[Federal Register Volume 64, Number 39 (Monday, March 1, 1999)]
[Notices]
[Pages 10031-10033]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-5112]


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OFFICE OF MANAGEMENT AND BUDGET


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

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

ACTION: Proposed Guidance on the Implementation of the FAIR Act Through 
Revisions to the Supplemental Handbook to OMB Circular A-76.

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SUMMARY: The Office of Management and Budget (OMB) requests agency and 
public comments on its proposed guidance to implement the recently-
enacted ``Federal Activities Inventory Reform Act of 1998'' (Public Law 
105-270) (the ``FAIR Act''). The FAIR Act directs agencies to develop 
inventories of their commercial activities and to conduct cost 
comparisons to determine whether a commercial activity that is 
performed by a governmental source should instead be performed by a 
private-sector source. The FAIR Act requires that Federal agencies must 
submit to OMB, each fiscal year, a list of all their activities that 
are not inherently governmental (``commercial activities'') and that 
are performed by Federal employees, with their associated Full-Time-
Equivalents (FTE). (FAIR Act, Section 2(a)). OMB will review each 
agency's list for the fiscal year and consult with the agency regarding 
its content. (FAIR Act, Section 2(b)). Upon the completion of this 
review and consultation, the agency must transmit a copy of the list to 
Congress and make the list available to the public. (FAIR Act, Section 
2(c)). An interested party, as defined by FAIR, may then challenge the 
omission or inclusion of a particular activity on the list (FAIR Act, 
Section 3) and the agency must then notify Congress of any changes to 
the list that result from this process and make the changes available 
to the public. (FAIR Act, Section 2(c)(2)). Finally, the Fair Act 
requires agencies, within a reasonable time after making final 
decisions to include or exclude activities on the list, to review the 
activities on the list for possible performance by the private sector. 
When an agency considers contracting with a private-sector source for 
the performance of a commercial activity, the agency must use a 
competitive process to select the source (except as may otherwise be 
provided in a law, Executive order, regulation, or executive branch 
circular), in accordance with OMB guidance. In conducting cost 
comparisons, agencies must ensure that all costs are considered 
(including certain specified costs) and that these costs are realistic 
and fair. (FAIR Act, Section 2(d)-(e))
    In complying with the FAIR Act, agencies will implement the OMB 
Circular A-76, ``Performance of Commercial Activities,'' which 
establishes Federal policy for the performance of recurring commercial 
activities. The Circular distinguishes between those agency activities 
that are commercial in nature and those that are inherently 
governmental. See Circular A-76, Sections 6a and 6e (definitions of 
``commercial activity'' and ``governmental function''); Office of 
Federal Procurement Policy Letter 92-1, ``Inherently Governmental 
Functions,'' 57 FR 45096 (September 30, 1992). Guidance for 
implementing the Circular's general policies is contained in a 
Supplemental Handbook for Circular A-76, which OMB revised in 1996. See 
61 FR 14338 (April 1, 1996). Under the Circular and its Supplemental 
Handbook, agencies must develop and maintain annual inventories of 
their commercial activities. When deciding whether to have an activity 
performed by a governmental or private-sector source, agencies must 
also conduct cost comparisons according to specified criteria and 
procedures. The proposed revisions to the Handbook would inform 
agencies of the Act's requirements and conform the Handbook to those 
requirements. The revisions also would revise the Handbook to clarify 
that agencies must rely on the Handbook's guidance with respect to the 
cost-comparison competition requirements of the FAIR Act. These 
requirements establish a competitive source-selection process which 
compares costs in a complete, fair, and reasonable manner.

DATES: Written comments on the proposed revisions must be filed on or 
before April 15, 1999 to be considered.

ADDRESSES: Address all comments to the Budget Analysis and Systems 
Division, NEOB Room 6002, Office of Management and Budget, 725 17th 
Street, NW., Washington, DC 20503, FAX Number (202) 395-7230.

FOR FURTHER INFORMATION CONTACT: Mr. David Childs, (202) 395-6104.

