The rise of the 'critical function': A new way to think about acquisition

In 2008, Congress told the Office of Management and Budget to craft a clarified definition of the inherently governmental function, or a job that only a federal employee can do. Lawmakers wanted a more black-and-white definition.

Although OMB's Office of Federal Procurement Policy might release that definition soon, the term has actually lost its importance in the acquisition community. What intrigues everyone now is a new term, “critical function,” which is even more difficult to define.

The critical function has subsumed the importance of the inherently governmental function because the Obama administration has said it wants to outsource fewer jobs to contractors.

Now agencies need to decide what is core to their operations, and the administration is telling officials to give that work to federal employees. Moreover, the critical function also brings a new way for agency officials to think about acquisition and the blended workforce of contractors and federal employees.

Related stories:

Managing the Multi-Sector Workforce OMB memo

Workforce balance boomerangs toward insourcing

Insourcing talk reignites debate about cost of government services

Defining inherently governmental functions was important when agencies were holding public/private competitions for federal work during the Clinton and Bush administrations. Agencies had to know what they could and could not potentially outsource. Most recently, under Bush, essentially all work could be outsourced under the 40-year-old OMB Circular A-76 policy. The agency only had to accomplish the work by finding the best value.

“I don’t think there’s any question that this administration plans to reverse the Bush and Clinton trend in this regard,” said Steven Schooner, associate law professor and co-director of the Government Procurement Law Program at George Washington University.

The Obama administration unveiled the critical function term to agencies in a July 29, 2009, OMB memo, titled "Managing the Multi-Sector Workforce." White House officials want those jobs pulled away from contractors — no matter the cost. In other words, agency officials don’t need to justify taking work away from contractors with a full cost/benefit analysis, the memo states.

“There may be circumstances where performance and risk considerations in favor of federal employee performance will clearly outweigh cost considerations,” wrote OMB Director Peter Orszag.

As agencies adjust to the new policy, there are several areas in which they will need to change.

First, agencies will need to budget differently. The government budgeting process is much slower than the process of awarding a contract.

Although President Barack Obama just released his budget for fiscal 2011, which doesn’t begin until October, agencies are already thinking about funding requests for fiscal 2012. If they plan to insource critical functions, they need to start budgeting now, said one government official involved in a department’s budgeting process.

After requesting the money, agencies must secure the money from Congress and then recruit workers. The process could take up to five years to do correctly. “Time that with getting the work done in the interim,” the official said.

Some departments have taken up the task, such as the Defense and Homeland Security departments, which have relied heavily on contractors. Larry Orluskie, a DHS spokesman, said department officials have testified before Congress several times over the years about nearly inherently governmental functions and addressed the balanced workforce issue in the department's recent acquisition savings report to OMB.

Critical-function thinking also stirs up concerns about hiring, too. Agencies need to consider the various aspects of the job they’re hiring for. If it’s a short-term project, for instance, it might be better to hire a contractor with a short-term contract instead of a permanent new employee. Otherwise an agency could have too many people on its hands with little work to do, said Robert Burton, former deputy OFPP administrator and now partner at Venable law firm.

And increasing staff can cause another problem. “In the federal government, it’s difficult to — difficult to —,” Burton said, pausing before finishing the thought: “You have to keep them.”
 
Finally, a definition of a critical function doesn’t exist yet. OMB’s memo in July left the term open to interpretation. Every agency must make its own policy decisions about what is critical to its mission. It will be one of the most important policy decisions they make, experts agree.
 
“Agencies need to proceed cautiously,” Burton said, because the rule gives them so much discretion.