Inherently Governmental Functions and
Other Work Reserved for Performance by
Federal Government Employees: The Obama
Administration’s Proposed Policy Letter
L. Elaine Halchin
Specialist in American National Government
Kate M. Manuel
Legislative Attorney
Shawn Reese
Analyst in Emergency Management and Homeland Security Policy
Moshe Schwartz
Specialist in Defense Acquisition
October 1, 2010
Congressional Research Service
7-5700
www.crs.gov
R41209
CRS Report for Congress
P
repared for Members and Committees of Congress
Inherently Governmental Functions
Summary
On March 31, 2010, the Office of Federal Procurement Policy (OFPP) in the Office of
Management and Budget (OMB) issued a proposed policy letter on inherently governmental
functions and other “work reserved for performance by federal government employees.” While
not final, the policy letter represents the Obama Administration’s proposed guidance for agencies
determining (1) whether particular functions are inherently governmental and (2) when functions
closely associated with the performance of inherently governmental functions and critical
functions should be performed by government personnel. Under existing law, agencies cannot
contract out inherently governmental functions, and they must give “special consideration” to
using government personnel in performing functions closely associated with the performance of
inherently governmental functions. No limitations upon contracting out critical functions
currently exist, although legislation introduced in the 111th Congress (S. 924) would, if enacted,
require agency heads to ensure that “mission essential functions” are performed by government
employees. Some commentators consider mission-essential functions to be critical ones.
In keeping with the requirements of Section 321 of the Duncan Hunter National Defense
Authorization Act for FY2009 (P.L. 110-417), which tasked OMB with developing a “single
consistent definition” of “inherently governmental function,” the proposed policy letter adopts the
definition of the Federal Activities Inventory Reform (FAIR) Act. The FAIR Act defines an
“inherently governmental function” as one that is “so intimately related to the public interest as to
require performance by Federal Government employees.” However, neither the proposed policy
letter nor the notice from OFPP introducing it indicates whether or how the Obama
Administration would amend the definitions of “inherently governmental function” in the Federal
Acquisition Regulation, OMB Circular A-76, or other executive branch regulations and policy
documents.
The proposed policy letter defines a “critical function” as one that is “necessary to the agency
being able to effectively perform and maintain control of its mission and operations.” This
definition, and the accompanying guidance on when critical functions and functions associated
with the performance of inherently governmental functions should be performed in-house, also
respond to the requirements of Section 321 of the Duncan Hunter National Defense Authorization
Act. Among other things, Section 321 tasked OMB with developing criteria that agencies could
use in identifying critical functions and positions that should be performed by government
personnel to ensure that agencies develop and maintain “sufficient organic expertise and technical
capacity.” President Obama’s March 4, 2009, memorandum on government contracting similarly
charged OMB with clarifying when outsourcing is “appropriate.”
The proposed policy letter raises several legal and policy issues of potential interest to Congress,
given recently enacted and proposed legislation regarding inherently governmental functions and
other limitations upon contracting out (e.g., P.L. 111-8, P.L. 111-84, P.L. 111-117, H.R. 1436,
H.R. 2142, H.R. 2177, H.R. 2682, H.R. 2736, H.R. 2868, S. 924, S. 3607, S. 3611, S. 3677). Key
among these issues are (1) the relationship between the proposed policy letter and other executive
branch authorities on inherently governmental and related functions; (2) whether the proposed
policy letter would necessarily result in changes in agencies’ use of contractors to perform certain
functions that some Members of Congress and commentators claim are inherently governmental
(e.g., security services during contingency operations); and (3) the potential demands of any new
requirements upon the acquisition workforce.
Congressional Research Service
Inherently Governmental Functions
Contents
Introduction ................................................................................................................................ 1
Existing Law............................................................................................................................... 1
Proposed Policy Letter ................................................................................................................ 4
Inherently Governmental Functions....................................................................................... 5
Functions Closely Associated with the Performance of Inherently Governmental
Functions ........................................................................................................................... 6
Critical Functions.................................................................................................................. 7
Issues for Congress ..................................................................................................................... 7
Consistency with and Relationship to Other Executive Branch Authorities on
Inherently Governmental and Related Functions................................................................. 8
Potential Treatment of Specific Functions Under the Proposed Letter .................................. 10
Federal Building Security.............................................................................................. 11
Private Security Contractors.......................................................................................... 12
Demands of the Proposed Workload on the Acquisition Workforce...................................... 14
Possible Legislation ............................................................................................................ 15
Opportunities for Further Reforms?..................................................................................... 16
Contacts
Author Contact Information ...................................................................................................... 17
Congressional Research Service
Inherently Governmental Functions
Introduction
On March 31, 2010, the Office of Federal Procurement Policy (OFPP) in the Office of
Management and Budget (OMB) issued a proposed policy letter on inherently governmental
functions and other “work reserved for performance by federal government employees.” 1 While
not final, the policy letter represents the Obama Administration’s proposed guidance for agencies
determining (1) whether particular functions are inherently governmental and (2) when functions
closely associated with the performance of inherently governmental functions and critical
functions should be performed by government personnel. The proposed policy letter was, in part,
issued under the authority of the Duncan Hunter National Defense Authorization Act for FY2009
(NDAA'09) and President Obama’s memorandum of March 4, 2009, on government contracting.2
Section 321 of NDAA'09 tasked OMB with (1) reviewing existing definitions of “inherently
governmental function” to determine whether such definitions are “sufficiently focused” to
ensure that only government personnel perform inherently governmental functions or “other
critical functions necessary for the mission of a Federal department or agency;” (2) developing a
“single consistent definition” of “inherently governmental function” that would address any
deficiencies in the existing definitions, reasonably apply to all agencies, and ensure that agency
personnel can identify positions that perform inherently governmental functions; (3) developing
criteria for identifying “critical functions” that should be performed by government personnel;
and (4) developing criteria for identifying positions that government personnel should perform in
order to ensure that agencies develop and maintain “sufficient organic expertise and technical
capacity” to perform their missions and oversee contractors’ work.3 President Obama’s March 4,
2009, memorandum similarly charged OMB with clarifying when outsourcing is “appropriate.”4
Existing Law
Under existing law, inherently governmental functions cannot be contracted out.5 However,
agencies generally have considerable discretion in determining whether particular functions are
1 Office of Management and Budget, Office of Federal Procurement Policy, Work Reserved for Performance by
Federal Government Employees, 75
Federal Register 16188 (March 31, 2010). OFPP published a correction to the
proposed policy letter on April 19, 2010.
See 75
Federal Register 20397. However, the correction pertains only to the
methods for submitting comments on the proposed policy letter.
2 75
Federal Register at 16193.
3 P.L. 110-417, § 321(a)(1)-(4), 122 Stat. 4411 (October 14, 2008).
4 The White House, Office of the Press Secretary, Government Contracting, March 4, 2009,
available at
http://www.whitehouse.gov/the_press_office/Memorandum-for-the-Heads-of-Executive-Departments-and-Agencies-
Subject-Government. This memorandum specifically noted that “the line between inherently governmental activities
that should not be outsourced and commercial activities that may be subject to private sector competition has been
blurred and inadequately defined. As a result, contractors may be performing inherently governmental functions.
Agencies and departments must operate under clear rules prescribing when outsourcing is and is not appropriate.”
Id.
5 48 C.F.R. § 7.503(a) (“Contracts shall not be used for the performance of inherently governmental functions.”).
