Order Code RL32833
CRS Report for Congress
Received through the CRS Web
Competitive Sourcing Legislation
March 29, 2005
L. Elaine Halchin
Analyst in American National Government
Government and Finance Division
Congressional Research Service { The Library of Congress

---

Competitive Sourcing Legislation
Summary
As a federal government policy, competitive sourcing debuted in 1966 with the
publication of Office of Management and Budget (OMB) Circular A-76. Under the
circular, commercial activities performed by federal employees are subjected to
public-private competition. Until the late 1990s, the executive branch, namely OMB,
almost exclusively, led the competitive sourcing effort, issuing revisions to the
circular, overseeing implementation of the policy, and providing guidance to
agencies.
Beginning with the Federal Activities Inventory Reform (FAIR) Act (P.L. 105-
270), congressional interest and involvement in competitive sourcing, as measured
by legislation that has been enacted, has grown. During the 106th Congress,
legislation (Section 832 of P.L. 106-398) was passed directing the General
Accounting Office (GAO; now known as the Government Accountability Office) to
establish a panel that would examine Circular A-76 and related issues. Eight bills
with competitive sourcing provisions were passed, and signed by the President,
during the 108th Congress. Protest rights for federal government employees, funding
limits on competitive sourcing activities, and reporting requirements were some of
the issues addressed by these provisions. A requirement for agencies to develop a
most efficient organization (MEO) and to apply the conversion differential to
competitions that involve more than 10 full-time equivalents (FTEs) was included
in five statutes (P.L. 108-87, P.L. 108-108, P.L. 108-199, P.L. 108-287, and P.L. 108-
375). (The MEO is the staffing plan of the agency tender, which is the government’s
response to a solicitation. The conversion differential, $10 million or 10% of the
government’s personnel costs for the function under study, whichever is less, is
added to the price or cost of the non-incumbent’s proposal. An FTE is the staffing
of a federal civilian position expressed in terms of annual productive work hours
(1,776 hours).) This report will be updated if relevant legislation is enacted.

---

Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Selected Topics Related to Competitive Sourcing Legislation . . . . . . . . . . . . . . 12
Commercial Activities Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Commercial Activities Panel (CAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Competitive Sourcing Targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Funding Limits on Agency Competitive Sourcing Activities . . . . . . . . . . . 14
MEO and Conversion Differential Requirement . . . . . . . . . . . . . . . . . . . . . 14
Protest Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Reporting to Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
List of Tables
Table 1. Competitive Sourcing Statutes and Provisions . . . . . . . . . . . . . . . . . . . . 3

---

Competitive Sourcing Legislation
Background
Competitive sourcing is a government-wide initiative that subjects commercial
activities performed by federal government employees to public-private competition.1
A commercial activity is “a recurring service that could be performed by the private
sector,” whereas “an inherently governmental activity is an activity that is so
intimately related to the public interest as to mandate performance by government
personnel.”2 In a public-private competition, federal agency employees prepare an
“agency tender,” which is, in effect, the government’s equivalent of a contractor’s bid
or proposal.
Until the 1990s, the policy and procedures (including revisions and other
changes) involving competitive sourcing were effected by the executive branch,
namely the U.S. Office of Management and Budget (OMB) and its predecessor, the
Bureau of the Budget. The bureau issued the original Circular A-76, dated March 3,
1966. OMB has published six revisions to the circular and issued additional
guidance, generally in the form of memoranda, on various subjects related to
competitive sourcing.3 The Administrations of Ronald Reagan and George W. Bush
also have been directly involved in competitive sourcing policy and guidance. In
1987, President Reagan signed an executive order that directed federal agencies,
beginning in FY1989, to subject at least 3% of their civilian positions to public-
private competition each fiscal year until all commercial activities had been studied.4
In 2001, President Bush identified competitive sourcing as one of the five major
components of the President’s Management Agenda (PMA).5 In an effort “to
achieve efficient and effective” public-private competition, the Bush Administration
“committed itself to simplifying and improving the procedures for evaluating public
1 Competitive sourcing is one of the President’s Management Agenda (PMA) initiatives.
See [http://www.whitehouse.gov/results/agenda/index.html], visited Feb. 16, 2005.
2 U.S. Office of Management and Budget, Circular No. A-76 (Revised), May 29, 2003, pp.
D-2 and A-2, available at [http://www.whitehouse.gov/omb/circulars/a076/a76_incl_tech_
correction.pdf], visited Jan. 3, 2005.
3 Revisions were published in 1967, 1979, 1983, 1996, 1999, and 2003. The 1999 and 2003
revisions are available at [http://www.whitehouse.gov/omb/circulars/index.html], visited
Mar. 22, 2005.
4 U.S. President (Reagan), “Performance of Commercial Activities,” Executive Order 12615,
Federal Register, vol. 52, no. 225, Nov. 23, 1987, p. 44853.
5 See [http://www.whitehouse.gov/results/agenda/index.html], visited Feb. 16, 2005.

