Competitive Contracting: Agencies Upheld Few Challenges and Appeals Under
the FAIR Act (Letter Report, 09/29/2000, GAO/GGD/NSIAD-00-244).

Pursuant to a congressional request, GAO reviewed agencies' handling of
appeals and challenges within the broader context of the initial
implementation of the Federal Activities Inventory Reform (FAIR) Act of
1998, focusing on: (1) the 24 Chief Financial Officer (CFO) Act
agencies' inventories and the number of challenges and appeals that
interested parties filed; (2) issues raised in challenges and appeals by
interested parties and agencies' responses to them; and (3) six
agencies' plans for reviewing or using their inventories and how
agencies could use information contained in the inventories to help
ensure that activities are effectively aligned and efficiently
performed.

GAO noted that: (1) the 24 CFO Act agencies identified about 900,000
full-time equivalent (FTE) positions in their inventories as performing
commercial activities, but over one half were exempted from
consideration for competition at the time that the inventories were
compiled; (2) these agencies received and responded to a total of 332
challenges and 96 appeals to their 1999 FAIR Act inventories from
interested parties; (3) of those submitted, 20 challenges and 3 appeals
were successful; (4) private companies or industry representatives filed
most of their 145 challenges and appeals at civilian agencies, while
employees and labor unions filed most of their 283 challenges and
appeals at the Department of Defense (DOD); (5) for example, industry
challenged agencies that indicated that they did not plan to consider
many of the commercial activities on their inventories for competition;
(6) in contrast, almost all of the employees' challenges and appeals
were within the provisions of the act because they concerned the
inclusion of activities that the employees contended should have been
omitted because they were inherently governmental; (7) although the
challenge and appeal process did not result in significant changes to
agencies' inventories, the process served a broader purpose by
identifying the need for greater clarity in agencies' inventories for
use by both interested parties and agencies; (8) the civilian agencies
have begun to review their inventories to identify ways to improve their
inventories or to use the information on them to make more informed
management decisions; (9) in contrast, DOD has used its inventories of
commercial activities to identify activities, currently performed by
federal personnel, for possible competition; (10) it will require a
sustained leadership effort on the part of the Office of Management and
Budget (OMB) to help ensure that agencies review their inventories and
identify opportunities for better using agency resources by subjecting
activities to competition; and (11) inventories only provide a portion
of the information that agency management could use in making decisions
about how all of its activities are carried out and whether the
activities are being performed in the most efficient and cost-effective
manner.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD/NSIAD-00-244
     TITLE:  Competitive Contracting: Agencies Upheld Few Challenges
	     and Appeals Under the FAIR Act
      DATE:  09/29/2000
   SUBJECT:  Competitive procurement
	     Human resources utilization
	     Reporting requirements
	     Cost effectiveness analysis
	     Privatization
IDENTIFIER:  OMB Circular A-76 Program

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Testimony.                                               **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO/GGD/NSIAD-00-244

COMPETITIVE CONTRACTING

Agencies Upheld Few Challenges and Appeals Under the FAIR Act

United States General Accounting Office

GAO Report to the Chairman, Subcommittee on Government Management,

Information, and Technology House Committee on Government Reform

September 2000 GAO/ GGD/ NSIAD- 00- 244

United States General Accounting Office General Government Division
Washington, D. C. 20548

Page 1 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

B- 283779 September 29, 2000 The Honorable Stephen Horn, Chairman
Subcommittee on Government Management,

Information, and Technology Committee on Government Reform House of
Representatives

Dear Mr. Chairman: The Federal Activities Inventory Reform (FAIR) Act of
1998 directs agencies to develop annual inventories of the activities
performed by their employees that are not inherently governmental. 1
Interested parties, as defined by the act, may challenge agencies'
inventories based on “an omission of a particular activity from, or an
inclusion of a particular activity on” an inventory, and appeal
adverse agencies' decisions. 2 In essence, the FAIR Act codified a
requirement already set forth in the Office of Management and Budget's (OMB)
Circular A- 76 for agencies to inventory their commercial activities. The
FAIR Act provided for, beginning in 1999, public notice of these
inventories' availability; challenges by interested parties over the
inclusion or exclusion of activities on inventories; and agency heads'
reviews of these inventories. Agencies' responses to the issues interested
parties raised in their challenges and appeals, as well as the usefulness of
FAIR Act inventory information, will affect the future implementation of
this act and the extent to which the inventories might provide information
to agencies that they could use to help improve how efficiently they perform
their activities.

The first FAIR Act inventories were due to OMB in June 1999. Responding to
your request for information on agencies' handling of appeals and

1 Section 5 of the FAIR Act, Public Law No. 105- 270, 31 U. S. C. sect. 501 note
(1998), defines an inherently governmental function as “a function
that is so intimately related to the public interest as to require
performance by Federal Government employees.”

2 An interested party is (1) a private sector source that is a prospective
or actual offeror for any contract who has a direct economic interest in
performing the activity and 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 whose
membership includes private sector sources described in (1) above; (3) an
officer or employee of an organization within the executive agency that is
an actual or prospective offeror to perform the activity; or (4) the head of
a labor organization, referred to in 5 U. S. C. 7103 (a)( 4), that includes
members who are officers or employees within an executive agency involved in
performing the activity.

B- 283779 Page 2 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

challenges within the broader context of the initial implementation of the
FAIR Act, this report provides information on (1) the 24 Chief Financial
Officer (CFO) Act agencies' inventories and the number of challenges and
appeals that interested parties filed; 3 (2) issues raised in challenges and
appeals by interested parties (such as industry or employees) and agencies'
responses to them; and (3) six agencies' plans for reviewing or using their
inventories, and, while not required by the FAIR Act, how agencies could use
information contained in the inventories to help ensure that activities are
effectively aligned and efficiently performed.

The 24 CFO Act agencies identified about 900,000 full- time equivalent (FTE)
positions in their inventories as performing commercial activities, but over
one half (about 513,000 FTEs) were exempted from consideration for
competition at the time that the inventories were compiled. 4 These agencies
received and responded to a total of 332 challenges and 96 appeals to their
1999 FAIR Act inventories from interested parties. Of those submitted, 20
challenges (about 6 percent) and 3 appeals (about 3 percent) were
successful. Private companies or industry representatives (hereafter
referred to as industry) filed most of their 145 challenges and appeals at
civilian agencies, while employees and labor unions (hereafter referred to
as employees) filed most of their 283 challenges and appeals at the
Department of Defense (DOD), as shown in table 1.

Agency Number of challenges

and appeals filed by industry

Number of challenges and appeals filed by employees Total

DOD 33 230 263 Civilian agencies 112 53 165

Total 145 283 428

Source: GAO analysis of agency information.

Many of the issues that industry raised in their challenges and appeals went
beyond the provisions of the FAIR Act because they concerned issues other
than the inclusion or omission of an activity from an agency's

3 CFO Act agencies include the Departments of Agriculture, Commerce,
Defense, Education, Energy, Health and Human Services, Housing and Urban
Development, Interior, Justice, Labor, State, Transportation, Treasury,
Veterans Affairs; the Environmental Protection Agency; the National
Aeronautical and Space Administration; the Agency for International
Development; the Federal Emergency Management Agency; the General Services
Administration; the National Science Foundation; the Nuclear Regulatory
Commission; the Office of Personnel Management; the Small Business
Administration; and the Social Security Administration.

4 FTEs are used to measure federal civilian employment. One FTE is equal to
1 work year of 2,080 hours. Results in Brief

Table 1: Summary of Industry and Employee Challenges and Appeals to Agencies

B- 283779 Page 3 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

inventory. For example, industry challenged agencies that indicated that
they did not plan to consider many of the commercial activities on their
inventories for competition. In contrast, almost all of the employees'
challenges and appeals were within the provisions of the act, because they
concerned the inclusion of activities that the employees contended should
have been omitted because they were inherently governmental. Although the
challenge and appeal process did not result in significant changes to
agencies' inventories, the process served a broader purpose by identifying
the need for greater clarity in agencies' inventories for use by both
interested parties and agencies. OMB revised its guidance on the format and
organization of agencies' inventories based on the first year's experience
with the FAIR Act.

The six agencies' plans for reviewing or using their FAIR Act inventories
varied considerably between the civilian and defense agencies. The civilian
agencies have begun to review their inventories to identify ways to improve
their inventories or to use the information on them to make more informed
management decisions. In contrast, DOD has used its inventories of
commercial activities to identify activities, currently performed by federal
personnel, for possible competition. It will require a sustained leadership
effort on the part of OMB to help ensure that agencies review their
inventories and identify opportunities for better using agency resources by,
for example, subjecting activities to competition. Even so, inventories only
provide a portion of the information that agency management could use in
making decisions about how all of its activities (inherently governmental,
commercial, and contracted) are carried out and whether the activities are
being performed in the most efficient and costeffective manner. To enhance
the usefulness of inventories in informing decisions about improving
efficiencies, we recommend that OMB, as part of its ongoing effort to
implement the FAIR Act, undertake a sustained effort to help improve the
clarity of inventories and help ensure that agencies review them.

The three agencies that provided comments on a draft of this report
generally agreed with its characterization of the issues involved in
implementing the challenge and appeal provisions of the FAIR Act. In
addition, four agencies did not provide official comments on the draft
report.

