Drawing the Line on Outsourcing

s the federal government continues to downsize, streamline and reinvent itself, the conundrum of the 1950s and '60s comes to mind: "How much is enough?" Today, however, the question doesn't apply to nuclear arsenals, but to people. Is there a right size for the government, and how do you define it?

The issue becomes even more important as agencies rely on outsourcing as a key reinvention tool and as legislation pends that would energize a whole new contracting-out effort. The trend toward greater reliance on the private sector to provide services is nothing new. Over the last 15 years, services have supplanted products as the bulk of what the government buys. What is new are the continuing cutbacks in federal jobs, a reduction of more than 350,000 since 1992. How far can these reductions go? Can everything be outsourced?

Most people would answer no, arguing that there are things only government employees should do. Can we say what they are?

Yes and no. In the early 1990s the Office of Management and Budget's Office of Federal Procurement Policy (OFPP) wrestled with this problem and developed some templates that probably offer the best guides for answering that question. The focus then was less on the magnitude of potential outsourcing opportunities than on the legitimacy of contractors performing certain functions.

Then-Sen. David Pryor, D-Ark., for example, had complained about a contractor preparing congressional testimony given by an agency head. In fact, such sensitivities about public policy being established by private parties were the catalysts for the OFPP project. Business associations, the General Accounting Office and the National Academy of Public Administration all played a part in the policy development process.

Gray Areas

The result was OFPP Policy Letter 92-1, which can be found on the Web. It explains the factors to consider in deciding whether to outsource. Perhaps more important, it gives examples of activities that could be provided by the private sector and those that shouldn't.

The hope was to create a "bright line" test to make the distinction. Unfortunately, aside from the examples, which are clear, a large gray area remains where the decision must be made based on the particular case.

The policy letter says governmental functions fall into two categories: the act of governing, i.e., the discretionary exercise of government authority; and monetary transactions and entitlements.

Generally, it's the former that tends to cause the confusion. The gist of the document is that government officials, not contractors, should be the ones making value judgments and using discretion in carrying out governmental activities. Should someone be given a security clearance? The policy says government officials should decide. Should a firm be awarded a contract? Again, government officials should decide. Appendix A of the policy letter lists some 17 other "inherently governmental" functions, ranging from commanding troops and setting foreign policy goals to controlling Treasury accounts.

The document identifies the types of activities that can be outsourced. The breadth of functions may be somewhat surprising. Services relating to developing policy in virtually all areas of government are OK for contractors to perform, including developing regulations, assisting in planning and preparing budgets.

In the contracting process, contractors can provide technical evaluations of contract proposals, assist in developing statements of work and serve as technical advisers to source selection boards. They also can participate as voting or nonvoting members of source evaluation boards. What they aren't supposed to do in any of these situations is to make the final decision. There's the rub, and it brings us back to the initial question: What core level of expertise is needed by the government to carry out its responsibilities? How many people and skills does the government need to make an informed judgment on how to proceed when it reviews its options or gets advice from contractors?

This was the question raised about the policy letter by Bert Concklin, president of the Professional Services Council (PSC), when the document was first being promulgated. The same question was addressed at a recent PSC conference. The issue has yet to be resolved.

Case by Case

The only answer the policy gives is that you need to look at all the circumstances and make your choices on a case-by-case basis. The document makes it clear it is presenting an illustrative list of functions that are "as a matter of policy" inherently governmental. It goes on to say that none of the data or examples have any bearing whatsoever on making a legal determination of whether or not the work could be performed by contractors.

Bob Murphy, GAO general counsel, argued at the PSC conference that such decisions are clearly a product of time and circumstance. Some fuzziness, he said, allows the approach to evolve to meet the government's changing needs. Despite its age and limitations, the OFPP policy offers the best guidance available for today's decisions.

Allan V. Burman, a former Office of Federal Procurement Policy administrator, is president of Jefferson Solutions in Washington.