Order Code RL32833
CRS Report for Congress
Received through the CRS Web
Competitive Sourcing Legislation
Updated January 30, 2006
L. Elaine Halchin
Analyst in American National Government
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

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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).) Six bills containing competitive sourcing provisions were enacted
during the first session of the 109th Congress. Although some provisions were the
same or similar to legislation enacted previously (P.L. 109-54, P.L. 109-90, P.L. 109-
97, and P.L. 109-148), P.L. 109-115, in amending FAIR, added agencies with fewer
than 100 full-time employees to the list of government entities not subject to FAIR.
Additionally, the competitive sourcing language included in P.L. 109-163 revised and
reorganized certain competitive sourcing provisions in Title 10 of the U.S. Code
(Department of Defense). This report will be updated if relevant legislation is
enacted.

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Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Selected Topics Related to Competitive Sourcing Legislation . . . . . . . . . . . . . . 19
Commercial Activities Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Commercial Activities Panel (CAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Competitive Sourcing Targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Conversion from Contractor to Government Performance . . . . . . . . . . . . . 21
Funding Limits on Agency Competitive Sourcing Activities . . . . . . . . . . . 22
MEO and Conversion Differential Requirement . . . . . . . . . . . . . . . . . . . . . 23
Protest Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Reporting to Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
List of Tables
Table 1. Competitive Sourcing Statutes and Provisions . . . . . . . . . . . . . . . . . . . . 3

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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.

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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.

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CRS-3
Table 1. Competitive Sourcing Statutes and Provisions
Statute
Scope
Duration
Summary
P.L. 105-270
Government-wide, excluding
Indefinite
— Agencies are required to submit inventories of
the General Accounting
commercial activities to OMB by June 30.
Federal Activities Inventory
Officea, government
— Inventories are sent to Congress and made available to
Reform (FAIR) Act
corporations,
the public.
nonappropriated funds
— Interested parties may appeal the omission of an activity
instrumentalities, and certain
from, or the inclusion of an activity on, an agency’s list.b
DOD depot-level
— An inherently governmental activity is a function that is
maintenance and repair
so intimately related to the public interest as to require
functions
performance by federal government employees.
P.L. 106-398, Section 832
Government-wide
Report due by May 1, 2002
— GAO was directed to convene a panel of experts to
study the policies and procedures governing the transfer
Floyd D. Spence National
of commercial activities to contractors, including how to
Defense Authorization Act,
determine what functions should continue to be
FY2001
performed by federal employees, how costs of public
and private performance should be compared, and how
DOD has implemented FAIR and Circular A-76.c
— Commercial Activities Panel (CAP) was required to
study A-76 procedures, implementation by the Dept. of
Defense (DOD) of FAIR, and DOD procedures for
public-private competitions.

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CRS-4
Statute
Scope
Duration
Summary
P.L. 108-7, Section 647
Government-wide
FY2003
— None of the funds appropriated by the Treasury and
General Government Appropriations Act, FY2003,
Consolidated Appropriations
could be used to establish, apply, or enforce any
Resolution, FY2003
numerical goal, target, or quota for public-private
competitions unless the goal, target, or quota was based
on considered research and sound analysis.
P.L. 108-87, Sections 8014
DOD
FY2004
— None of the funds appropriated by this act could be used
and 8022
to convert a function that had more than 10 DOD
civilian employees from government performance to
Department of Defense
contract performance unless a most efficient
Appropriations Act, FY2004
organization (MEO) was developed and the conversion
differential was applied.d
— This section does not apply to Javits-Wagner-O’Day
(JWOD) Act suppliers, Indian tribes, Native Hawaiian
organizations, and depot contracts or contracts for depot
maintenance.e
— Any conversions to contractor performance under this
section would count toward any competitive sourcing
goal or target.
— None of the funds appropriated by this statute could be
used for a public-private competition carried out under
Circular A-76 if the competition exceeded 24 months
(single function study) or 36 months (multifunction
study).

