New regs mean continued downsizing

The Office of Management and Budget recently issued new contracting-out regulations to facilitate federal agencies' compliance with the Federal Activities Inventory Reform (FAIR) Act of 1998 (see Federal Register, June 24, 1999; pages 33, 927-33, 935). But the new regulations represent nothing more than a continuation of the Clinton administration's ongoing efforts to farm out work done by federal employees.

The new OMB regulations revise existing guidance on the management of commercial activities through revisions to OMB Circular A-76, "Performance of Commercial Activities," and to its supplemental handbook. These revisions inform agencies of the FAIR Act's requirements, implement its statutory requirements and place its requirements in the context of the government's reinvention, competition and privatization efforts.

President Clinton signed the FAIR Act into law on Oct. 12, 1998. The act directs agencies to submit an annual inventory of all their activities that are not inherently governmental. In other words, they have to identify all the functions performed by their employees that otherwise could be handled in the private sector.

Under the act, OMB is to review each agency's commercial activities inventory and consult with the agency regarding its content. I'm not sure what that means, except that it suggests that OMB will review the inventory for completeness. After this review and consultation, the agency then must transmit a copy of the inventory to Congress and make it available to the public. The FAIR Act establishes an administrative appeals process under which an interested party (such as a contractor, a public interest group or an employee group) may challenge the omission or inclusion of a particular activity on the inventory.

Finally, the FAIR Act requires agencies to review the activities on the inventory with an eye toward contracting out activities that would save the agency money. Each time the head of an agency considers contracting with a private-sector source to perform such an activity, he or she must use a competitive process. When conducting cost comparisons between performing a function in house and contracting out, agencies must ensure that all costs are considered.

In enacting the FAIR Act, OMB explains that Congress did not displace longstanding executive branch policy regarding the performance of commercial activities.

According to OMB, the government wants to use competition to obtain the best service at the least cost to the American taxpayer.

The policy regarding the performance of commercial activities has long been resident in Circular A-76, although different administrations have varied their adherence to the policy. At times there was little interest in contracting out government activities, but interest has increased recently.

The Clinton administration seems to be the most aggressive in this regard, and this is reflected in the reinventing government initiative that Vice President Al Gore has championed.

The reason for this initiative, notwithstanding what the White House or OMB may say, is that contracting out government activities reduces the size of the federal work force - and that plays well in Peoria.

In reality, most observers who are in the know do not believe that contracting out saves taxpayers money, and some GAO reports suggest that the opposite is true. Agencies rarely compare their initial costs of contracting out with their costs a few years hence, and that's how some contractors make their money. They place a highly competitive bid, obtain the work, and then start ratcheting up their charges over the ensuing months.

Contracting out also offers members of Congress an opportunity to lend a helping hand to their constituents, so they turn a blind eye to this behavior.

The FAIR Act ordained into law much of the OMB guidance, making me wonder why it was necessary in the first place. In particular, the act codified the standing requirement for agencies to inventory their commercial activities as well as the standing definition of an inherently governmental function.

Nevertheless, OMB has concluded that the best way to provide agencies with clear guidance on how to implement the FAIR Act is to revise Circular A-76 and the accompanying handbook. Accordingly, OMB, after seeking agency and public comments on proposed revisions, has revised it.

To implement the FAIR Act's inventory requirement, OMB has made conforming changes to the inventory requirement of the handbook. The changes incorporate the June 30 statutory due date for agency submissions.

And to ensure that agencies comply with the FAIR Act's requirement for review on an inventory within a reasonable time, OMB now will require annual reports that will discuss the implementation, status and results of the FAIR Act process.

OMB also has clarified that agencies should permit employee involvement in the development of the inventory, somewhat like asking condemned prisoners to dig their own graves.

"Improving the quality and reducing the cost of commercial activities is an integral part of managing the nation's resources," OMB states. "The agencies and OMB have an ongoing responsibility to ensure that these activities are performed in a manner that is cost-effective and in the best interest of the taxpayer."

This sounds good, but I'll believe it when I start seeing agency audit staffs looking at contractors' activities with the same vigor and zeal they show when auditing agency activities.

--Bureaucratus is a retired federal employee who contributes regularly to Federal Computer Week.

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