---

CRS-2
and private sources, to better publicizing the activities subject to competition and to
ensuring senior level agency attention to the promotion of competition.”6
Legislation
On occasion, congressional committees have held hearings on competitive
sourcing. In 1995, for example, the Subcommittee on Civil Service of the House
Committee on Government Reform and Oversight held a hearing titled “Contracting
Out: Summary and Overview.”7 However, congressional involvement in competitive
sourcing, as measured by legislation that has been enacted, apparently was non-
existent until the 105th Congress, when the Federal Activities Inventory Reform
(FAIR) Act was signed into law.8 In the following Congress, a provision in a defense
authorization act required the General Accounting Office (GAO, which was renamed
the Government Accountability Office in 2004) to convene a panel to examine
Circular A-76 and related issues.9 Legislation involving competitive sourcing
proliferated during the 108th Congress. Key provisions of the measures enacted
during the 105th, 106th, and 108th Congresses are summarized below, in Table 1.
Following the table is a discussion of selected topics related to competitive sourcing
legislation that has been enacted.
6 Executive Office of the President, Office of Management and Budget, The President’s
Management Agenda, FY2002, p. 17, available at [http://www.whitehouse.gov/omb/budget/
fy2002/mgmt.pdf], visited Mar. 22, 2005.
7 U.S. Congress, House Committee on Government Reform and Oversight, Subcommittee
on Civil Service, Contracting Out: Summary and Overview, 104th Cong., 1st sess., Mar. 29,
1995 (Washington: GPO, 1995).
8 P.L. 105-270.
9 P.L. 106-398.

---

b
ity
to
’s list.
how
r
c
o
ailable to
ency
76.
es f
ees.
the transfer
A-
the Dept. of
ar
ade av
ploy
pared, and how
erning
as required to
ocedur
entories of
ission of an activ
is a function that is
v
rcul
une 30.
on, an ag
o
) w
J
ity
ity
ent em
P
A
it inv
entation by
by
B
ress and m
ees, how costs of public
ernm
R and Ci
em
M
v
ene a panel of experts to
pl
o
ploy
ental activ
R, and DOD pr
appeal the om
Summary
ay
ities to contractors, including
ance should be com
ed FAI
ities Panel (C
FAI
petitions.
ities to O
ernm
v
ent
o
federal g
of
g
em
ctiv
related to the public interest as to require
federal em
pl
m
ate com
DOD)
ately
ercial activ
ate perform
76 procedures, im
isions
ance by
ed by
ercial activ
m
ine what functions should continue to be
ercial A
priv
the policies and procedures g
A-
m
, or the inclusion of an activ
m
encies are required to subm
entories are sent to Cong
ense (
v
terested parties m
m
o
Ag
com
In
the public.
In
from
An inherently
so intim
perform
GAO was directed to conv
study
of com
determ
perform
and priv
DOD has i
C
study
Def
public-
—
—
—
—
—
—
1, 2002
3
n
o
May
CRS-
Durati
e Sourcing Statutes and Prov
Indefinite
Report due by
t
en
ide, excluding
m
el
cope
w
ccounting
rn
wide
S
-lev
Table 1. Competitiv
ve
ent-
ent-
, go
entalities, and certain
eneral A a
ernm
ernm
ffice
aintenance and repair
Gov
the G
O
corporations,
nonappropriated funds
instrum
DOD depot
m
functions
Gov
entory
v
n
ct
ation Act,
ities I
) A
IR
Statute
270
ctiv
398, Section 832
(FA
d D. Spence National
eform
P.L. 105-
Federal A
R
P.L. 106-
Floy
Defense Authoriz
FY2001

---

ersion
aiian
and
onths
ate
as based
aw
ance to
O’Day
priv
e H
e sourcing
ner-
reasury
sis.
ativ
ance under this
ultifunction
Wag
petitiv
the T
this act could be used
st efficient
its-
this statute could be
, or enforce any
et, or quota w
re than 10 DOD
ent perform
o
o
av
com
onths (m
ernm
eloped and the conv
racts or contracts for depot
petition carried out under
al, targ
v
to J
o
iated by
o
g
d
ndian tribes, N
ard any
petition exceeded 24 m
) or 36 m
Summary
ate com
et, or quota for public-
ent Appropriations Act, FY2003,
ance unless a m
priv
ees from
ernm
al, targ
as applied.
e
o
ploy
ct suppliers, I
et.
ersions to contractor perform
ould count tow
-76 if the com
ert a function that had m
ation (MEO) was dev
) A
ations, and depot cont
D
erical g
).
petitions unless the g
conv
le function study
ilian em
aniz
is section does not apply
aniz
h
WO
aintenance.
al or targ
o
ircular A
None of the funds appropriated by
General Gov
could be used to establish, apply
num
com
on considered research and sound analy
None of the funds appropr
to conv
civ
contract perform
org
differential w
T
(J
org
m
Any
section w
g
None of the funds appropriated by
used for a public-
C
(sing
study
—
—
—
—
—
4
n
o
CRS-
Durati
FY2003
FY2004
ide
cope
w
S
ent-
ernm
Gov
DOD
Statute
7, Section 647
87, Sections 8014
ent of Defense
P.L. 108-
Consolidated Appropriations
Resolution, FY2003
P.L. 108-
and 8022
Departm
Appropriations Act, FY2004

