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Appendix C

Documents Related to Inherently
Governmental Functions



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Page 90 Appendix C Documents Related to Inherently Governmental Functions

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Page 91 September 23, 1992 POLICY LETTER 92-1 TO THE HEADS OF EXECUTIVE AGENCIES AND DEPARTMENTS SUBJECT: Inherently Governmental Functions Purpose. This policy letter establishes Executive Branch policy relating to service contracting and inherently governmental functions. Its purpose is to assist Executive Branch officers and employees in avoiding an unacceptable transfer of official responsibility to Government contractors. Authority. This policy letter is issued pursuant to section 6(a) of the Office of Federal Procurement Policy (OFPP) Act, as amended, codified at 41 U.S.C. [[section]] 405. Exclusions. Services obtained by personnel appointments and advisory committees are not covered by this policy letter. Background. Contractors, when properly used, provide a wide variety of useful services that play an important part in helping agencies to accomplish their missions. Agencies use service contracts to acquire special knowledge and skills not available in the Government, obtain cost effective services, or obtain temporary or intermittent services, among other reasons. Not all functions may be performed by contractors, however. Just as it is clear that certain functions, such as the command of combat troops, may not be contracted, it is also clear that other functions, such as building maintenance and food services, may be contracted. The difficulty is in determining which of these services that fall between these extremes may be acquired by contract. Agencies have occasionally relied on contractors to perform certain functions in such a way as to raise questions about whether Government policy is being created by private persons. Also, from time to time questions have arisen regarding the extent to which de facto control over contract performance has been transferred to contractors. This policy letter provides an illustrative list of functions, that are, as a matter of policy, inherently governmental (see Appendix A)(, and articulates the practical and policy considerations that underlie such determinations (see [[section]] 7). As stated in [[section]] 9, however, this policy letter does not purport to specify which functions are, as a legal matter, inherently governmental, or to define the factors used in making such legal determination. Thus, the fact that a function is listed in Appendix A, or a factor is set forth in [[section]] 7(b), does not necessarily mean that the function is inherently governmental as a legal matter or that the factor would be relevant in making the legal determination. Definition. As a matter of policy, an “inherently governmental function” is a function that is so intimately related to the public interest as to mandate performance by Government employees. These functions include those activities that require either the exercise of discretion in applying Government authority or the making of value judgments in making decisions for the Government. Governmental functions normally fall into two categories: (1) the act of governing, i.e., the discretionary exercise of Government authority, and (2) monetary transactions and entitlements. An inherently governmental function involves, among other things, the interpretation and execution

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Page 92 of the laws of the United States so as to: (a) bind the United States to take or not to take some action by contract, policy, regulation, authorization, order, or otherwise; (b) determine, protect, and advance its economic, political, territorial, property, or other interests by military or diplomatic action, civil or criminal judicial proceedings, contract management, or otherwise; (c) significantly affect the life, liberty, or property of private persons; (d) commission, appoint, direct, or control officers of employees of the United States; or (e) exert ultimate control over the acquisition, use, or disposition of the property, real or personal, tangible or intangible, of the United States, including the collection, control, or disbursement of appropriated and other Federal funds. Inherently governmental functions do not normally include gathering information for or providing advice, opinions, recommendations, or ideas to Government officials. They also do not include functions that are primarily ministerial and internal in nature, such as building security; mail operations; operation of cafeterias; housekeeping; facilities operations and maintenance, warehouse operations, motor vehicle fleet management and operations, or other routine electrical or mechanical services. The detailed list of examples of commercial activities found as an attachment to Office of Management and Budget (OMB) Cir. No. A-76 is an authoritative, nonexclusive list of functions that are not inherently governmental functions. These functions therefore may be contracted. Policy. (a) Accountability. It 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 who are ultimate accountable to the President. When the Government uses service contracts, such informed, independent judgment is ensured by: (1) prohibiting the use of service contracts for the performance of inherently governmental functions (See Appendix A); (2) providing greater scrutiny and an appropriate enhanced degree of management oversight (see subsection 7(f)) when contracting for functions that are not inherently governmental but closely support the performance of inherently governmental functions (see Appendix B); (3) ensuring, in using the products of those contracts, that any final agency action complies with the laws and policies of the United States and reflects the independent conclusions of agency officials and not those of contractors who may have interests that are not in concert with the public interest, and who may be beyond the reach of management controls otherwise applicable to public employees; and (4) ensuring that reasonable identification of contractors and contractor work products is made whenever there is a risk that the public, Congress, or other persons outside of the Government might confuse them with Government officials or with Government work products, respectively.