    Availability: Copies of the FAIR Act, the current OMB Circular A-76 
and its Supplemental Handbook may be obtained by contacting the 
Executive Office of the President, Office of Administration, 
Publications Office, Washington, DC 20503, at (202) 395-7332. These 
documents are also accessible on the OMB Home page. The online OMB Home 
page address (URL) is http:/www.whitehouse.gov/WH/EOP/omb.

SUPPLEMENTARY INFORMATION: On October 12, 1998, President Clinton 
signed into law the ``Federal Activities Inventory Reform Act of 1998'' 
(Public Law 105-270) (the ``FAIR Act''). The FAIR Act directs agencies 
to develop inventories of their commercial activities and to conduct 
cost comparisons to determine whether a commercial activity that is 
performed by a governmental source should instead be performed by a 
private-sector source.
    To facilitate agency implementation of the FAIR Act, OMB proposes 
to revise the Supplemental Handbook (particularly Appendix 2, which 
addresses the commercial-activity inventory). These proposed revisions 
would inform agencies of the FAIR Act's requirements and, to avoid 
duplication, conform Handbook provisions so that they cross-reference 
and parallel relevant FAIR Act provisions. The changes would 
incorporate the statutory deadline of June 30th for agency submissions 
to OMB of annual commercial-activity inventories and

[[Page 10032]]

would add two data elements to the inventory's description of each 
activity.
    Under the FAIR Act, when an agency considers contracting with a 
private-sector source for the performance of an activity on the 
inventory, it must use a competitive process to select the source and 
must ensure that all costs are considered (including certain specified 
costs) and that the costs considered are realistic and fair. See FAIR 
Act, Section 2(d)-(e). This proposal would revise the Supplemental 
Handbook (in Part I, Chapter 1, Paragraph A, and in Part II, Chapter 1, 
Paragraph A) to clarify that agencies conducting such cost-comparisons 
must rely on the guidance in Circular A-76 and the Supplemental 
Handbook. They require that all competitive costs of in-house and 
contract performance be included in the cost comparison, including all 
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. Since the 
Supplemental Handbook's guidance on cost comparisons has been recently 
revised and is fully consistent with the FAIR Act, OMB does not propose 
to revise that guidance at this time.
    OMB requests comments on its proposed guidance for implementing the 
FAIR Act through revisions to the Supplemental Handbook for Circular A-
76.
G. Edward DeSeve,
Deputy Director for Management.

    To implement the FAIR Act, OMB proposes to make the following 
revisions to the Supplemental Handbook for OMB Circular A-76:
    1. Part I, Chapter 1, Paragraph A of the Supplemental Handbook (p. 
3) is revised by adding a reference to the FAIR Act in the first 
sentence. As revised, Paragraph A would read as follows:

A. General

    ``This Part sets forth the principles and procedures for 
managing the Government's acquisition of recurring commercial 
supporting activities, implementing the ``Federal Activities 
Inventory Reform Act of 1998'' (FAIR Act, Pub. L. 105-270) and 
Circular A-76. Exhibit 1 summarizes the conditions that permit 
conversion to or from in-house, contract or interservice support 
agreement (ISSA) performance.

    2. Part II, Chapter 1, Paragraph A.1 of the Supplemental Handbook 
(p. 17) is revised by adding a reference to the FAIR Act in the first 
sentence. No revisions are proposed to Paragraph A.2-4. As revised, 
Paragraph A.1 would read as follows:

    1. Part II provides generic and streamlined cost comparison 
guidance to comply with the provisions of the ``Federal Activities 
Inventory Reform Act of 1998'' (Pub. L. 105-270) (the ``FAIR Act''), 
Circular A-76 and this Supplement. This includes guidance for 
developing in-house costs based upon the Government's Most Efficient 
Organization (MEO) and other adjustments to the contract and 
interservice 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.

