[Federal Register Volume 64, Number 121 (Thursday, June 24, 1999)]
[Notices]
[Pages 33927-33935]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-16129]


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OFFICE OF MANAGEMENT AND BUDGET


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

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

ACTION: OMB issues final guidance on the implementation of the FAIR 
Act.

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SUMMARY: The Office of Management and Budget (OMB) hereby issues 
guidance to implement the ``Federal Activities Inventory Reform Act of 
1998''.
    To facilitate and ensure agency implementation of the ``Federal 
Activities Inventory Reform Act of 1998'' (Public Law 105-270) (``FAIR 
Act''), OMB is revising its existing guidance on the management of 
commercial activities through revisions to OMB Circular A-76, 
``Performance of Commercial Activities,'' and to its Supplemental 
Handbook. These revisions inform agencies of the FAIR Act's 
requirements; implement the statutory requirements of the FAIR Act; 
avoid duplication and confusion by conforming guidance to the FAIR Act, 
and place the FAIR Act's requirements in the context of the Federal 
Government's larger reinvention, competition and privatization efforts.

DATES: This guidance is effective June 24, 1999.

FOR FURTHER INFORMATION CONTACT PERSON: Mr. David Childs, Office of 
Management and Budget, NEOB Room 6002, 725 17th Street, NW, Washington, 
DC 20503, telephone: (202) 395-6104, FAX: (202) 395-7230.

AVAILABILITY: Copies of the updated versions of OMB Circular A-76, its 
Revised Supplemental Handbook and this Transmittal Memorandum 20 are 
available from OMB on the Internet at: http://www.whitehouse.gov/OMB/
circulars/index-procure.html

SUPPLEMENTARY INFORMATION:

I. The Federal Activities Inventory Reform Act

    On October 12, 1998, President Clinton signed into law the 
``Federal Activities Inventory Reform Act of 1998'' (``FAIR Act'' or 
``Act''). The FAIR Act directs Federal agencies to submit each year an 
inventory of all their activities that are performed by Federal 
employees but are not inherently Governmental (i.e., are commercial). 
OMB is to review each agency's Commercial Activities Inventory and 
consult with the agency regarding its content. Upon the completion of 
this review and consultation, the agency must transmit a copy of the 
inventory to Congress and make it available to the public. The FAIR Act 
establishes an administrative appeals process under which an interested 
party may challenge the omission or the inclusion of a particular 
activity on the inventory. Finally, the FAIR Act requires agencies to 
review the activities on the inventory. Each time that the head of an 
executive agency considers contracting with a private sector source for 
the performance of such an activity, the head of the executive agency 
shall use a competitive process. When conducting cost comparisons, 
agencies must ensure that all costs are considered.
    In enacting the FAIR Act, Congress did not displace longstanding 
Executive Branch policy regarding the performance of commercial 
activities. The Federal Government seeks to achieve economy and enhance 
productivity and quality through competition to obtain the best service 
at least cost to the American taxpayer. This Federal policy regarding 
the performance of commercial activities has been provided by OMB 
Circular A-76, ``Performance of Commercial

[[Page 33928]]

Activities.'' Specific guidance regarding the implementation of this 
policy is provided by the March 1996 Revised Supplemental Handbook to 
OMB Circular A-76 and by agency consultation with OMB.
    The Act codified some of this guidance in law. In particular, the 
FAIR Act codified the pre-existing requirement for agencies to 
inventory their commercial activities, as well as the pre-existing 
definition of ``inherently governmental function.''
    Each time an agency considers changing from Government employee 
performance of a commercial activity on the inventory, the FAIR Act 
requires that a competitive process be used and that cost comparisons 
``shall ensure that all costs * * * are considered and that the costs 
considered are realistic and fair''. Here, too, the Act codifies or 
defers to pre-existing Executive Branch policy.

II. Implementation of the FAIR Act

    OMB Circulars are a well-established vehicle for directing agencies 
on the management of their activities. Together, Circular A-76 and its 
Supplemental Handbook have established the broad principles, individual 
definitions and specific directives on the management of commercial 
activities, including the inventory and other items codified by the 
FAIR Act. OMB wanted to provide the agencies with prompt and clear 
guidance on how to implement the Act within the short time-frame 
available. OMB concluded that the best way to provide agencies with 
clear and prompt guidance on how to implement the FAIR Act was to 
revise the current circular and handbook so that they conform to the 
FAIR Act. OMB's goal in drafting these revisions was to ensure that the 
agencies fully implement the FAIR Act's requirements, and that the 
agencies do so without confusion, wasted effort or delays caused by 
uncertainty about the applicability of current guidance.
    Accordingly, on March 1, 1999, OMB requested agency and public 
comments on proposed revisions to the Handbook to implement the FAIR 
Act (64 FR 10031). The proposed revisions would inform agencies of the 
FAIR Act requirements and, to avoid confusion, conform the Handbook's 
provisions so that they cross-reference and parallel relevant FAIR Act 
provisions.
    To implement the FAIR Act's inventory requirement, OMB proposed to 
make conforming changes to the Handbook's pre-existing inventory 
requirement. The changes incorporated the statutory due date of June 
30th for agency submissions to OMB and added, to the inventory's 
description of each activity, two new data elements required by the 
FAIR Act.
    In addition, OMB proposed provisions to the Handbook to address the 
FAIR Act's other requirements. These provisions:
    (1) Reiterated the requirements for OMB to review the commercial 
activity inventories and to consult with the agencies regarding them; 
for the agencies, after OMB's review-and-consultation is completed, to 
send the inventories to Congress and to make them available to the 
public; and for the agencies to hear and decide administrative 
``challenges'' in which interested parties challenge an agency's 
decision to include an activity in (or exclude an activity from) the 
inventory; and
    (2) Incorporated the FAIR Act's requirement that agencies 
``review'' the activities on the inventory; that an agency, each time 
it considers contracting with a private sector source for the 
performance of an activity listed on the inventory, use a competitive 
process to select the source (unless otherwise provided ``in a law 
other than this Act, an Executive order, regulations, or any Executive 
Branch circular''); and that, when comparing costs, ``all costs * * * 
are considered and * * * are realistic and fair.''
    OMB proposed that agencies rely on and implement the existing 
guidance with respect to the cost-comparison competition requirements 
of the FAIR Act. These procedures are well-established and direct 
agencies to create a competitive process that compares costs 
completely, accurately, and fairly.
    OMB received 82 responses to its request for comments: 10 Federal 
agencies, 61 industry or trade groups, and 8 employee organizations 
responded, in addition to 4 letters from members of Congress. A 
discussion of the significant comments, and OMB's responses to those 
comments, is provided in the Appendix to this notice.
    After considering all comments received on the proposed guidance, 
OMB is issuing final guidance to the agencies for implementing the FAIR 
Act. The guidance consists of changes to the A-76 Circular, itself, as 
well as its Supplemental Handbook.
    In order to implement the FAIR Act, OMB is making several changes 
to the guidance as proposed on March 1:
    OMB has revised Circular A-76, itself, in addition to the 
Supplemental Handbook, to conform to the requirements of the FAIR Act;
    To ensure that agencies comply with the FAIR Act's requirement for 
review on an inventory within a reasonable time, OMB will now require 
annual reports that will, among other things, discuss the 
implementation, status, and results of the FAIR Act process;
    OMB has clarified that agencies should, as appropriate, permit 
employee involvement in the development of the inventory;
    OMB is revising agency reporting requirements so that reporting is 
clearer on activities that have been converted from contract 
performance to in-house performance or retained in-house as a result of 
a cost-comparison.
    With the issuance of these revisions, agencies have been provided 
guidance for implementing the FAIR Act. OMB will continue, as it has in 
the past, to consult with individual agencies and provide informal 
guidance as necessary.