OMB Circular A- 76 and its accompanying supplemental handbook provide
guidance on what types of activities are commercial as well as guidelines
for conducting cost- comparison studies to determine whether it is more cost
effective to have commercial activities performed in- house by federal
Background

B- 283779 Page 4 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

employees, through inter- service support agreements (ISSA), or contracted
to the private sector. Before Congress enacted the FAIR Act, there had been
considerable debate about agencies' efforts under the circular to ensure
that they relied on the private sector for commercial goods and services to
the extent that it was cost effective. Our work evaluating competitive
sourcing studies in DOD has found that savings can result regardless of
whether the competitions are won by the government or private sector. 5 The
FAIR Act provides a process for executive agencies to identify activities
that are not inherently governmental and that thus may be considered for
competitive sourcing.

FAIR Act inventories are due to OMB no later than June 30 each year, and the
first set of inventories was due in June 1999. Following OMB's review of the
inventories and consultation with the agencies, OMB is to publish a notice
of public availability in the Federal Register, and agencies are to make the
inventories available to the public. Notices of availability for the first
year's inventories were published in the fall and winter of 1999. In April
2000, we reported on the initial implementation of the FAIR Act and, based
on our review of selected inventories, the need for inventories to be clear
and understandable. 6

Interested parties are to submit any challenges within 30 days after
publication of the notice of public availability. An agency has 28 days to
respond after receipt of a challenge. The act also allows an interested
party to appeal an adverse decision on its challenge within 10 days after
receiving notification of the agency's decision, and agencies have 10 days
to respond after receiving an appeal. The act directs that agencies are to
include, in their responses to both challenges and appeals, the rationale
for their decisions. If an agency's inventory changes as a result of a
challenge or appeal, the agency is to publish notice in the Federal
Register.

OMB's Circular A- 76 guidance contains function codes, initially developed
by the Department of Defense, for agencies' use in classifying the various
types of commercial activities their employees perform. An example of a
function code is “Installation Services: Museum Operations.”
OMB's A- 76 guidance also contains “reason codes” for agencies
to categorize whether

5 Competitive sourcing refers to the reinvention of government through the
conversion of recurring commercial activities to or from in- house,
contract, or ISSA performance. It does not refer to simply contracting with
the private sector for the provision of goods or services. Rather, it is the
competition that is key to ensuring that the government obtains the same or
higher quality of goods or services at lower prices, regardless of the
source.

6 Competitive Contracting: The Understandability of FAIR Act Inventories Was
Limited (GAO/ GGD- 0068, Apr. 14, 2000).

B- 283779 Page 5 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

the commercial activities they list in their inventories should or should
not be subject to consideration for competition at the present time. Reason
code A, for example, designates activities that are performed by federal
employees that the agencies have exempted from OMB Circular A- 76 cost
comparison requirements. Reason code B indicates that the activity performed
by federal employees is subject to the cost comparison or direct conversion
requirements. Reason code C designates activities that are performed by
federal employees that Congress, Executive Order, or OMB has exempted from
Circular A- 76 provisions. (Appendix I contains a listing of OMB's reason
codes.)

The FAIR Act also requires that agencies review their inventories within a
“reasonable period of time.” Further, it requires agencies to
use a competitive process when they consider contracting with the private
sector.

To provide information on the 24 CFO Act agencies' inventories, we reviewed
the inventories and the number of challenges and appeals that interested
parties filed. We identified the number of FTEs that the agencies
categorized under OMB reason codes.

To address our second objective of determining the nature of issues raised
in interested parties' challenges and appeals and agencies' responses to
them, we analyzed the challenges and appeals submitted to the 24 CFO Act
agencies. We also interviewed agencies' FAIR Act contacts to discuss the
general nature of challenges and appeals they received. We met with industry
representatives that filed the majority of industry's challenges and appeals
to obtain their views on agencies' implementation of the FAIR Act. We also
met with two of the six employee unions that submitted the bulk of the
employee challenges and appeals to obtain their views.

To examine the issues raised in agencies' responses to interested parties,
we collected and analyzed the agencies' responses to challenges and appeals
of their 1999 FAIR Act inventories. We did not verify the substance of
agencies' rationales that supported whether they sustained or denied
challenges or upheld or reversed appeals. We also obtained documentation
from six agencies (the Departments of Agriculture (USDA), Education, Housing
and Urban Development (HUD), and Labor; DOD; and the National Aeronautics
and Space Administration (NASA)) about the procedures they used to respond
to the first round of FAIR Act challenges and appeals. We selected these 6
agencies, following our discussions with all 24 CFO Act agencies, because of
the variety of their procedures for responding to challenges and appeals and
because the agencies' Scope and

Methodology

B- 283779 Page 6 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

organizations and missions differed. We interviewed these agencies' FAIR Act
contacts to provide the context for how the agencies were organized to
respond to challenges and appeals.

To address our third objective of identifying six agencies' plans for
reviewing or using their FAIR Act inventories, and how information on their
inventories might assist them in ensuring that activities are carried out in
the most cost- effective manner, we obtained agencies' plans for using their
inventories. Agencies were to submit these plans to OMB in June 2000 for
OMB's review. We also interviewed agency FAIR Act contacts and asked
whether, and if so how, the agencies were using their inventories. We
requested data on the extent to which these agencies already contracted for
activities, or were studying activities under Circular A- 76. In addition,
we reviewed the 24 CFO Act agencies' inventories to determine the number of
activities they identified as in the process of being cost compared or
converted directly to contract or inter- service support agreements.

We conducted our work between December 1999 and July 2000 in accordance with
generally accepted government auditing standards. We also relied on work
conducted at the Department of Defense (DOD) beginning in June 1999 at the
request of the House Armed Services Committee. 7 We provided a draft of this
report for review and comment to the Director of OMB and the Administrator
of NASA, and to the Secretaries of USDA, DOD, Education, HUD, and Labor.
Their comments are reflected in the agency comments section of the report.

The 24 CFO Act agencies' FAIR Act inventories identified a total of about
900,000 FTEs as performing commercial activities. These agencies identified
about 513,000 of those FTEs as performing activities that were exempt from
consideration for competition (i. e., that would not be studied under OMB
Circular A- 76). The agencies identified about one- third of their FTEs as
performing activities that could be considered for competition. As the
largest of the CFO Act agencies, DOD identified the largest number of FTEs
performing commercial activities, as well as the largest number performing
commercial activities that could be considered for competition. (See
appendix II for summary information on the CFO Act agencies' 1999 FAIR Act
inventories.) Compared with prior efforts under Circular A- 76 to identify
commercial activities performed by executive branch agencies, the initial
implementation of the FAIR Act has increased

7 The results of this work are reported in DOD Competitive Sourcing: More
Consistency Needed in Identifying Commercial Activities (GAO/ NSIAD- 00-
198, Aug. 11, 2000). Agencies Received

Numerous Challenges and Appeals

B- 283779 Page 7 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

the number of inventories developed by those agencies, and the number of
FTEs identified as performing commercial activities.

Interested parties filed 332 challenges at the 24 CFO Act agencies
concerning these inventories. 8 Most (88 percent) of the 213 challenges
filed at DOD were from employees, as shown in table 2. In contrast, most (67
percent) of the 119 challenges filed at civilian agencies were from
industry.

Agency Number of

industry challenges

Number of employee challenges Total

Agriculture 7 2 9 Commerce 7 1 8 DOD a 25 188 213 Education 4 0 4 Energy 3 1
4 Environmental Protection Agency 7 1 8 Federal Emergency Management Agency
1 0 1 Health and Human Services 7 3 10 HUD 3 0 3 General Services
Administration 5 1 6 Interior 11 2 13 Justice 1 5 6 Labor 1 1 2 NASA b 8 0 8
National Science Foundation 1 0 1 Nuclear Regulatory Commission b 2 0 2
Office of Personnel Management 0 1 1 Small Business Administration 0 0 0
Social Security Administration 3 1 4 State 1 0 1 Transportation 2 2 4
Treasury 1 5 6 U. S. Agency for International Development 2 0 2 Veterans
Affairs 3 13 16

Total 105 227 332

a Excludes one challenge that DOD's Defense Logistics Agency had not
responded to as of September 20, 2000. b Includes those filed at the
agency's Office of Inspector General.

Source: GAO analysis of agency information.

8 This total excludes one challenge made to DOD's Defense Logistics Agency
that had not been responded to as of September 20, 2000.

Table 2: Number of Industry and Employee Challenges Filed at CFO Act
Agencies

B- 283779 Page 8 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

Agencies sustained 20 of the 332 challenges (about 6 percent), as shown in
table 3; they denied the remainder. Of the 96 appeals, 3 (about 3 percent)
were successful.

Number of challenges a Number of appeals a Agency Received Denied Sustained
ReceivedUnsuccessful Successful

Agriculture 9 6 3 12 b 12 0 Commerce 8 8 0 2 1 1 DOD c 213 203 10 50 50 0
Education 4 4 0 1 1 0 Energy 4 4 0 1 0 1 Environmental Protection Agency 8 8
0 3 3 0 Federal Emergency Management Agency 1 1 0 1 1 0 Health and Human
Services 10 9 1 2 2 0 HUD 3 3 0 1 1 0 General Services Administration 6 6 0
1 1 0 Interior 13 13 0 4 3 1 Justice 6 2 4 1 1 0 Labor 2 2 0 1 1 0 NASA 8 8
0 4 4 0 National Science Foundation 1 1 0 0 0 0 Nuclear Regulatory
Commission 2 2 0 1 1 0 Office of Personnel Management 1 0 1 0 0 0 Small
Business Administration 0 0 0 0 0 0 Social Security Administration 4 4 0 2 2
0 State 1 1 0 1 1 0 Transportation 4 4 0 2 2 0 Treasury 6 6 0 3 3 0 U. S.
Agency for International Development 2 2 0 0 0 0 Veterans Affairs 16 15 1 3
3 0

Total 332 312 20 96 93 3

a The term “denied” indicates that an agency did not agree with
any issue raised in an interested party's challenge, while the term
“sustained” indicates that an agency agreed with at least one
issue raised and made revisions to its inventory as a result of the
challenge. The term “unsuccessful” indicates that an agency did
not agree with any issue raised in an interested party's appeal, while the
term “successful” indicates that an agency agreed with at least
one issue raised and revised its inventory as a result of the appeal. b The
number of appeals exceeds the number of challenges because Agriculture
forwarded challenges

to its component agencies and directed them to respond, and interested
parties appealed several component agencies' denials. c Excludes one
challenge and three appeals that DOD's Defense Logistics Agency had not
responded

to as of September 20, 2000. Source: GAO analysis of interested parties'
challenges and appeals, and agencies' responses.