See
also Marsh v. Alabama, 326 U.S. 501 (1946) (requiring that private-sector entities that perform “public functions”
provide due process and similar protections); Smith v. Allwright, 321 U.S. 649 (1944) (same); Carter v. Carter Coal
Co., 298 U.S. 238 (1936) (striking down as an unconstitutional private delegation legislation that would have subjected
industry to maximum hours agreed to by a supermajority of workers and producers in the industry); A.L.A. Schechter
Poultry Corp. v. United States, 295 U.S. 495 (1935) (striking down as an unconstitutional private delegation legislation
that would have allowed industrial organizations or trade associations to establish “codes of fair competition”).
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inherently governmental,6 and some Members of Congress and commentators have alleged that
certain functions that have been contracted out should have been classified as inherently
governmental (e.g., provision of personal security).7 There has been particular concern that the
existence of multiple or inconsistent definitions of “inherently governmental function” may have
facilitated improper contracting out,8 prompting the 110th Congress to task OMB with reviewing
the existing definitions of “inherently governmental function” and developing a single consistent
one.9 Four definitions of “inherently governmental function” currently exist in law,10 with one
additional definition in a government-wide policy document that lacks the force of law.11 These
definitions arguably do not differ significantly in themselves.12 However, they are often
6
See, e.g., Arrowhead Metals, Ltd. v. United States, 8 Cl. Ct. 703, 717 (1985) (finding that coinage of money is
inherently governmental, but that the U.S. Mint has discretion to determine whether the stamping of blanks constitutes
coinage). In reaching this conclusion, the court noted its “desire to avoid a legislative-executive controversy” regarding
whether the striking of blanks in the production of coins constitutes an inherently governmental function.
Id. The U.S.
Constitution specifies that Congress shall have the power to “coin Money.” U.S. Const. art. 1, § 8, cl. 5.
7
See, e.g., P.L. 110-417, § 1057, 122 Stat. 4611 (expressing the sense of Congress that interrogation of enemy
prisoners of war, civilian internees, retained persons, other detainees, terrorists, or criminals captured, confined, or
detained during or in the aftermath of hostilities is an inherently governmental function); Correction of Long-Standing
Errors in Agencies’ Unsustainable Procurements (CLEAN-UP) Act of 2009, S. 924, 111th Cong., § 3 (congressional
finding that inherently governmental functions “have been wrongly outsourced”).
8
See, e.g.,
Duncan Hunter National Defense Authorization Act for Fiscal Year 2009: Report of the Committee on
Armed Services of the House of Representatives on H.R. 5658 Together with Additional Views, 110th Cong., 2d Sess., at
333-34 (2008) (noting that the task of determining which functions are inherently governmental “is made even more
difficult by the lack of a single definition and accompanying guidance on what constitutes an ‘inherently governmental
function.’ Currently, the Federal Acquisition Regulation defines that term in multiple places, the Office of Management
and Budget Circular A-76 also defines the term, and there is yet another definition in the Federal Activities Inventory
Reform Act (P.L. 105-270). There is also the additional DOD-specific definition of [functions] ‘closely associated with
inherently governmental functions.’”); Roger D. Carstens, Michael A. Cohen & Maria Figueroa Küpçü,
Changing the
Culture of Pentagon Contracting 12 (2008) (noting that the phrase “inherently governmental function” appears 15
times in the United States Code “without a clear or consistent definition”).
9
See P.L. 110-417, § 321(a)(1)-(2).
10
See FAIR Act, P.L. 105-270, § 5(2) 112 Stat. 2382 (October 19, 1998) (codified at 31 U.S.C. § 501 note, at §
5(2)(A)) (“The term ‘inherently governmental function’ means a function that is so intimately related to the public
interest as to require performance by Federal Government employees.”); National and Community Service Trust Act of
1993, P.L. 103-82, § 196, 107 Stat. 785 (September 21, 1993) (codified at 42 U.S.C. § 12651g(a)(1)(C)(iii)) (“As used
in this subparagraph, the term ‘inherently governmental function’ means any activity that is so intimately related to the
public interest as to mandate performance by an officer or employee of the Federal Government.”); A Bill to Authorize
Appropriations for Fiscal Years 2004 and 2005 for the United States Coast Guard, and for Other Purposes, P.L. 108-
293, § 302, 118 Stat. 1028 (August 9, 2004) (codified at 33 U.S.C. § 1223(e)) (same); 48 C.F.R. § 2.101 (“‘Inherently
governmental function’ means, as a matter of policy, a function that is so intimately related to the public interest as to
mandate performance by Government employees.”). Other statutes incorporate by reference a definition of “inherently
governmental function” provided by another statute or policy document.
See, e.g., 10 U.S.C. § 2330a(g)(4) (“The term
‘inherently governmental functions’ has the meaning given that term in section 2383(b)(2) of this title.”). Section
2382(b)(2) does not itself define “inherently governmental function.” Rather, it incorporates by reference the definition
of “inherently governmental function” provided in the Federal Acquisition Regulation.
See 48 C.F.R. § 2.101.
11
See OMB, Circular No. A-76 Revised, May 29, 2003,
Attachment A, at § (B)(1)(a),
available at
http://www.whitehouse.gov/omb/circulars/a076/a76_incl_tech_correction.html (“An inherently governmental activity
is an activity that is so intimately related to the public interest as to mandate performance by government personnel.”).
See also U.S. Dep't of Health & Human Servs. v. Fed. Labor Relations Auth., 844 F.2d 1087 (4th Cir. 1988) (holding
that OMB Circular A-76 does not have the force of law because it (1) was not the product of a congressional grant of
legislative authority promulgated in accordance with procedural requirements imposed by Congress and (2) is not a
substantive- or legislative-type rule affecting individual rights or obligations); Def. Lang. Inst. v. Fed. Labor Relations
Auth., 767 F.2d 1398 (9th Cir. 1985) (same).
12
See generally CRS Report R40641,
Inherently Governmental Functions and Department of Defense Operations:
Background, Issues, and Options for Congress, by John R. Luckey, Valerie Bailey Grasso, and Kate M. Manuel.
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Inherently Governmental Functions
accompanied by additional guidance, such as descriptions or listings of the types of functions
included in or excluded from the category of inherently governmental functions, which differ in
ways that some commentators view as significant.13 There are also numerous statutes classifying
specific functions, or work performed by specific entities, as inherently governmental.14
Agencies are also required by law to give “special consideration” to using federal employees to
perform functions closely associated with the performance of inherently governmental
functions.15 However, they are not prohibited from contracting out such functions.16 According to
the Federal Acquisition Regulation (FAR), functions that are not themselves inherently
governmental nonetheless can “approach being [inherently governmental] because of the nature
of the function, the manner in which the contractor performs the contract, or the manner in which
the Government administers contract performance.”17 The FAR lists 19 functions that “approach
being” inherently governmental, but this list is not all-inclusive.18
Critical functions are not presently defined for purposes of federal law, and there are no
limitations upon contracting them out. Legislation introduced in the 111th Congress (S. 924)
would, however, create a category of “mission essential functions,” which would include
functions that, “although neither necessarily inherently governmental nor necessarily closely
related to an inherently governmental function, are nevertheless considered by executive agency
officials to be more appropriate for performance by Federal employees.”19 This legislation would
also require agency heads to ensure that mission-essential functions are performed by government
employees.20 Some commentators consider mission-essential functions to be critical ones.21
13 In particular, the description of inherently governmental functions provided in OMB Circular A-76 notes that
“[inherently governmental] activities require the exercise of substantial discretion in applying government authority
and/or in making decisions for the government.” OMB Circular A-76 Revised, May 29, 2003, Attachment A, at §
(B)(1)(a). Some commentators have suggested that the addition of “substantial” in 2003 represented a significant
change in the definition of inherently governmental functions and facilitated the contracting out of allegedly inherently
governmental functions by the Bush Administration
. See, e.g., Am. Fed'n of Gov't Employees, Privatization: Cleaning
Up the Mess, February 9, 2009,
available at http://www.afge.org/index.cfm?page=
2005LegislativeConferenceIssuePapers&fuse=Content&ContentID=1745 (“OMB officials illegally watered down the
statutory definition when they overhauled the A-76 Circular” in 2003). However, OFPP Policy Letter 92-1, discussed
below, also referred to the exercise of “substantial discretion” as characterizing inherently governmental functions, and
the Bush Administration’s revision of OMB Circular A-76 incorporated and superseded Policy Letter 92-1.