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Page 93 (b) OMB Circular No. A-76. This policy letter does not purport to supersede or otherwise effect any change in OMB Circular No. A-76, Performance of Commercial Activities. (c) Drafting of Congressional testimony, responses to Congressional correspondence, and agency responses to audit reports from an Inspector General, the General Accounting Office, or other Federal audit entity. While the approval of a Government document is an inherently governmental function, its drafting is not necessarily such a function. Accordingly, in most situations the drafting of a document, or portions thereof, may be contracted, and the agency should review and revise the draft document, to the extent necessary, to ensure that the final document expresses the agency's views and advances the public interest. However, even though the drafting function is not necessarily an inherently government function, it may be inappropriate, for various reasons, for a private party to draft a document in particular circumstances. Because of the appearance of private influence with respect to documents that are prepared for Congress or for law enforcement or oversight agencies and that may be particularly sensitive, contractors are not to be used for the drafting of Congressional testimony; responses to Congressional correspondence; or agency responses to audit reports from an Inspector General, the General Accounting Office, or other Federal audit entity. Guidelines. If a function proposed for contract performance is not found in Appendix A, the following guidelines will assist agencies in understanding the application of this policy letter, determining whether the function is, as a matter of policy, inherently governmental and forestalling potential problems. (a) The exercise of discretion. While inherently governmental functions necessarily involve the exercise of substantial discretion, not every exercise of discretion is evidence that such a function is involved. Rather, the use of discretion must have the effect of committing the Federal Government to a course of action when two or more alternative courses of action exist (e.g., purchasing a minicomputer than a mainframe computer, hiring a statistician rather than an economist, supporting proposed legislation rather than opposing economist, supporting proposed legislation rather than opposing it, devoting more resources to prosecuting one type of criminal case than another, awarding a contract to one firm rather than another, adopting one policy rather than another, and so forth). A contract may thus properly be awarded where the contractor does not have the authority to decide on the course of action to be pursued but is rather tasked to develop options to inform an agency decision maker, or to develop or expand decisions already made by Federal officials. Moreover, the mere fact that decisions are made by the contractors in performing his or her duties (e.g., how to allocate the contractor's own or subcontract resources, what techniques and procedures to employ, whether and whom to consult, what research alternatives to explore given the scope of the contract, what conclusions to emphasize, how frequently to test) is not determinative of whether he or she is performing an inherently government function. (b) Totality of the circumstances. Determining whether a function is an inherently governmental function often is difficult and depends upon an analysis of the factors of the case. Such analysis involves consideration of a number of factors, and the presence or absence of any one is not in itself determinative of the issue. Nor will the same emphasis necessarily be placed on any one factor at different times, due to the changing nature of the Government's requirements. The following factors should be considered when deciding whether award of a contract might effect, or the performance of a contract has effected, a transfer of official responsibility:

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Page 94 (1) Congressional legislative restrictions or authorizations. (2) The degree to which official discretion is or would be limited, i.e., whether the contractor's involvement in agency functions is or would be so extensive or his or her work product is so far advanced toward completion that the agency's ability to develop and consider options other than those provided by the contractor is restricted. (3) In claims adjudication and related services, (i) the finality of any contractor's action affecting individual claimants or applicants, and whether or not review of the contractor's action is de novo (i.e., to be effected without the appellate body's being bound by prior legal rulings or factual determinations) on appeal of his or her decision to an agency official; (ii) the degree to which contractor activities may involve wide-ranging interpretations of complex, ambiguous case law and other legal authorities, as opposed to being circumscribed by detailed laws, regulations, and procedures. (iii) the degree to which matters for decision by the contractor involve recurring fact patterns or unique fact patterns; and (iv) The contractor's discretion to determine an appropriate award or penalty. (4) The contractor's ability to take action that will significantly and directly affect the life, liberty, or property of individual members of the public, including the likelihood of the contractor's need to resort to force in support of a police or judicial function; whether force, especially deadly force, is more likely to be initiated by the contractor or by some other person; and the degree to which force may have to be exercised in public or relatively uncontrolled areas. (Note that contracting for guard, convoy security, and plant protection services, armed or unarmed, is not proscribed by these policies.) (5) The availability of special agency authorities and the appropriateness of their application to the situation at hand, such as the power to deputize private persons. (6) Whether the function in question is already being performed by private persons, and the circumstances under which it is being performed by them. (c) Finality of agency determinations. Whether or not a function is an inherently governmental function, for purposes of this policy letter, is a matter for agency determination. However, agency decisions that a function is or is not an inherently governmental function may be reviewed, and, if necessary, modified by appropriate OMB officials. (d) Preaward responsibilities. Whether a function being considered for performance by contract is an inherently governmental function is an issue to be addressed prior to issuance of the solicitation. (e) Post-award responsibilities. After award, even when a contract does not involve performance of an inherently governmental function, agencies must take steps to protect the public interest by playing an active, informed role in contract administration. This ensures that contractors comply with the terms of the contract and that Government policies, rather than private ones, are implemented. Such participation should be appropriate to the nature of the contract, and should