Table 3: Agency Decisions on Challenges and Appeals

B- 283779 Page 9 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

Interested parties' challenges raised several issues that have the potential
to improve the clarity of future inventories, even though they did not meet
the FAIR Act provisions that allow for challenges of activities omitted from
or included on agencies' inventories. OMB has revised its guidance for
preparing the 2000 inventories- by, for example, suggesting a standard
format for inventories and providing additional explanatory material
concerning the reason codes- in an attempt to address some of these
concerns. Although the six agencies we reviewed used a variety of procedures
for responding to challenges and appeals, their responses to the interested
parties were generally provided within the time frames specified in the act
and addressed the issues that were raised. (See appendix III for a
description of the six agencies' procedures.)

About one- third of industry's challenges cited the omission of activities
from agencies' inventories, with many of the remainder citing issues that
went beyond the provisions of the FAIR Act because they did not involve
either the inclusion of an activity on or its omission from an inventory.

Industry submitted 105 challenges to agencies, and of those, 38 contended
that the agency omitted activities from its inventory. The act, which
provides for this type of challenge, further states that an interested party
must identify the omission or inclusion of particular activities. Thus,
while some challenged the exclusion of specific activities, other were quite
broad in nature and did not identify particular activities. For example:

ï¿½ In its challenge to NASA, an association stated that NASA appeared to have
omitted entire categories of activities from its list. NASA, in its denial,
stated that the association did not cite a particular commercial activity
performed by civil servants at specific locations, and thus the association
did not have a challenge within the meaning of the act. Because of this,
NASA stated that the issues raised by the association would have to be
handled outside of the challenge process.

In contrast, some challenged particular activities. For example:

ï¿½ An association challenged the potential omission of forest service
campground management activities from USDA's inventory. In its denial, USDA
stated that even though it did not consider campground management as an
inherently governmental function and that much of it was contracted out,
decisions to do so were made on a case- by- case basis.

Some of industry's challenges demonstrated the difficulties industry had in
identifying specific activities on inventories because inventories did not
Interested Parties

Raised Issues That Can Improve Future Inventories

Most of Industry's Challenges and Appeals Reflected Broad FAIR Act
Implementation Concerns

B- 283779 Page 10 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

include all activities performed by an agency. The FAIR Act only requires
inventories to include non- inherently- governmental activities performed by
federal employees. For example:

ï¿½ One association challenged the Department of Education on the basis that
it omitted information and data processing activities from its inventory.
Education, in its denial, stated that while it employed 171 information
technology professionals and included 152 information technology FTEs on its
inventory, the remainder of its information technology work was performed
under contract. It stated that it spent over $400 million annually for
information technology services under its contracts, and that over 2,000
contractor FTEs were employed.

Industry's challenges that inventories did not include particular activities
also demonstrated the difficulty that industry had with understanding what
activities were categorized under OMB's function codes, and the need for
additional information. For example:

ï¿½ An association obtained information from the Office of Personnel
Management (OPM) on the number of employees classified under position
classification codes associated with mapping, charting, or surveying at the
Department of Interior. In its challenge to Interior, it stated that the
number of employees under those position classification codes did not match
the number of FTEs listed on Interior's inventory under comparable function
codes. In its denial, Interior responded that the number of FTEs on its
inventory did not coincide with OPM data because of the diverse nature of
some employees' duties. As a result, Interior officials stated, some FTEs
appeared on the inventory under other function codes, while some work
performed by other FTEs was classified as inherently governmental (and thus
would not be included on its inventory).

DOD also excluded activities from its inventory when uniformed military
personnel were performing them, even though the activities could be
considered commercial in nature. OMB agreed with DOD's omission of military
personnel from its FAIR Act inventory. For example:

ï¿½ An association's challenge stated that it appeared that many of the
positions performed by military personnel were not included on DOD's
inventory. In its denial, DOD responded that military members are not
covered under the FAIR Act, and thus those FTEs were not included on its
inventory.

B- 283779 Page 11 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

The remaining issues raised by industry did not meet the challenge
provisions of the FAIR Act. As shown in table 4, these issues included (1)
the agency's use of OMB's reason codes for categorizing commercial
activities, (2) the format of the agency's inventory, (3) the agency's use
of OMB's function codes, and (4) a general dissatisfaction with OMB guidance
or the act, or agency compliance with either.

Issue raised Number of challenges raising this issue

The agency's use of OMB reason codes 84 Format of the agency's inventory 72
The agency's use of OMB function codes 36 Dissatisfaction with OMB guidance
or the act 30 Source: GAO analysis of industry challenges.

The most frequently cited issue (raised by 84 of the 105 industry
challenges) was the agencies' use of OMB's reason codes, particularly the
fact that these reason codes indicated agencies did not plan to consider
competing many of the commercial activities listed on their inventories. 9
Industry representatives cited the fact that the FAIR Act does not direct
the use of, and categories for, reason codes. OMB, they stated, developed
these. Industry representatives said that they disliked the reason codes
because the codes allow agencies to protect commercial functions and
positions from competition. Industry challenges contended that agencies (1)
categorized activities under reason codes that indicated that the activities
were not subject to consideration for competition, (2) did not specify why
particular reason codes were used, and (3) coded the same function codes
under different reason codes. For example:

ï¿½ An association that represents companies providing a wide array of
services to government agencies challenged the General Services
Administration's (GSA) inventory on the basis that functions and activities
were categorized in a confusing and often contradictory fashion. It asserted
that similar functions appeared multiple times, often classified under
different reason codes, and that it was impossible to identify functions
that crosscut several agency locations or to determine why the same function
was coded differently either at the same or different locations. GSA denied
the challenge. In its response, GSA explained that the FAIR Act's challenge
and appeal provisions only provide for challenges of whether FTEs are
classified as commercial or inherently governmental,

9 As discussed in appendix II, agencies exempted 57 percent of their
commercial activities from consideration for competition under reason codes
A and C.

Table 4: Issues Raised by Industry That Were Not Within the Provisions of
the FAIR Act

B- 283779 Page 12 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

as opposed to challenges of any further distinctions an agency chose to make
within the commercial classification. GSA stated, however, that it would be
available to discuss any concerns the association might have that were
outside of the scope of the FAIR Act challenge and appeal process.

ï¿½ One company that provides facility management services submitted
challenges to the Navy and Air Force. The company questioned certain
activities on the Navy's and Air Force's inventories (such as motor vehicle
maintenance, building maintenance, and supply operation positions) because
few of the activities were coded as reason code B (indicating they could be
considered for competition). In its denial, the Air Force replied that
because the activities performed by civilians were integrated with those
activities performed by the military, which was tasked for wartime
deployments or combat, it was not possible to sever the civilian workload to
allow for contractor performance.

The next most frequently raised issue in the challenges from industry was
the format of the agency's inventory. Almost all of these 72 challenges
stated that the agency's inventory was vague, incomplete, or ambiguous. For
example:

ï¿½ An association representing independent laboratories challenged USDA's
Forest Service on the basis of its inventory's format. In its challenge, it
asserted that the inventory was ambiguous and did not identify functions in
a reasonable manner for interpretation by outside parties. In its denial,
the Forest Service stated that the format of the inventory was not an area
covered under the challenge portion of the FAIR Act.

ï¿½ An association challenged the Nuclear Regulatory Commission's (NRC)
inventory on the basis that the inventory was ambiguous and did not identify
activities or functions in a cogent manner that allowed for a reasonable
interpretation by outside parties. It further asserted that the format made
it impossible to “set forth the activity being challenged with as much
specificity as possible,” as OMB guidance suggested. In its denial,
NRC stated that the inventory cited the appropriate information required by
OMB.

Another 36 industry challenges cited the agency's use of OMB's function
codes to classify activities. Industry representatives stated that the
function codes were essentially flawed because they did not convey
sufficient information to determine what the nature of work performed by
agency personnel was. In its challenges, industry contended that OMB's
function codes did not clearly identify activities and cited the lack of any

B- 283779 Page 13 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

additional descriptions or examples of what activities the function codes
entailed. In addition, some industry challenges stated that agencies did not
properly use the function codes to categorize their FTEs. For example:

ï¿½ An industry trade association stated in its challenge to the Environmental
Protection Agency (EPA) that the function codes bore no discernable
relationship to any particular activities that agencies perform. It also
asserted that EPA did not properly use OMB's function codes. In its denial,
EPA stated that its inventory complied with the FAIR Act and OMB's guidance
and pointed out that its inventory had been subject to OMB's review and
consultation. Because OMB voiced no objections to the structure or format of
the inventory, and because OMB published a notice of the availability of the
agency's inventory, EPA concluded that its inventory was structured and
formatted in a satisfactory manner.

