Court rules that IRS inappropriately outsourced mailroom work

A federal court ruled last week that the Internal Revenue Service acted illegally in spending fiscal 2004 appropriations to outsource its mailroom operations without first holding a public-private job competition.

The ruling by the U.S. District Court for the District of Columbia (Civil Action 04-CV-0820) concluded that IRS spending on task orders for employees of Alexandria, Va.-based ServiceSource to perform mailroom work violated the 2004 omnibus appropriations act.

That act barred the IRS from using funds "to convert to contractor performance an activity or function … unless … the conversion is based on the results of a public-private competition plan."

Nancy Mathis, an IRS spokeswoman, said, "At the time the IRS awarded the contract for mailroom service, the agency believed it was in compliance with all procurement rules and regulations."

But Louis Oberdorfer, the district judge deciding the case, ruled that while the IRS signed a contract with ServiceSource before the act took effect, the conversion to private operations did not take place until task orders were written under that contract. Those task orders were written during the period covered by the 2004 appropriations act, leading Oberdorfer to conclude they were illegal.

Because of congressional delays in passing spending bills for fiscal 2004 and 2005, the ban on spending for direct conversions applied to the period of Jan. 23, 2004, through Dec. 8, 2004.

The National Treasury Employees Union, which filed the suit in May 2004, is seeking reinstatement with back pay for 44 employees who lost their jobs as a result of the conversion.

NTEU President Colleen Kelley called the decision "the culmination" of the union's efforts against direct conversions, in which agencies give federal jobs to contractors without competition under the guidelines of Circular A-76, the rulebook governing public-private job contests.

"NTEU's intention is to hold the IRS -- and other federal agencies -- accountable for every act they do that works to the detriment of their employees," Kelley said following the decision.

In his ruling, Oberdorfer asked NTEU and IRS to submit briefings within 30 days on their proposed remedies. Robert Shriver, a lawyer with NTEU who worked on the case, said the parties could settle or the remedy could be decided through the court in a process that could take "a few months." Shriver said NTEU will continue to argue for reinstatement with back pay for the affected employees.

Mathis said it was too early to know what remedy the IRS might present in its briefing. "We're still reviewing the decision," she said.