14
See, e.g., Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009, P.L. 110-329, § 521,
122 Stat. 3574 (September 30, 2008) (noting that the instructor staff at the Federal Law Enforcement Training Center
perform inherently governmental functions); Government Performance and Results Act of 1993, P.L. 103-62, 107 Stat.
285 (August 3, 1993) (codified at 5 U.S.C. § 306; 31 U.S.C. §§ 1115-1116; & 39 U.S.C. § 2805) (classifying the
preparation of agency strategic plans and program performance reports as an inherently governmental function).
15 Omnibus Appropriations Act, 2009, P.L. 111-8, Div. D, § 736(b)(2)(A)(ii), 123 Stat. 690 (March 11, 2009) (civilian
agencies); National Defense Authorization Act for FY2008, P.L. 110-181, Div. A, § 324(a)(1), 122 Stat. 60 (January
28, 2008) (codified at 10 U.S.C. § 2463(b)(1)(B)) (defense agencies).
16
See, e.g., Gulf Group, Inc. v. United States, 61 Fed. Cl. 338, 341, n.7 (2004) (treating items on the FAR’s list of
“functions approaching inherently governmental” as capable of being contracted out by agencies).
17 48 C.F.R. § 7.503(d).
18 48 C.F.R. § 7.503(d)(1)-(19).
19 CLEAN-UP Act, S. 924, § 2(3).
20
Id., at § 5(a).
21
See, e.g., Carstens et al.,
supra note 8, at 12-13; Geoffrey Emeigh, Law Professor Suggests Focus on “Core,” Not
“Inherently Governmental,” Functions, 89
Fed. Cont. Rep. 649 (June 17, 2008); Orszag Stresses Importance of
Procurement Reform for Effective, Efficient Government, 91
Fed. Cont. Rep. 173 (March 10, 2009).
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Agencies are also not currently prohibited from contracting out functions when doing so could
potentially lead to a loss of “organic expertise and technical capacity.”
Proposed Policy Letter
While not final, the policy letter represents the Obama Administration’s proposed guidance for
agencies determining (1) whether particular functions are inherently governmental and (2) when
functions closely associated with the performance of inherently governmental functions and
critical functions should be performed by government personnel. It articulates that “[i]t is the
policy of the Executive branch to ensure that government action is taken as a result of informed,
independent judgments made by government officials.”22 However, it also states the following:
Nothing in this guidance is intended to discourage the appropriate use of contractors.
Contractors can provide expertise, innovation, and cost-effective support to federal agencies
for a wide range of services. Reliance on contractors is not, by itself, a cause for concern,
provided that the work they perform is not work that should be reserved for federal
employees and that federal officials are appropriately managing contractor performance.23
In its guidance on inherently governmental functions, the proposed policy letter can be seen as a
successor to OFPP Policy Letter 92-1, which established executive branch policy regarding
“service contracting and inherently governmental functions” and was designed to assist agencies
in “avoiding an unacceptable transfer of official responsibility to Government contractors.”24
Policy Letter 92-1 expressly prohibited contracting out inherently governmental functions,25
which it defined as “[functions] that [are] so intimately related to the public interest as to mandate
performance by Government employees.”26 Although Policy Letter 92-1 is still occasionally cited
as an authority on the definition of inherently governmental functions,27 the 2003 revision of
OMB Circular A-76 incorporated some of its contents and superseded it.28
In contrast, the proposed policy letter’s guidance on when functions closely associated with the
performance of inherently governmental functions and critical functions should be performed by
government personnel would arguably be unprecedented. There is nothing like it in Policy Letter
92-1 or OMB Circular A-76. OMB Circular A-76 provides guidance for agencies in determining
whether government personnel or private contractors can more efficiently perform commercial
activities on behalf of the government.29 It notes the existence of—but does not define or
22 75
Federal Register at 16193.
23
Id.
24 OMB, Policy Letter 92-1, September 23, 1992,
available at http://www.whitehouse.gov/omb/rewrite/procurement/
policy_letters/92-1_092392.html.
25
Id., at § 6(a)(1).
26
Id., at § 5.
27
See, e.g., Statement of P. Jackson Bell, Deputy Under Secretary, Logistics & Materiel Readiness, Department of
Defense, to the House Armed Services Subcommittee on Readiness,
CQ Cong. Testimony, March 11, 2008.
28 OMB Circular A-76 Revised, May 29, 2003, at § 2,
available at http://oamweb.osec.doc.gov/docs/
OMB%20Circular%20A-76%20Revised%202003.pdf.
29
See id., at § 1.
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Inherently Governmental Functions
otherwise address—a category of activities that are commercial but “not appropriate for private
sector performance.”30
Inherently Governmental Functions
In keeping with Section 321 of the Duncan Hunter National Defense Authorization Act for
FY2009, which tasked OMB with developing a “single consistent definition” of “inherently
governmental function,” the proposed policy letter adopts the definition of “inherently
governmental function” in the Federal Activities Inventory Reform (FAIR) Act.31 The FAIR Act
defines an “inherently governmental function” as one that is “so intimately related to the public
interest as to require performance by Federal Government employees.”32 However, neither the
proposed policy letter nor the introductory comments on it indicates what, if any, changes the
Obama Administration would make to other regulations or policy documents that also define
“inherently governmental function” (e.g., the FAR, OMB Circular A-76).
In addition to defining “inherently governmental function,” the policy letter requires that agencies
take certain steps to ensure that they do not contract out such functions. Before issuing a
solicitation, agencies would be required to determine that none of the requirements are (1)
designated as inherently governmental in statute, (2) listed among the functions included in
Appendix A of the proposed letter, which corresponds to Subpart 7.5 of the FAR, or (3) qualify as
such under one of several tests proposed in the letter.33 The first of these tests focuses on the
nature of the function and requires that functions involving the exercise of sovereign powers, or
“powers that are uniquely governmental,” be classified as inherently governmental regardless of
the “type or level of discretion associated with the function.”34 The second test focuses on the
exercise of discretion and prohibits agencies from contracting out functions involving an exercise
of discretion that would
commit[] the government to a course of action where two or more alternative courses of
action exist and decision making is not already limited or guided by existing policies,
procedures, directions, orders, and other guidance that: (A) [i]dentify specified ranges of
acceptable decisions or conduct concerning the overall policy or direction of the action; and
(B) [s]ubject the discretionary authority to final approval or regular oversight by agency
officials.35
The notice of the proposed policy letter also requests comments on a third possible test, the
principal-agent test, that would require agencies to identify functions as inherently governmental
“where serious risks could be created by the performance of these functions by those outside the
government, because of the difficulty of ensuring sufficient control over such performance.”36
30
Id., Attachment A, at § (C)(1).