Industry representatives we spoke with said that the FAIR Act itself is
quite brief in that it does not provide detailed instructions on the format
or content of inventories. Because of this, they said, it required strong
leadership on the part of OMB to implement the statute. They stated that
OMB's use of its Circular A- 76 to implement the act was one of the primary
reasons why inventories were unclear. The function codes were flawed and did
not make agencies' activities as transparent as industry said the FAIR Act
intended. They also contended that some agencies did not comply with the act
or OMB's guidance, and that OMB could have more closely reviewed agencies'
inventories to ensure greater consistency. Their challenges, as a result,
registered industry's general dissatisfaction with OMB guidance, the act, or
agency compliance. For example:

ï¿½ In its challenge to the Department of Transportation (DOT), an industry
association challenged that DOT failed to submit a list that, by content,
format, form, and substance, was in conformance with the requirements of the
act because the association could not identify the nature of work performed
under the function codes, and the inventory did not provide sufficient
descriptive information to mount challenges. DOT, in its response, stated
that it complied with the FAIR Act and OMB guidance.

Officials from the agencies we spoke with said that they seriously
implemented the FAIR Act and followed OMB guidance. They said that agencies
devoted time and resources to implement the FAIR Act. For example, USDA
officials estimated that well over 100 people spent several thousand hours
compiling its inventory. Similarly, Labor officials estimated that staff
spent about 45 days reviewing guidance, and developing procedures and other
guidance for its component agencies, in

B- 283779 Page 14 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

addition to the time spent by its 16 component agencies to develop guidance
and inventories.

Because most of industry's challenges and appeals did not involve either the
inclusion, or omission of, an activity from an agency's inventory, agencies
dismissed them. Of the 145 challenges and appeals made by industry to the
CFO Act agencies, USDA sustained three challenges, and the Department of
Commerce agreed to revise its inventory as a result of one successful
appeal.

One of the three challenges USDA sustained was from a business federation
that contended that USDA's inventory did not contain sufficient information
to support the assignment of multiple reason codes to the same function
codes. Even though the basis for this challenge was beyond the provisions of
the FAIR Act, USDA's Farm Services Agency (FSA) agreed that it used multiple
reason codes to classify computer support FTEs and activities. In reviewing
its classification on the inventory, FSA removed these FTEs and activities
because it determined that they were performing inherently governmental
activities.

USDA also sustained two industry association challenges that contended that
it excluded some information- technology- related activities from its
inventory. As a result of these challenges,

ï¿½ USDA concurred that it would include 6 positions involved in developing
contract requirements, supervision, and oversight of information technology
functions, and

ï¿½ USDA's Grain Inspection, Packers and Stockyards Administration agreed to
include 28 FTEs performing information technology functions on the
inventory.

USDA subsequently published a notice of the revisions in the Federal
Register, as required by the FAIR Act.

The Department of Commerce agreed to revise its inventory as a result of a
successful appeal from an association representing firms engaged in mapping,
charting, and related imaging services that challenged the omission of
mapping and charting activities at several Commerce agencies, including the
Bureau of the Census. Initially, Commerce denied the challenge on the basis
that map compilation activities at the Bureau were limited and involved no
original compilations because its geographic data base for producing maps to
support field operations was updated through Agencies Dismissed Most of

Industry's Challenges and Appeals

B- 283779 Page 15 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

state and local government input. In its appeal, the association stated that
Commerce did not deny that the Census Bureau was involved in cartographic
activities and that, in fact, Commerce specifically identified them in its
response to its challenge. Commerce agreed to include 60 commercial
cartographer and cartographic positions on its inventory. While an official
said that Commerce did not publish a notice that it was revising its 1999
inventory as a result of this appeal, she said that Commerce revised its
2000 FAIR Act inventory to reflect the change.

Almost all (219 of the 227) employee challenges contended that the agency
erroneously included an inherently governmental function on its inventory,
when it should have been omitted. For example:

ï¿½ Employees at the Public Affairs Office at the U. S. Military Academy
stated that the public affairs function should not be included on the Army's
inventory because OMB's guidance on the types of activities considered
commercial did not cite “public affairs.” In support of their
position, they argued that public affairs personnel make decisions on behalf
of the federal government. DOD denied the challenge, stating that the
purposes of the public affairs function were to provide official information
to the public and to foster good relations- neither of which suggested an
application of governmental authority or the making of value judgments on
behalf of the government.

ï¿½ An employees union challenged Treasury's inventory of the Bureau of
Alcohol, Tobacco, and Firearms' (BATF) activities. The union said that
certain financial and accounting technician positions should have been
omitted because the positions involved inherently governmental work, such as
directing and controlling federal employees, determining federal program
priorities or budget requests, or determining agency policy. BATF denied the
challenge. It responded that those positions were part of financial service
support functions that it considered commercial, and that FTEs in these
positions did not make budget decisions or set policy as a matter of
practice.

ï¿½ An employees union challenged the Department of Transportation's Maritime
Administration's (MA) inventory on the basis that decisions on who should
perform the work should not be based solely on the lowest bid. It stated
that personnel working at MA's Beaumont Reserve Fleet had additional
qualifications that should be taken into account. For example, some
personnel were certified electricians, riggers, or mechanics, and some were
emergency medical technicians. On this basis, the union argued, the
positions and FTEs should be excluded from the inventory. In Employees and
Unions

Challenged Inventories That May Have Included Inherently Governmental
Activities

B- 283779 Page 16 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

its denial, MA stated that these issues called attention to important
considerations for the A- 76 process. However, the issues did not bring into
question the nature of the work performed, which was the basis for inclusion
on or exclusion from the inventory.

Union officials stated that they experienced the same frustrations as
industry did in understanding agencies' inventories. According to an
official with one employees union, function codes were not clear and some
agencies miscategorized personnel into the wrong function codes. This
official said that the function codes had little resemblance to the work
that employees performed, and that it was difficult for an employee to
determine whether his or her position was on an inventory. Officials from
another employees union agreed. This union obtained additional information
in order to identify what positions were included on agencies' inventories,
and to support its challenges. National Treasury Employees Union (NTEU)
officials, for example, said that they obtained position descriptions from
the agencies to determine whether any of the FTEs on the inventories
performed activities that could be considered inherently governmental. In
instances where NTEU found language in the position descriptions that
appeared to support inherently governmental work, NTEU then filed
challenges.

Other issues, such as an agency's use of OMB's function or reason codes or
the format of the inventory, were raised in a relatively small number of the
employee challenges, as shown in table 5.

Issue raised Number of challenges raising this issue

Format of the agency's inventory 47 The agency's use of OMB function codes
40 The agency's use of OMB reason codes 13 Dissatisfaction with OMB guidance
or the act 7 Source: GAO analysis of employee challenges.

For example:

ï¿½ An employees union stated in its challenge to the Department of Treasury's
Financial Management Service (FMS) that the FMS inventory was both limited
and ambiguous, thereby inhibiting the union's efforts to challenge in
sufficient detail the positions designated as commercially competitive.
Because of this, the union challenged every position that was coded under

Table 5: Issues Raised by Employees That Were Not Within the Provisions of
the FAIR Act

B- 283779 Page 17 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

reason code B as being commercial competitive. In its denial, FMS reiterated
the FAIR Act's provision that an interested party may challenge the omission
or inclusion of a particular activity on an inventory. It used as a basis
for its denial of the union's challenge the fact that the union challenged
the inclusion of positions and FTEs, as opposed to activities, on its
inventory, and that positions and activities were not synonymous.

ï¿½ An employees union challenge to the Department of Justice stated that it
was unclear which locations were included on the inventory for several
positions. It stated that if the number of positions for functions at any
one location fell below OMB's threshold level of 10, the positions were
exempt from the cost comparison requirement. It said that such positions
should be classified as exempt or removed from the inventory. Justice, in
its response, stated that it coded functions at locations having fewer than
10 FTEs as exempt under reason code A (exempted by the agency). It stated
that in future inventories, it would use reason code C, as directed by OMB
(exempted by Executive Order).

ï¿½ An employees union challenge to DOT stated that it was not notified of any
contracting studies or planned studies and that such failure to notify the
union of these studies violated the union's agreement with the agency. It
also stated that because it was not notified, it was prevented from being
afforded the opportunity to properly prepare a challenge. In its denial, DOT
stated that the listing required by the FAIR Act was not a study or a
planned study to determine whether work performed by union members would be
contracted. It also stated that if a study was planned or eventually
undertaken, it would comply with the agreement. DOT also told the union that
its challenge was filed in a timely manner following OMB's notice in the
Federal Register that DOT's inventory was available to the public, and that
it believed the union was afforded the opportunity to properly prepare the
challenge.

Agencies agreed to revise their inventories as a result of 7 percent of the
employee challenges and appeals, compared with 3 percent of those from
industry. Seven of the CFO Act agencies sustained 17 of the 227 employee
challenges, while 2 of the 56 appeals were successful. 10 For example:

ï¿½ Justice sustained four challenges filed by two employees and two unions.
For example, a union challenged that some positions involved access to
extremely sensitive information that, if disclosed to unauthorized persons

10 These seven agencies were DOD; the Departments of Energy, Health and
Human Services, Interior, and Justice; the Office of Personnel Management;
and the Veterans Administration. Agencies Sustained Some

Employee Challenges and Appeals

B- 283779 Page 18 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

or misused, would significantly affect the life, liberty, or property of
private persons. Justice agreed to remove certain Immigration and
Naturalization Service activities performed by law enforcement
communications assistants, electronics technicians, and administrative
support staff from the inventory.

ï¿½ DOD components sustained 10 employee challenges. The Army determined, for
example, that functions involving about 3,800 FTEs were inherently
governmental and should not have been on the FAIR Act inventory of
commercial activities.

