A-76 Competitions in the Department of Defense

A-76 Competitions in the Department of Defense

Updated June 2, 2020
A-76 Competitions in the Department of Defense
OMB Circular A-76
development of Circular A-76, which was first issued in
Office of Management and Budget (OMB) Circular A-76,
1966. Circular A-76 has been revised and amended over
“Performance of Commercial Activities,” establishes policy
time, and was last substantially amended in 2003.
for the performance of recurring commercial services by
federal agencies, stating that the policy of the “federal
The A-76 Competition Process
government has been to rely on the private sector for
Circular A-76 outlines a complex process for conducting
needed commercial services,” and that those “commercial
managed competitions, sometimes referred to as A-76
activities should be subject to the forces of competition.”
competitions or public-private competitions. Services
categorized as inherently governmental in nature are not
subject to A-76 competitions. Executive branch agencies,
In the context of federal procurement, competition indicates
such as the Department of Defense (DOD), may use the
a marketplace condition in which two or more entities, each
Circular’s guidance and procedures to determine whether
acting independently, attempt to obtain business by
government sources or private-sector sources should
submitting bids or proposals to provide goods or services.
perform recurring commercial-type services (i.e., those that
Requiring competition may serve to motivate reduced costs
are required on a consistent, long-term basis). In carrying
and improved performance. In the context of the A-76
out a public-private competition under Circular A-76,
process, competition also indicates “a formal evaluation of
executive branch agencies are required to:
sources to provide commercial services that uses pre-
established rules” and procedures.
 develop a performance work statement that defines the
Circular A-76 categorizes services performed by
technical aspects of the work to be performed; then
government employees as either commercial or
 determine the most efficient organizational structure to
inherently governmental in nature. Commercial services –
perform the work using the current government
such as medical care or maintenance of real property
workforce (called the “Most Efficient Organization,” or
– are those that could be obtained through the private
MEO) through realignment of existing management
sector, but could also be provided by a government
structures, personnel requirements, and procedures; and
employee (i.e., the public sector). Two definitions of
finally
inherently governmental services exist in federal law and
 conduct cost comparison studies among the private
policy: a statutory and a policy-focused definition. The
sector, other public agencies, and the current MEO to
statutory definition (as enacted through P.L. 105-270,
determine the most cost effective option for work
the FAIR Act) describes an inherently governmental
performance.
activity as one “so intimately related to the public
interest as to require performance by Federal
Circular A-76 provides two forms of public-private
Government employees.” The policy-focused
competitions: a streamlined competition that must be
definition (as established by Circular A-76) describes
completed within 90 calendar days (extendable by no more
an inherently governmental activity as one “so
than 45 calendar days) and a standard competition that
intimately related to the public interest as to mandate
must be completed within 12 months (extendable by no
performance by government personnel.” Inherently
more than 6 months). Section 2461 of Title 10, United
governmental functions may include activities such as
States Code (U.S.C), also specifies that DOD public-private
commanding U.S. military forces or determining U.S.
competitions may not exceed 24 months (or 33 months,
foreign policy. Other sources of law or policy that
upon determination of the Secretary of Defense).
define inherently governmental functions do so either
by referencing the FAIR Act or Circular A-76. Most
In order to compare public sector and private sector
notably, the Federal Acquisition Regulation
personnel, materiel, and overhead costs on a relatively
incorporates by reference the definition of Circular A-
consistent basis, Circular A-76 provides a number of
76, while the Office of Federal Procurement Policy’s Policy
standard factors to calculate public sector costs. For
Letter 11-01 adopts the FAIR Act’s definition.
example, general and administrative overhead rates are
calculated at a set rate of 12% of labor costs, with no
allowance for inflation. In order to prevent conversion of
The general concept underlying Circular A-76 began as a
commercial-type services from the public to the private
statement of policy – that the federal government “will not
sector for marginal estimated savings, private sector bids
start or carry on any commercial activity to provide a
are also subject to an conversion differential calculated as
service or product for its own use if such service or product
the lesser of 10% of agency labor costs or $10 million.
can be procured from” the private sector – issued by the
Eisenhower Administration-era Bureau of the Budget (later
DOD may not decide in favor of the private sector unless
OMB). That 1955 policy provided a framework for the
the private sector bid equals or exceeds the lesser of $10
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A-76 Competitions in the Department of Defense
million or 10% of public-sector personnel costs for
prohibited government-wide use of appropriated funds to
performance of the commercial-type services in question.
conduct A-76 competitions through the end of the fiscal
Outcomes of individual public-private competitions are thus
year; similar restrictions have been included in subsequent
highly variable and dependent upon unique local factors.
appropriations acts. In the FY2010 NDAA (Section 325 of
Some industry observers object to these predetermined and
P.L. 111-84), Congress suspended all DOD public-private
standardized cost comparison rates, seeing them as unfairly
competitions, and established a review and approval
favoring the government in public-private competitions. On
process that, once complete, would allow DOD to resume
the other hand, some federal employees and labor
such competitions. While DOD has complied with the
organizations view the comparison rates as incentivizing
statutory requirements, Congress has not yet acted to repeal
the private sector to submit artificially low bids in order to
or otherwise modify the suspension, meaning that the
win the competition. Some oversight entities, such as the
moratorium effectively remains in place.
DOD Inspector General and the Government
Accountability Office have also questioned the validity of
Other Related Statutory Provisions
using a set rate to calculate overhead that does not allow
A number of provisions in Chapter 146 of Title 10, United
adjustment to reflect actual onsite overhead costs.
States Code, may also affect DOD’s use of public-private
While some view A-76 competitions as an effective cost-
competitions. DOD is required to perform a public-private
savings mechanism that also increases government
competition in order to convert functions performed by
efficiency, others believe that the government has
civilian DOD employees to performance by a contractor (10
overestimated or improperly calculated the substantial
U.S.C. §2461). DOD may not conduct a public-private
savings sometimes attributed to public-private
competition for new or expanded DOD functions before
competitions. Critics see the A-76 process as a vector for
assigning such functions to DOD civilian employees (10
U.S.C §2463). DOD generally may not use A-76
undue and improper privatization of government functions.
competitions to contract for the performance of core
A-76 competitions are sometimes described as outsourcing
logistics capabilities (10 U.S.C. §2464). DOD is prohibited
or privatizing government commercial-type services if the
from using appropriated funds to enter into a contract for
private sector prevails at the end of the competitive
the performance of firefighting or security guard functions
evaluation process—however, the terms are not
at any military installation or facility (10 U.S.C. §2465).
interchangeable. Outsourcing general y refers to a decision by
DOD must ensure that not more than 50% of annually
a department or agency to obtain these services under
appropriated funds for depot-level maintenance and repair
contract with the private sector, in lieu of providing those
is used to obtain contracted support for these functions (10
services using government resources. Privatization, on the
U.S.C. §2466). DOD may not transfer depot-level
other hand, general y refers to instances in which a
maintenance and repair workloads valued not less than $3
department or agency ceases to provide these services, and
million to the private sector except through a competitive
transfers their performance to the private sector.
evaluation process; Circular A-76 procedures may not be