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Page 95 leave no doubt that the contract is under the control of Government officials. This does not relieve contractors of their performance responsibilities under the contract. Nor does this responsibility to administer the contract require Government officials to exercise such control over contractor activities to convert the contract, or portion thereof, to a personal service contract. In deciding whether Government officials have lost or might lose control of the administration of a contract, the following are relevant considerations: the degree to which agencies have effective management procedures and policies that enable meaningful oversight of contractor performance, the resources available for such oversight, the actual practice of the agency regarding oversight, the duration of the contract, and the complexity of the tasks to be performed. (f) Management controls. When functions described in Appendix B are involved, additional management attention to the terms of the contract and the manner of performance is necessary. How close the scrutiny or how extensive or stringent the management controls need to be is for agencies to determine. Examples of additional control measures that might be employed are: (1) developing carefully crafted statements of work and quality assurance plans, as described in OFPP Policy Letter 91-2 Service Contracting, that focus on the issue of Government oversight and measurement of contractor performance; (2) establishing audit plans for periodic review of contracts by Government auditors; (3) conducting preaward conflict of interest reviews to ensure contract performance in accordance with objective standards and contract specifications; (4) physically separating contractor personnel from Government personnel at the worksite; and (5) requiring contractors to (a) submit reports that contain recommendations and that explain and rank policy or action alternatives, if any, (b) describe what procedures they used to arrive at their recommendations, (c) summarize the substance of their deliberations, (d) report any dissenting views, (e) list sources relied upon, and/or (f) otherwise make clear the methods and considerations upon which their recommendations are based. (g) Identification of contractor personnel and acknowledgment of contractor participation. Contractor personnel attending meetings, answering Government telephones, and working in other situations where their contractor status is not obvious to third parties must be required to identify themselves as such to avoid creating an impression in the minds of members of the public or the Congress that they are Government officials, unless, in the judgment of the agency, no harm can come from failing to identify themselves. All documents or reports produced by contractors are to be suitably marked as contractor products. (h) Degree of reliance The extent of reliance on service contractors is not by itself a cause for concern. Agencies must, however, have a sufficient number of trained and experienced staff to manage Government programs properly. The greater the degree of reliance on contractors the greater the need for oversight by agencies. What number of Government officials is needed to oversee a particular contract is a management decision to be made after analysis of a number of factors. These include, among others, the scope of the activity in question; the technical complexity of the project or its components; the technical capability, numbers, and workload of Federal oversight officials; the inspection techniques available; and the importance of the activity. Current contract administration resources shall not be determinative. The most efficient and cost effective

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Page 96 approach shall be utilized. (i) Exercise of approving or signature authority. Official responsibility to approve the work of contractors is a power reserved to Government officials. It should be exercised with a thorough knowledge and understanding of the contents of documents submitted by contractors and a recognition of the need to apply independent judgment in the use of these work products. Responsibilities. (a) Heads of agencies. Heads of departments and agencies are responsible for implementing this policy letter. While these policies must be implemented in the Federal Acquisition Regulation (FAR), it is expected that agencies will take all appropriate actions in the interim to develop implementation strategies and initiate staff training to ensure effective implementation of these policies. (b) Federal Acquisition Regulatory Council. Pursuant to subsections 6(a) and 25 (f) of the OFPP Act, as amended, 41 U.S.C. [[section]][[section]] 405(a) and 421(f), the Federal Acquisition Regulatory Council shall ensure that the policies established herein are incorporated in the FAR within 210 days from the date this policy letter is published in the Federal Register. Issuance of final regulations within this 210-day period shall be considered issuance “in a timely manner” as prescribed in 41 U.S.C. [[section]] 405(b). (c) Contracting officers. When requirements are developed, when solicitations are drafted, and when contracts are being performed, contracting officers are to ensure: (1) that functions to be contracted are not among those listed in Appendix A of this letter and do not closely resemble any functions listed here; (2) that functions to be contracted that are not listed in Appendix A, and that do not closely resemble them, are not inherently governmental functions according to the totality of the circumstances test in subsection 7(b), above; (3) that the terms and the manner of performance of any contract involving functions listed in Appendix B of this letter are subject to adequate scrutiny and oversight in accordance with subsection 7(f), above; and (4) that all other contractible functions are properly managed in accordance with subsection 7(e), above. (d) All officials. When they are aware that contractor advice, opinions, recommendations, ideas, reports, analyses, and other work products are to be considered in the course of their official duties, all Federal Government officials are to ensure that they exercise independent judgment and critically examine these products. Judicial review. This policy letter is not intended to provide a constitutional or statutory interpretation of any kind and it is not intended, and should not be construed, to create any right or benefit, substantive or procedural, enforceable at law by a party against the United States, its agencies, its officers, or any person. It is intended only to provide policy guidance to agencies in the exercise of their discretion concerning Federal contracting. Thus, this policy letter is not intended, and should not be construed, to create any substantive or procedural basis on which to challenge any