According to agency officials, the seven agencies that sustained challenges
or had successful appeals revised their inventories.

The six agencies we reviewed used a mixture of centralized and decentralized
processes to handle challenges and appeals, but we found that agencies'
responses were generally timely and addressed the issues raised regardless
of the approaches used. (The procedures six agencies used are described in
greater detail in appendix III.) However, we identified two instances where
agencies were not timely in their responses.

Although the FAIR Act calls for agencies to respond to appeals 10 days after
receiving them, USDA's responses to appeals submitted in December 1999 were
not sent to interested parties until June 2000. Officials said that USDA's
responses had undergone extensive internal review, in part because of the
nature of issues raised by interested parties and USDA's desire to fully
explore the basis for them.

DOD's Defense Logistics Agency (DLA), which received four challenges to its
FAIR Act inventory, had not responded to one as of September 20, 2000. A DLA
official explained that this challenge (submitted in January 2000) remained
unresolved because of differences of opinion among the functional offices
that are involved in issues related to the challenge. Further, DLA, which
received appeals from each of the challengers that it responded to, had not
yet responded to them as of September 20, 2000.

Not only did interested parties have difficulties with the clarity and
understandability of the 1999 FAIR Act inventories, the agencies also noted
limitations in their usefulness. After meeting with groups of interested
parties and agency officials and identifying areas for improvement, OMB
revised its guidance for the 2000 inventories. Agencies' Procedures

Varied, but Agencies Were Generally Timely and Responsive to Issues Raised

Agencies Identified the Need for Improved Clarity on Their Inventories

B- 283779 Page 19 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

Officials from the six agencies stated that they did not find their 1999
FAIR Act inventories as useful as they potentially could have been because
the inventories provided only limited information about the nature of the
activities that federal employees perform. According to the HUD official
responsible for compiling and reviewing the 1999 inventory, similar
organizations performing the same functions were commonly reported under
different function codes due, in part, to the lack of definition associated
with many of these codes. This official said that the different
organizations applied the reason codes differently. In view of the limited
amount of time that he had had to review the inventory, given the reporting
deadline, he said that there was little that could have been done to improve
consistency either within or across HUD's component organizations. This lack
of consistency in how the organizations used OMB's function codes, according
to this official, could preclude identification of good candidates for cost
comparison studies and adversely affect the inventory's usefulness as a
management tool. According to HUD, while its internal review did disclose
some inconsistencies in reporting, which were addressed and changed prior to
submitting its inventory to OMB, it believes that better defined function
codes would reduce the number of inconsistencies.

According to a Department of Labor official, Labor aligned the federal
government's occupational series designations with OMB function codes as an
internal organizational approach to assist its managers in determining
agency functions. This official stated that because, in 1999, OMB function
codes were descriptive of such a broad range of activities, interested
parties could not determine with any precision the true nature of commercial
activities as delineated in the agency inventory. Because of this, she
stated, occupational series designations were preferable in determining job
functions, as opposed to OMB function codes. While Labor determined that
this was a viable option for its agency, the extent to which an agency's
personnel perform the duties specified by their occupational series may
dictate how viable this option is for other agencies.

Education officials also said that the usefulness of the inventory was
limited. Reasons for this included the fact that (1) many in- house
employees perform multiple activities on OMB's list of function codes, (2)
many in- house employees perform some commercial and some inherently
governmental functions, (3) generic function codes without detailed
definitions limited Education's ability to accurately classify some of its
activities under OMB's codes, and (4) some activities performed by Education
did not easily fit into the activity codes OMB provided. Because

B- 283779 Page 20 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

of this, Education stated that it would like to see function codes further
defined and clarified. Detailed definitions, it stated, would aid the public
in determining the nature of activities performed by Education's FTEs.
Detailed definitions would also assist Education staff responsible for
preparing inventories in ensuring that activities were properly categorized.
Without such definitions and clarifications, Education stated, it
anticipated receiving challenges, to future inventories, alleging that its
inventory was vague or that it did not identify functions in a reasonable
manner.

NASA stated that the usefulness of its inventory was limited because it
categorized the predominant activity performed by each of the branches at
its centers under a single OMB function and reason code, as opposed to under
the activity or activities performed by individuals at those branches.

OMB's revised Circular A- 76 Handbook, which provides guidance for compiling
inventories, states that OMB anticipates issuing additional guidance on the
structure and format of future submissions, based upon the experience gained
from the first annual review and consultation process. After its review, and
following meetings with agency officials and interested parties, OMB issued
revised guidance in April 2000 that OMB officials said will address several
of the issues cited in challenges made in the first year's implementation of
the FAIR Act. For example, to address the issue of the agency's use of OMB
reason codes, OMB developed additional explanatory material concerning the
codes. To address the issue of the format of the agency's inventory, OMB
proposed a standard format and recommended that each agency's inventory be
accompanied by a cover letter summarizing the inventory in terms of total
agency and commercial FTE and contract support information. To address the
agency's use of OMB function codes, OMB expanded its list of approved codes.

The FAIR Act requires agencies to review the activities on their
inventories. Whenever agencies consider contracting with the private sector
to perform an activity on their inventories, they are required to use a
competitive process unless otherwise authorized by law, executive order, or
regulation. Based on our review of DOD's competition program and the five
civilian agencies' plans for reviewing their inventories, we found that,
beyond the FAIR Act requirements, the inventories have the potential to help
inform management decisions about how to more efficiently perform activities
and effectively align agencies' operations. The extent to which agencies
will ultimately use their inventories to identify activities for competitive
sourcing or for other purposes remains to be seen. To date, DOD has been the
principal federal agency aggressively encouraging the Inventories Provide a

Tool for Reexamining How Goods or Services Are Obtained

B- 283779 Page 21 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

use of competitive sourcing. As we have noted in the past, savings are
possible when agencies undertake a disciplined approach, such as public/
private competitions called for under Circular A- 76- regardless of whether
the competitions are won by governmental organizations or by the private
sector. Data on the full range of agencies' activities, whether performed by
federal personnel or by contract, could inform managers and other decision
makers about how they are performing their mission and mission support
activities, and how they have currently allocated their resources.

Since 1995, DOD has been a leader among federal agencies in focusing on
competitive sourcing as a means of achieving economies and efficiencies in
operations and freeing up funds for other priority needs, such as weapons
modernization. DOD has established aggressive competitive sourcing goals of
studying over 200,000 positions between 1997 and 2005 under its OMB Circular
A- 76 program and thereby saving an estimated $9.2 billion. 11

In January 1998, to help the military services and DOD agencies identify
commercial activities that could be candidates for competition, the Deputy
Secretary of Defense required DOD's military services and DOD agencies to
(1) review all authorized military and civilian positions to determine
whether the functions performed were inherently governmental, commercial but
exempt from competition, or commercial and eligible for competition; (2)
develop consistent guidelines for doing so; and (3) compile an inventory of
all categorized positions.

In response to the FAIR Act, DOD adapted the civilian commercial portion of
its 1998 reform initiative inventory to meet the reporting requirements of
the act and OMB's guidance. DOD revised its internal coding to correspond to
OMB's reason codes for classifying commercial functions and updated its
inventory to reflect any significant changes. While DOD encountered problems
with the function and reason codes that OMB directed agencies to use in
compiling their FAIR Act inventories, DOD officials said that the process of
compiling the reform initiative inventory should provide them more complete
information to help identify areas for competition. DOD officials have taken
some steps to improve the process, such as developing function code
definitions. Officials said that DOD plans to update its reform initiative
inventory on an annual basis to meet

11 In our report entitled DOD Competitive Sourcing: Some Progress, but
Continuing Challenges Remain in Meeting Program Goals (GAO/ NSIAD- 00- 106,
Aug. 8, 2000), we reported that the military departments have had difficulty
finding activities to study for competition. DOD Used Its Inventory to

Identify Competitive Sourcing Opportunities

B- 283779 Page 22 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

its competitive sourcing goal and comply with the requirements of the FAIR
Act.

Whether DOD will meet its goals of studying over 200,000 positions by 2005
and saving $9.2 billion is uncertain. In our August 2000 report on DOD's
competitive sourcing program, we reported that DOD does not expect to
compete all the commercial activities and associated positions that appear
on its inventory. 12 DOD officials cited factors, such as the (1) geographic
dispersion of its positions and (2) difficulty in separating commercial and
inherently governmental work within the same activity, that limited the
number of FTEs that could be studied. Nevertheless, DOD leadership has
aggressively encouraged its components to pursue competitive sourcing as a
means of reducing costs and improving the efficiency and effectiveness of
its operations.

The five civilian agencies in our review were among those that submitted
plans to OMB in June 2000 that described ways they use or could use
information from their FAIR Act inventories. 13 The Department of Labor's
plan, for example, stated that its FAIR Act inventory is part of a
“twopronged” approach to identify opportunities for obtaining
goods or services from the private sector. According to its plan for using
its FAIR Act inventory, Labor cross- referenced commercial competitive
activities on its FAIR Act inventory with requirements delineated in its
acquisition plan for purchasing from the private sector, which it compiles
annually, to identify common requirements. Where common requirements exist,
Labor said that it plans to expedite the privatization process, consistent
with federal acquisition regulations and guidance. Labor also stated that
its inventory significantly assisted it in complying with, and more
accurately administering, the Business Opportunities Development Reform Act
of 1988 by providing it more timely and up- to- date commercial activities
data. 14

HUD said that it plans to use the inventory to help ensure that agency
decisions to exempt FTEs from consideration for competition are justified.
HUD said that it also plans to use its inventory to identify possible
candidates for cost comparison studies. It pointed out that the data in the
inventory can provide a new source of information by, for example,

12 DOD Competitive Sourcing (GAO/ NSIAD- 00- 198, Aug. 11, 2000). 13 OMB's
revised Circular A- 76 Handbook instructs agencies to report annually on the
management of their commercial activities. In its April 2000 guidance, OMB
instructed agencies to include in these reports a description of the
agencies' review processes.