    3. The title of Appendix 2 of the Supplemental Handbook (p. 38) is 
revised from ``OMB Circular No. A-76 Inventory'' to ``Commercial 
Activity Inventory''. This inventory is now required by the FAIR Act as 
well as by Circular A-76.
    4. 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 and incorporate its due date (June 30th) for 
submission to OMB of an agency's commercial-activity inventory. Two 
data elements are added to the inventory's description of an activity. 
These additional data elements (k and l, below) correspond to the data 
elements required under Section 2(a)(1) and (3) of the FAIR Act (the 
Handbook already requests the full-time employee data under Section 
2(a)(2)). In addition, the existing data element for ``Location/
organization unit'' is being separated out 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 data elements are 
included. As revised, Paragraph A would read as follows:

A. Preface

    ``Agencies must implement and manage cost comparisons in 
accordance with the ``Federal Activities Inventory Reform Act of 
1998'' (Pub. L. 105-270) (the ``FAIR Act''), Circular A-76 and this 
Supplement. In this regard, by June 30 of each year, each agency 
must submit to OMB a report that contains an inventory of the 
agency's commercial activities. These reports must identify those 
commercial activities that are exempt from cost comparison 
requirements and must describe the status of activities that are 
subject to cost comparison. Each agency must maintain an annual 
inventory of all commercial activities performed by in-house FTE, 
including, at a minimum, the following data elements:
    a. State.
    b. Location.
    c. Organization unit.
    d. FTE.
    e. Activity function code.
    f. Reason code.
    g. Year of cost comparison or conversion.
    h. CIV/FTE savings.
    I. Annual dollar savings.
    j. Date of completed Post-MEO Performance Review.
    k. Year the activity first appeared on the agency inventory, 
under FAIR.
    l. Name of a Federal employee responsible for the activity from 
whom additional information about the activity may be obtained.
    Agencies have the discretion to automate and to structure this 
detailed inventory as they believe most appropriate, so long as the 
inventory includes each of these data elements.

    5. Appendix 2 of the Supplemental Handbook (p. 38) is revised by 
adding two new paragraphs that reflect the requirements of the FAIR 
Act. New Paragraph G describes the review and publication of the agency 
commercial-activity inventories and the challenge-and-appeals process 
pertaining to their development. New Paragraph H requires agencies to 
review the activities on their inventories of commercial activities and 
to use a competitive process, with established cost comparison 
procedures, when the agency considers contracting with a private-sector 
source for the performance of an activity on the inventory. The new 
Paragraphs G and H would read as follows:

G. FAIR Act Review and Publication of Inventories; Challenges and 
Appeals Regarding Such Inventories

    In accordance with Section 2 of the FAIR Act, OMB will review 
the agency's inventory of commercial activities and consult with the 
agency regarding its content. (Section 4 of the FAIR Act specifies 
the agencies that are subject to the Act, and exceptions from the 
Act's coverage.) Upon completion of this review and consultation, 
the agency must transmit a copy of the inventory to Congress and 
make the inventory available to the public. OMB will publish a 
notice in the Federal Register that the inventories are available to 
the public.
    Under Section 3 of the FAIR Act, an agency's decision to include 
or exclude a particular activity from the inventory is subject to 
administrative challenge and appeal by an ``interested party.'' 
Section 3(b) of the FAIR Act defines ``interested party'' as:
    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.

[[Page 10033]]

    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.
    An interested party may submit an initial challenge, to the 
inclusion or exclusion of an activity, within 30 calendar days after 
publication of the notice of availability in the Federal Register. 
The challenge must set forth 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 (see Appendix 
5). Each agency must designate the agency official who has the 
responsibility for receiving and deciding such challenges (that 
official may be the official identified in paragraph 9.a of the 
Circular, or that official's designee). 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. An interested 
party may appeal an adverse decision to the head of the agency 
within 10 working days after receiving the written notification of 
the decision. Within 10 working days of receipt of the appeal, the 
agency head 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.

H. FAIR Act Competitions

    Section 2(d) of the FAIR Act requires each agency, within a 
reasonable time after the publication of its commercial-activity 
inventory, to review the activities on the inventory. In addition, 
Section 2(d)-(e) of the FAIR Act provides that, when an agency 
considers contracting with a private-sector source for the 
performance of an activity on the inventory, the agency must use a 
competitive process to select the source and must ensure that, for 
the comparison of costs, all costs are considered (including certain 
specified costs) 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. All 
competitive costs of in-house and contract performance are included 
in the cost comparison, 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.

[FR Doc. 99-5112 Filed 2-26-99; 8:45 am]
BILLING CODE 3110-01-P