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CRS-5
Statute
Scope
Duration
Summary
P.L. 108-108, Section 340
Department of the Interior,
Varies
— Beginning with FY2005, the Departments of the Interior
Forest Service (Department
and Energy and the Forest Service are to identify
Department of the Interior
of Agriculture), and
separately in their budget requests funds needed to
and Related Agencies
Department of Energy
perform competitive sourcing studies.
Appropriations Act, FY2004
programs and activities for
— Beginning in 2003, the Secretaries of Agriculture
which funds are appropriated
(Forest Service), Energy, and the Interior are to submit
by this statute
reports on their competitive sourcing studies to the
Committees on Appropriations no later than December
31 each year.
— For FY2004, each Secretary named above was to submit
a report that identified planned competitive sourcing
studies.
— In FY2004, the Department of Energy and the
Department of the Interior could spend only $500,000
and $2.5 million, respectively, on competitive sourcing
activities unless a reprogramming proposal was
processed. No more than $5 million of the funds
appropriated by this act could be used in FY2004 for
Forest Service competitive sourcing studies.
— None of the funds appropriated by this act could be used
to convert a function with more than 10 federal
employees from government performance to contract
performance unless an MEO was developed and the
conversion differential was applied. Exceptions
included JWOD suppliers, Indian tribes, and Native
Hawaiian organizations. Any conversions to contractor

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CRS-6
Statute
Scope
Duration
Summary
performance that occurred under this section were to
have been counted toward any competitive sourcing
goal or target.
P.L. 108-199, Divisions A
Agriculture, Rural
Varies
— None of the funds in this act could be obligated for
and F
Development, Food and Drug
FAIR or Circular A-76 activities until the Secretary of
Administration, and Related
Agriculture submitted a report to the Committees on
Consolidated Appropriations
Agencies (Division A);
Appropriation that described the department’s
Act, FY2004
Departments of
contracting-out policies, including agency budgets for
Transportation and Treasury,
contracting out.
and Independent Agencies
— Unless USDA received specific authorization in
(Division F)
subsequent legislation, the department could not use the
funds made available in this statute to study a
competitive sourcing activity relating to rural
development or farm loan programs.
— None of the funds appropriated by this statute could be
used to convert a function with more than 10 federal
employees from government performance to contractor
performance unless an MEO was accomplished and the
conversion differential was applied.
— Annually, the head of each executive agency is to
submit to Congress a report on competitive sourcing
activities in his or her agency.
— Agency heads are not required to limit the performance
period in a letter of obligation issued to an MEO to five
years or less.f
— Agency heads may use appropriated funds, and any

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CRS-7
Statute
Scope
Duration
Summary
other funds made available to their agencies, for
monitoring the performance of an activity that has been
subjected to a public-private competition.
— Any work converted to contractor performance cannot
be moved to a location outside the United States if the
work has been previously performed by federal
government employees within the United States.
P.L. 108-287, Sections 8014
DOD
FY2005
— None of the funds appropriated by this act can be used
and 8022
to convert a function that has more than 10 civilian
employees from government performance to contract
Department of Defense
performance unless a most efficient organization is
Appropriations Act, FY2005
developed, the conversion differential is applied, and the
contractor does not receive an advantage for his or her
proposal by not making a health insurance plan
available to employees who are to be employed in the
function or study, or by offering a health insurance plan
that costs the contractor less than the amount paid by
DOD.
— This section does not apply to JWOD suppliers, Indian
tribes, Native Hawaiian organizations, or depot
contracts or contracts for depot maintenance.
— Any conversions to contractor performance occurring
under this section are to count toward any competitive
sourcing goal or target.
— None of the funds appropriated by this act may be used
for a public-private competition carried out under

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CRS-8
Statute
Scope
Duration
Summary
Circular A-76 if the competition exceeds 24 months
(single function study) or 36 months (multifunction
study).
P.L. 108-334, Section 527
Department of Homeland
FY2005
— None of the funds appropriated by this statute may be
Security (DHS)
used to approve or conduct a public-private competition
Department of Homeland
involving employees of Citizenship and Immigration
Security Appropriations Act,
Services who are known as immigration information
FY2005
officers, contact representatives, or investigative
assistants.
P.L. 108-375, Sections 326-
Government-wide (Section
Varies
— Amends 31 U.S.C. §§ 3551(2), 3552, and 3553, which
328
326); DOD (Sections 327 and
means, in effect, that an agency tender official (ATO)
328)
may file a protest in connection with a public-private
Ronald W. Reagan National
competition.g The determination to file, or not file, a
Defense Authorization Act,
protest is not subject to administrative or judicial
FY2005
review. An agency tender official is to notify Congress
when he or she determines there is no reasonable basis
for a protest.
— For any competition that is required to include a formal
comparison of the cost of federal employee performance
with the cost of contractor performance, the function is
to remain in-house unless the competitive sourcing
official (CSO) determines that contractor performance
would be less costly by an amount that equals or
exceeds the lesser of the following: 10% of the MEO’s
personnel-related costs or $10 million.h