---

it
it
terior
ber
n
e
ecem
as
$500,000
e sourcing
e sourcing
riculture
e was to subm
ents of the I
petitiv
studies to the
and the
ance to contract
eloped and the
terior are to subm
petitiv
y
studies.
n
this act could be used
ersions to contractor
ed abov
proposal w
ice are to identify
illion of the funds
studies.
, on com
ing
re than 10 federal
conv
nam
m
o
ndian tribes, and Nativ
e sourcing
ely
ram
e sourcing
ent perform
et requests funds needed to
, and the I
ent of Energ
y
Summary
terior could spend only
e sourcing
petitiv
n
ernm
petitiv
v
ppropriations no later than D
re than $5 m
o
o
ations. Any
g
m
this act could be used in FY2004 for
petitiv
o
aniz
ice), Energ
OD suppliers, I
with FY2005, the Departm
and the Forest Serv
ice com
y
in their budg
in 2003, the Secretaries of Ag
illion, respectiv
ear.
W
com
ent of the I
ance unless an MEO was dev
ittees on A
ert a function with m
ees from
inning
inning
m
ities unless a reprog
ersion differential was applied. Exceptions
m
ploy
o
FY2004, the Departm
Beg
and Energ
separately
perform
Beg
(Forest Serv
reports on their com
C
31 each y
For FY2004, each Secretary
a report that identified planned com
studies.
In
Departm
and $2.5 m
activ
processed. N
appropriated by
Forest Serv
None of the funds appropriated by
to conv
em
perform
conv
included J
Hawaiian org
—
—
—
—
—
5
n
o
CRS-
Durati
Varies
ent
terior,
y
n
ities for
epartm
cope
S
ice (D
ent of the I
ent of Energ
s and activ
riculture), and
g
ram
this statute
Departm
Forest Serv
of A
Departm
prog
which funds are appropriated
by
terior
n
encies
Statute
108, Section 340
ent of the I
P.L. 108-
Departm
and Related Ag
Appropriations Act, FY2004

---

e
of
ance

ets for
is to
ated for
ittees on
a
e sourcing
m
ent’s
budg
e sourcing
m
ation in
plished and the
ency
o
ency
to rural
ance to contractor
it the perform
petitiv
e ag
petitiv
ag
ent could not use the
s.
this statute could be
re than 10 federal
o
com
ram
ities until the Secretary
relating
.
ity
ent perform
ency
ation issued to an MEO to fiv
ard any
Summary
ed specific authoriz
activ
loan prog
-76 activ
ernm
v
use appropriated funds, and any
itted a report to the C
o
g
ay
ress a report on com
receiv
islation, the departm
ailable in this statute to study
ert a function with m
f
et.
A
ircular A
-out policies, including
out.
D
e sourcing
ong
S
ent or farm
, the head of each executiv
ance that occurred under this section were to
ade av
ees from
ance unless an MEO was accom
heads are not required to lim
heads m
or C
ersion differential was applied.
it to C
ities in his or her ag
e been counted tow
petitiv
al or targ
IR
riculture subm
less U
elopm
ploy
ency
ency
o
g
n
ears or less.
perform
hav
g
None of the funds in this act could be oblig
FA
A
Appropriation that described the departm
contracting
contracting
U
subsequent leg
funds m
com
dev
None of the funds appropriated by
used to conv
em
perform
conv
Annually
subm
activ
Ag
period in a letter of oblig
y
Ag
—
—
—
—
—
—
6
n
o
CRS-
Durati
Varies
,
);
reasury
encies
ral
u
ision A
cope
S
iv
ent, Food and Drug
ents of
inistration, and Related
ndependent Ag
ision F)
riculture, R
elopm
encies (D
g
g
ransportation and T
iv
A
Dev
Adm
A
Departm
T
and I
(D
isions A
Statute
199, Div
P.L. 108-
and F
Consolidated Appropriations
Act, FY2004