14 Public Law 100- 656. Other Agencies' Plans to

Use FAIR Act Information

B- 283779 Page 23 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

combining it with workload data to allow more informed judgments and
decisions to be made regarding organizational performance and resource
allocation.

USDA stated that its inventory is an integral part of its review process
which is designed to ensure that USDA's component agencies follow OMB's A-
76 guidance in determining whether activities should remain inhouse or be
performed by contract. Similarly, the Department of Education's plan states
that managers and senior officials will review the commercial activities on
its inventory to facilitate decisions on competing activities, to determine
whether activities should be performed under contract or in- house.
According to NASA, revisions to its 1999 inventory contributed to a better
understanding of the scope of work performed at its centers, as well as an
increased understanding of the commercial components of its civil service
workforce.

The A- 76 process has not been a high priority within OMB or civilian
agencies since the late 1980s, and as we testified in 1998, it appeared that
the A- 76 process is still not a high priority. 15 This may still be the
case. Even though the five agencies have plans for using their inventories,
none of the five has a competitive sourcing program as significant as DOD's.
According to officials at the five civilian agencies, none of the five
agencies is currently conducting A- 76 studies. Further, the remainder of
the civilian CFO Act agencies' 1999 FAIR Act inventories indicate that only
about 580 FTEs are associated with activities undergoing study or direct
conversion to contract or inter- service support agreements. This is an
early indication that, unless OMB leads efforts to help ensure that civilian
agencies seriously review their inventories, the initial progress the FAIR
Act achieved in increasing the number of FTEs agencies identify as
performing commercial activities may be of limited usefulness.

While the FAIR Act does not direct that agencies use the information on
their inventories for any specified purpose, we have reported in the past
that information on all activities an agency performs- whether through
contracts or in- house-- is key to providing decisionmakers with a more
complete picture of all of an agency's activities. Complete information on
who is performing specific activities- whether by federal personnel or by
contract- and how these activities are integrated to accomplish an agency's
mission, can inform agency managers' assessments about whether an agency is
aligning its activities and distributing resources in the most efficient
manner.

15 OMB Circular A- 76: Oversight and Implementation Issues (GAO/ T- GGD- 98-
146, June 4, 1998). Agencies Agree That

Comprehensive Data on All Their Activities Could Help Inform Management

B- 283779 Page 24 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

In our discussions with agency officials, however, we found that not all
agencies have a complete picture of their activities, how these activities
are performed, and whether these activities are integrated efficiently to
accomplish their agencies' missions. While some of the agencies we reviewed
can provide information on contract dollars spent on specific contracts,
agency officials told us that it is difficult to compare the extent and
nature of activities performed under contract with those performed inhouse.
For example, Education stated that while Education has extensive information
on, among other things, the amount of contract dollars spent, items bought,
and activities performed under contract, because of the difficulties in
comparing in- house and contract activities, it continues to work on a
better assessment of activities performed by contract. NASA officials said
that they have conducted extensive work to compile rough indicators of what
types of activities are performed by contract and the cost of some of these
contracts. In 1999, they estimated that approximately 87 percent of NASA's
funding was dispersed through contracts. According to Labor officials, they
have access to limited contractor information through the Federal
Procurement Data System.

In addition, not all of the agencies compile or maintain data on inherently
governmental work performed by federal employees or personnel. Officials
from Labor and HUD agreed that, although not currently required under the
FAIR Act, a comprehensive inventory of all of an agency's commercial and
inherently governmental activities-- whether by contract or in- house
employees--- may enhance the management of those resources and help ensure
that the agency's resources are used in the most costeffective and efficient
manner.

In contrast, as noted previously, DOD does have an inventory of all
positions performed that are inherently governmental, commercial but exempt
from competition, or commercial and eligible for competition. DOD is also
required to provide Congress information on contractor support for the
agency. 16 In its 1998 Commercial Activities Report, it estimated that
contractors performed about 40 percent of DOD's work years. The accuracy of
DOD's estimates of the number of contract personnel performing commercial
activities, however, has been questioned. In the fiscal year 2000 Defense
Authorization Act, Congress included a requirement for more detailed
reporting. 17 By no later than

16 10 USC 2461( g) requires DOD to submit to Congress each fiscal year a
report estimating the percentage of commercial activities or functions
performed by contractors as compared with the percentage performed by DOD
employees.

17 Fiscal Year 2000 Department of Defense Authorization Act (P. L. 105- 65,
section 343).

B- 283779 Page 25 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

March 2001, DOD is also required to provide Congress a report summarizing
the number of direct and indirect labor work year equivalents performed by
contractors providing services in fiscal year 2000. The Department of the
Army is testing the feasibility and benefits of requiring contractors to
provide needed information electronically. According to an Army official
directing the program, the Army requires contractors to enter labor hour
information in conjunction with requests for payment and has had cooperation
from contractors participating in the program.

Prior to the FAIR Act, there had been considerable debate that agencies,
with some exceptions, were not making a serious effort under Circular A76 to
ensure that they relied on a competitive process to determine whether it
would be more cost effective to keep a commercial activity inhouse or
contract with the private sector. Compared with prior efforts under the
Circular to inventory commercial activities, the first year's implementation
of the FAIR Act has increased the number of executive agency inventories and
the number of FTEs identified as performing commercial activities. This is
important, as our prior work has shown that savings are possible when
agencies undertake a disciplined approach, such as that called for under
Circular A- 76, to review their operations and implement any necessary
changes to become more efficient in the use of their resources.

The successful implementation of the FAIR Act depends on several things,
however, such as clear and understandable inventories that provide useful
information to agency management and interested parties. Our review of
agencies' inventories and challenges and appeals suggests that there are
ample opportunities to improve the clarity and understandability of some
agencies' inventories. OMB revised its guidance for the 2000 inventories,
but it will require a sustained and continuing commitment of OMB leadership
and agency management to improve the clarity of agencies' FAIR Act
inventories.

Although the FAIR Act does not direct agencies to use their inventories as a
basis for competitive sourcing, DOD's program has shown that the inventories
do have the potential to provide some useful information. Under its program,
DOD has compiled inventories of commercial activities and developed a
process for reviewing these to identify activities for competitive sourcing
consideration, such as for study under OMB Circular A- 76. As noted, our
work has found that savings can result from competitive sourcing studies,
regardless of whether the competitions are won by the government or the
private sector. Whether civilian agencies will use their inventories in a
similar manner is unknown. Based on the Conclusions

B- 283779 Page 26 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

number of activities currently being studied by civilian agencies for
competition, early indications are that, unless OMB takes steps to help
ensure that agencies undertake a sustained commitment to review inventories
and then identify appropriate activities for competition, opportunities for
savings may be missed.

The inventories also have the potential to help inform agency management
about that portion of their workforce that performs non-
inherentlygovernmental activities. This information could be useful for
management decisions about whether agency resources are efficiently aligned
to properly execute an agency's mission. It must be recognized, however,
that FAIR Act inventories only provide agencies with a piece of the
information that management needs to ensure that all activities are carried
out in the most efficient and cost- effective manner. Information on
inherently governmental and contracted activities is also needed to help
managers ensure that their agencies' activities are integrated and are
performed in the most efficient and cost- effective manner.

Consistent with OMB's ongoing efforts, but in light of the historical
difficulty of maintaining a governmentwide commitment to consistently
develop useful inventories of commercial activities, the Director of OMB
should undertake a sustained effort to help improve the clarity of agencies'
FAIR Act inventories and lead efforts to help ensure that agency heads
review their commercial activities within a reasonable time, as required by
the FAIR Act.

We requested comments on a draft of this report from the Secretaries of
USDA, DOD, Education, HUD, Labor; the Administrator of NASA; and the
Director of OMB. The Chief Financial Officer, Department of Education; the
Deputy Chief Financial Officer, HUD; and the Associate Administrator for
Human Resources and Education, NASA, provided written comments that are
included in appendixes IV, V, and VI, respectively. In their written
comments, the agencies generally agreed with the draft report's
characterization of the issues involved with implementing the challenge and
appeal provisions of the FAIR Act. Officials from four agencies (USDA, DOD,
Labor, and OMB) said that these agencies had no comments, but they provided
some technical revisions that we have incorporated as appropriate to clarify
information pertaining to their agencies.

We are sending copies of this report to Senator John Breaux, Senator Bill
Frist, Senator Phil Gramm, Senator Tom Harkin, Senator James Jeffords,
Senator Edward Kennedy, Senator Carl Levin, Senator Richard Luger, Senator
Paul Sarbanes, Senator John Warner, Representative Dan Burton,
Recommendation for

Executive Action Agency Comments and Our Evaluation

B- 283779 Page 27 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

Representative William Clay, Representative Larry Combest, Representative
Barney Frank, Representative William Goodling, Representative Ralph Hall,
Representative Rick Lazio, Representative James Sensenbrenner, Jr.,
Representative Ike Skelton, Representative Floyd Spence, Representative
Charles Stenholm, Representative Jim Turner, and Representative Henry Waxman
in their capacities as Chair or Ranking Minority Members of Senate and House
Committees and Subcommittees. We are also sending copies to the Honorable
Jacob J. Lew, Director of OMB; the Honorable Dan Glickman, Secretary of
USDA; the Honorable Richard Riley, Secretary of Education; the Honorable
Andrew Cuomo, Secretary of HUD; the Honorable Alexis Herman, Secretary of
Labor; the Honorable William Cohen, Secretary of DOD; and the Honorable
Daniel Goldin, Administrator of NASA. We will also make copies available to
others on request.

