Contracting: When FAIR is Fair

Fitzpatrick's advice resonated with federal managers assembled in Washington in May for a conference on outsourcing in the Bush administration. Fitzpatrick, who is director of commercial activities with the General Services Administration, was there to share strategies for compliance with the 1998 Federal Activities Inventory Reform (FAIR) Act, which requires agencies to compile annual lists of all functions that are "commercial in nature" and could be performed by the private sector.

Fitzpatrick's task is especially important in light of two Bush administration initiatives that are bringing new scrutiny to FAIR Act lists. The Office of Management and Budget has ordered agencies to directly outsource or conduct public-private competitions for 5 percent of the jobs on the lists-or about 42,500 positions-in fiscal 2002. OMB also has directed agencies to submit by June 30 lists of jobs they consider "inherently governmental," so that agency examiners can scrutinize how agencies come up with their FAIR Act lists.

FAIR Act managers can produce better inventories through a strict reading of the law and related guidance that spells out the difference between commercial work and functions that are inherently governmental, Fitzpatrick said. "Some people on both sides of the [outsourcing] issue are trying to be alchemists," Fitzpatrick told his fellow FAIR Act experts. "We need to be scientists."

But the guidance that defines inherently governmental work purposely lacks scientific precision, according to its authors. "Coming up with a definition that's hard and fast would have been inappropriate," says Allan V. Burman, who presided over the last serious consideration of the issue as administrator of the Office of Federal Procurement Policy (OFPP) in 1992. "People's perceptions of how government should function change over time," says Burman, who is now president of the consulting firm Jefferson Solutions in Washington. Burman's effort culminated in OFPP policy letter 92-1, which provided concrete examples of both commercial and inherently governmental functions.

The definition of inherently governmental work dates to 1966, when the old Bureau of the Budget issued Circular A-76. The circular defined inherently governmental functions as being "so intimately related to the public interest as to mandate performance by federal employees." This general definition was adopted by OFPP in its 1992 review and by Congress in the 1998 FAIR Act.

Under A-76 and subsequent guidance, the exercise of sovereignty is the key test of whether a function must be performed by a civil servant. Public employees must retain legislative, judicial and executive powers, as well as the power to tax and the power to make policy decisions for the government. This guidance makes clear that judges and agency heads are inherently governmental; custodians and maintenance workers likely are not. Still, the guidance leaves considerable room for agencies to make their own outsourcing decisions as they see fit, according to Harold Seidman, the primary author of Circular A-76.

"I think [the guidance] is sufficiently flexible that if it involves something people do not feel is appropriate to contract out then they can say it is inherently governmental," says Seidman, 90, who wrote A-76 while serving as assistant director of the Bureau of the Budget. The eminence grise of the public administration community, Seidman is energetic, sharp-minded and full of observations about the concept of inherently governmental functions, which he sees as peripheral to the policy issues raised by contracting-out.

"The idea of inherently governmental is only an issue when you're talking about divestiture, the outright privatization of government functions," says Seidman, now a senior fellow at the Center for the Study of American Government at Johns Hopkins University. While Seidman believes his definition of inherently governmental work is "as good as you can get," he also thinks it provides little guidance for the vast majority of outsourcing decisions, which are made according to the cost criteria of A-76.

To Seidman, the question of whether a function is inherently governmental is only one of many practical questions federal managers should ask before contracting out for services such as management consulting or program planning. Although Seidman would continue to compete basic maintenance and support work under A-76, he would ask a series of practical questions before outsourcing functions that can affect the creation of government policy. They include:

• How would contracting out affect basic government structure?
• How would it affect accountability?
• How would it affect the character of the function itself?

While government is ultimately responsible for work it outsources, agencies are subject to ethical and legal rules-such as the Freedom of Information Act-that typically do not apply to private firms. In Seidman's view, private firms will also perform a function differently than civil servants-perhaps more efficiently, perhaps not-because the private sector is governed by profit motive.

"There are identifiable differences between performing work in the public and private sector," says Seidman. "The two [sectors] are governed by different values."

Contracting out also challenges civil servants to oversee the work of people who are outside the management hierarchy of an agency.

"Basic government structure is still hierarchical, based on the theory that you have authority from top to bottom," Seidman says. "You don't have that when you're dealing with contractors; you're dealing with a third party."

Seidman's questions are designed to ferret out the policy implications of shifting a function to the private sector. His practical method stands in contrast to the current debate over what constitutes inherently governmental work, according to Dan Guttman, also a fellow at the Johns Hopkins center. "Here is a term, 'inherently governmental,' that Harold used for practical reasons," says Guttman. "We ended up with this academic debate about exactly what inherently governmental is and isn't, which is now being used as a way of dividing up the work of government, as if it has no relation to anything but dividing up government."

In 1989, the Senate Governmental Affairs Subcommittee on Federal Services, Post Office and Civil Service nearly pressed Seidman into service to redefine "inherently governmental." Led by Sen. David Pryor, D-Ark., the subcommittee had uncovered evidence that Energy Department contractors had prepared congressional testimony for and conducted security clearances on department officials. While Pryor pressed Energy Department and General Accounting Office officials to find out whether these contractors were improperly performing governmental functions, subcommittee staffers reached out to Seidman to help devise a new approach to defining what work is off limits to contractors.

"We wanted Harold Seidman to plunge back in," says Rick Goodman, who was chief investigator for the subcommittee in 1989. Seidman, then a fellow with the National Academy of Public Administration, wrote a proposal to create a checklist of questions to be considered before contracting out work. But the effort crumbled when GAO and the subcommittee had second thoughts about tapping Seidman-a contractor-to develop guidance on the concept of inherently governmental work, according to Seidman and Goodman, now a grants official with the Federal Emergency Management Agency.

"We were definitely interested in Harold's ideas," remembers Goodman. "But contracting out that function was sensitive." Seidman's questions never made it into federal guidance on contracting out. But as agencies face a crunch to improve their FAIR Act lists, his questions are a useful tool for federal managers considering outsourcing as a way to better meet their mission requirements.