used to conduct these competitions (10 U.S.C. §2469).
Moratorium on DOD A-76 Competitions Considerations for Congress
Following the conclusion of the Cold War and a drawdown
in military force structure, DOD embraced the use of A-76
In considering whether to repeal, retain, or modify the
competitions during the 1990s under the Clinton
FY2010 suspension of DOD public-private competitions,
Administration, in part as a cost-savings mechanism in spite
Congress may consider the following oversight issues:
of limited commensurate reductions in DOD operations and

support costs. The general increase in DOD’s use of A-76
To what extent should existing law and policy guidance
competitions accelerated in the early 2000s, encouraged by
for public-private competitions be modified to reflect
the focus of the George W. Bush Administration’s
best practices and prior lessons learned?

Presidential Management Agenda on reducing costs and
What benefits might be realized in requiring a phased
improving federal government performance.
rollback of the moratorium, or in allowing s elected
public-private competitions to proceed as pilots?
In 2007, the debate over A-76 competitions took on a
 Should certain government performed commercial-type
highly public dimension after the Washington Post
functions beyond those already exempted by statute and
published a series of articles documenting poor conditions
policy be protected from public-private competitions? If
and administrative mismanagement at the Walter Reed
so, which functions?
Army Medical Center (WRAMC) in Washington, D.C.
 Has DOD developed consistent methodologies and
Some – including some Members of Congress – attributed
procedures for comparing public sector and private
these issues in part to the impact of an unusually lengthy A-
sector costs—as well as consistent methodologies for
76 competition conducted at WRAMC between 2000 and
capturing and reporting cost savings or performance
2006 that was subject to a number of bid protests and
improvements from a public-private competition?
appeals.
 Noting that it has been more than 10 years since DOD
Congress responded by including various related provisions
has carried out a public-private competition, does the
in the FY2008 National Defense Authorization Act
current DOD workforce have sufficient knowledge of
(NDAA, P.L. 110-181), which in part served to place a
the public-private competition process to be able to
temporary moratorium on DOD’s use of A-76 competitions,
fairly and effectively evaluate A-76 competitions?
including public-private competitions for medical services.
The FY2009 Omnibus Appropriations Act (P.L. 111-8)
Heidi M. Peters, Analyst in U.S. Defense Acquisition
Policy
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A-76 Competitions in the Department of Defense

IF10566

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