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CRS-9
Statute
Scope
Duration
Summary
— The Secretary of Defense is to ensure that no DOD
organization, function, or activity is altered in any way
for the purpose of exempting the department from the
requirement to formally compare the cost of federal
government performance with the cost of contractor
performance. This provision does not apply to any
competitions conducted as part of a pilot program
authorized by Section 336 of P.L. 108-136 (National
Defense Authorization Act for Fiscal Year 2004).
— The DOD Inspector General (IG) is required to submit a
report no later than February 1, 2005, to Congress that
addresses the questions of whether DOD has a sufficient
number of adequately trained civilian employees to
conduct public-private competitions and to administer
any resulting contracts, and whether the department has
implemented a comprehensive, reliable system to track
and assess the cost and quality of work done by service
contractors.
P.L. 108-447, Divisions A,
Agriculture, Rural
Varies
— None of the funds in this act may be obligated for FAIR
B, and E
Development, Food and Drug
or Circular A-76 activities until the Secretary of
Administration, and Related
Agriculture has submitted a report to the Committees on
Consolidated Appropriations
Agencies (Division A);
Appropriations and the House Committee on
Act, FY2005
Departments of Commerce,
Government Reform that describes the department’s
Justice, and State, the
contracting out policies, including agency budgets for
Judiciary, and Related
contracting out.
Agencies (Division B);
— Section 757: Unless the Department of Agriculture

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CRS-10
Statute
Scope
Duration
Summary
Department of the Interior
receives specific authorization in subsequent legislation,
and Related Agencies
the department cannot use the funds made available in
(Division E)
this statute to study a competitive sourcing activity
relating to rural development or farm loan programs.
— The EEOC cannot implement any workforce
repositioning, restructuring, or reorganization until the
Committees on Appropriations have been notified of
such proposals.
—
None of the funds provided under this act or under
previous appropriations acts for these agencies is to be
used, through a reprogramming of funds, for contracting
out or privatizing any functions or activities presently
performed by federal employees, unless the
Appropriations Committees are notified 15 days in
advance of such reprogramming of funds.
— In FY2005, the Department of Energy and the
Department of the Interior may spend only $500,000
and $3.25 million, respectively, to continue or initiate
competitive sourcing studies until a reprogramming
proposal has been processed. No more than $2 million
of the funds appropriated by this act may be used in
FY2005 for Forest Service competitive sourcing studies
and related activities.
— Section 340(b) of P.L. 108-108 is repealed.
— For any competitions conducted by the Forest Service
prior to FY2005 that meet the criteria outlined in

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CRS-11
Statute
Scope
Duration
Summary
Section 332(d), the Forest Service is exempt from
implementing a letter of obligation and post-competition
accountability guidelines.i
— Agencies funded by this act are to include, in any
competitive sourcing reports submitted to the
Committees on Appropriations, incremental costs
directly attributable to conducting competitions.
P.L. 109-54, Section 422
Department of the Interior
FY2006
— In FY2006, the Department of the Interior can spend only
and the Forest Service
$3.45 million from this act or any other act on
Department of the Interior,
(Department of Agriculture)
competitive sourcing activities, unless a reprogramming
Environment, and Related
proposal is processed. No more than $3 million of the
Agencies Appropriations
funds appropriated by this act can be used by the Forest
Act, FY2006
Service in FY2006 for competitive sourcing activities.
—
For any public-private competition conducted by the
Forest Service that involves 65 or fewer full-time
equivalents (FTEs), that was decided in favor of the
agency provider, that did not yield a net savings, and
that was completed prior to the date of this act, the
Forest Service is exempted from implementing the letter
of obligation and post-competition accountability
guidelines.j
— Agencies funded by this act shall, in preparing any reports
to be submitted to the Committees on Appropriations,
include all costs directly attributable to conducting
public-private competitions, including costs attributable
to paying outside consultants and contractors.