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Page 97 agency action or inaction on the ground that such action or inaction was not in accordance with this policy letter. Information contact. For information regarding this policy letter contact Richard A. Ong, Deputy Associate Administrator, the Office of Federal Procurement Policy, 725 17th Street, N.W., Washington, DC 20503. Telephone (202) 395-7209. Effective date. This policy letter is effective 30 days after the date of publication. (signed by) Allan V. Burman Administrator APPENDIX A The following is an illustrative list of functions considered to be inherently governmental functions: (footnote: With respect to the actual drafting of Congressional testimony, of responses to Congressional correspondence, and of agency responses to audit reports from the Inspector General, the General Accounting Office, or other Federal audit entity, see special provisions in subsection 6(c) of the text of the policy letter) The direct conduct of criminal investigation. The control of prosecutions and performance of adjudicatory functions (other than those relating to arbitration or other methods of alternative dispute resolution). The command of military forces, especially the leadership of military personnel who are members of the combat, combat support or combat service support role. The conduct of foreign relations and the determination of foreign policy. The determination of agency policy, such as determining the content and application of regulations, among other things. The determination of Federal program priorities or budget requests. The direction and control of Federal employees. The direction and control of intelligence and counter-intelligence operations. The selection or nonselection of individuals for Federal Government employment. The approval of position descriptions and performance standards for Federal employees. The determination of what Government property is to be disposed of and on what terms (although an agency may give contractors authority to dispose of property at prices with specified ranges and subject to other reasonable conditions deemed appropriate by the agency). In Federal procurement activities with respect to prime contracts,

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Page 98 (a) determining what supplies or services are to be acquired by the Government (although an agency may give contractors authority to acquire supplies at prices within specified ranges and subject to other reasonable conditions deemed appropriate by the agency); (b) participating as a voting member on any source selection boards; (c) approval of any contractual documents, to include documents defining requirements, incentive plans, and evaluation criteria; (d) awarding contracts; (e) administering contracts (including ordering changes in contract performance or contract quantities, taking action based on evaluations of contractor performance, and accepting or rejecting contractor products or services); (f) terminating contracts; and (g) determining whether contract costs are reasonable, allocable, and allowable. The approval of agency responses to Freedom of Information Act requests (other than routine responses that, because of statute, regulation, or agency policy, do not require the exercise of judgment in determining whether documents are to be released or withheld), and the approval of agency responses to the administrative appeals of denials of Freedom of Information Act requests. The conduct of administrative hearings to determine the eligibility of any person for a security clearance, or involving actions that affect matters of personal reputation or eligibility to participate in Government programs. The approval of Federal licensing actions and inspections. The determination of budget policy, guidance, and strategy. The collection, control, and disbursement of fees, royalties, duties, fines, taxes and other public funds, unless authorized by statute, such as title 31 U.S.C. [[section]] 952 (relating to private collection contractors) and title 31 U.S.C. [[section]] 3718 (relating to private attorney collection services), but not including: (a) collection of fees, fines, penalties, costs or other charges from visitors to or patrons of mess halls, post or base exchange concessions, national parks, and similar entities or activities, or from other persons, where the amount to be collected is easily calculated or predetermined and the funds collected can be easily controlled using standard cash management techniques, and (b) routine voucher and invoice examination. The control of the treasury accounts. The administration of public trusts

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Page 99 APPENDIX B The following list is of services and actions that are not considered to be inherently governmental functions. However, they may approach being in that category because of the way in which the contractor performs the contract or the manner in which the government administers contractor performance. When contracting for such services and actions, agencies should be fully aware of the terms of the contract, contractor performance, and contract administration to ensure that appropriate agency control is preserved. This is an illustrative listing, and is not intended to promote or discourage the use of the following types of contractor services: Services that involve or relate to budget preparation, including workload modeling, fact finding, efficiency studies, and should-cost analyses, etc. Services that involve or relate to reorganization and planning activities. Services that involve or relate to analyses, feasibility studies, and strategy options to be used by agency personnel in developing policy. Services that involve or relate to the development of regulations. Services that involve or relate to the evaluation of another contractor's performance. Services in support of acquisition planning. Contractors' providing assistance in contract management (such as where the contractor might influence official evaluations of other contractors). Contractors' providing technical evaluation of contract proposals. Contractors' providing assistance in the development of statements of work. Contractors' providing support in preparing responses to Freedom of Information Act requests. Contractors' working in any situation that permits or might permit them to gain access to confidential business information and/or any other sensitive information (other than situations covered by the Defense Industrial Security Program described in FAR 4.402(b)). Contractors' providing information regarding agency policies or regulations, such as attending conferences on behalf of an agency, conducting community relations campaigns, or conducting agency training courses. Contractors' participating in any situation where it might be assumed that they are agency employees or representatives. Contractors' participating as technical advisors to a source selection board or participating as voting or nonvoting members of a source evaluation board. Contractors' serving as arbitrators or providing alternative methods of dispute resolution.

