Between the Lines

It was a passing comment in an altogether uneventful Senate hearing last month on ways to strengthen competition and accountability in federal contracting. Comptroller General David M. Walker told the Homeland Security and Governmental Affairs Committee that "we need to re-look at when and under what circumstances is it appropriate to be contracting, and when is it not."

Walker's testimony did not garner front-page headlines or spark a tidal wave of press releases from affected parties. But maybe it should have. He was describing a redefinition of the scope of "inherently governmental" functions -- tasks that are "so intimately related to the public interest" that federal employees must perform them.

These two simple words, the definition of which has not changed significantly in more than 15 years, could be the key to determining how much the government should rely on private industry for generations to come.

"In an increasing number of cases, people seem to be turning to contracting as a first resort," Walker told Government Executive in late July. "In part, because you get things done very quickly; because you don't have to deal with the federal government's outdated recruiting, classification and compensation systems . . . On the other hand, they don't always result in the best return for the taxpayer nor does it necessarily preserve the inherent characteristics that one gets with a government employee."

Defining inherently governmental functions is both simple and immensely complicated. The Federal Acquisition Regulation spells out a number of functions that are prohibited from outsourcing. Contractors cannot conduct criminal investigations, hire or fire federal employees, administer contracts, or determine which services or supplies the government should buy. Few would argue that these are all inherently governmental functions.

Likewise, a range of jobs, from mopping floors to building mine-resistant vehicles, clearly are commercial in nature and well suited for private industry.

But those broad outlines leave a host of unanswered questions. Should contractors be allowed to help write federal regulations or to provide technical evaluations of contract proposals? How about assisting agencies in drawing up cost analyses as part of the annual budget preparation? And is it appropriate for contractors to be evaluating the performance of other contractors? The answers have been batted around for the past decade, often without consensus.

"We have passed the tipping point in outsourcing governmental responsibility, and we need to regain some balance," says Charles Tiefer, a professor at the University of Baltimore School of Law and an expert on federal contracting.

"It's healthy to have this discussion because there is a perception that we are reaching a problem state," says Stan Soloway, president of the Professional Services Council in Arlington, Va., a trade group that represents contractors. "But a major overhaul is not needed."

The inherently governmental debate can be traced back to 1966 when the Office of Management and Budget issued Circular A-76, establishing for the first time a federal policy for the competition of commercial activities. But for decades, the functions the executive branch determined to be inherently governmental were decided on an ad hoc basis.

A semblance of order was restored in September 1992 when Allan Burman, then head of federal procurement policy at OMB, issued Policy Letter 92-1, which cataloged functions that should be performed by federal employees and those that could be outsourced to contractors.

Much has changed in 15 years. Federal contracting has grown exponentially and private contractors now work side by side with federal officials in a blended workforce Meanwhile, the 1998 Federal Activities Inventory Reform Act directed agencies to annually develop a list of positions that are not inherently governmental. Only activities that are classified as commercial, and not otherwise exempt from outsourcing, are subject to private competition through the Circular A-76 process.

Although the federal marketplace has evolved, Burman says the basic conclusion of his policy decree -- that agencies need the discretion to make decisions on work that does not fit neatly into the inherently governmental or commercial categories -- remains valid.

"For me, there is a broad gray area that is not easily defined on a universal statement," says Burman, now the president of Jefferson Solutions, a Washington consulting firm. "It's useful to look at what jobs are core or not, but it's not a black-and-white issue."

The shades of gray that often cloud the inherently governmental definition have cropped up repeatedly in recent years. In a controversial move, the Pentagon has outsourced thousands of intelligence jobs, previously the exclusive purview of federal spies. Congress is considering repealing an Internal Revenue Service program that uses private sector debt collectors to chase down deadbeat taxpayers.

Most recently, a plan by the General Services Administration to add acquisition support services to the Mission Oriented Business Integrated Services portion of its Federal Supply Schedule has faced resistance from Rep. Henry Waxman, D-Calif., who is concerned that the agency is outsourcing its oversight responsibilities.

GSA says the services would not include contractor oversight and proper safeguards are in place to prevent conflicts of interest. Nonetheless, it has held back on implementing the proposal until it works out the details with Congress.

"The integrity of the federal contracting process is paramount, and GSA will do everything to ensure that offering improved contracting services to GSA customers is responsive and compliant with all safeguards," the agency said in a statement.

The MOBIS dust-up epitomizes the questions surrounding the inherently governmental debate and illustrates why some believe the existing regulations lack the specificity agencies need to navigate this increasingly complex terrain.

"The conceptual framework has merit," Walker says, holding up a copy of current inherently governmental regulations. "But this is not enough detail, I believe, for people to really effectively implement it."

Walker's concerns might have to wait for the next administration. Paul Denett, administrator of OMB's Office of Federal Procurement Policy, has no plans to change the definition of inherently governmental. "However, we must remain sensitive to how contractors are being used and ensure effective management oversight is exercised, especially when contracting for functions that closely support the performance of inherently governmental activities," Denett said recently in an e-mailed statement.

The government's increased reliance on contractors is tied to new work, rather than to jobs previously performed by federal employees, Denett said. Conversions to contractors occur only after public-private competitions, more than 80 percent of which have been won by government workers during the past four years.