31 75
Federal Register at 16193.
32 31 U.S.C. § 501 note, at § 5(2)(A).
33 75
Federal Register at 16194-95.
34
Id. at 16194.
35
Id.
36
Id. at 16192.
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Written determinations that functions to be contracted out are not inherently governmental would
have to be included in the contract file, along with the analysis that supports this determination.37
Agencies would also be required to monitor the functions currently being performed by
contractors to ensure that contractor performance of functions closely associated with the
performance of inherently governmental functions, in particular, “does not expand to include
performance of inherently governmental functions or otherwise interfere with federal employees’
ability to carry out their inherently governmental responsibilities.”38 If they find that contractors
are performing inherently governmental functions, agencies are instructed to reestablish control
over these responsibilities by strengthening oversight, insourcing the work through the timely
development and execution of hiring plans, refraining from exercising options under the
contract,39 or terminating all or part of the contract.40
Functions Closely Associated with the Performance of Inherently
Governmental Functions
The proposed policy letter does not address the definition of “functions closely associated with
the performance of an inherently governmental function.”41 However, given that its Appendix B
lists the same functions that the FAR lists as “approaching being” inherently governmental, the
proposed policy letter appears to rely on the FAR’s definition of such functions. The proposed
policy letter also reiterates existing statutory requirements that agencies give “special
consideration” to using government personnel to perform functions closely associated with the
performance of inherently governmental functions.42
While the proposed policy letter would not prohibit agencies from contracting out functions that
are closely associated with the performance of inherently governmental functions, it would
require them to determine in writing before issuing a solicitation that
(i) The function is closely associated with an inherently governmental function;
(ii) Private sector performance of the function is appropriate and the most cost effective
source of support for the agency; and
(iii) The agency has sufficient internal capability to control its missions and operations,
oversee the contractor’s performance of the contract, limit or guide the contractor’s exercise
37
Id. at 16195.
38
Id. at 16189.
39 An option is a unilateral right in a contract under which the government may, for a specific period, purchase
additional supplies or services or otherwise extend the contract. Federal contracts are generally for one year but can
potentially be extended to five years through agencies’ use of options. 48 C.F.R. § 17.204(e). It is always within the
government’s power to decline to exercise an option.
40 75
Federal Register at 16195. Such a termination would generally be a termination for convenience, requiring the
government to pay the contractor an agreed-upon amount or, in the absence of such an agreement, (1) the costs incurred
in performing the terminated work, (2) the costs of settling and paying settlement proposals under terminated
subcontracts, and (3) a fair and reasonable profit on work performed.
See 48 C.F.R. § 49.103.
41
See 75
Federal Register at 16195-96.
42
Id.
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of discretion, ensure reasonable identification of contractors and contractor work products,
and avoid or mitigate conflicts of interest and unauthorized personal services.43
When functions closely associated with the performance of inherently governmental functions are
contracted out, agencies would be expected to “[l]imit or guide” contractors’ exercise of
discretion by incorporating in the contract a specified range of acceptable decisions or conduct or
establishing a process for subjecting contractors’ discretionary decisions or conduct to final
agency approval.44 They would also be expected to (1) assign a sufficient number of qualified
government personnel to monitor contractors’ activities; (2) ensure that contractors and contractor
work product are “reasonably identified” when “there is a risk that Congress, the public or other
persons outside the government might confuse contractor personnel or work products with
government officials or work products”; and (3) take certain steps to avoid or mitigate contractor
conflicts of interest, including by physically separating contractor and government personnel on
any shared worksites.45
Critical Functions
Because “critical function” is presently not defined for purposes of federal law, the proposed
policy letter defines a “critical function” as one that is “necessary to the agency being able to
effectively perform and maintain control of its mission and operations.”46 The proposed policy
letter requires that agencies (1) dedicate a “sufficient number of employees to the performance of
critical functions so that federal employees may maintain control of agencies’ missions and
operations”47 and (2) retain control of “highly critical functions,” which could vary by agency.48
However, the proposed policy letter otherwise allows agencies to contract out critical functions
provided that the agency determines in writing, prior to issuing a solicitation, that it (1) has
sufficient internal capability to control its missions and operations and (2) the cost-savings of
private-sector performance “clearly outweigh” any considerations relating to performance or risk
that favor federal employee performance of the functions.49 Agencies would also have to monitor
post-award performance of any contracts that involve critical functions and take the necessary
steps to insource these functions (e.g., developing hiring plans, securing funding for in-house
capacity) when internal control of mission and operations is at risk due to overreliance on
contractors.50
Issues for Congress
Although it is not final,51 the policy letter raises several legal and policy issues of potential
interest to Congress, given recently enacted and proposed legislation regarding inherently
43
Id. at 16195-96.
44
Id.
45
Id.
46
Id. at 16193.
47
Id.
48
Id. at 16192.
49
Id.
50
Id.
51
Id. at 16189 (inviting interested parties to submit comments in writing on or before June 1, 2010).
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governmental functions and other limitations upon contracting out (e.g., P.L. 111-8, P.L. 111-84,
P.L. 111-117, H.R. 1436, H.R. 2142, H.R. 2177, H.R. 2682, H.R. 2736, H.R. 2868, S. 924, S.
3607, S. 3611, S. 3677). Key among these issues are (1) the relationship between the proposed
policy letter and other executive branch authorities on inherently governmental and related
functions; (2) whether the proposed policy letter would necessarily result in changes in agencies’
use of contractors to perform certain functions that some Members of Congress and
commentators claim are inherently governmental (e.g., security services during contingency
operations); and (3) the potential demands of any new requirements upon the acquisition
workforce. Certain reforms contemplated by the proposed policy letter could require
congressional action (e.g., its call for comments on whether changes should be made to existing
laws that deem specific functions or the work of specific organizations to be inherently
governmental), and some proposals may suggest opportunities for additional reforms (e.g.,
interagency contracting, the definition of commercial items, the policies underlying OMB
Circular A-76).
Consistency with and Relationship to Other Executive Branch
Authorities on Inherently Governmental and Related Functions
The proposed policy letter and other executive branch authorities on inherently governmental and
related functions arguably diverge somewhat in their terminology, definitions, and explanations.
Among other things, the proposed policy letter uses the term “functions closely associated with
the performance of inherently governmental functions,” while the FAR speaks of functions that
“approach being” inherently governmental52 and several statutes refer to “functions closely
associated with inherently governmental functions.”53 Such differences might be merely semantic.
However, they could potentially form the basis for more substantive distinctions because the
category of functions that are themselves nearly inherently governmental is arguably narrower
than the category of functions associated with the performance of inherently governmental
functions. For example, serving as an interpreter during an interrogation of an enemy prisoner of
war could potentially constitute a function approaching inherently governmental.54 It is less clear
that transcribing a recording of that interrogation approaches being inherently governmental.