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Page 100 Contractors' constructing buildings or structures intended to be secure from electronic eavesdropping or other penetration by foreign governments. Contractors' providing inspection services. Contractors' providing legal advice and interpretations of regulations and statutes to Government officials. Contractors' providing special non-law enforcement, security activities that do not directly involve criminal investigations, such as prisoner detention or transport and non-military national security details.   OFFICE OF MANAGEMENT AND BUDGET Office Of Federal Procurement Policy AGENCY: Office of Management and Budget, Executive Office of the President, Office of Federal Procurement Policy. ACTION: Policy Letter on Inherently Governmental Functions. SUMMARY: The Office of Federal Procurement Policy (OFPP) publishes today the final version of a policy letter providing guidance to Executive Departments and agencies on (1) what functions are inherently governmental functions that must only be performed by Government officers and employees and (2) what contractible functions so closely support Government officers and employees in their performance of inherently governmental functions that the terms and performance of those contracts require closer scrutiny from Federal officials. This policy letter has been developed because executive agencies, members of Congress, the General Accounting Office, and the public have from time to time either requested guidance regarding, or inquired about, the propriety of awarding contracts for certain types of functions or administering contracts in certain ways. Previous guidance on this issue has also not been as detailed as that which we now provide.. FOR FURTHER INFORMATION CONTACT: Richard A. Ong, Deputy Association Administrator, Office of Federal Procurement Policy, 725 17th Street, NW---Suite 9001, Washington, DC 20503 (202) 395-7209. To obtain a copy of this policy letter, please call OMB's Publication Office at (202) 395-7332. SUPPLEMENTARY INFORMATION Comments received. We received 34 comments in response to our proposed policy letter published in the

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Page 106 factor at [[paragraph]] 7(d)(123) of the proposed policy letter. We agree and have deleted this factor. The consideration listed may be relevant to what good contract management should require by way of contract conditions, but they don't say anything about the nature of the function or the adequacy of agency contract administration practices. (g) Record keeping requirements. One commenter found the meaning of paragraph 8(d)(15) of the proposed policy letter unclear. This factor was included to cover situations such as a contractor's providing a aircraft-related training. If the contractor proves to be incompetent or negligent, the fact that the contractor did maintain or was required to maintain records of who was trained permits corrective action to be taken, such as locating improperly trained students and requiring retraining. If records are not maintained, the Government cannot exercise ultimate control because it cannot correct any errors. Nonetheless, the provision appears to have only limited application and has been deleted. Collection of fees. Two commenters questioned the provision of [[paragraph]] 20 of Appendix A of the proposed policy letter prohibiting collection of fees or other public moneys, pointing out that contractors in mess halls for military personnel currently collect charges for meals and Department of Housing and Urban Development (HUD) contractors collect fees from purchasers of HUD properties. We have modified the policy letter to enable routine collection of fees where good cash management practices and other controls are in effect, where there is little danger of miscalculating the amount of money ultimately due the Government, and where there is little difficulty in obtaining payment. For example, a contractor could have discretion to determine that a family seeking entrance to a part consists of four people rather than three, and that one of the four is a child under 12, but the contractor would not have the discretion to determine the amount of the fee to be paid by each person in a particular category. HUD contractors may also collect fees from purchasers of HUD properties in accordance with subsection 17(a) of Appendix A. We also make clear that routine voucher and invoice examination by contractors is an acceptable practice. Contract for one function or several. One commenter questioned whether the policy letter reflects our belief that only contracts with multiple functions are susceptible to confusion with respect to inherently governmental functions. This is not our belief. The policy letter is intended to provide guidance with respect to discrete functions regardless of whether there is a mixture of several functions in a contract or there is only one function that is being contracted. Post-aware responsibilities. Section 7(e) has been amended to make clear that agency contract oversight is to ensure contractor performance in accordance with the terms of the contract, but that oversight must not be exercised so as to create a personal service contract. Language from subsection 7(d) of the proposed policy letter has been moved to subsection 7(e), as explained in [[section]] 21, above. Drafting of Congressional testimony, responses to Congressional correspondence, and agency responses to audit reports from an Inspector General, the General Accounting Office or other Federal audit entity. Two commenters questioned whether contractors should be able to draft Congressional testimony, subject to ultimate agency approval. Approval is a key power reserved to any official and we by no means agree that officials do or will approve contractor work in a perfunctory manner. We have nonetheless reexamined this issue and, because of the importance of Congressional testimony and correspondence of agency responses to audit reports, we are not deciding, as a matter of policy, that these documents should not be drafted by contractors. We have thus added a new subsection (c) to the body of the policy letter to this effect. We deleted the relative portions of Appendix A because we do not believe that drafting documents per se is an inherently governmental function and failing to exercise sufficient oversight with respect to drafting of such