Major contributors to this report are listed in appendix VII. If you have
any questions about this report or would like to discuss it further, please
contact either Christopher Mihm on (202) 512- 8676 or Barry Holman on (202)
512- 5581.

Sincerely yours, J. Christopher Mihm, Associate Director Federal Management
and Workforce Issues

Barry Holman Associate Director Defense Management Issues National Security
and International Affairs Division

Page 28 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

Contents 1 Letter 30 Appendix I Background

32 Appendix II Overview of Agencies' FAIR Act Inventories

34 Agencies' Procedures for Responding to Challenges and

Appeals Varied 34

Agencies Were Generally Timely and Responsive to Issues Raised

35 Appendix III

Agencies' Procedures for Responding to Challenges and Appeals

37 GAO Comment 39 Appendix IV Comments from the

Department of Education

40 GAO Comments 42 Appendix V Comments from the

Department of Housing and Urban Development

43 Appendix VI Comments from the National Aeronautics and Space
Administration

Contents Page 29 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

44 Appendix VII GAO Contacts and Staff Acknowledgments

Table 1: Summary of Industry and Employee Challenges and Appeals to Agencies

2 Table 2: Number of Industry and Employee Challenges

Filed at CFO Act Agencies 7

Table 3: Agency Decisions on Challenges and Appeals 8 Table 4: Issues Raised
by Industry That Were Not Within

the Provisions of the FAIR Act 11

Table 5: Issues Raised by Employees That Were Not Within the Provisions of
the FAIR Act

16 Table I. 1: Reason Codes Contained in OMB Circular A- 76

Guidance 31

Table II. 1: Number of FTEs Associated With Commercial Activities on CFO Act
Agencies' Inventories for 1999

32 Tables

Appendix I Background

Page 30 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

It is the general policy of the federal government that it will rely on the
private sector for goods and services that are not inherently governmental.
Reasons an activity might be considered inherently governmental include the
fact that it might

ï¿½ bind the United States to take or not take some action by contract,
policy, regulation, authorization, order, or otherwise;

ï¿½ determine, protect, and advance economic, political, territorial,
property, or other interests by military or diplomatic action, civil, or
criminal justice proceedings, contract management, or otherwise;

ï¿½ significantly affect the life, liberty, or property of private persons;

ï¿½ commission, appoint, direct, or control officers or employees of the
United States; or

ï¿½ exert ultimate control over the acquisition, use, or disposition of the
property (real or personal, tangible, or intangible) of the United States.

The policy that the federal government will rely on the private sector for
those goods and services that are not inherently governmental has been in
place for 45 years and is currently embodied in the Office of Management and
Budget's (OMB) Circular A- 76.

OMB implemented the FAIR Act by revising Circular A- 76 and the handbook and
incorporating FAIR Act requirements that

ï¿½ agencies annually prepare and submit to OMB inventories of commercial
activities;

ï¿½ OMB review the inventories and publish notices of public availability;

ï¿½ interested parties can lodge administrative challenges and appeals of an
agency's decisions to include or exclude a particular activity from the
agency's inventory; and

ï¿½ agency heads review the activities on the inventories within a reasonable
time after the publication of their notice of availability. Each time that
an agency head considers contracting with a private sector source for the
performance of an activity, the agency head will use a competitive process
to select the source.

Not all of an agency's commercial activities are subject to OMB's A- 76 cost
comparison study requirements. For example, cost comparisons are not
required to convert commercial activities to or from in- house or contract,
or to an inter- service support agreement when these activities are for

ï¿½ ensuring the national defense or national intelligence security,

Appendix I Background

Page 31 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

ï¿½ maintaining the quality of patient care at government- owned hospitals or
health facilities,

ï¿½ ensuring the government has the necessary capabilities to fulfill its
mission responsibilities or meet emergency requirements, or

ï¿½ supporting research and development. Cost comparisons are also not
required under Circular A- 76 for activities involving 10 or fewer FTEs, or
when no satisfactory commercial source is available to perform them. OMB's
A- 76 guidance contains “reason codes” for agencies to use to
categorize their activities, as shown in table I. 1.

Reason code Explanation

A The activity is performed by federal employees and is specifically
exempted by

the agency from the cost comparison requirements of the Circular and the
Supplemental Handbook.

B The activity is performed by federal employees and is subject to the cost

comparison or direct conversion requirements. C

The activity is performed by federal employees but has been specifically
made exempt from the provisions of the Circular and the Supplemental
Handbook by Congress, Executive Order, or OMB.

D The activity is currently performed by in- house federal employees and is
in the

process of being cost compared or converted directly to contract or inter-
service support agreement performance. E The activity is retained in- house
as a result of a cost comparison.

F The activity is currently performed by federal employees, but a review is
pending

a force- restructuring decision (i. e., base closure, realignment,
consolidation, etc.). G The activity is prohibited from conversion to
contract because of legislation. H Waiver issued.

I The activity is performed in- house as a result of a cost comparison
resulting from

a decision to convert from contract to in- house performance. Source: OMB
Circular A- 76 Supplemental Handbook.

The FAIR Act, in addition to requiring that agencies annually compile
inventories, also requires agencies to review them. In an effort designed to
improve the understandability of agencies' 2000 FAIR Act inventories, OMB
(1) instructed agencies to use a standard format; (2) provided additional
explanatory material on the use of reason codes; (3) developed additional
function codes to facilitate the development of inventories; (4) required
that agencies post their inventories on their internet sites; and (5)
instructed that agencies provide, in their annual management of commercial
activity reports to OMB, a description of the agency's plans to review
activities identified as commercial on their FAIR Act inventories.

Table I. 1: Reason Codes Contained in OMB Circular A- 76 Guidance

Appendix II Overview of Agencies' FAIR Act Inventories

Page 32 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

The number of FTEs that the 24 Chief Financial Officer Act agencies
identified as performing commercial activities ranged from 16 FTEs at the
National Science Foundation to 504,417 at the Department of Defense (DOD)
(as shown in table II. 1). DOD identified the largest number of FTEs
performing activities that could be competed, or about 48 percent of its
commercial FTEs. Six agencies did not identify any FTEs performing
activities that could be considered for competition.

Recognizing that agencies may have legitimate reasons for not studying
certain commercial activities under OMB Circular A- 76, the Office of
Management and Budget (OMB) instructed agencies to classify activities under
reason code A when they determined that the activities were specifically
exempt from the cost comparison requirements of the Circular and the
Supplemental Handbook. Agencies classified a total of 208,423 FTEs, or 23
percent, as performing commercial activities categorized under reason code
A. Agencies were instructed to list activities under reason code B when they
determined that the activity was subject to the cost comparison or direct
conversion requirements of the Circular and Supplemental Handbook. Agencies
categorized 294,802 FTEs, or 33 percent, as performing commercial activities
under reason code B and thus as being competitive. OMB instructed agencies
to categorize activities under reason code C when the activity had been
specifically made exempt from the provisions of the Circular and
Supplemental Handbook by Congress, Executive Order, or OMB. Agencies
identified a total of 304,307 FTEs, or 34 percent, performing activities
classified under reason code C.

Agencies identified few FTEs performing activities under other reason codes.
These reasons include the agencies' determinations that the activities (1)
are prohibited from conversion to contract because of legislation, (2) had
been or are in the process of being subject to cost comparison studies, (3)
are pending force restructuring decisions, or (4) are subject to a waiver. A
total of 87,233 FTEs were categorized as performing activities under other
codes.

Agency Reason code A Reason code B Reason code C Other Total FTEs

Agriculture 6,612 16,132 25,648 116 48,508

Commerce a N/ A N/ A N/ A N/ A N/ A

DOD 121,970 241,420 74,174 66,853 504,417

Education 0 0 3,624 0 3,624

Energy 9,586 619 1,560 0 11,765

Environmental Protection Agency 775 30 24 0 829

Federal Emergency Management Agency 2,302 22 0 0 2,324 Table II. 1: Number
of FTEs Associated With Commercial Activities on CFO Act Agencies'
Inventories for 1999

Appendix II Overview of Agencies' FAIR Act Inventories

Page 33 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

Agency Reason code A Reason code B Reason code C Other Total FTEs

Health and Human Services 21,154 2,506 8,971 246 32,877

HUD 290 231 5,785 0 6,306

General Services Administration b 874 4,556 0 1,819 7,249

Interior 5,043 2,834 10,119 0 17,996

Justice 3,034 1,198 0 59 4,291

Labor 402 523 1,870 23 2,818

NASA 7,957 0 0 0 7,957

National Science Foundation 16 0 0 0 16

Nuclear Regulatory Commission c 783 0 0 0 783

Office of Personnel Management 1,760 0 363 0 2,123

Small Business Administration 287 49 1,126 0 1,462

Social Security Administration 9,094 721 990 0 10,805

State 908 489 0 0 1,397

Transportation 7,332 3,163 1,390 911 12,796

Treasury 7,426 932 1,351 17,197 26,906

U. S. Agency for International Development 430 0 0 9 439

Veterans Affairs 387 19,377 167,313 0 187,077 Total 208,423 294,802 304,307
87,233 894,765

a FTE's were not clearly designated in Commerce's FAIR Act inventory. b The
General Services Administration's (GSA) categories of commercial exempt,
competitive, and inhouse corresponded to, according to GSA officials, reason
codes A, B, and F, respectively. Reason code F indicates that a review of
the activities performed by those FTEs is pending a force restructuring
decision (such as base closure, realignment, consolidation, etc.). c
Excludes the agency's Office of Inspector General.

