[Federal Register Volume 66, Number 127 (Monday, July 2, 2001)]
[Notices]
[Pages 34962-34963]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-16480]



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OFFICE OF MANAGEMENT AND BUDGET


Performance of Commercial Activities

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

ACTION: Proposed change to the OMB circular A-76 revised supplemental 
handbook.

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SUMMARY: . The Office of Management and Budget (OMB) publishes a 
request for agency and public comments on proposed changes to the OMB 
Circular A-76, Performance of Commercial Activities, Revised 
Supplemental Handbook. The proposed changes eliminate the ``grandfather 
clauses'' at Part 1, Chapter 2, paragraph A.5 and paragraph 5.a., of 
the Handbook. The Handbook would then be changed to expand public-
private competition for all Inter-Service Support Agreements (ISSAs), 
by requiring competitions on a recurring 3-5 year review cycle, similar 
to the competitions required for the renewal of service contracts with 
the private sector. These changes are an important first step in OMB's 
efforts to expand competition, improve service quality, and enhance 
agency accountability by integrating budgeting and performance.
    OMB is requesting public and agency comment on these revisions. OMB 
expects that the expanded competition requirements of the Circular will 
encourage the service requesting or customer agencies to take full 
account of their support agreements, the alternative levels of service 
available, and the most efficient and cost effective private sector or 
other public offeror.

DATES: Agency and public comments on the proposed changes are due to 
OMB not later than August 16, 2001.

ADDRESSES: Address all comments to the Office of Federal Procurement 
Policy, NEOB Room 9013, Office of Management and Budget, 725 17th 
Street, NW, Washington, DC 20503, FAX Number (202) 395-5105.
    Availability: Copies of the OMB Circular A-76, its Revised 
Supplemental Handbook, currently applicable Transmittal Memoranda and 
additional information regarding the Federal Activities Inventory 
Reform Act (FAIR Act) and its implementation may be obtained at the OMB 
home page. The online address (URL) http://www.whitehouse.gov/OMB/procurement/fair-index.html. Paper copies of this information can also 
be obtained by contacting the Office of Federal Procurement Policy, 
NEOB, Room 9013, Office of Management and Budget, 725 17th Street, NW, 
Washington, DC 20503, Telephone No. (202) 395-7579.

FOR FURTHER INFORMATION CONTACT: Mr. David C. Childs, Office of Federal 
Procurement Policy, NEOB Room 9013, Office of Management and Budget, 
725 17th Street, NW, Washington, DC 20503, Telephone No. (202) 395-
6104.

SUPPLEMENTARY INFORMATION:

Background

    The activities of most Federal agencies can be divided into two 
categories, program activities, which provide goods and services 
directly to the agency mission recipients, e.g., Federal transfers of 
funds, grants, services and credit to the public and support 
activities, which provide administrative, professional and logistical 
support to an agency itself in meeting its mission requirements.
    The number and amount of support activities are wide-ranging. They 
include personnel services; safety and health services; security; legal 
services; financial management services; information technology, 
automated data processing, and communications services; mail and 
messenger services; public affairs; publications, reproduction, 
graphics, and video services; library services; scientific facilities; 
research and analytical services; office and commissary supplies; 
office and grounds maintenance; procurement and contracting services; 
services to acquire, maintain, rent, and operate plant and equipment; 
and more.
    Many support activities are financed by their own direct 
appropriations and provided to the programs, without charge, in their 
own agency and even to other agencies. Others are provided for a price 
by agency franchise, working capital, or other revolving funds on a 
reimbursable basis. Even when a reimbursable rate or price is charged 
by a providing agency, it may not cover the full cost of the goods and 
services provided to programs--in part because the support activity 
agencies themselves are not charged for the full cost of the resources 
they use or get some financing from direct appropriations, and in part 
because their prices may include cross-subsidies and other pricing 
strategies to expand their volume of business.
    It is for this reason that the March 1996 A-76 Supplemental 
Handbook introduced, for the first time, the requirement to compete for 
new or expanded reimbursable work on the basis of an A-76 cost 
comparison. A-76 competitions can be a key driver to encourage agencies 
to understand the real cost of their programs. They also serve to 
invite private sector and other public offerors into the mix of 
possible offerors, by competing on a level playing field.
    However, the March 1996 A-76 Supplemental Handbook did not require 
reimbursable support service providers or their customers to undergo 
competition for this work on a recurring basis. In effect, while 
competitions for work that is performed by contract are on a recurring 
3-5 year review cycle, work performed by a reimbursable support 
activity provider (ISSA) has not been required to undergo recurring 
competition once that agency is awarded the work. In addition, a policy 
decision was made that the March 1996 A-76 Supplemental Handbook would 
not require recurring competitions for existing reimbursable support 
activity work--work that was already performed under an ISSA before 
October 1, 1997. As a result, a large and increasing amount of 
commercial work is being performed under reimbursable service 
agreements without the benefits of recurring competition. These 
reimbursable service agreements are not competing with the private 
sector or with other public offerors who might be able to provide 
higher levels of service at less cost.
    As a result, OMB hereby proposes to revise the A-76 Supplemental 
Handbook at Part 1, Chapter 2 paragraph 5 and paragraph 5.a, to delete 
the ``grandfathering clauses'' that permit reimbursable agreements for 
commercial services to continue indefinitely and without competition 
and to replace them with a requirement that all ISSA's be recompeted 
every 3-5 years or as otherwise permitted by related procurement 
regulations for comparable types of commercial work (see Competition-
in-Contracting Act (CICA) and the Federal Acquisition Regulations). OMB 
recognizes that the burden of this requirement falls to the customer or 
consuming agency to conduct these competitions. It also falls to the 
prospective reimbursable service provider to submit an A-76 comparable 
offer, in accordance with Part 1, Chapter 2 paragraph B, for the 
renewal of existing service agreements or for the award of new or 
expanded work.
    The proposed recurring ISSA competition requirement would not 
apply--at this time--to reimbursable support agreements within a single 
agency. The head of the agency must maintain flexibility to manage 
mission resources. The proposed competition requirement would only 
apply to reimbursable agreements between one department or executive 
agency and

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another non-mission agency, e.g., between the Environmental Protection 
Agency and the Department of Commerce, between the Agriculture 
Department's National Finance Center and the Department of Justice or 
between the Office of Personnel Management and the Department of 
Housing and Urban Development for the provision of background 
investigation services. It would not apply to services provided within 
the reimbursable service providers host agency or any such agreement 
within the Department of Defense.
    OMB also recognizes that the proposed requirement to conduct 
competitions on a level playing field and on the basis of the full cost 
of performance to the taxpayer poses other budgetary challenges. The 
President's FY 2002 Budget includes a proposal to integrate performance 
and budget data. Three major changes are presently envisioned. They 
include: (1) identifying high quality outcome measures, accurately 
monitoring the performance of programs, and integrating this 
presentation with associated cost, (2) changes to create a market based 
government, of which this initiative is a part, to open the 
government's activities to more competition, and to require agencies to 
budget for costs in a way that will simplify cost comparison for A-76 
competition, and (3) full integration of financial (finance, budget, 
and cost), program, and oversight information, and processes. The 
government's chief financial officers have endorsed as a long-term goal 
that program and financial officers work in partnership, to achieve the 
full integration of financial (finance, budget, and cost), program, and 
oversight information and processes. The Administration will soon 
transmit legislative proposals to support changes in the way costs are 
charged in the budget to permit the consideration of full budget costs 
in a cost comparison. However, in the interim, while competitions and 
the decisions to award shall be based upon comparisons conducted in 
accordance with the A-76 Revised Supplemental Handbook, the 
reimbursable costs charged to a customer agency, if a public 
reimbursable service provider wins such a competition, will rely on 
budget based reimbursable rates, prepared under current law.
    OMB requests comment on the proposed revisions.