However, transcription could potentially be a function closely associated with the performance of
an inherently governmental function. Given that the notice accompanying the proposed policy
letter itself suggests that even minor “variations can create confusion and uncertainty,” additional
precision in the use of terms might be desirable.55
Similarly, while the proposed policy letter adopts the definition of “inherently governmental
function” used in the FAIR Act, neither it nor the notice accompanying it addresses whether or
how the Obama Administration would change the definitions in the FAR, OMB Circular A-76,
and other executive branch regulations and policy documents to ensure that there is a “single
consistent definition” of inherently governmental functions.56 The actual definitions contained in
52
See 48 C.F.R. § 7.503(d).
53
See, e.g., 10 U.S.C. § 2330 note; 10 U.S.C. § 2463(e).
54 The National Defense Authorization Act for FY2009 expressed Congress’s sense that interrogation of enemy
prisoners of war is an inherently governmental function.
See supra note 7.
55 75
Federal Register at 16190.
56 Statements in the notice accompanying the proposed policy letter could be read as suggesting that the Obama
Administration would make such changes.
See id. at 16189 (“A single definition of ‘inherently governmental function’
(continued...)
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Inherently Governmental Functions
these sources arguably differ only slightly (e.g., the FAIR Act speaks of “functions” whose
relationship to the public interest is such as to “require performance by Federal Government
employees,” while OMB Circular A-76 speaks of “activities” whose relationship to the public
interest is such as to “mandate performance by government personnel”). However, the explication
accompanying these definitions diverges to a greater degree, with OMB Circular A-76 speaking
of activities that involve the exercise of “substantial discretion,” while other sources speak only
of the exercise of discretion.57 Additionally, one of the two tests for identifying inherently
governmental functions in the proposed policy letter introduces a new term, “sovereign,” that
does not appear in the FAIR Act’s definition or discussion of inherently governmental functions.58
While the concept of sovereignty is arguably implicit in the FAIR Act’s listing of the types of
functions included within the definition of “inherently governmental function”59 and in the case
law regarding inherently governmental functions,60 the FAIR Act’s discussion of inherently
governmental functions arguably focuses more upon the exercise of discretion, which is the focus
of the second of the proposed policy letter’s tests for identifying inherently governmental
functions.61
Additionally, the proposed policy letter does not explain how its requirements would relate to
existing requirements under OMB Circular A-76. Assuming the proposed policy letter is
implemented and OMB Circular A-76 is not amended, agency personnel would apparently be
required to determine which agency functions are inherently governmental for purposes of two
different processes. Under the policy letter, agency personnel would be required to ensure, on a
contract-by-contract basis, that inherently governmental functions are not performed by
contractors. That is, agency personnel would have to make a determination prior to issuing a
(...continued)
built around the well-established statutory definition in the Federal Activities Inventory Reform Act (FAIR Act), P.L.
105-207, would replace existing definitions in regulation and policy.”) However, no proposed changes to the FAR or
OMB Circular A-76 are discussed in the notice or proposed policy letter.
57
See supra note 12 and accompanying text.
58 The proposed “nature of the function” test specifies that “[f]unctions which involve the exercise of
sovereign
powers—that is, powers that are uniquely governmental—are inherently governmental by their very nature.” 75
Federal Register at 16194 (emphasis added).
59
See, e.g., 31 U.S.C. § 501 note, at § 5(2)(B)(iii) (functions that “significantly affect[] the life, liberty, or property
interests of private persons” among the types of functions included within the definition of “inherently governmental
function”).
60
See, e.g., Flagg Bros., Inc. v. Brooks, 436 U.S. 149 (1978) (conducting elections); Contributors to Pa. Hospital v.
Philadelphia, 245 U.S. 20 (1917) (exercising the power of eminent domain); Takle v. Univ. of Wisc. Hosp. & Clinics
Auth., 402 F.3d 768 (7th Cir. 2005) (providing police services); Kauch v. Dep't for Children, Youth & Their Families,
321 F.3d 1 (1st Cir. 2003) (investigating allegations of child abuse); Sigman v. United States, 208 F.3d 760 (9th Cir.
2000) (exercising prosecutorial discretion); Week v. Cayman Islands, 1992 U.S. App. LEXIS 32985 (7th Cir. 1992)
(chartering, oversight, and regulation of companies); Republic of the Philippines v. Marcos, 818 F.2d 1473 (9th Cir.
1987) (creation of public monopolies); Kimbrough v. O’Neil, 545 F.2d 1059 (7th Cir. 1976) (holding the personal
property of prisoners); Bonner v. Coughlin, 545 F.2d 565 (7th Cir. 1976) (limiting the First Amendment rights of
prisoners); S.J. Constr., Inc. v. Lewis & Clark Reg'l Water Sys., 2008 U.S. Dist. LEXIS 62192 (D.S.D. 2008) (taxing
and paying governmental indebtedness or obligations); Royal Thai Gov't v. United States, 441 F. Supp. 2d 1350 (Ct.
Int'l Trade 2006) (devising tariff regimes); Elliott v. British Tourist Auth., 986 F. Supp. 189 (S.D.N.Y. 1997) (hiring
diplomatic staff or civil servants).
61 75
Federal Register at 16194.
See generally 31 U.S.C. § 501 note, at § 5(2)(b) (stating that inherently governmental
functions are ones that “require either the exercise of discretion in applying Federal Government authority or the
making of value judgments in making decisions for the Federal Government, including judgments relating to monetary
transactions and entitlements.”).
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Inherently Governmental Functions
solicitation for a particular procurement.62 Separately, and in accordance with Circular A-76, each
agency would continue to compile, and submit to OMB by June 30 each year, a list of its
inherently governmental functions.63 Potentially significant differences between the proposed
policy letter and Circular A-76 involve, at a minimum, the level of detail (i.e., a solicitation or
contract versus an agency function or work center) and the definition of “inherently
governmental,” including related guidance. The existence of two related, yet somewhat disparate,
procedures (and guidance) for identifying inherently governmental work raises several questions.
Could the two processes result in different outcomes, or designations, for the same function? If
so, might this undermine the government’s effort to adopt a single, consistent definition of
“inherently governmental”? Setting aside these issues, might the implementation of OFPP’s
proposed policy letter render the Circular A-76 requirement for the submission of inventories of
inherently governmental activities moot?
Potential Treatment of Specific Functions Under the
Proposed Letter
The proposed policy letter acknowledges that certain functions are particularly difficult to
“properly classify” and invites comments on “[w]hat specific steps should be taken to address this
challenge” and “[w]hat should guidance say—in place of, or in addition to, the draft guidance or
currently existing federal regulations and policies—to address the use (if any) of contractors
performing any [such] functions.”64 These functions include physical security involving guard
services and “the use of deadly force, including combat, security operations performed in direct
support of combat, and security that could evolve into combat.”65 Some Members of Congress
have had their own concerns about the contracting out of such functions,66 which might still be
possible, albeit more difficult, under the proposed policy letter. The Obama Administration
separately ended contractor performance of another function—collection of taxpayer debts—
whose performance by contractors had also been of concern to some Members.67
62 75
Federal Register at 16194.
63 OMB Circular A-76 Revised, May 29, 2003, at A-1.
64 75
Federal Register at 16192.
65
Id.