---

e
ndian
ilian
petitiv
be used
ed in the
ation is
ay
that has been
ance cannot
com
ploy
ount paid by
ity
federal
aniz
e for his or her
encies, for
ance occurring
ance to contract
ard any
petition.
ed by
this act can be used
antag
this act m
re than 10 civ
OD suppliers, I
aintenance.
o
a health insurance plan
W
ations, or depot
adv
to J
aniz
ate com
perform
ent perform
st efficient org
e an
ance of an activ
ractor perform
opriated by
o
a health insurance plan
offering
petition carried out under
Summary
priv
ailable to their ag
et.
iously
ees within the United States.
ernm
ing
v
ersion differential is applied, and the
ees who are to be em
o
ak
, or by
erted to contractor perform
ploy
g
ate com
ploy
ade av
e Hawaiian org
priv
the perform
not m
al or targ
conv
o
ent em
ersions to cont
g
ed to a location outside the United States if the
ert a function that has m
ees from
ance unless a m
v
ected to a public-
work
o
has been prev
ernm
eloped, the conv
conv
onitoring
v
ploy
is section does not apply
o
ailable to em
h
other funds m
m
subj
Any
be m
work
g
None of the funds appr
to conv
em
perform
dev
contractor does not receiv
proposal by
av
function or study
that costs the contractor less than the am
DOD.
T
tribes, Nativ
contracts or contracts for depot m
Any
under this section are to count tow
sourcing
None of the funds appropriated by
for a public-
—
—
—
—
—
7
n
o
CRS-
Durati
FY2005
cope
S
DOD
Statute
287, Sections 8014
ent of Defense
P.L. 108-
and 8022
Departm
Appropriations Act, FY2005

---

)
al
’s
ance
be
O
ress
ate
ance
ay
petition
onths
ration
ation
e
priv
ig
Cong
m
ativ
udicial
m
ee perform
ultifunction
ate com
e sourcing
estig
h
priv
e or j
ploy
this statute m
ration inform
ith a public-
ance, the function is
petitiv
: 10% of the MEO
ig
illion.
onths (m
tender official (AT
m
ing
enship and I
es, or inv
ount that equals or
inistrativ
itiz
ency
ination to file, or not file, a
petition exceeds 24 m
adm
an am
) or 36 m
ines there is no reasonable basis
ines that contractor perform
Summary
by
nown as im
tender official is to notify
ees of C
e determ
ect to
h
e or conduct a public-
ency
ploy
T
) determ
g
petition that is required to include a form
house unless the com
-76 if the com
em
SO
related costs or $10 m
com
ing
ain in-
le function study
).
ices who are k
olv
ends 31 U.S.C. §§ 3551(2), 3552, and 3553, which
file a protest in connection w
petition.
iew. An ag
parison of the cost of federal em
ircular A
eans, in effect, that an ag
ay
C
(sing
study
None of the funds appropriated by
used to approv
inv
Serv
officers, contact representativ
assistants.
Am
m
m
com
protest is not subj
rev
when he or she determ
for a protest.
For any
com
with the cost of contractor perform
to rem
official (C
would be less costly
exceeds the lesser of the follow
personnel-
—
—
—
8
n
o
CRS-
Durati
aries
FY2005
V
eland
ions 327 and
)
ide (Section
cope
S
w
S
H
ent of Hom
(D
ent-
ernm
DOD (Sect
v
o
Departm
Security
G
326);
328)
eland
ation Act,
an National
Statute
334, Section 527
ent of Hom
Appropriations Act,
375, Sections 326-
P.L. 108-
Departm
Security
FY2005
P.L. 108-
328
Ronald W. Reag
Defense Authoriz
FY2005

---

R
it a
ent
ci
ice
way
the
ent has
subm
inister
serv
ittees on
ent’s
ets for
ram
o
ress that
to track
ees to
m
to any
of
m
o
ent from
riculture
red t
ploy
stem
ated for FAI
budg
136 (National
done by
equi
rk
ittee on
ency
o
m
is altered in any
s r
i
ag
er DOD has a suffi
ilian em
be oblig
ent of Ag
ity
h
ether the departm
of w
ay
the departm
h
pare the cost of federal
IG)
1, 2005, to Cong
e, reliable sy
al (
petitions and to adm
partm
e is to ensure that no DOD
pting
com
ision does not apply
trained civ
ities until the Secretary
Summary
itted a report to the C
ally
ance with the cost of contractor
that describes the departm
r Gener
ions of whet
ate com
prehensiv
is prov
ation Act for Fiscal Year 2004).
o
h
priv
of Defens
Section 336 of P.L. 108-
spect
contracts, and w
-76 activ
n
e quest
h
out policies, including
out.
ent to form
ent perform
ent Reform
ation, function, or activ
ance. T
ed by
ented a com
petitions conducted as part of a pilot prog
ber of adequately
ircular A
ernm
e Secretary
aniz
ernm
e DOD I
resulting
riculture has subm
h
v
plem
o
h
g
T
org
for the purpose of exem
requirem
g
perform
com
authoriz
Defense Authoriz
T
report no later than February
addresses t
num
conduct public-
any
im
and assess the cost and quality
contractors.
None of the funds in this act m
or C
A
Appropriations and the House Com
Gov
contracting
contracting
Section 757: Unless the De
—
—
—
—
9
n
o
CRS-
Durati
Varies
);
erce,
m
);
ral
u
ision A
ision B
cope
S
iv
iv
ent, Food and Drug
ents of Com
, and Related
inistration, and Related
riculture, R
elopm
encies (D
encies (D
g
g
stice, and State, the
g
A
Dev
Adm
A
Departm
Ju
Judiciary
A
isions A,
Statute
447, Div
P.L. 108-
B, and E
Consolidated Appropriations
Act, FY2005