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CRS-12
Statute
Scope
Duration
Summary
— For any competitions involving Forest Service employees,
the Secretary of Agriculture is to determine whether any
of the employees concerned are also qualified to
participate in wildland fire management activities and to
consider the effect that outsourcing would have on the
Forest Service’s ability to fight and manage wildfires.
P.L. 109-90, Section 520
DHS
FY2006
— None of the funds appropriated by this act may be used to
process or approve a public-private competition for
Department of Homeland
services provided as of June 1, 2004, by employees of
Security Appropriations Act,
Citizenship and Immigration Services who are known as
FY2006
immigration information officers, contact
representatives, or investigative assistants.
P.L. 109-97, Title I
Department of Agriculture
FY2006
— None of the funds provided by this act may be obligated
(specifically, “Office of the
for FAIR or Circular A-76 activities until the Secretary
Chief Financial Officer”) and
has submitted a report to the Committees on
Section 786
Appropriations and the House Committee on
Government Reform that describes the department’s
Agriculture, Rural
contracting out policies, including agency budgets for
Development, Food and Drug
contracting out.k
Administration, and Related
— Unless the department receives specific authorization in
Agencies Appropriations
subsequent legislation, the department cannot use the
Act, FY2006
funds made available in this statute to conduct a
competition of an agency activity relating to rural
development or farm loan programs.

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CRS-13
Statute
Scope
Duration
Summary
P.L. 109 -115, Sections 840
Government-wide
Indefinite
— FAIR does not apply to executive agencies with fewer
and 842
than 100 full-time employees. However, if such an
agency plans to conduct a public-private competition, it
Transportation, Treasury,
is subject to Section 2 of FAIR.
Housing and Urban
— None of the funds in this act or any other act can be used
Development, the Judiciary,
to convert a function with more than 10 federal
the District of Columbia, and
employees from government performance to contractor
Independent Agencies
performance unless an MEO is accomplished and the
Appropriations Act, FY2006
conversion differential is applied. This provision does
not apply to, for example, DOD, commercial or
industrial type functions that can be provided by JWOD
organizations, and depot contracts.
— Nothing in Circular A-76 shall prevent an agency head
from conducting public-private competitions to evaluate
the benefits of converting work performed by
contractors to the federal government. Circular A-76 is
to provide procedures and policies for these types of
competitions that are similar to the procedures and
policies applied to competitions where the government
is the incumbent.
P.L. 109-148, Sections 8014
DOD
FY2006
— None of the funds provided by this act can be used to
and 8021
convert a DOD function that has more than 10 civilian
employees from government performance to contract
Department of Defense
performance unless an MEO is developed, the
Appropriations Act, FY2006
conversion differential is applied, and the contractor
does not receive an advantage by not making a health

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CRS-14
Statute
Scope
Duration
Summary
insurance plan available to employees who are to be
employed in the function, or by offering a health
insurance plan that costs the contractor less than the
amount paid by DOD for the affected civilian
employees.
— This section does not apply to JWOD suppliers, Indian
tribes, Native Hawaiian organizations, depot contracts,
or contracts for depot maintenance.
— Any conversions to contractor performance occurring
under this section are to count toward any competitive
sourcing goal or target.
— None of the funds appropriated by this act may be used
for a public-private competition carried out under
Circular A-76 if the competition exceeds 24 months
(single function study) or 36 months (multifunction
study).
P.L. 109-163, Sections 341-
DOD
Indefinite
—
Public-private competitions that involve 10 or more
344 and 672l
DOD civilians cannot be converted to contractor
performance unless the public-private competition
National Defense
includes a formal comparison of the cost of government
Authorization Act, FY2006
performance and the cost of contractor performance, an
agency tender (including an MEO), a solicitation, a
determination of whether submitted offers meet DOD’s
needs with respect to non-cost factors, the application of
the conversion differential, estimated costs of
government performance and contractor performance,

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CRS-15
Statute
Scope
Duration
Summary
an estimate of all costs and expenditures the government
would incur if the work was converted to contractor
performance, and an examination of the effect
contractor performance would have on the military
mission associated with the function to be competed.
— A DOD function that is, for example, reengineered or
reorganized, but still provides essentially the same
services is not be considered a new requirement.m
— A DOD function cannot be changed in any way for the
purpose of exempting the function from the
requirements of Sec. 341, and a function cannot be
converted to contractor performance to circumvent a
civilian personnel ceiling.
— The Secretary is no longer permitted to delegate report
preparation pursuant to 10 U.S.C. § 2461(b)(1).
— The Secretary is required to submit a report for each
public-private competition conducted by DOD to
Congress. A decision made on the basis of a public-
private competition cannot be implemented until after
the report has been submitted to Congress.
— The Secretary is required to submit an annual report to
Congress by June 30 each year with information about,
for example, the cost of conducting competitions and
the actual savings.
— The Secretary is required to monitor the performance of