66
See, e.g., P.L. 110-417, § 831, 122 Stat. 4534 (expresses the sense of Congress that “security operations for the
protection of resources (including people, information, equipment, and supplies) in uncontrolled or unpredictable high-
threat environments should ordinarily be performed by members of the Armed Forces if they will be performed in
highly hazardous public areas where the risks are uncertain and could reasonably be expected to require deadly force”
and requires that regulations to be issued under Section 862(a) of the National Defense Authorization Act for FY2008
ensure that private security contractors are not authorized to perform inherently governmental functions in areas of
combat operations); Laura D. Francis, Speakers, Members Debate Whether Federalizing FPS Workforce Will Solve
Persistent Problems, 93
Fed. Cont. Rep. 302 (April 20, 2010).
67
See, e.g., Diane Freda, Shulman Formally Announces End of Private Debt Collection Program, 91
Fed. Cont. Rep. 191 (March 17, 2009) (referencing Representative John Lewis’s “often repeated view” that tax collection is an
inherently governmental function). For more on this program, see generally CRS Report RL33231,
The Internal
Revenue Service’s Private Tax Debt Collection Initiative: Current Status and Issues for Congress, by Gary Guenther.
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Inherently Governmental Functions
Federal Building Security
The FAIR Act defines federal building security as not being an inherently governmental
function.68 The proposed policy letter asks, among other things, what federal government
guidance should say regarding the use of contractors to perform physical security, including guard
services at buildings.69 One might conclude that this would include the Federal Protective
Service’s (FPS’s) use of contract security guards.
Because the federal government’s real property portfolio comprises approximately 446,000
buildings, FPS relies on the majority of on-site security to be provided by contract security
guards. FPS’s contract security guard responsibilities include federal building access control,
employee and visitor identification checks, security equipment monitoring, and roving patrols of
the interior and exterior of federal property.70 Within the National Capital Region, FPS contracts
with 54 private security guard companies to provide approximately 5,700 guards to protect 125
federal facilities. FPS issues task orders to contract security guard services that detail the terms
and conditions under which the contract security guard services are to be provided. Some of these
task orders include the identification of buildings requiring protection, specific guard post
locations, and the hours and days of the week each post is to be staffed; whether security guards
are to be armed; and the number of guards at each post. FPS currently employs approximately
15,000 contract security guards across the nation, and, according to the Department of Homeland
Security inspector general, contract guard services “represent the single largest item in the FPS
operating budget, with an estimated FY2006 budget of $487 million.”71
Some Members of Congress have shown recent interest in the FPS’s use of contract security
guards, including a House Homeland Security Committee hearing on April 14, 2010, on the
“Federal Protective Service: Would Federalization of Guards Improve Security at Critical
Facilities?” Specifically, the Committee discussed the possibility of federalizing portions of the
FPS’s contract security guard force to ensure federal building security. A congressionally
mandated federalization of a portion of FPS’s contract security guard force or an increase to
FPS’s law enforcement officer full-time equivalents—to provide some federal buildings with a
federal law enforcement presence—may result in some federal agencies, specifically the
Department of Homeland Security, commenting on the proposed policy letter and its effects on
their use of contract security guards.
OFPP’s proposed policy letter and recent congressional action could affect federal agencies’
continued use of contract security guards and the role FPS has in administering contract security
guards. Additionally, Congress could amend the FAIR Act and its list of functions excluded from
the definition of inherently governmental functions, which could result in reduced use of contract
security guards.
68 31 U.S.C. § 501 note, at § 5(2)(C)(ii) (excluding building security from the functions included within the definition
of inherently governmental functions).
69
See id.
70 U.S. Department of Homeland Security, Office of Inspector General, Federal Protective Service Needs to Improve Its
Oversight of the Contract Guard Program, OIG-07-05, October 2006, at 2,
available at http://www.dhs.gov/xoig/assets/
mgmtrpts/OIG_07-05_Oct06.pdf.
71
Id.
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Inherently Governmental Functions
Private Security Contractors
The proposed policy letter does not list armed security as an inherently governmental, closely
associated with inherently governmental, or critical function. OFPP is soliciting public comment
on how to categorize contractors engaging in “[t]he use of deadly force, including combat,
security operations performed in direct support of combat, and security that could evolve into
combat.”72 However, the proposed policy letter is relevant to the use of private security
contractors (PSCs) to the extent that it would impose on agencies pre- and post-award
responsibilities for evaluating whether a function is inherently governmental.73 Generally,
analysts, industry officials, and Department of Defense (DOD) and Department of State officials
agree that the current draft of the policy letter probably would not substantially alter the DOD’s
use of private security contractors during contingency operations, including current operations in
Iraq and Afghanistan.74
DOD has already performed an initial agency analysis to determine whether the use of PSCs in
Iraq and Afghanistan should be considered inherently governmental, much as it would be required
to do under the proposed policy letter. On January 10, 2006, DOD’s Office of General Counsel
issued an opinion permitting the use of contractors to protect U.S. personnel and property.75 The
opinion does not directly address whether PSCs perform inherently governmental functions, but
does state that “when using contractors for security services, the purpose must be to provide such
services other than uniquely military functions.”76 The opinion goes on to state that it would be
inappropriate to use armed security contractors in “situations where the likelihood of direct
participation in hostilities is high. For example, they should not be employed in quick-reaction
force missions, local patrolling, or military convoy security operations where the likelihood of
hostile contact is high.”77 In a DOD instruction issued in July 2009, DOD addressed the issue
more directly, stating that “[c]ontractors performing private security functions are not authorized
to perform inherently governmental functions. In this regard, they are limited to a defensive
response to hostile acts or demonstrated hostile intent.”78
The post-award requirements under the proposed policy letter would include the responsibility of
“review[ing], on an ongoing basis, the functions being performed by … contractors, paying
particular attention to the way in which contractors are performing, and agency personnel are
managing, contracts involving functions that are closely associated with inherently governmental
functions or contractors for professional and technical services.”79 As discussed earlier in this
report, the notice for the proposed policy letter requests public comment on a possible test that
72 75
Federal Register at 16192.
73
Id. at 16190.
74 Based on conversations with industry and government officials, April 20, 2010. This report does not address the
merits of DOD and the Department of State’s internal analysis of whether the use of PSCs is inherently governmental
or closely associated to inherently governmental. The report focuses only on the potential impact of the draft policy
letter on the government’s use of PSCs in contingency operations.
75 Department of Defense, Office of General Counsel Memorandum, Request to Contract for Private Security
Companies in Iraq, January 10, 2006.
76
Id. at 2.
77
Id. at 4. The Department of State does use contractors to perform quick reaction force type missions in Iraq.
78 Department of Defense Instruction 3020.50, Private Security Contractors Operating in Contingency Operations, July
22, 2009, at 12.
79 75
Federal Register at 16192.
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Inherently Governmental Functions
would require agencies to consider functions inherently governmental “where serious risks could
be created by the performance of these functions by those outside the government, because of the
difficulty of ensuring sufficient control over such performance.”80 Many analysts and government
agencies—including the Government Accountability Office, the Special Inspector General for
Iraq Reconstruction, and the Commission on Wartime Contracting—have raised questions about
DOD and the Department of State’s ability to manage armed security contractors effectively.81
Depending upon the final draft of the letter, some analysts could argue that the use of PSCs has
undermined the U.S. mission in Iraq and Afghanistan and that the inability to effectively manage
PSCs makes armed security an inherently governmental function.82 Other analysts could argue
that both departments are in line with the draft policy letter; both departments have periodically
reviewed their contractor management, have evaluated the performance of their contractors, and
have taken steps to improve oversight.83 For example, the Department of State reportedly did not
renew certain armed security contracts with Blackwater and ArmourGroup because of poor
performance and the contractors’ conduct.84 Further, on April 12, 2010, DOD issued an
instruction that includes a detailed discussion of what is and is not an appropriate use of armed
contractors in contingency operations.85 Analysts could also argue that not using PSCs in Iraq and
Afghanistan would deprive DOD and the Department of State of the manpower necessary to
successfully perform their mission in Iraq, thereby posing a much greater risk to the overall
mission than the risk posed by imperfect contract management.