III. Executive Branch Management of Commercial Activities Generally

    Implementing the FAIR Act is only a part of the Government's 
reinvention and management responsibilities. Improving the quality, and 
reducing the cost, of commercial activities is an integral part of 
managing the Nation's resources. The agencies and OMB have an ongoing 
responsibility to ensure that these activities are performed in a 
manner that is cost-effective and in the best interest of the taxpayer. 
Developing an inventory of each agency's commercial activities is a 
necessary first step in pursuing this objective, one that has now been 
codified by the FAIR Act. Once these inventories are developed, they 
will then be reviewed, by the agencies and OMB, to identify ways to 
improve the performance of the Federal Government's commercial 
activities.
    Equally important, however, is how the agencies manage these 
activities after they are identified. In order better to manage 
commercial activities, OMB revised the Supplemental Handbook in 1996. 
The Revised Supplemental Handbook seeks the most cost-effective means 
of obtaining commercial support services and provided new 
administrative flexibility in the Government's ``make or buy'' decision 
process. The revision modified and, in some cases, eliminated cost 
comparison requirements for recurring commercial activities and the 
establishment of new or expanded interservice support agreements; 
reduced reporting and other administrative burdens; provided for 
enhanced employee participation; eased transition requirements to 
facilitate employee placement; maintained a level playing field for 
cost comparisons between Federal, interservice support agreement and 
private sector offers, and improved accountability and oversight

[[Page 33929]]

to ensure that the most cost effective decision is implemented.
    As part of this guidance, OMB is now taking the additional step of 
requiring agencies to submit annual reports that will discuss the 
implementation, status, and results of the FAIR Act process. As we 
develop experience with the FAIR Act and these procedures, we will 
consider whether additional guidance is needed, either for 
implementation of the FAIR Act in particular or on management of 
commercial activities in general.
Jacob J. Lew,
Director.
June 14, 1999.
Circular No. A-76 (Revised)
Transmittal Memorandum No. 20

To The Heads of Executive Departments and Agencies
Subject: Implementing the Federal Activities Inventory Reform Act 
Through Conforming Changes to OMB Circular No. A-76 and its March 
1996 Revised Supplemental Handbook.

    This Transmittal Memorandum implements the statutory 
requirements of the Federal Activities Inventory Reform Act (``The 
FAIR Act''), Public Law 105-270. As part of its longstanding role in 
the review and oversight of agency management and the allocation of 
resources, OMB has established policies regarding the performance of 
commercial activities by Federal agencies. These policies are 
outlined in OMB Circular No. A-76 and its Revised Supplemental 
Handbook. The FAIR Act reinforced these policies and procedures; 
codified certain requirements with respect to the development by 
agencies of an annual commercial activities inventory, and added an 
opportunity for interested parties to challenge the contents of the 
annual inventory.
    The changes to the Circular's Revised Supplemental Handbook 
(Attachment 1) inform agencies of the FAIR Act's requirements; 
implement the statutory requirements of the FAIR Act; avoid 
duplication and confusion by conforming the Supplemental Handbook to 
the provisions of the FAIR Act; and place the FAIR Act's 
requirements in the context of the Federal Government's larger 
reinvention, competition and privatization efforts. As a result of 
these changes, the Circular is also being updated with conforming 
changes necessary to reflect the requirements of the FAIR Act 
(Attachment 2). The previous OMB Circular A-76 was published in the 
August 16, 1983, Federal Register at pages 37110-37116. The March 
1996 Revised Supplemental Handbook was issued through Transmittal 
Memorandum 15, published in the April 1, 1996, Federal Register at 
pages 14338-14346.
    Under the FAIR Act, agencies are required to submit their 
commercial activity inventories to OMB by June 30th of each year, 
starting this year. THE FIRST FAIR ACT INVENTORIES ARE, THEREFORE, 
DUE IN TWO WEEKS. OMB looks forward to working with the agencies 
during our review of these inventories, and stands ready to assist 
the agencies as the Executive Branch moves forward in its 
implementation of the FAIR Act.
    Questions regarding the FAIR Act or this guidance may be 
addressed to Mr. David Childs (phone: (202) 395-6104, Fax: (202) 
395-7230).
Jacob J. Lew,
Director.
Attachments

Attachment 1.--Revisions to the OMB Circular A-76 March 1996 Revised 
Supplemental Handbook

    1. The Introduction to the Supplemental Handbook (p. iii) is 
revised to reflect the fact that challenges to the activities listed 
in the Commercial Activities Inventory are permitted under the FAIR 
Act, by adding to the end of the last sentence on page iii the 
following:
    ``* * * and as set forth in Appendix 2, Paragraph G, consistent 
with Section 3 of the Federal Activities Inventory Reform Act of 
1998 (FAIR Act, P.L. 105-270).''
    2. Part I, Chapter 1, paragraphs A, B.1 and F, of the 
Supplemental Handbook (pp. 3, 5) are revised to reflect the 
requirements of the FAIR Act. As revised, paragraphs A, B.1 and F 
read as follows:

``A. General

    This Part sets forth the principles and procedures for managing 
the Government's acquisition of recurring commercial support 
activities, implementing the ``Federal Activities Inventory Reform 
Act of 1998'' (``The FAIR Act''), P.L. 105-270, and Circular A-76. 
Exhibit 1 summarizes the conditions that permit conversion to or 
from in-house, contract or Inter-Service Support Agreement (ISSA) 
performance. The requirements of the FAIR Act apply to the following 
executive agencies: (1) An executive department named in 5 U.S.C. 
101, (2) a military department named in 5 U.S.C. 102, and (3) an 
independent establishment as defined in 5 U.S.C. 104. The 
requirements of the FAIR Act do not apply to: (1) The General 
Accounting Office, (2) a Government corporation or a Government 
controlled corporation as defined in 5 U.S.C. 103, (3) a non-
appropriated funds instrumentality if all of its employees are 
referred to in 5 U.S.C. 2105(c), or (4) Depot-level maintenance and 
repair of the Department of Defense as defined in 10 U.S.C. 2460.''