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Page 107 documents does not transform the underlying function into an inherently governmental function, as noted in subsection [[paragraph]] 21 (a), above. Contractor reports, conclusions, summaries, analyses, and other work products may, of course, still be quoted correspondence, and responses to audit reports, or set out in such things as attachments, appendices, or enclosures thereto. Reliance on contractor support. One commenter called attention to our statement in [[paragraph]] 4 of the policy letter that agencies “award service contracts for various reasons, such as to acquire special skills not available in the Government or to meet the need for intermittent services.” The commenter pointed out that “‘support service' contractors have come to serve as the permanent workforce for many programs” seemingly implying that our statement does not take this into account. In fact, our statement is an accurate one, citing only two of the reasons why agencies award service contracts as examples. Contracting actions under Circular A-76 are also a reason why agencies award service contracts. Whatever the reason for using service contracts to accomplish agency missions, it is important to understand that agency use of the function must not be an inherently government function, and if it is not, the agency must be able to exercise effective oversight of any contract awarded. We make clear that management of a contract is just as important as deciding whether the contract may properly be awarded in the first place. Our policy letter is limited in scope and does not focus on why agencies use service contracts. Rather we are concerned that service contracts, when used, are used only when contractors may perform the functions in question and when agencies have the resources to manage the contracts. It is true that agencies have sometimes contracted functions that we have listed in the policy letter as inherently governmental functions, and it is true that they have sometimes failed to recognize that they were not exercising effective oversight over nongovernmental functions that had been contracted. Nonetheless, effective corrective action has been taken by the agencies in the past when oversight problems were identified. Additional problems in this area will probably arise in the future. Even the General Accounting Office recognized the difficulty in defining inherently government functions and providing guidance to agencies on the subject. Are Service Contractors Performing Inherently Governmental Functions?, GAO/GGD-92-11, November 1991, p. 3. We have every reason to expect, however, that because our guidance is much more detailed than anything that was available to agencies in the past there will be fewer instances of problems in this area. We thus disagree strongly with the commenter that the policy letter is a mere exhortation to better management. Other issues. One commenter also suggested that we should address whether “contractors who perform work historically performed by civil servants should be subjected to comparable limitations on pay and rules of conduct;” measurement of the short-term and long-term costs of reliance on contractors versus officials; whether Superfund and the savings and loan bailout programs “provide models for public management of the next bailout or cleanup program;” and the “practical meaning that we will give to the concept of ‘public service' as the Federal Government heads into the 21st century.” The concept of work “historically performed” by civil servants is not useful because a function may have been performed by civil servants in the past for reasons other than the belief that the function was inherently governmental. In fact, the premise of Circular No. A-76 is that many functions historically performed by Government employees can more appropriately be performed by the private sector.

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Page 108 We believe that competition is the most powerful force available to keep costs down, even though there may be instances where this will not be so. In such instances, determinations shall be made in accordance with Circular No. A-76. Measurement of the short-term and long-term costs of reliance on contractors versus officials is an aspect of cost effectiveness of service contracts and need not be dealt with here. Similarly, the efficacy of the Superfund and savings and loan programs is a matter beyond the scope of this policy letter. So far as the practical meaning of the concept of public service is concerned, this policy letter attempts to identify those functions that, as a matter of policy, should only be performed by Government officials and those that may be performed by service contractors. If our taxonomy and analytical methods are sound, our policy letter should define what public service entails in terms of the functions that officials must perform for the foreseeable future. Acknowledgment. Finally, we wish to acknowledge our reliance on the excellent work of the Environmental Protection Agency in our drafting of the appendices to this policy letter. Also, the comments we received were all exceptionally well thought out. We are most grateful for the time, effort and imagination that went into the preparation of those comments. (signed) Allan V. Burman Administrator Date: Sep 23 1992

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Page 109 PUBLIC LAW 105–270—OCT. 19, 1998 FEDERAL ACTIVITIES INVENTORY REFORM ACT OF 1998

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Page 110 112 STAT. 2382          PUBLIC LAW 105–270—OCT. 19, 1998 Public Law 105–270 105th Congress An Act Oct. 19, 1998 [S. 314] To provide a process for identifying the functions of the Federal Government that are not inherently governmental functions, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, Federal Activities Inventory Reform Act of 1998. 31 USC 501 note SECTION 1. SHORT TITLE. This Act may be cited as the “Federal Activities Inventory Reform Act of 1998”. Records. SEC. 2. ANNUAL LISTS OF GOVERNMENT ACTIVITIES NOT INHER- ENTLY GOVERNMENTAL IN NATURE. Deadline. (a) LISTS REQUIRED.—Not later than the end of the third quarter of each fiscal year, the head of each executive agency shall submit to the Director of the Office of Management and Budget a list of activities performed by Federal Government sources for the executive agency that, in the judgment of the head of the executive agency, are not inherently governmental functions. The entry for an activity on the list shall include the following: (1) The fiscal year for which the activity first appeared on a list prepared under this section. (2) The number of full-time employees (or its equivalent) that are necessary for the performance of the activity by a Federal Government source. (3) The name of a Federal Government employee responsible for the activity from whom additional information about the activity may be obtained. (b) OMB REVIEW AND CONSULTATION.—The Director of the Office of Management and Budget shall review the executive agency's list for a fiscal year and consult with the head of the executive agency regarding the content of the final list for that fiscal year. (c) PUBLIC AVAILABILITY OF LISTS.— (1) PUBLICATION.—Upon the completion of the review and consultation regarding a list of an executive agency— (A) the head of the executive agency shall promptly transmit a copy of the list to Congress and make the list available to the public; and Federal Register, Publication. (B) the Director of the Office of Management and Budget shall promptly publish in the Federal Register a notice that the list is available to the public. (2) CHANGES.—If the list changes after the publication of the notice as a result of the resolution of a challenge under section 3, the head of the executive agency shall promptly— (A) make each such change available to the public and transmit a copy of the change to Congress; and

