see paragraph C.2. of Attachment A). In addition, the new A-76, unlike the proposed A-76, authorizes challenges to an agency's application of reason codes (see paragraph D.2. of Attachment A).
    
    
  • The CSO must justify all decisions to designate activities as inherently governmental, and the list of inherently governmental activities and the justifications will be made available for public review (see paragraphs A.4 and B.1 of Attachment A). Also, an agency's classification of an activity as inherently governmental may be challenged (see paragraph D.2 of Attachment A).
  
  
• The proposed A-76 presumed that an activity is commercial in nature unless it is justified as inherently governmental. The new A-76 does not include this presumption. The reason the presumption is not included is so the public is reassured that there is no intention to outsource inherently governmental activities.
  
  
• Agencies must appoint competition officials:
  
  
  • An agency tender official (ATO) with decision-making authority, who is responsible for the agency tender (the agency management plan submitted in response to a solicitation for a standard competition) and represents the agency tender during source selection.
    
    
  • A contracting officer (CO), who is responsible for issuance of the solicitation and the source selection evaluation, and participates on the team that develops the PWS.
    
    
  • A PWS team leader, who is responsible for developing the PWS and quality assurance surveillance plan, determines if the government will furnish property, and assists the CO with the solicitation.
    
    
  • A human resource advisor (HRA), who is responsible for assisting the ATO in human resource-related matters related to the agency tender.
    
    
  • A source selection authority (SSA), who is responsible for source selection (see paragraph A.8 of Attachment B).
  
  Also, agencies must establish a program office responsible for the daily implementation and enforcement of A-76.
  
  
• The new A-76 guidance on source selections is designed to be more manageable, more reliant on well-established FAR principles, and more accommodating than the old A-76's cost-centric process for conducting public-private competitions. The new A-76 provides several alternative procedures for conducting source selections, two of which give agencies leeway to take non-cost factors into account:
  
  
  • An agency may use sealed bidding where the award will be made strictly on the basis of price and price-related factors, and the agency will not need to negotiate with sources (see paragraph D.5.a. of Attachment B).
    
    
  • An agency may conduct a lowest price technically acceptable source selection where the performance decision is based on the lowest cost offer of all the offers that have been determined to be technically acceptable. This process permits exchanges between the parties (see paragraph D.5.b(1) of Attachment B).
    
    
  • An agency may conduct a phased evaluation source selection process to have the flexibility of considering alternative performance levels that sources may wish to propose. During the first phase, only technical factors are considered, and all prospective providers (the agency, other agencies interested in performing the work, and private sector offerors) may propose performance standards different from those specified in the solicitation. If the agency determines that a proposed alternative performance standard is appropriate and within the agency's current budget, the agency must issue a formal amendment to the solicitation and request revised submissions. In the second phase, the SSA makes a performance decision after performing price and cost realism analyses to compare offers and tenders that were determined to be technically acceptable at the conclusion of the first phase (see paragraph D.5.b(2) of Attachment B).
    
    
  • An agency may conduct a tradeoff source selection process with cost-technical tradeoffs similar to those authorized by FAR Part 15, if non-cost factors are likely to play an important role in the selection decision. Like the FAR Part 15 process, all prospective providers (private sector offers, the agency, and other agencies interested in performing the work) may propose different performance standards than stated in the solicitation. The contracting officer is required to determine if any desired tradeoffs are affordable and document the rationale for these tradeoffs. The new A-76 limits the use of tradeoffs to: (1) information technology (IT) activities, (2) contracted commercial activities, (3) new requirements, (4) segregable expansions, or (5) activities approved by the CSO before public announcement, with notification to OMB. See paragraph D.5.b(3) of Attachment B.
  
  
• The old A-76 required the addition to the cost of performance by a non-incumbent source the lesser of 10% of the MEO's personnel-related costs or $10 million. This factor compensates for the temporary decrease in efficiency, temporary operation of the facilities at reduced capacity, and other unpredictable problems that might occur should the performance of the activity be transferred. The new A-76 does not apply this factor to streamlined competitions. See paragraph D.5.c(4)(c) of Attachment B and paragraph A.5 of Attachment C.
  