``B. Inherently Governmental Activities

    1. Inherently Governmental activities are not subject to the 
FAIR Act, Circular A-76 or this Supplemental Handbook. As a matter 
of policy, an inherently Governmental activity is one that is so 
intimately related to the exercise of the public interest as to 
mandate performance by Federal employees. The Office of Federal 
Procurement Policy (OFPP) Policy Letter 92-1, dated September 23, 
1992 (Federal Register, September 30, 1992, page 45096), provides 
guidance on the identification of inherently Governmental activities 
(see Appendix 5). This guidance conforms to the definition provided 
at Section 5, paragraph 2, of the FAIR Act.''

``F. Commercial Activities Inventory

    As required by the FAIR Act, Circular A-76 and this Supplemental 
Handbook, each agency will maintain a detailed inventory of all in-
house commercial activities performed by its Government employees. 
This inventory, as described at Appendix 2 of this Supplement, and 
any supplemental information requested by OMB, will be submitted not 
later than June 30 of each year. Agencies should, as appropriate, 
permit employee involvement in the development of this Commercial 
Activities Inventory.''
    3. Part II, Chapter 1, Paragraph A.1 of the Supplemental 
Handbook (p. 17) is revised by adding a reference to the FAIR Act. 
As revised, Paragraph A.1 reads as follows:
    ``1. Part II provides generic and streamlined cost comparison 
guidance to comply with the provisions of the FAIR Act and Circular 
A-76. This includes guidance for developing in-house costs based 
upon the Government's Most Efficient Organization (MEO) and other 
adjustments to the contract and inter-service 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.''
    4. The title of Appendix 2 of the Supplemental Handbook (p. 38) 
and the corresponding entry in the Table of Contents are revised 
from ``OMB Circular No. A-76 Inventory'' to ``Commercial Activities 
Inventory.'' Portions of this inventory are now required by the FAIR 
Act, as a matter or law.
    5. 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 for a Commercial Activities Inventory 
and incorporate its due date (June 30th) for submission to OMB of 
each agency's inventory. Two data elements are added to the 
inventory's description of an activity. These additional data 
elements (g and h, below) correspond to the new data elements 
required under Section 2(a) (1) and (3) of the FAIR Act. In 
addition, the existing data element for ``Location / organization 
unit'' is being separated 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 the listed data elements are included. 
As revised, Paragraph A reads as follows:

``A. Annual Inventory Submission

    In accordance with the FAIR Act, Circular A-76 and this 
Handbook, each agency must submit to OMB, by June 30 of each year, a 
detailed Commercial Activities Inventory of all commercial 
activities performed by in-house employees, including, at a minimum, 
the following:
    a. Organization unit.
    b. State(s).
    c. Location(s).
    d. FTE.
    e. Activity function code.
    f. Reason code.

[[Page 33930]]

    g. Year the activity first appeared on FAIR Act Commercial 
Activities Inventory (initial value will be 1999).
    h. Name of a Federal employee responsible for the activity or 
contact person from whom additional information about the activity 
may be obtained.
    i. Year of cost comparison or conversion (if applicable).
    j. CIV/FTE savings (if applicable).
    k. Estimated annualized Cost Comparison dollar savings (if 
applicable).
    l. Date of completed Post-MEO Performance Review (if 
applicable).
    Agencies have the discretion to automate and to structure the 
initial submission of the detailed inventory as they believe most 
appropriate, so long as the inventory includes each of these data 
elements. Agencies must transmit an electronic version of the 
inventory to OMB as well as two paper copies. The electronic version 
should be in a commonly used software format (commercial off-the-
shelf spreadsheet, database or word processing format). OMB 
anticipates issuing additional guidance on the structure and format 
of future inventory submissions, based on the experience gained from 
the first annual review and consultation process.''
    6. To reflect the FAIR Act's requirement that information on 
full time employees (or its equivalent) be included, paragraph C of 
Appendix 2 of the Supplemental Handbook (p. 38) has been revised as 
follows:

``C. FTE

    Enter the number of authorized full-time employees or FTE (as 
applicable) in the commercial activity function or functions as of 
the date of the inventory. Employees performing inherently 
Governmental activities are not reported in the Commercial 
Activities Inventory.''
    7. Paragraph E ``A-76 Reason Codes'' of Appendix 2 of the 
Supplemental Handbook (p. 38) is retitled ``Reason Codes.'' The 
phrase ``agency A-76 inventories'' is changed to ``Commercial 
Activities Inventory'' and ``Reason code E'' is revised and a new 
reason code ``I'' is added as follows:
    ``E Indicates that the function is retained in-house as a result 
of a cost comparison.''
    ``I Indicates the function is being performed in-house as a 
result of a cost comparison resulting from a decision to convert 
from contract to in-house performance.''
    8. Appendix 2 of the Supplemental Handbook (p. 38) is further 
revised by adding three new paragraphs. New paragraph ``G'' 
describes the review and publication of the detailed agency 
Commercial Activities Inventory and the challenge-and-appeals 
process pertaining to its content, as required by the FAIR Act. The 
new paragraph ``H'' includes the FAIR Act's requirements that 
agencies review the commercial activities in their inventories and 
use a competitive process or established cost comparison procedures 
each time an agency considers contracting with a private-sector 
source for the performance of an activity on the inventory. New 
paragraph ``I'' alerts agencies to the requirement for an annual 
Report on Agency Management of Commercial Activities. The new 
paragraphs read as follows:

``G. Inventory Review and Publication; Challenges and Appeals

    1. Review and Publication: In accordance with Section 2 of the 
FAIR Act, OMB will review the agency's Commercial Activities 
Inventory and consult with the agency regarding its content. After 
this review is completed, OMB will publish a notice in the Federal 
Register stating that the inventory is are available to the public. 
Once the notice is published, the agency will transmit a copy of the 
detailed Commercial Activities Inventory to Congress and make the 
materials available to the public through its Washington, DC or 
headquarters offices.
    2. Challenges and Appeals: Under Section 3 of the FAIR Act, an 
agency's decision to include or exclude a particular activity from 
the Commercial Activities Inventory is subject to administrative 
challenge and, then, possible appeal by an ``interested party.'' 
Section 3(b) of the FAIR Act defines ``interested party'' as:
    a. 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.
    b. A representative of any business or professional association 
that includes within its membership private sector sources referred 
to in a. above.
    c. An officer or employee of an organization within an executive 
agency that is an actual or prospective offeror to perform the 
activity.
    d. 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 
c. above.
    3. An interested party may submit to an executive agency an 
initial challenge to the inclusion or exclusion of an activity 
within 30 calendar days after publication of OMB's Federal Register 
notice stating that the inventory is available. The challenge must 
set forth the activity being challenged with as much specificity as 
possible, and 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 on inherently Governmental functions 
(see Appendix 5) or as established by precedent (such as when other 
agencies have contracted for the activity or undergone competitions 
for this or similar activities).
    4. The agency head may delegate the responsibility to designate 
the appropriate official(s) to receive and decide the initial 
challenges. As mandated by the FAIR Act, 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.
    5. An interested party may appeal an adverse decision to an 
initial challenge within 10 working days after receiving the written 
notification of the decision. The agency head may delegate the 
responsibility to receive and decide appeals to the official 
identified in paragraph 9.a of the Circular (or an equivalent senior 
policy official), without further delegation. Within 10 working days 
of receipt of the appeal, the official 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. The agency must also transmit to OMB and the Congress a 
copy of any changes to the inventory that result from this process, 
make the changes available to the public and publish a notice of 
public availability in the Federal Register.''

``H. Agency Review and Use of Inventory

    Section 2(d) of the FAIR Act requires that each agency, within a 
reasonable time after the publication of the notice that its 
inventories are publicly available, review the activities on the 
detailed commercial activities inventory. Agencies will report to 
OMB on this process as part of the Report on Agency Management of 
Commercial Activities required under Paragraph I, below. In 
addition, Section 2(d)-(e) of the FAIR Act provides that, each time 
the head of the executive agency considers contracting with a 
private-sector source for the performance of an activity included on 
the inventory, the agency must use a competitive process to select 
the source and must ensure that, when a cost comparison is used or 
otherwise required for the comparison of costs, all costs are 
considered 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 to 
determine if cost comparisons are required and what competitive 
method is appropriate. All competitive costs of in-house and 
contract performance are included in the cost comparison, when such 
comparison is required, 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.''

``I. Annual Report on Agency Management of Commercial Activities

    As part of ongoing agency responsibility to manage their 
performance of commercial activities and ongoing OMB oversight, OMB 
will require agencies to report annually on such management. The 
content of the reports is likely to vary depending upon the progress 
made by each agency in reviewing their inventory and on the 
experience OMB gains from the first round of inventory submissions, 
review, challenges and appeals mandated by the FAIR Act. OMB 
anticipates issuing subsequent guidance if it determines that 
supplemental reports or other information is needed for future 
inventory submissions to assure that agencies have

[[Page 33931]]

correctly implemented all of the provisions of the FAIR Act and 
taken advantage of the management information inherent in the 
detailed Commercial Activities Inventory.''

Attachment 2.--Executive Office of the President, Office of Management 
and Budget, Washington, DC 20503

August 4, 1983 (Revised 1999).
Circular No. A-76

To the Heads of Executive Departments and Establishments

Subject: Performance of Commercial Activities

    1. Purpose. This Circular establishes Federal policy regarding 
the performance of commercial activities and implements the 
statutory requirements of the Federal Activities Inventory Reform 
Act of 1998, Public Law 105-270. The Supplement to this Circular 
sets forth the procedures for determining whether commercial 
activities should be performed under contract with commercial 
sources or in-house using Government facilities and personnel.
    2. Rescission. OMB Circular No. A-76 (Revised), dated March 29, 
1979; and Transmittal Memoranda 1 through 14 and 16 through 18.
    3. Authority. The Budget and Accounting Act of 1921 (31 U.S.C. 1 
et seq.), The Office of Federal Procurement Policy Act Amendments of 
1979. (41 U.S.C. 401 et seq.), and The Federal Activities Inventory 
Reform Act of 1998. (P. L. 105-270).
    4. Background.
    a. In the process of governing, the Government should not 
compete with its citizens. The competitive enterprise system, 
characterized by individual freedom and initiative, is the primary 
source of national economic strength. In recognition of this 
principle, it has been and continues to be the general policy of the 
Government to rely on commercial sources to supply the products and 
services the Government needs.
    b. This national policy was promulgated through Bureau of the 
Budget Bulletins issued in 1955, 1957 and 1960. OMB Circular No. A-
76 was issued in 1966. The Circular was previously revised in 1967, 
1979, and 1983. The Supplement (Revised Supplemental Handbook) was 
previously revised in March 1996 (Transmittal Memorandum 15).
    5. Policy. It is the policy of the United States Government to:
    a. Achieve Economy and Enhance Productivity. Competition 
enhances quality, economy, and productivity. Whenever commercial 
sector performance of a Government operated commercial activity is 
permissible, in accordance with this Circular and its Supplement, 
comparison of the cost of contracting and the cost of in-house 
performance shall be performed to determine who will do the work. 
When conducting cost comparisons, agencies must ensure that all 
costs are considered and that these costs are realistic and fair.
    b. Retain Governmental Functions In-House. Certain functions are 
inherently Governmental in nature, being so intimately related to 
the public interest as to mandate performance only by Federal 
employees. These functions are not in competition with the 
commercial sector. Therefore, these functions shall be performed by 
Government employees.
    c. Rely on the Commercial Sector. The Federal Government shall 
rely on commercially available sources to provide commercial 
products and services. In accordance with the provisions of this 
Circular and its Supplement, the Government shall not start or carry 
on any activity to provide a commercial product or service if the 
product or service can be procured more economically from a 
commercial source.
    6. Definitions. For purposes of this Circular:
    a. A commercial activity is one which is operated by a Federal 
executive agency and which provides a product or service that could 
be obtained from a commercial source. Activities that meet the 
definition of an inherently Governmental function provided below are 
not commercial activities. A representative list of commercial 
activities is provided in Attachment A. A commercial activity also 
may be part of an organization or a type of work that is separable 
from other functions or activities and is suitable for performance 
by contract.
    b. A conversion to contract is the changeover of an activity 
from Government performance to performance under contract by a 
commercial source.
    c. A conversion to in-house is the changeover of an activity 
from performance under contract to Government performance.
    d. A commercial source is a business or other non-Federal 
activity located in the United States, its territories and 
possessions, the District of Columbia or the Commonwealth of Puerto 
Rico, which provides a commercial product or service.
    e. An inherently Governmental function is a function which is so 
intimately related to the public interest as to mandate performance 
by Government employees. Consistent with the definitions provided in 
the Federal Activities Inventory Reform Act of 1998 and OFPP Policy 
Letter 92-1, these functions include those activities which require 
either the exercise of discretion in applying Government authority 
or the use of value judgment in making decisions for the Government. 
Services or products in support of inherently Governmental 
functions, such as those listed in Attachment A, are commercial 
activities and are normally subject to this Circular. Inherently 
Governmental functions normally fall into two categories:
    (1) The act of governing; i.e., the discretionary exercise of 
Government authority. Examples include criminal investigations, 
prosecutions and other judicial functions; management of Government 
programs requiring value judgments, as in direction of the national 
defense; management and direction of the Armed Services; activities 
performed exclusively by military personnel who are subject to 
deployment in a combat, combat support or combat service support 
role; conduct of foreign relations; selection of program priorities; 
direction of Federal employees; regulation of the use of space, 
oceans, navigable rivers and other natural resources; direction of 
intelligence and counter-intelligence operations; and regulation of 
industry and commerce, including food and drugs.
    (2) Monetary transactions and entitlements, such as tax 
collection and revenue disbursements; control of the Treasury 
accounts and money supply; and the administration of public trusts.
    f. A cost comparison is the process of developing an estimate of 
the cost of Government performance of a commercial activity and 
comparing it, in accordance with the requirements of the Supplement, 
to the cost to the Government for contract performance of the 
activity.
    g. Directly affected parties are Federal employees and their 
representative organizations and bidders or offerors on the instant 
solicitation.
    h. Interested parties for purposes of challenging the contents 
of an agency's Commercial Activities Inventory under the Federal 
Activities Inventory Reform Act of 1998 are:
    (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.
    (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.
    7. Scope.
    a. Unless otherwise provided by law, this Circular and its 
Supplement shall apply to all executive agencies and shall provide 
administrative direction to heads of agencies.
    b. This Circular and its Supplement apply to printing and 
binding only in those agencies or departments which are exempted by 
law from the provisions of Title 44 of the U.S. Code.
    c. This Circular and its Supplement shall not:
    (1) Be applicable when contrary to law, Executive Orders, or any 
treaty or international agreement;
    (2) Apply to inherently Governmental functions as defined in 
paragraph 6.e.;
    (3) Apply to the Department of Defense in times of a declared 
war or military mobilization;
    (4) Provide authority to enter into contracts;
    (5) Authorize contracts which establish an employer-employee 
relationship between the Government and contractor employees. An 
employer-employee relationship involves close, continual supervision 
of individual contractor employees by Government employees, as 
distinguished from general oversight of contractor operations. 
However,