Source: Agency information and GAO analysis.

Appendix III Agencies' Procedures for Responding to Challenges and Appeals

Page 34 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

The Departments of Agriculture (USDA), Housing and Urban Development (HUD),
and Defense (DOD) delegated much of the responsibility for responding to
challenges and appeals to their component agencies. Education and Labor both
retained responsibility at the department level, while the National
Aeronautics and Space Administration (NASA) used a centralized but
organizationally independent approach. Even though the procedures these six
agencies developed differed, we found that agencies were generally
responsive to issues raised in both the challenges and appeals.

ï¿½ USDA and HUD delegated responsibility for responding to challenges to each
of their operating agencies. According to USDA officials, responsibility was
decentralized because of the diverse nature of USDA's missions and because
the department believed that the operating agencies should be aware of the
nature of challenges to USDA's inventory, given the components'
responsibilities for compiling USDA's inventory. A HUD official said that
responsibility was delegated within that department because of the belief
that the operating agencies would be more knowledgeable about their
positions and FTEs. Officials from both USDA and HUD said that
responsibility for responding to appeals was centralized to retain
independence. In addition, USDA officials said that, because OMB's guidance
states that responsibility for responding to appeals be retained at the
assistant secretary level, it was necessary to do so.

ï¿½ DOD delegated responsibility for responding to challenges and appeals to
the military services and DOD agencies, which used a variety of approaches
to respond to challenges and appeals. The Army, for example, designated a
central point of contact for all of Army's challenges and appeals. The Air
Force, however, delegated responsibility for responding to challenges and
appeals to its major commands.

ï¿½ Education and Labor both retained responsibility at the department level.
Within Education, the Chief Financial Officer was authorized to respond to
challenges. This official reports to the Deputy Secretary, who was
authorized to respond to appeals. Within Labor, the Procurement Executive
was authorized to respond to challenges. This official reports to the
Assistant Secretary for Administration and Management, who was authorized to
respond to appeals.

ï¿½ NASA used a centralized but organizationally independent approach to
responding to challenges and appeals. According to NASA officials, authority
for responding to challenges and appeals was retained at NASA headquarters,
but was delegated to separate Associate Administrators to ensure that the
process was as independent as possible within the agency. Agencies'
Procedures

for Responding to Challenges and Appeals Varied

Appendix III Agencies' Procedures for Responding to Challenges and Appeals

Page 35 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

We found that the differences in procedures the six agencies used to respond
to challenges and appeals did not appear to result in differences in how
timely or responsive agencies were. According to FAIR Act officials at the
six agencies, the agencies tried to respond to interested parties within the
time frames set forth in the act and as defined by OMB's guidance. In its
guidance, OMB defined the time frame for responding to challenges as 28
calendar days and that for responding to appeals as 10 working days. 1

We found that the six agencies generally met OMB's time frames, with few
exceptions. Of the six agencies, USDA was more frequently late than the five
other agencies in responding to challenges. It was also late in responding
to appeals. According to USDA officials, its operating agencies did not
always meet the time frames for responding to challenges because of the
delays caused by forwarding the challenges to appropriate agency officials.
The size and geographic dispersion of some agencies also resulted in delays
in obtaining information necessary to be responsive to issues raised in the
challenges.

USDA also did not meet time frames for responding to appeals because,
according to USDA officials, many of the challenges raised issues that went
beyond the provisions set forth in the FAIR Act. Because many of the appeals
reiterated these same issues, USDA officials said that USDA wanted to ensure
that it further explored the basis for the issues, and was fully responsive.
Thus, responses underwent extensive review at the department level prior to
being finalized. Responses to appeals, most of which were submitted by
interested parties to USDA in December 1999, were not sent out to interested
parties until June 2000. These officials acknowledged that the amount of
time to respond was extensive, but they said that they notified interested
parties that they would be late in responding and, further, because it was
USDA's belief that an interested party would not be financially injured by
the delay, its caution was believed to be justified.

DOD's Defense Logistics Agency (DLA) also was not timely in responding to
its challenges and appeals. DLA received four challenges to its FAIR Act
inventory, but as of September 20, 2000, it had responded to only three

1 To assist agencies in responding to challenges to their 2000 inventories,
OMB is proposing to change the 28- day time frame from calendar to working
days, providing agencies with some additional time to prepare their
responses. Agencies Were

Generally Timely and Responsive to Issues Raised

Appendix III Agencies' Procedures for Responding to Challenges and Appeals

Page 36 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

of them. One challenge, dated January 28, 2000, remains unresolved. An
agency official explained that the challenge remains unresolved because of
differences in opinion among the functional offices that are involved in
issues related to the challenge. Further, DLA received appeals to each of
the three challenges to which it responded. All remain unresolved.

Appendix IV Comments from the Department of Education

Page 37 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

See pp. 19 and 20. See p. 10. Note: GAO comments

supplementing those in the report text appear at the end of this appendix.

Appendix IV Comments from the Department of Education

Page 38 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

See p. 24.

Appendix IV Comments from the Department of Education

Page 39 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

The following is GAO's comment on the Department of Education's letter dated
September 15, 2000.

1. The Department of Education agreed that the usefulness of FAIR Act
inventories was limited and that OMB must undertake a sustained effort to
help improve the clarity of inventories and help ensure that agencies review
them. We revised the section of the report entitled “Most of
Industry's Challenges and Appeals Reflected Broad FAIR Act Implementation
Concerns” to include additional information about Education's response
to a challenge, and the section entitled “Agencies Identified the Need
for Improved Clarity on Their Inventories” to reflect Education's
desire to have function codes defined and Education's concerns over future
challenges it may receive should such definitions not be developed. We
revised the section entitled “Agencies Agree That Comprehensive Data
on All Their Activities Could Help Inform Management” to further
explain the extent of contract information Education obtains. GAO Comment

Appendix V Comments from the Department of Housing and Urban Development

Page 40 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

See comment 1. Note: GAO comments

supplementing those in the report text appear at the end of this appendix.

Appendix V Comments from the Department of Housing and Urban Development

Page 41 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

See comment 2.

Appendix V Comments from the Department of Housing and Urban Development

Page 42 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

The following are GAO's comments on the Department of Housing and Urban
Development's (HUD) letter dated September 15, 2000.

1. HUD was concerned that the draft was misleading because it appeared we
based a statement about the clarity of its inventory on its “Annual
Report on Management of Commercial Activities.” However, this was not
the case. We obtained information about the clarity of HUD's inventory for
1999 from HUD's FAIR Act official who was responsible for ensuring that HUD
compiled an inventory that met statutory and OMB reporting requirements.
This official reviewed and compiled HUD component organizations' lists of
commercial activities for submission to OMB. We revised the report to
reflect that HUD's review identified and corrected inconsistencies but that
HUD believes that better defined function codes would aid in this effort.

2. We agree that the FAIR Act does not require agencies to compile
inventories of activities performed by contract that are comparable to its
inventories of commercial activities performed in- house, and the report
notes this in the section entitled “Agencies Agree That Comprehensive
Data on All Their Activities Could Help Inform Management.” We further
clarified this distinction and deleted one reference to HUD from the report.
GAO Comments

Appendix VI Comments from the National Aeronautics and Space Administration

Page 43 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

Appendix VII GAO Contacts and Staff Acknowledgments

Page 44 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

J. Christopher Mihm, (202) 512- 8676 Barry W. Holman, (202) 512- 5581

In addition to those named above, Marcia McWreath, Margaret Morgan, Steven
Boyles, Robert Poetta, Susan Ragland, Jerry Sandau, Jim Turkett, and Marilyn
Wasleski made key contributions to this report. GAO Contacts

Acknowledgments

Page 45 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

Page 46 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

Page 47 GAO/ GGD/ NSIAD- 00- 244 FAIR Act Challenges and Appeals

Ordering Copies of GAO Reports The first copy of each GAO report and
testimony is free. Additional copies are $2 each. Orders should be sent to
the following address, accompanied by a check or money order made out to the
Superintendent of Documents, when necessary. VISA and MasterCard credit
cards are accepted, also. Orders for 100 or more copies to be mailed to a
single address are discounted 25 percent.

Order by mail: U. S. General Accounting Office P. O. Box 37050 Washington,
DC 20013

or visit: Room 1100 700 4 th St. NW (corner of 4 th and G Sts. NW) U. S.
General Accounting Office Washington, DC

Orders may also be placed by calling (202) 512- 6000 or by using fax number
(202) 512- 6061, or TDD (202) 512- 2537.

Each day, GAO issues a list of newly available reports and testimony. To
receive facsimile copies of the daily list or any list from the past 30
days, please call (202) 512- 6000 using a touchtone phone. A recorded menu
will provide information on how to obtain these lists.

Viewing GAO Reports on the Internet For information on how to access GAO
reports on the INTERNET, send e- mail message with “info” in the
body to:

info@ www. gao. gov or visit GAO's World Wide Web Home Page at: http:// www.
gao. gov Reporting Fraud, Waste, and Abuse in Federal Programs To contact
GAO FraudNET use: Web site: http:// www. gao. gov/ fraudnet/ fraudnet. htm
E- Mail: fraudnet@ gao. gov Telephone: 1- 800- 424- 5454 (automated
answering system)

United States General Accounting Office Washington, D. C. 20548- 0001

Official Business Penalty for Private Use $300

Address Correction Requested Bulk Rate

Postage & Fees Paid GAO Permit No. G100

(410526)
*** End of document. ***