---

s.
ice
illion
islation,
ity
ing
ram
s in
studies
m
ailable in
activ
$500,000
ram
force
ation until the
encies is to be
be used in
ade av
ities presently
ay
loan prog
and the
e sourcing
aniz
y
re than $2 m
o
work
e been notified of
the Forest Serv
e sourcing
m
of funds, for contracting
of funds.
spend only
, to continue or initiate
o
petitiv
ees, unless the
ing
ay
this act m
ent any
, or reorg
ing
m
ely
108 is repealed.
ation in subsequent leg
petitiv
ent or farm
m
ploy
ent of Energ
ice com
plem
ided under this act or under
ram
ittees are notified 15 day
ram
eet the criteria outlined in
Summary
functions or activ
m
terior m
studies until a reprog
a com
elopm
n
L. 108-
ppropriations hav
any
ities.
, restructuring
ing
federal em
ent cannot use the funds m
h a reprog
illion, respectiv
petitions conducted by
atiz
e sourcing
2005 that m
to rural dev
ed by
ent of the I
com
es specific authoriz
ittees on A
m
e EEOC cannot im
ious appropriations acts for these ag
ance of such reprog
petitiv
h
m
2005 for Forest Serv
o
one of the funds prov
FY2005, the Departm
receiv
the departm
this statute to study
relating
T
repositioning
C
such proposals.
N
prev
used, throug
out or priv
perform
Appropriations Com
adv
In
Departm
and $3.25 m
com
proposal has been processed. N
of the funds appropriated by
FY
and related activ
Section 340(b) of P.
For any
prior to FY
—
—
—
—
—
n
10
o
CRS-
Durati
terior
n
encies
cope
S
)
ent of the I
ision E
iv
Departm
and Related Ag
(D
Statute