[[Page 33932]]

limited and necessary interaction between Government employees and 
contractor employees, particularly during the transition period of 
conversion to contract, does not establish an employer-employee 
relationship.
    (6) Be used to justify conversion to contract solely to avoid 
personnel ceilings or salary limitations;
    (7) Apply to the conduct of research and development. However, 
severable in-house commercial activities in support of research and 
development, such as those listed in Attachment A, are normally 
subject to this Circular and its Supplement; or
    (8) Establish and shall not be construed to create any 
substantive or procedural basis for anyone to challenge any agency 
action or inaction on the basis that such action or inaction was not 
in accordance with this Circular, except as specifically set forth 
in Part 1, Chapter 3, paragraph K of the Supplement, ``Appeals of 
Cost Comparison Decisions'' and as set forth in Appendix 2, 
Paragraph G, consistent with Section 3 of the Federal Activities 
Inventory Reform Act of 1998.
    d. The requirements of the Federal Activities Inventory Reform 
Act of 1998 apply to the following executive agencies:
    (1) An executive department named in 5 USC 101,
    (2) A military department named in 5 USC 102, and
    (3) An independent establishment as defined in 5 USC 104.
    e. The requirements of the Federal Activities Inventory Reform 
Act of 1998 do not apply to the following entities or activities:
    (1) The General Accounting Office,
    (2) A Government corporation or a Government controlled 
corporation as defined in 5 USC 103,
    (3) A non-appropriated funds instrumentality if all of its 
employees are referred to in 5 USC 2105(c), or
    (4) Depot-level maintenance and repair of the Department of 
Defense as defined in 10 USC 2460.
    8. Government Performance of a Commercial Activity. Government 
performance of a commercial activity is authorized under any of the 
following conditions:
    a. No Satisfactory Commercial Source Available. Either no 
commercial source is capable of providing the needed product or 
service, or use of such a source would cause unacceptable delay or 
disruption of an essential program. Findings shall be supported as 
follows:
    (1) If the finding is that no commercial source is capable of 
providing the needed product or service, the efforts made to find 
commercial sources must be documented and made available to the 
public upon request. These efforts shall include, in addition to 
consideration of preferential procurement programs (see Part I, 
Chapter 1, paragraph C of the Supplement) at least three notices 
describing the requirement in the Commerce Business Daily over a 90-
day period or, in cases of bona fide urgency, two notices over a 30-
day period. Specifications and requirements in the solicitation 
shall not be unduly restrictive and shall not exceed those required 
of in-house Government personnel or operations.
    (2) If the finding is that a commercial source would cause 
unacceptable delay or disruption of an agency program, a written 
explanation, approved by the assistant secretary or designee in 
paragraph 9.a. of the Circular, must show the specific impact on an 
agency mission in terms of cost and performance. Urgency alone is 
not adequate reason to continue in-house operation of a commercial 
activity. Temporary disruption resulting from conversion to contract 
is not sufficient support for such a finding, nor is the possibility 
of a strike by contract employees. If the commercial activity has 
ever been performed by contract, an explanation of how the instant 
circumstances differ must be documented. These decisions must be 
made available to the public upon request.
    (3) Activities may not be justified for in-house performance 
solely on the basis that the activity involves or supports a 
classified program or the activity is required to perform an 
agency's basic mission.
    b. National Defense.
    (1) The Secretary of Defense shall establish criteria for 
determining when Government performance of a commercial activity is 
required for national defense reasons. Such criteria shall be 
furnished to OMB, upon request.
    (2) Only the Secretary of Defense or his designee has the 
authority to exempt commercial activities for national defense 
reasons.
    c. Patient Care. Commercial activities performed at hospitals 
operated by the Government shall be retained in-house if the agency 
head, in consultation with the agency's chief medical director, 
determines that in-house performance would be in the best interests 
of direct patient care.
    d. Lower cost. Government performance of a commercial activity 
is authorized if a cost comparison prepared in accordance with the 
Supplement demonstrates that the Government is operating or can 
operate the activity on an ongoing basis at an estimated lower cost 
than a qualified commercial source.
    9. Action Requirements. To ensure that the provisions of this 
Circular and its Supplement are followed, each agency head shall:
    a. Designate an official at the assistant secretary or 
equivalent level and officials at a comparable level in major 
component organizations to have responsibility for implementation of 
this Circular and its Supplement within the agency.
    b. Establish one or more offices as central points of contact to 
carry out implementation. These offices shall have access to all 
documents and data pertinent to actions taken under the Circular and 
its Supplement and will respond in a timely manner to all requests 
concerning inventories, schedules, reviews, results of cost 
comparisons and cost comparison data.
    c. Be guided by Federal Acquisition Regulation (FAR) Subpart 
24.2 (Freedom of Information Act) in considering requests for 
information.
    d. Implement this Circular and its Supplement with a minimum of 
internal instructions. Cost comparisons shall not be delayed pending 
issuance of such instructions.
    e. Ensure the reviews of all existing in-house commercial 
activities are completed within a reasonable time in accordance with 
the Federal Activities Inventory Reform Act of 1998 and the 
Supplement.
    10. Annual Reporting Requirement. As required by the Federal 
Activities Inventory Reform Act of 1998 and Appendix 2 of the 
Supplement, no later than June 30 of each year, agencies shall 
submit to OMB a Commercial Activities Inventory and any supplemental 
information requested by OMB. After review and consultation by OMB, 
agencies will transmit a copy of the Commercial Activities Inventory 
to Congress and make the contents of the Inventory available to the 
public. Agencies will follow the process provided in the Supplement 
for interested parties to challenge (and appeal) the contents of the 
inventory.
    11. OMB Responsibility and Contact Point. All questions or 
inquiries should be submitted to the Office of Management and 
Budget, Room 6002 NEOB, Washington, DC 20503. Telephone number (202) 
395-6104, FAX (202) 395-7230.
    12. Effective Date. This Circular and the changes to its 
Supplement are effective immediately.