  
• An agency tender may be excluded from a standard competition without cancellation of the competition if the SSA identifies a material deficiency, and the CSO determines that the material deficiency cannot be corrected with a reasonable commitment of resources (see paragraph D.5.c(3) of Attachment B).
  
  
• Once work has been competed under A-76, agencies must recompete work being performed by government personnel or other agencies in accordance with the same time limitations imposed by the FAR on contracts with the private sector, unless the CSO grants a specific exemption for a high performing organization (see paragraph E.5.b of Attachment B).
  
  
• Before exercising options for additional performance of work that has been competed under A-76, agencies must determine that performance by the incumbent provider (MEO, other agency, or private sector provider) meets the requirements of the solicitation and that continued performance is advantageous to the agency (see paragraph E.5.a. of Attachment B).
  
  
• The new A-76 requires the separation of the PWS team formed to write the PWS from the MEO team formed to develop the agency tender. In addition, the MEO team, directly affected personnel and their representatives, and any individual with knowledge of the MEO or agency cost estimate in the agency tender are not allowed to be advisors to, or members of, the source selection evaluation board. See paragraph D.2. of Attachment B.
  
  
• The new A-76 requires the release of the agency tender, other agencies' tenders, and the certified standard competition form (SCF) upon the resolution of any contest challenging the performance decision or the expiration of the time for filing such a contest (see paragraph D.6.e. of Attachment B). (EDITOR'S NOTE: The SCF documents all costs calculated in the competition to make a performance decision. The Federal Register notice states, "Several agencies asserted that this information should be treated as proprietary and not released -- even after a performance decision -- just as a private sector offer would not be released under similar circumstances. OMB believes that a tender should not be hidden from the taxpayer to whom we are ultimately accountable. At the same time, the Circular makes clear that proprietary information of private sector providers of subcontracts included in agency or public reimbursable tenders shall not be released."
  
  
• The new A-76 replaces the old A-76's administrative appeals process with the processes in FAR 33.103, Protests to the Agency. Challenges by directly interested parties and resolution of such challenges by the agency are now governed by FAR 33.103.
  
  A directly interested party may challenge any of the following actions taken in connection with a standard competition: (1) a solicitation; (2) the cancellation of a solicitation; (3) a determination to exclude a tender or offer from a standard competition; (4) a performance decision, including, but not limited to, compliance with the costing provisions of A-76 and other elements in an agency's evaluation of offers and tenders; or (5) a termination or cancellation of a contract (if a private sector provider wins the competition) or a letter of obligation (if an agency wins the competition) if the challenge contains an allegation that the termination or cancellation is based in whole or in part on improprieties concerning the performance decision.
  
  No party may contest a streamlined competition. However, agencies will be held accountable for performance decisions made in connection with such competitions. See paragraph F of Attachment B.
  
  
• To provide needed flexibility to address unique circumstances, the new A-76 provides a process by which agencies, with OMB's approval, may deviate from the processes prescribed in A-76. The deviation process may also be considered for pursuit of alternatives to public-private competitions in appropriate circumstances, such as public-private partnerships, public-public partnerships, and high performing organizations. See paragraph 5.C of A-76.
  
  
• Agencies must track agency execution of streamlined and standard competitions using a governmentwide management information system. Information to be tracked by this system will include: baseline costs, start date, number of directly affected employees performing the activity, solicitation information, type of acquisition and source selection, decisions for tradeoff source selections, number of private sector offers received, performance date and decision, socioeconomic information, decisions for tradeoff source selections, and number of directly affected employees that are involuntarily separated.
  
  Agencies must review their data to make process improvements, identify streamlining measures, determine trends, and identify savings. Tracking is required irrespective of whether the service provider is from the public or private sector.
  
  
• The coverage in the proposed A-76 on interservice support agreements (ISSA) is deleted from the new A-76. OMB believes a more directed management focus should enable agencies to more quickly acclimate themselves to A-76's improved processes.

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

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