---

,
rk
e
ed
et,
cy
an
o
d
y
d
r th
-3.)
o
dg
en
ciation
e w
f
alif
is a
Bu
e ag
petition
so
th
d
rm
ss,
cies
an
th
at qu
o
en
t
ts
com
al as
Ibid., p. D
erf
en
en
(
pt from
r is le
.
sion
p
it ag
ve
em
cy
ental costs
ld
petitions.
es
u
rof
ag
en
o
he
p
ic
n
d repres
h
o
itted to the
com
ic criteria th
at w
Man
er ag
, w
y
ice is exem
ecif
th
ied n
der an
ation and post-
ess or prof
p
fice of
is or h
sin
tity
alif
e s
ten
h
er stud
cy
i
e en
in
a bu
r th
o
en
ith
Summary
n und
this act are to include, in any
reports subm
e of
e ag
270 f
tio
-76 w
idelines.
ppropriations, increm
r th
u
tativ
. It is th
n
o
accorded to qu
a letter of oblig
g
en
func
. 105-
lar A
fice, 2002).
be
, MEO).” (U.S. Of
e sourcing
.L
r the
sible f
ircu
P
Of
licitatio
to
enting
g
o
fo
is
(e.g
ittees on A
attributable to conducting
f C
a repres
pon
tin
ts
ce
petitiv
m
n
an
res
” o
n
plem
encies funded by
m
rce,
cos
o
u
o
el
o is
Section 332(d), the Forest Serv
im
accountability
Ag
com
C
directly
ccou
se to a s
n
, priority
orm
h
tatio
pon
on
w
en
oods
perf
—
ector s
eral A
cy
ority
lem
. See Sec. 3(b) of
e g
p
en
ate s
t’s res
t’s pers
as
th
. Gen
en
en
ag
au
e im
20.
m
m
rch
in
g
a priv
ization
in
r th
B-
,
: U.S
pu
lts
o
an
ern
v
ern
v
ak
19-
ton
o
o
le f
g
cies
-m
n
g
brief
e g
resu
e
en
sib
11
o
in
ion
n
fice.
in
,
h
th
th
o
, pp. B-
is
of
t ag
Of
is
en
petition
decis
CRS-
a labor org
sed)
Durati
(Was
ich
h
m
party
10%
ith
ern
evi
tability
v
.
R
n
ted
ead of
nment
or
o
fficial resp
der, w
g
als
a ... com
o
e h
ficial w
cy
ccou
teres
en
ten
illion
en
h
idu
h
of
en
. A-76 (
o
t A
in
e Gover
cy
w
div
, or th
h
ts w
cy
N
en
t
en
at,
en
m
en
tal ag
ar
ct, an
cy
th
en
of
e ag
en
ern
A
tial, $10 m
tal ag
m
ircul
IR
th
plem
e ag
sions
of
icapped in
en
ern
C
feren
d
im
m
v
e Gov
tiv
directed
in
e FA
an
cy
o
g
d
ecu
plan
dif
h
ern
n
47)
en
v
u
ng Deci
g
o
tly
o
cope
ed th
er th
d
ex
fin
ion
ag
g
S
.”
ci
. §
am
n
erely
e f
an
taf
ers
eren
v
al.
.C
ev
6.)
tly
h
b
in
at an
e s
in
ay
as ren
ith
e Sour
er s
eren
.)
h
th
t th
e con
h
-2
w
ted party
h
en
“an
es m
s propos
in
ng t
t’
r oth
. D
is
fice w
e or appeal u
teres
. T
an
elin
g
en
fo
reem
“
in
ovi
b
., p
id
Of
ization
id
u
g
“
m
) is
an
(MEO) is
cies
29, 2003, p. D-
al ag
(CSO)
g
O
Ib
tin
allen
an
Impr
petition
cu
ct (JWOD; 41 U.S
en
n
rg
rm
T
” (
o
as
el,
-in
A
o
n.
ility
a ch
n
, May
an
ization
o
it ag
a f
fficial
tab
ccou
g
an
an
e com
Day
rof
o
n
sed)
ctio
g
u
ilin
e n
p
le
f
ization
O’
n
is “
ficial (A
ee of
ities P
s th
th
o
evi
of
rcin
eral A
of
an
t org
in
er-
R
u
n
ce se
acco
es
t of
ation
er
n
ploy
ctiv
so
org
t w
ag
ied n
d
ur
e
Statute
ficien
en
e Gen
rpos
m
-W
alif
oblig
. A-76 (
ten
etitio
p
st ef
its
o
cy
etitiv
e pu
ern
m
al or an
ercial A
o
N
en
ring so
p
m
v
d qu
u
o
ar
m
co
2004, th
ficer or em
idu
m
e m
e price or cos
e Jav
ag
n
er d
st-
tes:
h
e g
h
d an
letter of
co
For th
o
of
div
T
th
ircul
. A
nd
. A
No
a. In
b.
an
in
c. Co
d.
if
to th
e. T
blin
f. A
C
g
te
h
I. P

---

CRS-12
Selected Topics Related to
Competitive Sourcing Legislation10
Commercial Activities Inventory
The requirement for federal agencies to compile inventories of their commercial
activities, or functions, dates to the original Circular A-76 in 1966. Passage of the
FAIR Act in 1998 transformed this requirement into a statutory one and directed
agencies to submit their commercial activities inventories to OMB by June 30 each
year. The FAIR Act is also notable for including a definition of “inherently
governmental,” a term that previously had been defined only in OMB guidance.11
The subject of inventories was revisited in 2003, when OMB, in its revision of
Circular A-76, included a requirement for agencies to compile and forward to OMB
lists of their inherently governmental activities.
Applicable statute: P.L. 105-270.
Commercial Activities Panel (CAP)
During the 106th Congress, Senator John Warner proposed an amendment to S.
2549,12 S.Amdt. 3464, that directed GAO to convene a panel to study the policies and
procedures governing the transfer of commercial activities from the federal
government to a contractor. Taking note of concerns voiced by federal employee
unions and private industry about Circular A-76, Senator Warner concluded that an
objective, systematic study of the competitive sourcing process was needed. The 13-
member Commercial Activities Panel (CAP), which was chaired by the Comptroller
General, issued its report, Improving the Sourcing Decisions of the Government, on
April 30, 2002. The panel recommended that the government adopt a series of 10
sourcing principles, make limited changes to Circular A-76, develop and demonstrate
an integrated competition process that would draw from both the Federal Acquisition
Regulation (FAR) and Circular A-76, and promote the development of high-
10 For additional information on competitive sourcing, see CRS Report RL32017, Circular
A-76 Revision 2003: Selected Issues, CRS Report RL32079, Federal Contracting of
Commercial Activities: Competitive Sourcing Targets, CRS Report RL31024 The Federal
Activities Inventory Reform Act and Circular A-76, by L. Elaine Halchin; CRS Report
RS21489, OMB Circular A-76: Explanation and Discussion of the Recently Revised
Federal Outsourcing Policy, by John Luckey; and CRS Report RL30392, Defense
Outsourcing: The OMB Circular A-76 Policy, by Valerie Bailey Grasso.
11 Office of Federal Procurement Policy (OFPP) Policy Letter 92-1, dated Sept. 23, 1992,
available at [http://www.acqnet.gov/Library/OFPP/PolicyLetters/Letters/PL92-1.html],
visited Feb. 17, 2005.
12 S. 2549 was a defense authorization bill. It was incorporated as an amendment to H.R.
4205, which was enacted as the Floyd D. Spence National Defense Authorization Act for
Fiscal Year 2001 (P.L. 106-398, 114 Stat. 1654A-1, at 1654A).