Attachment A:--OMB Circular No. A-76, Examples of Commercial 
Activities

Audiovisual Products and Services

Photography (still, movie, aerial, etc.)
Photographic processing (developing, printing, enlarging, etc.)
Film and videotape production (script writing, direction, animation, 
editing, acting, etc.)
Microfilming and other microforms
Art and graphics services
Distribution of audiovisual materials
Reproduction and duplication of audiovisual products
Audiovisual facility management and operation
Maintenance of audiovisual equipment

Automatic Data Processing

ADP services--batch processing, time-sharing, facility management, 
etc.
Programming and systems analysis, design, development, and 
simulation
Key punching, data entry, transmission, and teleprocessing services
Systems engineering and installation
Equipment installation, operation, and maintenance

Food Services

Operation of cafeterias, mess halls, kitchens, bakeries, dairies, 
and commissaries
Vending machines
Ice and water

Health Services

Surgical, medical, dental, and psychiatric care
Hospitalization, outpatient, and nursing care
Physical examinations
Eye and hearing examinations and manufacturing and fitting glasses 
and hearing aids

[[Page 33933]]

Medical and dental laboratories
Dispensaries
Preventive medicine
Dietary services
Veterinary services

Industrial Shops and Services

Machine, carpentry, electrical, plumbing, painting, and other shops
Industrial gas production and recharging
Equipment and instrument fabrication, repair and calibration
Plumbing, heating, electrical, and air conditioning services, 
including repair
Fire protection and prevention services
Custodial and janitorial services
Refuse collection and processing

Maintenance, Overhaul, Repair, and Testing

Aircraft and aircraft components
Ships, boats, and components
Motor vehicles
Combat vehicles
Railway systems
Electronic equipment and systems
Weapons and weapon systems
Medical and dental equipment
Office furniture and equipment
Industrial plant equipment
Photographic equipment
Space systems

Management Support Services

Advertising and public relations services
Financial and payroll services
Debt collection

Manufacturing, Fabrication, Processing, Testing, and Packaging

Ordnance equipment
Clothing and fabric products
Liquid, gaseous, and chemical products
Lumber products
Communications and electronics equipment
Rubber and plastic products
Optical and related products
Sheet metal and foundry products
Machined products
Construction materials
Test and instrumentation equipment

Office and Administrative Services

Library operations
Stenographic recording and transcribing
Word processing/data entry/typing services
Mail/messenger
Translation
Management information systems, products and distribution
Financial auditing and services
Compliance auditing
Court reporting
Material management
Supply services

Other Services

Laundry and dry cleaning
Mapping and charting
Architect and engineer services
Geological surveys
Cataloging
Training--academic, technical, vocational, and specialized Operation 
of utility systems (power, gas, water steam, and sewage)
Laboratory testing services

Printing and Reproduction

Facility management and operation
Printing and binding--where the agency or department is exempted 
from the provisions of Title 44 of the U.S. Code
Reproduction, copying, and duplication
Blueprinting

Real Property

Design, engineering, construction, modification, repair, and 
maintenance of buildings and structures; building mechanical and 
electrical equipment and systems; elevators; escalators; moving 
walks
Construction, alteration, repair, and maintenance of roads and other 
surfaced areas
Landscaping, drainage, mowing and care of grounds
Dredging of waterways

Security

Guard and protective services
Systems engineering, installation, and maintenance of security 
systems and individual privacy systems
Forensic laboratories

Special Studies and Analyses

Cost benefit analyses
Statistical analyses
Scientific data studies
Regulatory studies
Defense, education, energy studies
Legal/litigation studies
Management studies

Systems Engineering, Installation, Operation, Maintenance, and 
Testing

Communications systems--voice, message, data, radio, wire, 
microwave, and satellite
Missile ranges
Satellite tracking and data acquisition
Radar detection and tracking
Television systems--studio and transmission equipment, distribution 
systems, receivers, antennas, etc.
Recreational areas
Bulk storage facilities

Transportation

Operation of motor pools
Bus service
Vehicle operation and maintenance
Air, water, and land transportation of people and things
Trucking and hauling

Appendix--Summary of Comments Received

    OMB received 82 responses to its March 1, 1999, Federal Register 
request for comments: 10 Federal agencies; 61 industry or trade 
groups, and 8 employee organizations responded, in addition to 4 
letters from members of Congress. A discussion of the significant 
comments, and OMB's responses (including resulting changes that have 
been made to Circular A-76 and its Supplemental Handbook), is 
provided below.