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CRS-16
Statute
Scope
Duration
Summary
functions that have been the subject of public-private
competitions.
— 10 U.S.C. 2461(a)(1)(E), as amended by P.L. 109-163,
does not apply to the pilot program for best-value source
selection for information technology services.
— 10 U.S.C. § 2463 is repealed.n
— Sec. 327 of P.L. 108-37 is repealed.o
— The description of how a contractor may help fund health
care for employees has been broadened to include
payments that could be used in lieu of a health care plan,
a health savings account, and a medical savings account.
An inadequate contractor-provided health plan is one
that does not comply with any federal law that governs
the provision of health care benefits by government
contractors.
— The Secretary is required to prescribe guidelines and
procedures for ensuring that consideration is given to
federal employees for work that is currently performed
or would otherwise be performed under DOD contracts.
The guidelines and procedures are to provide special
consideration to certain contracts, such as contracts that
were not awarded on a competitive basis or are
associated with the performance of inherently
governmental functions.
— The expiration date of the Secretary’s authority to award
contracts for increased performance of security guard

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CRS-17
Statute
Scope
Duration
Summary
functions at military installations or facilities under the
Secretary’s jurisdiction is extended from 2006 to 2007.
— The Defense Commissary Agency is exempt from
performing any public-private competitions until
December 31, 2008.
Notes:
a. In 2004, the General Accounting Office was renamed the Government Accountability Office.
b. For the purposes of filing a challenge or appeal under the FAIR Act, an interested party is, in brief, a private sector source, a representative of a business or professional association,
an officer or employee of an organization within an executive agency, or the head of a labor organization. See Sec. 3(b) of P.L. 105-270 for the specific criteria that qualify an
individual or an organization as an “interested party.”
c. Commercial Activities Panel, Improving the Sourcing Decisions of the Government (Washington: U.S. General Accounting Office, 2002).
d. The most efficient organization (MEO) is the staffing plan of the agency tender, which is the government’s response to a solicitation. 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.
e. The Javits-Wagner-O’Day Act (JWOD; 41 U.S.C. § 47) directed that, when government agencies purchase goods, priority is to be accorded to qualified nonprofit agencies for the
blind and qualified nonprofit agencies for other severely handicapped individuals.
f. A letter of obligation is “a formal agreement that an agency implements when a ... competition results in agency performance (e.g, MEO).” (U.S. Office of Management and Budget,
Circular No. A-76 (Revised), May 29, 2003, p. D-6.)
g. An agency tender official (ATO) is “an inherently governmental agency official with decision-making authority who is responsible for the agency tender and represents the agency
tender during source selection.” (Ibid., p. D-2.)
h. A competitive sourcing official (CSO) is “an inherently governmental agency official responsible for the implementation” of Circular A-76 within his or her agency. (Ibid., p. D-3.)
i. Post-competition accountability guidelines may be found in Circular No. A-76 (Revised), pp. B-19-B-20.
j. 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.)
k. Contracting out is one of several possible outcomes of a public-private competition. Considering the context in which the term “contracting out” is used here, it is likely that this
term actually refers to, or means, competitive sourcing.

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CRS-18
l. Sections 341-344 of P.L. 109-163 amend 10 U.S.C. §§ 2461-2463; and, therefore, it may be necessary to closely examine the statute and the U.S. Code in order to fully understand
the changes.
m. A new requirement is an “agency’s newly established need for a commercial product or service that is not” being provided or performed by federal government personnel or a
contractor. A public-private competition “is not required” for a new requirement if an agency decides that a contractor should perform the work. However, government personnel
cannot perform work associated with a new requirement until and unless a public-private competition has been held. (U.S. Office of Management and Budget, OMB Circular No. A-76,
pp. 2 and D-7.)
n. 10 U.S.C. § 2463 had required the Secretary to collect and retain cost information on DOD functions converted to contract performance, and DOD functions converted from contract
performance to government performance. Apparently, cost data are or will be collected pursuant to some other provision, because the title of Sec. 341(f), which repealed 10 U.S.C.
§ 2463, is “Repeal of Redundant Provision.”
o. Section 327 of P.L. 108-375 had required, under certain conditions, the application of the conversion differential to public-private competitions and had prohibited modifying DOD
functions in order to avoid having to formally compare the cost of government performance and the cost of contractor performance of a function. Section 327 was rendered moot by
Section 341(a) of P.L. 109-163, which requires, when 10 or more DOD civilian employees are involved, the use of the conversion differential and a formal comparison of the cost of
government performance and the cost of contractor performance.