---

CRS-13
performing organizations (HPOs).13 The panel’s work may have served as an
impetus to OMB, which issued a revised Circular A-76 on May 29, 2003.14
Applicable statute: P.L. 106-398.
Competitive Sourcing Targets15
When the Bush Administration launched its competitive sourcing initiative in
2001, it established competitive sourcing targets for federal government agencies:
subject 5% of the full-time equivalents (FTEs)16 listed on their commercial activities
inventories to public-private competition by the end of FY2002; and compete an
additional 10% by the end of FY2003.17 An OMB memorandum indicated that the
long-term goal for the federal government was to subject at least 50% of the FTEs
listed on FAIR Act inventories to public-private competition.18 Criticism of these
targets arose in 2002; the primary criticism was that the goals were arbitrary. Senator
George V. Voinovich commented, in March 2002, that the targets were “arbitrary and
potentially damaging.”19 Eventually, in 2003, OMB dropped the 5% and 10% targets
while encouraging agencies, with the promise of earning the highest grade for
competitive sourcing on the President’s PMA scorecard, to develop a competition
schedule that would show that all agency commercial activities from FY2004 through
FY2008 were slated for competition.20
13 Commercial Activities Panel, Improving the Sourcing Decisions of the Government
(Washington: U.S. General Accounting Office, 2002), pp. 46-53.
14 The Office of Federal Procurement Policy (OFPP) Administrator, who headed the effort
to revise the circular, was a member of the panel.
15 See CRS Report RL32079, Federal Contracting of Commercial Activities: Competitive
Sourcing Targets, by L. Elaine Halchin.
16 A full-time equivalent (FTE) is “[t]he staffing of Federal civilian employee positions,
expressed in terms of annual productive work hours (1,776 [hours]) rather than annual
available hours that includes non-productive hours (2,080 hours).” (U.S. Office of
Management and Budget, Circular No. A-76 (Revised), p. D-5.)
17 U.S. Office of Management and Budget, “Performance Goals and Management Initiatives
for the FY 2002 Budget,” memorandum M-01-15, Mar. 9, 2001, p. 1, available at
[http://www.whitehouse.gov/omb/memoranda/index.html], visited Jan. 5, 2005; information
provided electronically by the Office of Federal Procurement Policy, Jan. 14, 2003.
18 U.S. Office of Management and Budget, “Performance Goals and Management Initiatives
for the FY 2002 Budget,” p. 1.
19 U.S. Congress, Senate Committee on Governmental Affairs, Who’s Doing Work for the
Government?: Monitoring, Accountability and Competition in the Federal and Service
Contract Workforce, 107th Cong., 2nd sess., Mar. 6, 2002 (Washington: GPO, 2002), pp. 19-
20.
20 U.S. Office of Management and Budget, Competitive Sourcing: Conducting Public-
Private Competition in a Reasoned and Responsible Manner, July 2003, pp. 4-5; Clay
Johnson III, Deputy Director for Management, U.S. Office of Management and Budget,
“Development of ‘Green’ Plans for Competitive Sourcing,” memorandum to the President’s
Management Council, Dec. 22, 2003, available at [http://www.whitehouse.gov/omb/
procurement/index.html], visited Jan. 5, 2005.

---

CRS-14
Applicable statute: P.L. 108-7.
Funding Limits on Agency Competitive Sourcing Activities
Over the years, since the inception of Circular A-76, there does not appear to
have been any coordinated, government-wide effort to calculate the costs of
competitive sourcing to agencies, and to provide them, in turn, with funding for this
initiative.21 Addressing this apparent lack of financial support, the conference
committee that was convened for H.R. 2691 (P.L. 108-108) wrote:
The managers support the underlying principle of the Administration’s
competitive sourcing initiative .... The managers are concerned that this far-
reaching initiative appears to be on such a fast track that the Congress and the
public are neither able to participate nor understand the costs and implications
of the decisions being made. The managers remain concerned that the
Administration has failed to budget adequately for the cost of the initiative and
to justify such costs in budget documents. As a result, significant sums are being
expended in violation of reprogramming guidelines and at the expense of critical,
on-the-ground work such as the maintenance of Federal facilities.22
Other efforts to address the funding of competitive sourcing include a statutory
prohibition involving the Department of Veterans Affairs (VA) and certain reporting
requirements levied on federal agencies. 38 U.S.C. § 8110(a)(5) states that “funds
appropriated for the Department [of Veterans Affairs] under the appropriation
accounts for medical care, medical and prosthetic research, and medical
administration and miscellaneous operating expenses may not be used for” any
public-private competition. Among the information agencies are required to report
annually to Congress under Section 647(b) of P.L. 108-199 is “the incremental cost
directly attributable to conducting [public-private] competitions ... including costs
attributable to paying outside consultants and contractors.”
Applicable statutes: P.L. 108-108, P.L. 108-447.
MEO and Conversion Differential Requirement
Under the 2003 circular, the instructions for standard competitions and
streamlined competitions vary concerning, among other things, MEOs and the
21 Competitive sourcing activities include, but are not limited to, the development and
maintenance of inventories of commercial activities and inherently governmental activities;
responding to challenges and appeals concerning the inventories; preparing for, and
conducting competitions; and carrying out post-competition tasks and activities.
22 U.S. Congress, Conference Committee, 2003, Making Appropriations for the Department
of the Interior and Related Agencies for the Fiscal Year Ending September 30, 2004, and
for Other Purposes, conference report to accompany H.R. 2691, H.Rept. 108-330, 108th
Cong., 1st sess. (Washington: GPO, 2003), pp. 85-86.