1. The Development and Submission of the Commercial Activities 
Inventory

    OMB received a number of comments regarding the proposed 
revisions to Appendix 2 of the Supplemental Handbook that address 
the requirement in Section 2(a) of the FAIR Act that agencies 
develop and submit to OMB, by June 30th of each year, ``a list of 
activities performed by Federal Government sources for the executive 
agency that, in the judgment of the head of the executive agency, 
are not inherently Governmental functions.''
    a. Comment: One agency commenter stated that it would be 
burdensome for the agency to include in the agency's inventory the 
name of a Federal employee with respect to each listed commercial 
activity.
    Response: This data element is specifically required by Section 
2(a)(3) of the FAIR Act itself.
    b. Comment: Several commenters asked for changes to the data 
elements to prevent any implication that agency savings could only 
be achieved by ``outsourcing'' (converting work from in-house to 
contract performance) but not by ``insourcing'' (converting work 
from contract to in-house performance). Specifically, the commenters 
asked that OMB delete the commercial activity data element for 
``CIV/FTE Savings'' (item g, of the Supplemental Handbook's Appendix 
2). The commenters also asked for savings information to be 
collected when a conversion is from contract to in-house 
performance. Finally, the commenters asked that agencies provide, as 
part of the data that is collected pursuant to paragraph ``F'' in 
Appendix 2 of the Handbook, aggregate data on the numbers of 
contractor employees performing work for the agency.
    Response: The cost-comparison process under Circular A-76 
provides a level playing field for agencies to determine whether 
savings would result from a conversion of work, whether that 
conversion is from in-house to contract performance or from contract 
to in-house performance. Moreover, the cost-comparison process can 
result in savings even if no conversion occurs. The commercial 
activity data element for ``CIV/FTE Savings'' reflects the number of 
civilian FTE saved as a result of conducting a cost comparison, 
whether the function is retained in-house or converted to contract. 
This data element, therefore, is not meant to suggest that savings 
can only occur through outsourcing.
    With respect to the request for additional information on 
savings that result from conversions from contract to in-house 
performance, the inventories will include an additional data element 
(a ``reason code'') to identify those commercial activities that are 
``being performed in-house as a result of a cost comparison 
resulting in a decision to convert from contract to in-house 
performance'' (new reason code ``I''). A corresponding change has 
been made to limit reason code ``E'' to functions retained in-house 
as a result of a cost comparison. The request for information on the 
aggregate number of agency contractor employees is beyond the scope 
of the FAIR Act, which is limited to performance of commercial 
activities by Federal employees.
    c. Comment: Several commenters suggested that additional 
``reason codes'' be included that would identify commercial 
functions that, in the agency's view, should not be subject to 
conversion to contract because of its need for a cadre of highly

[[Page 33934]]

skilled employees, in a specialized technical or scientific 
development area, to ensure that a minimum in-house capability 
(``core capability'') in the area is maintained.
    Response: The inclusion of a function on the agency's inventory 
of commercial activities does not mean that the agency is required 
to compete the function for outsourcing. Rather, the FAIR Act in 
Section 2(d) requires each agency to review its inventory of 
commercial activities. Presumably, this review would include 
consideration of outsourcing, consolidation, privatization, other 
reinvention alternatives or maintaining the status quo. Not all 
commercial activities performed by Federal employees should be 
performed by the private sector, though all such activities should 
be inventoried under the provisions of the FAIR Act and Circular A-
76. The decision as to which commercial functions represent ``core 
capabilities,'' and thus should be retained in-house, remains with 
the agency head. Accordingly, a specific reason code for ``core 
capability'' was not added to the inventory.
    d. Comment: A number of commenters requested that the inventory 
be expanded to include inherently Governmental positions, along the 
lines of the information requested of the agencies on May 12, 1998 
(Memorandum M-98-10, ``Inventory of Commercial Activities'').
    Response: The FAIR Act requires agencies to develop an inventory 
of the agency activities that ``are not inherently Governmental 
functions.'' The FAIR Act does not request any information on 
inherently Governmental activities; its focus is limited to 
commercial activities.
    As part of its pre-FAIR Act oversight function to evaluate how 
agencies determine what functions performed by Federal employees are 
classified as commercial, OMB requested summary information from 
agencies that also included functions they classified as not 
commercial (i.e., inherently Governmental functions). When OMB 
conducts its FAIR Act review and consultation on the Commercial 
Activities Inventory submissions, it will do so in light of the 
information gained from its review of the agencies' responses to 
OMB's Memorandum M-98-10.
    e. Comment: Several commenters expressed their views as to which 
positions in the Department of Defense should be designated as 
inherently Governmental and, therefore, excluded from the Commercial 
Activities Inventory.
    Response: Under the FAIR Act, the agency head makes the 
determination of which activities are to be excluded from the 
Commercial Activities Inventory because they are ``inherently 
Governmental'', as defined by the Act and existing guidance. Part of 
OMB's review of the agencies' submissions will be to review these 
judgments, and to consult with the agencies on them.
    f. Comment: One commenter interpreted the Act's use of the term 
``full-time employees (or its equivalent)'' to mean that the Act 
applied only to civilian employees and, thus, to exclude military 
positions from the Act's Commercial Activities Inventory 
requirement.
    Response: All activities of the Federal Government that ``are 
not inherently Governmental'' are to be inventoried under the FAIR 
Act. This requirement is not limited to civilian employees. 
Accordingly, military personnel performing commercial activities are 
subject to the FAIR Act and must be inventoried. For clarity, the 
data element FTE described in Appendix 2, paragraph ``C'' has been 
clarified to include ``authorized full-time employees or FTE (as 
applicable).''
    g. Comment: Several commenters stated that agencies should, in 
accordance with the principles of Executive Order 12871 (``Labor-
Management Partnerships''), permit employee involvement in the 
development of the agencies' inventories of commercial activities.
    Response: Executive Order 12871 does apply. Agencies should seek 
employee input in the development of the Commercial Activities 
Inventory, as appropriate, and the guidance has been revised to say 
so. It remains up to the agency head to make the determination 
whether a function is commercial or inherently Governmental in 
nature. The FAIR Act also provides that Federal employees and their 
representatives are ``interested parties'' who may challenge the 
contents of the inventory.

2. OMB's Review of the Commercial Activities Inventory and the 
Availability of the Inventories to the Public

    a. Comment: Under Section 2(b) of the FAIR Act, OMB ``shall 
review the executive agency's list for a fiscal year and consult 
with the head of the executive agency regarding the contents of the 
final list for that fiscal year.'' When that review and consultation 
is completed, the inventory is then made available to the public 
under Section 2(c), with a notice of availability published by OMB 
in the Federal Register. Several commenters expressed concern that 
the FAIR Act did not establish a timetable for OMB's review of 
agency inventories or their availability for public review.
    Response: OMB intends to complete its review and consultation in 
a timely manner. Since this is a new process, OMB cannot set a firm 
timetable at this time. However, it is anticipated that the review 
and consultation should take about 60 days after OMB receives the 
agency inventory and any requested supplemental information. The 
notice of the inventory's public availability would be published 
within a few days thereafter.
    b. Comment: Several commenters stated that, if an employee's 
activities are considered commercial and are therefore included on 
the agency's list, the Handbook should require timely notification 
to those employees.
    Response: In accordance with Section 2(c) of the FAIR Act, OMB 
will publish a notice in the Federal Register when the inventories 
are available to the public (after the completion of OMB's review-
and-consultation). The FAIR Act and the revised Handbook require 
each agency to make its inventory available to the public, which, of 
course, includes its employees and their representatives.