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CRS-19
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 statutes: P.L. 105-270, P.L. 109-115.
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).

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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 FY2002 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 FY2002 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.

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CRS-21
Applicable statute: P.L. 108-7.
Conversion from Contractor to Government Performance
Although Circular A-76 does not prohibit conducting a public-private
competition for a function or activity that is being performed by a contractor, this
type of competition apparently is rarely held.21 The government’s competitive
sourcing initiative focuses exclusively on inventorying work — both commercial and
inherently government — that is being done by federal government employees and,
where appropriate, subjecting commercial activities to public-private competition.
A recent example where OMB declined an opportunity for federal government
employees to participate in a public-private competition for work being performed
by a contractor involved the Defense Logistics Agency (DLA).22 According to a
2005 article in Federal Times, a private firm won a public-private competition in
2001 for distribution operations at DLA’s Defense Distribution Depot at Cherry
Point, North Carolina (DDCN).23 The contract was allowed to expire because the
agency and the contractor had disagreed over pricing and workload. To keep
distribution operations functioning, DLA hired temporary civilian employees to work
at DDCN. When it was suggested that the temporary employees be permitted to
continue working for two years so that their performance could be compared to a
contractor’s, OMB objected. Reportedly, the then-head of the Office of Federal
Procurement Policy (OFPP) responded to this idea by saying:
A second public-private competition so soon after the first would not likely yield
significantly different results in terms of public-sector performance .... By
contrast, a recompetition among private-sector sources should enable [the
Defense Logistics Agency] to enter into a better contract.24
The head of competitive sourcing for the Department of Homeland Security, who
previously had been the focal point at OMB for competitive sourcing, offered the
following rationale for focusing on commercial activities:
Managers ought to know enough about their business to have a sense where
competition for contracted work and competition for in-house work has the
greatest probability of payback to the taxpayer .... It’s an economic decision by
21 Apparently, a function was insourced (that is, converted from contractor performance to
government performance) approximately 20 years ago. As reported in Federal Times, after
the General Services Administration had outsourced building maintenance at the Interior
Department’s headquarters, agency officials came to believe that the contractor was
charging too much for its services. A new public-private competition was held, and GSA
employees won the competition. (Tichakorn Hill, “Competitive Sourcing Manager Also
‘Insourcing’ Advocate,” Federal Times, Jan. 9, 2006, available at [http://www.federaltimes.
com/index2.php?S=1451960].)
22 The term “insourcing” refers to converting from contractor performance to government
performance as a result of a public-private competition.
23 Tichakorn Hill, “DLA Employees Barred from Competing for Jobs; OMB: Past Study
Already Proved Outsourcing Is the Better Deal,” Federal Times, June 27, 2005, p. 4.
24 Ibid.

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CRS-22
competent managers to study that [commercial activities being performed by
government employees] which has never been studied before.25
On the other side of the issue of insourcing, some are concerned that the lack of
support for allowing federal government employees to compete for work that was
done previously by a government agency is unfair to the employees. Critics also use
the infrequency of insourcing to argue that the purpose of competitive sourcing is to
outsource government work.
Applicable statutes: P.L. 109-115, P.L. 109-163.
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.26 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.27
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.”
25 Ibid.
26 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.
27 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.

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CRS-23
Applicable statutes: P.L. 108-108, P.L. 108-447, P.L. 109-54.
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
conversion differential.28 An MEO and the conversion differential are required for
standard competitions.29 An MEO is not required for, and the conversion differential
is not applied to, streamlined competitions.30
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.”31
Applicable statutes: P.L. 108-87, P.L. 108-108, P.L. 108-199, P.L. 108-287, P.L.
108-375, P.L. 109-115, P.L. 109-148, P.L. 109-163.
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).32 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.
28 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.
29 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.
30 U.S. Office of Management and Budget, Circular No. A-76 (Revised), May 29, 2003, pp.
B-4, C-2.
31 Ibid., p. B-16.
32 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.

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CRS-24
Applicable statute: P.L. 108-375.
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.33
Applicable statutes: P.L. 108-108 (relevant section subsequently repealed), P.L. 108-
199, P.L. 109-54, P.L. 109-163.
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.

crsphpgw
33 Sec. 647(b) of P.L. 108-199; 118 Stat. 361.

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