---

CRS-15
conversion differential.23 An MEO and the conversion differential are required for
standard competitions.24 An MEO is not required for, and the conversion differential
is not applied to, streamlined competitions.25
An argument for requiring an MEO is that government employees should have
an opportunity to prepare an agency tender that is competitive. In developing an
MEO, agency employees may draft a staffing plan that is more efficient and effective
than the current plan, incorporates innovative practices or procedures not used by the
incumbent function, and/or includes new or different equipment that would enhance
the function’s productivity or quality of work. If an MEO is not developed, then an
agency bases its agency tender on an estimate of the cost of the incumbent activity.
As described in Circular A-76, the rationale for having and applying a conversion
differential is that it “preclude[s] conversions based on marginal estimated savings,
and captures non-quantifiable costs related to a conversion, such as disruption and
decreased productivity.”26
Applicable statutes: P.L. 108-87, P.L. 108-108, P.L. 108-199, P.L. 108-287, P.L.
108-375.
Protest Rights
Private sector sources, but not federal employees, have been eligible to file
protests involving Circular A-76 competitions with the Government Accountability
Office (GAO).27 By amending 31 U.S.C. §§ 3551(2), 3552, and 3553, P.L. 108-375
has made it possible for an agency tender official (ATO) to file a protest on behalf
of agency employees whose work is the subject of a public-private competition.
Individual employees and unions are not allowed to file protests.
Applicable statute: P.L. 108-375.
23 A standard competition must be performed for functions that have more than 65 FTEs.
An agency may use streamlined competition procedures for functions that have 65 or fewer
FTEs.
24 The MEO is the staffing plan of the agency tender, which is the government’s response
to a solicitation; and it is the entity that would perform the work if the government wins the
competition. The conversion differential, $10 million or 10% of the government’s personnel
costs for the function under study, whichever is less, is added to the price or cost of the non-
incumbent’s proposal.
25 U.S. Office of Management and Budget, Circular No. A-76 (Revised), May 29, 2003, pp.
B-4, C-2.
26 Ibid., p. B-16.
27 GAO does not have bid protest jurisdiction over the Federal Aviation Administration
(FAA), which has its own procurement system. FAA’s Office of Dispute Resolution for
Acquisition (ODRA) handles bid protests involving the FAA.

---

CRS-16
Reporting to Congress
A longstanding problem of competitive sourcing has been the dearth of accurate,
reliable, useful, and comprehensive information about agency competitive sourcing
activities and outcomes. Information has been made available, or otherwise obtained,
on an ad hoc basis. Notable exceptions are DOD’s Commercial Activities
Management Information System (CAMIS) and the release of FAIR inventories and
inherently governmental inventories. The statutory requirement for agencies to
provide the same competitive sourcing information on a regular basis to Congress
might aid in conducting oversight of the competitive sourcing initiative.28
Applicable statutes: P.L. 108-108 (relevant section subsequently repealed), P.L. 108-
199.
Conclusion
For many years — since the original circular was issued in 1966 — the
executive branch has led the competitive sourcing effort. Circular A-76 was
developed by OMB, and this agency has been actively involved in its
implementation, particularly since 2001, when competitive sourcing was identified
as one of the components of the President’s Management Agenda. Increasing
interest on the part of Congress in competitive sourcing has been demonstrated by the
legislation that was enacted from the late 1990s. Legislation has touched upon a
variety of topics, such as protest rights for federal employees, competitive sourcing
targets, and the circular itself. It remains to be seen whether this trend of competitive
sourcing legislation continues throughout the current Congress and, if so, what kinds
of issues Members elect to address.
28 Sec. 647(b) of P.L. 108-199; 118 Stat. 361.

---