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Page 111 PUBLIC LAW 105–270—OCT. 19, 1998          112 STAT. 2383 (B) publish in the Federal Register a notice that the change is available to the public. Federal Register, Publication. (d) COMPETITION REQUIRED.—Within a reasonable time after the date on which a notice of the public availability of a list is published under subsection (c), the head of the executive agency concerned shall review the activities on the list. Each time that the head of the executive agency considers contracting with a private sector source for the performance of such an activity, the head of the executive agency shall use a competitive process to select the source (except as may otherwise be provided in a law other than this Act, an Executive order, regulations, or any executive branch circular setting forth requirements or guidance that is issued by competent executive authority). The Director of the Office of Management and Budget shall issue guidance for the administration of this subsection. (e) REALISTIC AND FAIR COST COMPARISONS.—For the purpose of determining whether to contract with a source in the private sector for the performance of an executive agency activity on the list on the basis of a comparison of the costs of procuring services from such a source with the costs of performing that activity by the executive agency, the head of the executive agency shall ensure that all costs (including the costs of quality assurance, technical monitoring of the performance of such function, liability insurance, employee retirement and disability benefits, and all other overhead costs) are considered and that the costs considered are realistic and fair. SEC. 3. CHALLENGES TO THE LIST. (a) CHALLENGE AUTHORIZED.—An interested party may submit to an executive agency a challenge of an omission of a particular activity from, or an inclusion of a particular activity on, a list for which a notice of public availability has been published under section 2. (b) INTERESTED PARTY DEFINED.—For the purposes of this section, the term “interested party”, with respect to an activity referred to in subsection (a), means the following: (1) A private sector source that— (A) is an actual or prospective offerer for any contract, or other form of agreement, to perform the activity; and (B) has a direct economic interest in performing the activity that would be adversely affected by a determination not to procure the performance of the activity from a private sector source. (2) A representative of any business or professional association that includes within its membership private sector sources referred to in paragraph (1). (3) An officer or employee of an organization within an executive agency that is an actual or prospective offerer to perform the activity. (4) The head of any labor organization referred to in section 7103(a)(4) of title 5, United States Code, that includes within its membership officers or employees of an organization referred to in paragraph (3). (c) TIME FOR SUBMISSION.—A challenge to a list shall be submitted to the executive agency concerned within 30 days after the publication of the notice of the public availability of the list under section 2.

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Page 112 112 STAT. 2384 PUBLIC LAW 105–270—OCT. 19, 1998 Deadline. (d) INITIAL DECISION.—Within 28 days after an executive agency receives a challenge, an official designated by the head of the executive agency shall— (1) decide the challenge; and (2) transmit to the party submitting the challenge a written notification of the decision together with a discussion of the rationale for the decision and an explanation of the party's right to appeal under subsection (e). (e) APPEAL.— Deadline. (1) AUTHORIZATION OF APPEAL.—An interested party may appeal an adverse decision of the official to the head of the executive agency within 10 days after receiving a notification of the decision under subsection (d). (2) DECISION ON APPEAL.—Within 10 days after the head of an executive agency receives an appeal of a decision under paragraph (1), the head of the executive agency shall decide the appeal and transmit to the party submitting the appeal a written notification of the decision together with a discussion of the rationale for the decision. SEC. 4. APPLICABILITY. (a) EXECUTIVE AGENCIES COVERED.—Except as provided in subsection (b), this Act applies to the following executive agencies: (1) EXECUTIVE DEPARTMENT.—An executive department named in section 101 of title 5, United States Code. (2) MILITARY DEPARTMENT.—A military department named in section 102 of title 5, United States Code. (3) INDEPENDENT ESTABLISHMENT.—An independent establishment, as defined in section 104 of title 5, United States Code. (b) EXCEPTIONS.—This Act does not apply to or with respect to the following: (1) GENERAL ACCOUNTING OFFICE.—The General Accounting Office. (2) GOVERNMENT CORPORATION.—A Government corporation or a Government controlled corporation, as those terms are defined in section 103 of title 5, United States Code. (3) NONAPPROPRIATED FUNDS INSTRUMENTALITY.—A part of a department or agency if all of the employees of that part of the department or agency are employees referred to in section 2105(c) of title 5, United States Code. (4) CERTAIN DEPOT-LEVEL MAINTENANCE AND REPAIR.—Depot-level maintenance and repair of the Department of Defense (as defined in section 2460 of title 10, United States Code). SEC. 5. DEFINITIONS. In this Act: (1) FEDERAL GOVERNMENT SOURCE.—The term “Federal Government source”, with respect to performance of an activity, means any organization within an executive agency that uses Federal Government employees to perform the activity. (2) INHERENTLY GOVERNMENTAL FUNCTION.— (A) DEFINITION.—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.