Congress has addressed the issue of what functions should not be performed by PSCs, stating that
it is the sense of Congress that security should ordinarily be provided by the Armed Forces in
high-threat environments where it could reasonably be expected that deadly force will be initiated
by security personnel.86 In an area of combat operation, Section 832 of the Duncan Hunter
National Defense Authorization Act for FY2009 vests sole discretion for determining the
appropriateness of using armed contractors with the combatant commander.87 DOD instructions
generally conform with the sense of Congress, including vesting the discretion for determining
the appropriateness of using armed contractors with the combatant commander.88
80
Id.
81
See generally CRS Report R40835,
The Department of Defense’s Use of Private Security Contractors in Iraq and
Afghanistan: Background, Analysis, and Options for Congress, by Moshe Schwartz.
82 See CRS Report R40835,
The Department of Defense’s Use of Private Security Contractors in Iraq and Afghanistan:
Background, Analysis, and Options for Congress, by Moshe Schwartz.
83 See CRS Report R40835,
The Department of Defense’s Use of Private Security Contractors in Iraq and Afghanistan:
Background, Analysis, and Options for Congress for a discussion on steps DOD has taken to try to improve the
management and oversight of PSCs.
84
See, e.g., U.S. Will Not Renew Blackwater Contract in Iraq, January 31, 2009,
available at http://www.rferl.org/
content/US_Will_Not_Renew_Blackwater_Contract_In_Iraq/1377275.html; ArmourGroup Loses Kabul Embassy
Contract, December 8, 2009,
available at http://www.politico.com/blogs/laurarozen/1209/
POGO_ArmorGroup_loses_Kabul_embassy_contract.html.
85 Department of Defense Instruction 1100.22, Policy and Procedures for Determining Workforce Mix, April 12, 2010.
86 Duncan Hunter National Defense Authorization Act for FY2009, P.L. 110-417, § 832, 122 Stat. 4535.
87 According to the statute, such determination should not be delegated to any person not in the military chain of
command.
88 See CRS Report R40764,
Department of Defense Contractors in Iraq and Afghanistan: Background and Analysis, by
Moshe Schwartz.
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Inherently Governmental Functions
Demands of the Proposed Workload on the Acquisition Workforce
Considering the responsibilities and tasks that an agency would be expected to fulfill and
accomplish, successful implementation of OFPP’s proposed policy letter would depend, in large
part, on the capability of each agency’s acquisition workforce. Agency personnel would be
required to, for example, carry out a host of pre-award and post-award tasks regarding inherently
governmental functions and critical functions, develop and implement a plan for managing each
contractor who performs one or more functions closely associated with the performance of
inherently governmental functions, and develop and review internal management controls.89
Throughout the proposed policy letter, OFFP acknowledges the importance of the acquisition
workforce, stating that agencies are to “employ an adequate number of government personnel,”
“[e]nsure that sufficient personnel are available,” and “identify specific strategies and goals for
addressing both the size and capability of the acquisition workforce.”90
It is probably unlikely that, for at least the foreseeable future, the government’s acquisition
workforce—particularly the civilian agencies’ acquisition workforce—will have sufficient
capability to accomplish the tasks required by the proposed policy letter while fulfilling all of
their other responsibilities.91 The following excerpt from a fall 2009 OFPP memorandum
summarizes the problem:
The inflation-adjusted dollar value of civilian agency contracting increased by 56 percent
between FY 2000 and FY 2008, but the capability and capacity of the federal acquisition
workforce has not kept pace with the increase in spending, the number of [contract] actions,
or the complexity of federal purchases. As a result of this, FAI’s [Federal Acquisition
Institute’s] 2008 Acquisition Workforce Competencies Survey found that the acquisition
workforce spends less time on critical steps in the acquisition process—such as planning,
requirements development, market research, competition, and contract administration. This
lack of capacity requires the workforce to make tradeoffs during the acquisition lifecycle that
may reduce the chance of successful acquisition outcomes.92
Although efforts are under way to bolster the acquisition workforce,93 the extent of the problem
suggests that it is not realistic to expect that the situation will be remedied easily, or in the short
term. Thus, as OFPP notes in the excerpt above, members of the acquisition workforce most
likely will have to continue to make trade-offs among the many acquisition-related tasks that they
are required to accomplish, including those described in the proposed policy letter.
89
See 75
Federal Register at 16193-96.
90
Id. at 16194.
91 For a thorough discussion of the challenges involving the government’s acquisition workforce, see Acquisition
Advisory Panel,
Report of the Acquisition Advisory Panel to the Office of Federal Procurement Policy and the United
States Congress 361 (January 2007),
available at https://www.acquisition.gov/comp/aap/24102_GSA.pdf.
92 Lesley A. Field, Deputy Administrator, OFPP, Acquisition Workforce Development Strategic Plan for Civilian
Agencies—FY 2010-2014, October 27, 2009, at 1,
available at http://www.whitehouse.gov/omb/assets/
procurement_workforce/AWF_Plan_10272009.pdf.
93
See, e.g., National Defense Authorization Act for FY2008, P.L. 110-181, § 802, 122 Stat. 206-07 (January 28, 2008)
(requiring the Department of Defense (DOD) to ensure that DOD’s acquisition workforce is of the appropriate size and
skill level to accomplish certain functions).
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Inherently Governmental Functions
Possible Legislation
Certain actions apparently contemplated by the proposed policy letter, such as “changes … to
existing laws that currently deem specific functions or the work performed by specific
organizations to be inherently governmental,” 94 would require congressional action. Because
these designations are based in statute, the executive branch cannot remove or modify them in the
same way that it can amend the FAR or OMB Circular A-76.95
Congress could also take legislative action to establish a statutory basis for any desirable features
of the proposed policy letter that would otherwise lack such a basis. For example, assuming that
no further legislation is enacted on this issue, the definition of “critical functions” would exist
only in a policy document, which could be changed by the executive branch at any time. It would
not have a statutory or other legal basis.
Conversely, Congress could legislate to modify any aspects of the proposed policy letter that
might not comport with its intent. Given that the proposed policy letter would allow agencies to
contract out functions closely associated with the performance of inherently governmental
functions and critical functions provided that certain conditions are met, its restrictions on
contracting out functions that are not themselves inherently governmental might not be as
stringent as some Members of Congress would wish.96 Relatedly, it is unclear whether the
proposed policy letter’s inclusion within its definition of “critical functions” of functions that
should be performed by government personnel to ensure that agencies develop and maintain
“sufficient internal capacity to effectively perform and maintain control over functions that are
core to the agency’s mission and operations”97 comports with Congress’s intent in Section 321 of
the Duncan Hunter National Defense Authorization Act. Section 321 appears to group critical
functions in a separate category from those that should be performed by the government to
maintain in-house expertise.98
94 75
Federal Register at 16192.
95 Executive Orders have, at times, classified particular functions as inherently governmental, and these designations
could be removed without congressional action.