3. ``Competition'' and ``Cost Comparison'' Provisions

    a. Comment: Section 2(d) of the FAIR Act provides that, 
``[w]ithin a reasonable time after'' an agency's inventory has been 
made available to the public, the head of the agency ``shall review 
the activities on the list.'' Several commenters recommended that 
OMB define what constitutes a ``reasonable time'' for the agency to 
review its inventory of commercial activities. One commenter 
suggested a time frame of 1 to 2 years, depending on the number of 
commercial activities on an agency's inventory. One commenter also 
suggested that agencies should be required to publish for public 
comment their timetable for reviewing the inventory.
    Response: The FAIR Act does not provide a definition of the 
phrase ``reasonable time.'' OMB believes that agencies should 
conduct such review in conjunction with their larger ongoing review 
of all functions for possible re-engineering, privatization, 
consolidation or other reinvention under the NPR and the Government 
Performance and Results Act. As part of its ongoing oversight of 
agency management of commercial activities performance, OMB will now 
require agencies to provide annual reports to OMB on the FAIR Act 
process, including their review and use of the Commercial Activities 
Inventory.
    b. Comment: Several commenters took issue with the statement in 
the preamble to the proposal that ``the FAIR Act requires agencies * 
* * to review the activities on the list for possible performance by 
the private sector.'' (64 FR 10031) They pointed out that Section 
2(d) of the FAIR Act does not specify a particular purpose for the 
review.
    Response: The FAIR Act inventory provides information that can 
assist the agency in considering a wide variety of options for how 
to satisfy its commercial activity needs that are performed by 
Federal employees. These options include both the possibility of the 
private sector fulfilling the need (through such actions as direct 
conversion, competition, and privatization), as well as continued 
agency reliance on Federal employees (with, perhaps, improvements 
that can flow from process changes suggested in the competition).
    c. Comment: Several commenters interpreted Section 2(d) of the 
FAIR Act as permitting the direct conversion, without a cost 
comparison, of any commercial activity on the list (of any size or 
type) to performance by the private sector. In their view, FAIR does 
not preclude an agency from utilizing any of the processes allowed 
by law, including private-private competition as prescribed in FAR 
Part 8, 15 and 36. Other commenters expressed concern that the 
proposed revisions to the Supplemental Handbook required public-
private cost comparisons in situations where such cost comparisons 
are not presently required.
    Response: The FAIR Act envisions the use of competition to 
select a source when an agency considers contracting with a private 
sector source for performance of an activity on the list, but the 
law did not modify existing policies regarding the conduct of 
competitions. Existing guidance provides guidelines for determining 
when cost

[[Page 33935]]

comparisons are required and, if required, how they are conducted.
    d. Comment: Several commenters viewed the FAIR Act as 
prohibiting an agency from converting commercial work from contract 
to in-house performance under any condition.
    Response: The FAIR Act addresses only inventories of commercial 
activities that are performed by Federal employees. It does not 
address commercial activities that are performed through contract 
and, therefore, does not address the conversion of contract work to 
in-house performance.
    e. Comment: Several commenters stated their view that the FAIR 
Act requires substantial changes to the Circular A-76 costing rules 
so that they incorporate ``all costs,'' and in particular the costs 
listed in the parenthetical in Section 2(e) (i.e., the costs of 
quality assurance, technical monitoring of the performance of such 
function, liability insurance, employee retirement and disability 
benefits, and all other overhead costs).
    Response: Existing guidance already requires agencies, in 
conducting cost comparisons, to consider all the fair and reasonable 
costs addressed in Section 2(e) of the FAIR Act. (See 64 FR 10032). 
The Supplemental Handbook requires consideration of all costs to the 
taxpayer that could be expected to change as a result of a 
conversion to or from performance by in-house or contract employees.
    f. Comment: Several commenters suggested that public-private 
competitions must be based on ``best-value'' principles. They were 
concerned that OMB's proposed guidance relies on ``cost-only 
competitions,'' thus ignoring the potential use of the best-value 
approach in the cost comparison process.
    Response: Existing guidance is not limited to ``cost-only 
competitions.'' It also allows for best value tradeoffs between cost 
and other factors. The competitive-source selection process outlined 
at Part 1, Chapter 3, paragraph H of the Supplemental Handbook 
permits use of the best value source selection approach in the 
context of public-private competition.

4. The FAIR Act ``Challenge'' Process

    a. Comment: Section 3 of the FAIR Act provides for an 
administrative ``challenge'' process under which ``interested 
parties'' may challenge the agency's omission, or inclusion, of an 
activity on its FAIR Act inventory. Under this process, an ``initial 
decision'' is rendered by an agency official designated by the 
agency head. The interested party may then file an appeal of an 
adverse decision to the agency head. Several commenters suggested 
that, in the case of an appeal, the agency should publish its 
initial decision and the appeal in the Federal Register and request 
comments of other interested parties so that they may be considered 
by the agency head. It was further suggested that the final appeal 
should be reviewed by OMB, the Small Business Administration, the 
General Accounting Office, and relevant congressional appropriations 
and authorization committee staff.
    Response: The requested procedures would go far beyond the FAIR 
Act. In addition, since Section 3 provides the agency head with 10 
days to decide an appeal, there is not sufficient time for the 
agency to solicit, receive, and consider public comments.

5. Implementing the FAIR Act Via Revisions to A-76 & the Supplemental 
Handbook

    Comment: A number of commenters suggested that OMB use an 
alternative vehicle to implement the FAIR Act guidance, such as 
issuing regulations or a separate circular, rather than making 
changes to the existing guidance on the performance of commercial 
activities contained in OMB Circular A-76 and its Supplemental 
Handbook.
    Response: Circulars are a well-established vehicle for directing 
agencies on management of their activities. Circular A-76 already 
establishes the broad principles and the Revised Supplemental 
Handbook provides the specific definitions and direction on 
management of commercial activities, including the inventory and 
other activities that are codified by the FAIR Act. For this reason, 
it makes much more sense to revise the existing guidance than to 
develop a new circular. More importantly, however, OMB wanted to 
provide the agencies with prompt and clear guidance on how to 
implement the Act within the short time frame available and without 
confusion or wasted effort on the part of the agencies. Without 
revising the Handbook to conform to the FAIR Act, repetitive and 
competing guidance would exist in a number of areas. For example, 
the Handbook already requires agencies to develop an annual 
inventory of their commercial activities and specifies what 
information (data elements) is to be included. It also contains 
guidance for when and how agencies are to conduct cost comparisons 
and what costs should be included. These are all specific areas 
addressed by the FAIR Act. Ironically, the confusion that could 
result from issuing a new circular might slow agencies down rather 
than speeding them up.
    Revising the Circular and Supplemental Handbook so that they 
conform to the FAIR Act is the best way to provide agencies with 
clear and prompt guidance on how to implement the Act.

[FR Doc. 99-16129 Filed 6-23-99; 8:45 am]
BILLING CODE 3110-01-P