Sean O'Keefe,
Deputy Director.

Executive Office of the President

Office of Management and Budget

[Circular No. A-76 (Revised) Proposed Transmittal Memorandum No. 24]

June 26, 2001.
To the Heads of Executive Departments and Agencies
From: Sean O'Keefe, Deputy Director
Subject: Performance of Commercial Activities
    This Transmittal Memorandum implements changes to the OMB Circular 
A-76 Revised Supplemental Handbook in furtherance of the President's FY 
2002 Budget Blueprint commitment to expand the level of competition for 
the acquisition of commercial support work required by the Federal 
Government and to establish a competitive baseline in preparation for 
the integration of other budgeting, performance and accountability 
initiatives. The March 1996 Revised Supplemental Handbook was issued 
through Transmittal Memorandum No. 15 (61 FR 14338). The March 1996 
Revised Supplemental Handbook was further revised to implement the 
requirements of the Federal Activities Inventory Reform Act through 
Transmittal Memorandum No. 20 (64 FR 33927) and Transmittal Memorandum 
No. 22 (65 FR 54568). Transmittal Memorandum No. 23 (66 FR 14943) 
provided updated labor and non-labor related escalation factors for use 
in A-76 cost comparisons.
    OMB is making two changes to the A-76 Revised Supplemental 
Handbook. First, Part 1, Chapter 2, paragraph 5 and paragraph 5.a. are 
deleted. Paragraph 5 has permitted agencies to consolidate 
administrative, logistical and other commercial support activities 
through the transfer of work to Inter-Service Support Agreements 
(ISSAs), within and between agencies, without cost comparison if the 
consolidation was accomplished prior to October 1, 1997, and if the 
consolidation did not involve the conversion of work to or from in-
house or contract performance. Paragraph 5.a., has exempted existing 
reimbursable support work and the renewal of related ISSAs from the 
cost comparison requirements of the Circular. However, paragraph 5.a. 
also established a government-wide requirement that all new and 
expanded ISSAs shall be justified on the basis of a cost comparison, 
conducted in accordance with the requirements of the Circular and 
Supplemental Handbook, unless as otherwise provided by the Supplemental 
Handbook or by law.
    In order to emphasize the need to expand the level of competition 
required and to establish a consistent baseline for the acquisition of 
commercial support, OMB is revising Part 1, Chapter 2, paragraph 5, to 
read as follows:

    ``5. Reimbursable support service providers within the Federal 
Government are providing a large and an increasing amount of 
commercial work to Federal program activities (customers) under 
reimbursable service agreements and without the benefits of 
recurring competitions. These ISSAs are not competing with the 
private sector or with other public offerors who might be able to 
provide higher levels of service at less cost. Therefore, not later 
than October 1, 2001, each customer agency shall establish a 
recurring schedule for all work performed for it on a reimbursable 
basis by another agency for competition. ISSAs shall be recompeted 
every 3-5 years or as otherwise permitted by related procurement 
regulations for comparable types of commercial work (see 
Competition-in-Contracting Act (CICA) and the Federal Acquisition 
Regulations). These competitions shall permit offers from the 
private sector, the current reimbursable service provider and other 
public offerors, as appropriate. In addition, all new or expanded 
work required by a customer agency shall be submitted to 
competition, as provided in this Chapter.''
    A conforming change is also hereby made to Part 1, Chapter 2, 
paragraph B.1, as follows: ``1. The prospective providing agency 
will furnish the requesting agency a firm price or reimbursable rate 
for the existing, new or expanded workload * * *.''
    This change is effective immediately. Current A-76 and FAIR Act 
implementation guidance can be accessed at OMB's home page at: 
http://www.whitehouse.gov/OMB/procurement/fair-index.html.

[FR Doc. 01-16480 Filed 6-29-01; 8:45 am]
BILLING CODE 3110-01-P