Compare Executive Order 13180, 65
Federal Register 77493
(December 11, 2000) (designating the “provision of air traffic services” as an inherently governmental function)
with Executive Order 13264, 67
Federal Register 39243 (June 7, 2002) (removing this designation). There do not appear to
be any such executive orders currently in effect.
96 The proposed Correction of Long-Standing Errors in Agencies’ Unsustainable Procurements Act of 2009 (S. 924),
for example, would remove agency discretion to contract out “functions closely related to inherently governmental
functions” and “mission essential functions” by requiring that “[t]he head of each executive agency shall ensure that
inherently governmental functions, functions closely related to inherently governmental functions, and mission-
essential functions are performed by Federal employees.” S. 924, at § 5(a).
See also Barbara A. Mikulski et al., Letter
to Peter Orszag, March 18, 2010,
available at http://mikulski.senate.gov/_pdfs/Press/MikulskiLetterToOrszag.pdf
(“Specifically, we suggest that the new ‘inherently governmental’ definition include … [a]n expansion of the definition
to cover all sensitive functions so that managers won’t need designations like ‘core,’ ‘critical,’ and ‘mission-essential’
to shield jobs they know are best performed by federal workers.”).
97 75
Federal Register at 16189. The proposed policy letter also invites comments on whether the category of functions
closely associated with the performance of inherently governmental functions should be “merged and treated in an
identical fashion” with critical functions.
Id. at 16192.
98
See P.L. 110-417, § 321(a)(3)-(4).
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Opportunities for Further Reforms?
While commentators generally suggest that OFPP has undertaken a systematic, thoughtful
approach to “work reserved for performance by federal government employees,”99 certain aspects
of the proposed policy letter may raise related questions that Congress might wish to explore, or
instruct the executive branch to explore. For example, a principal-agent test, which is not among
the two tests for identifying inherently governmental functions included in the proposed policy
letter but which OFPP has requested comments on, would “require agencies to identify functions
as inherently governmental where serious risks could be created by the performance of these
functions by those outside government, because of the difficulty of ensuring sufficient control
over such performance.”100 Interagency contracting, in particular, might be subject to this
particular type of problem and also might be more susceptible to attenuated accountability, or
limited transparency, than intra-agency contracting.101 For these reasons, a review of interagency
contracting (or particular forms of interagency contracting) might be warranted in light of the
proposed policy letter.
A review of the definition of “commercial activity” might also be warranted in light of the
proposed changes. OMB Circular A-76 defines a “commercial activity” as “[a] recurring service
that could be performed by the private sector. This recurring service is an agency requirement that
is funded and controlled through a contract, fee-for-service agreement, or performance by
government personnel.”102 A narrowing of this definition might be in keeping with the proposed
policy letter.
Alternatively, some observers might suggest that a broad review of the appropriate role of the
private sector in performing work for the federal government could be helpful in determining how
to balance government performance and contractor performance of agency functions.103 A
rigorous examination of the private sector’s role also might aid in addressing the following
questions posed by OFPP:
What, if any, additional guidance might be provided to help an agency analyze whether it has
the best mix of private and public sector labor? Are there benchmarks that exist to help
99
Cf. Proposed OFPP Policy Letter Would Define “Inherently Governmental,” Provide Guidance, 93
Fed. Cont. Rep.
270 (April 6, 2010) (reporting that both industry groups and unions representing government employees had positive
reactions to the proposed policy letter).
100 75
Federal Register at 16192. “An
agency relationship exists whenever there is an arrangement in which one
person’s welfare depends on what another person does. The
agent is the person who acts, and the
principal is the party
whom the action affects.” Restated, a principal (e.g., a government agency) employs an agent (e.g., a contractor) “to
achieve the principal’s objective.” Robert S. Pindyck & Daniel L. Rubinfeld,
Microeconomics 609 (5th ed. 2001)
(emphasis in original). The principal-agent problem arises when the agent pursues its own goals.
Id.
101
See CRS Report R40814,
Interagency Contracting: An Overview of Federal Procurement and Appropriations Law,
by Kate M. Manuel and Brian T. Yeh.
102 OMB Circular A-76 Revised, May 29, 2003, at D-2. The FAR includes a definition of “commercial item,” but this
definition is not related to the subject of this report.
See 48 C.F.R. 2.101 (defining, in part, a commercial item as “[a]ny
item, other than real property, that is of a type customarily used by the general public or by non-governmental entities
for purposes other than governmental purposes, and … (i) [h]as been sold, leased, or licensed to the general public; or
(ii) [h]as been offered for sale, lease, or license to the general public.”).
103
See, e.g., Freedom from Government Competition Act of 2009, H.R. 2682, § 2(4), 111th Cong. (“Unfair government
competition with the private sector of the economy is at an unacceptably high level, both in scope and in dollar
volume.”).
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agencies make this determination? Can the concept of ‘overreliance’ be effectively
understood without also providing guidance on ‘underreliance’?104
Some might equate, or attempt to equate, the concepts of “overreliance” and “underreliance” with
the number, extent, and type of contract opportunities publicized by the federal government; the
value, or number, of contracts awarded by the federal government; or the number of companies
that have been awarded government contracts. For others, the standard by which to judge the
government’s appropriate degree of reliance on the private sector might be found in an excerpt
from the Circular A-76 policy statement, which reads as follows: “The longstanding policy of the
federal government has been to rely on the private sector for needed commercial services.”105
However, others might respond that this and similar policy statements are no longer valid, or
useful, as the scope and complexity of government activities and procurement have grown.
Additionally, they might note that other objectives, policies, or principles have become as
important (if not more so) than reliance on contractors. Examples of this type of change may be
found in OFPP’s proposed policy letter. Yet another approach might be to consider why, or under
what circumstances, it could be preferable to use contractors. For example, OFPP notes that
“[c]ontractors can provide expertise, innovation, and cost-effective support to federal agencies for
a wide range of services.”106
Author Contact Information
L. Elaine Halchin
Shawn Reese
Specialist in American National Government
Analyst in Emergency Management and Homeland
ehalchin@crs.loc.gov, 7-0646
Security Policy
sreese@crs.loc.gov, 7-0635
Kate M. Manuel
Moshe Schwartz
Legislative Attorney
Specialist in Defense Acquisition
kmanuel@crs.loc.gov, 7-4477
mschwartz@crs.loc.gov, 7-1463
104 75
Federal Register at 16193.
105 OMB Circular A-76 Revised, May 29, 2003, at 1. This position arguably overlooks the qualifications, or caveats,
included in three Bureau of the Budget bulletins which were precursors to the original Circular A-76, which was issued
in 1966. For example, Bulletin 60-2 excluded “a service or product primarily for the public or agency employees” and
“functions which are a part of the normal management responsibilities of a Government agency or a private firm of a
comparable size (such as accounting, personnel work, and the like)” from consideration for private sector performance.
See Bureau of the Budget, Commercial-Industrial Activities of the Government Providing Products or Services for
Governmental Use, Bulletin No. 60-2, September 21, 1959, at 1. The other two Bureau of the Budget bulletins are
Bulletin No. 55-4 (January 15, 1955) and Bulletin No. 57-7 (February 5, 1957). They have the same subject line as
Bulletin No. 60-2. The Bureau of the Budget was OMB’s predecessor.
106 75
Federal Register at 16193.
Congressional Research Service
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