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Page 113 PUBLIC LAW 105–270—OCT. 19, 1998               112 STAT. 2385 (B) FUNCTIONS INCLUDED.—The term includes activities 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. An inherently governmental function involves, among other things, the interpretation and execution of the laws of the United States so as— (i) to bind the United States to take or not to take some action by contract, policy, regulation, authorization, order, or otherwise; (ii) to determine, protect, and advance United States economic, political, territorial, property, or other interests by military or diplomatic action, civil or criminal judicial proceedings, contract management, or otherwise; (iii) to significantly affect the life, liberty, or property of private persons; (iv) to commission, appoint, direct, or control officers or employees of the United States; or (v) to exert ultimate control over the acquisition, use, or disposition of the property, real or personal, tangible or intangible, of the United States, including the collection, control, or disbursement of appropriated and other Federal funds. (C) FUNCTIONS EXCLUDED.—The term does not normally include— (i) gathering information for or providing advice, opinions, recommendations, or ideas to Federal Government officials; or (ii) any function that is primarily ministerial and internal in nature (such as building security, mail operations, operation of cafeterias, housekeeping, facilities operations and maintenance, warehouse operations, motor vehicle fleet management operations, or other routine electrical or mechanical services). SEC. 6. EFFECTIVE DATE. This Act shall take effect on October 1, 1998. Approved October 19, 1998. LEGISLATIVE HISTORY—S. 314: SENATE REPORTS: No. 105–269 (Comm. on Governmental Affairs). CONGRESSIONAL RECORD, Vol. 144 (1998): July 30, considered and passed Senate. Oct. 5, considered and passed House. Ο

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Page 114 PART 7—ACQUISITION PLANNING              7.501 (1) Availability of purchase options. (2) Potential for use of the equipment by other agencies after its use by the acquiring agency is ended. (3) Trade-in or salvage value. (4) Imputed interest. (5) Availability of a servicing capability, especially for highly complex equipment; e.g., can the equipment be serviced by the Government or other sources if it is purchased? 7.402 Acquisition methods. (a) Purchase method. (1) Generally, the purchase method is appropriate if the equipment will be used beyond the point in time when cumulative leasing costs exceed the purchase costs. (2) Agencies should not rule out the purchase method of equipment acquisition in favor of leasing merely because of the possibility that future technological advances might make the selected equipment less desirable. (b) Lease method. (1) The lease method is appropriate if it is to the Government's advantage under the circumstances. The lease method may also serve as an interim measure when the circumstances— (i) Require immediate use of equipment to meet program or system goals; but (ii) Do not currently support acquisition by purchase. (2) If a lease is justified, a lease with option to purchase is preferable. (3) Generally, a long term lease should be avoided, but may be appropriate if an option to purchase or other favorable terms are included. (4) If a lease with option to purchase is used, the contract shall state the purchase price or provide a formula which shows how the purchase price will be established at the time of purchase. 7.403 General Services Administration assistance. (a) When requested by an agency, the General Services Administration (GSA) will assist in lease or purchase decisions by providing information such as— (1) Pending price adjustments to Federal Supply Schedule contracts; (2) Recent or imminent technological developments; (3) New techniques; and (4) Industry or market trends. (b) Agencies may request information from the following GSA offices: (1) Center for Strategic IT Analysis (MKS), Washington, DC 20405, for information on acquisition of information technology. (2) Federal Supply Service, Office of Acquisition (FC), Washington, DC 20406, for information on other types of equipment. 7.404 Contract clause. The contracting officer shall insert a clause substantially the same as the clause in 52.207-5, Option to Purchase Equipment, in solicitations and contracts involving a lease with option to purchase. Subpart 7.5—Inherently Governmental Functions 7.500 Scope of subpart. The purpose of this subpart is to prescribe policies and procedures to ensure that inherently governmental functions are not performed by contractors. It implements the policies of Office of Federal Procurement Policy (OFPP) Policy Letter 92-1, Inherently Governmental Functions. 7.501 Definition. “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. This definition is a policy determination, not a legal determination. An inherently governmental function includes activities that require either the exercise of discretion in applying Government authority, or the making of value judgments in making decisions for the Government. Governmental functions normally fall into two categories: the act of governing, i.e., the discretionary exercise of Government authority, and monetary transactions and entitlements. (a) An inherently governmental function involves, among other things, the interpretation and execution of the laws of the United States so as to— (1) Bind the United States to take or not to take some action by contract, policy, regulation, authorization, order, or otherwise; (2) Determine, protect, and advance United States economic, political, territorial, property, or other interests by military or diplomatic action, civil or criminal judicial proceedings, contract management, or otherwise; (3) Significantly affect the life, liberty, or property of private persons; (4) Commission, appoint, direct, or control officers or employees of the United States; or (5) Exert ultimate control over the acquisition, use, or disposition of the property, real or personal, tangible or intangible, of the United States, including the collection, control, or disbursement of Federal funds. (b) Inherently governmental functions do not normally include gathering information for or providing advice, opin

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Page 115 7.502               FEDERAL ACQUISITION REGULATION ions, recommendations, or ideas to Government officials. They also do not include functions that are primarily ministerial and internal in nature, such as building security, mail operations, operation of cafeterias, housekeeping, facilities operations and maintenance, warehouse operations, motor vehicle fleet management operations, or other routine electrical or mechanical services. The list of commercial activities included in the attachment to Office of Management and Budget (OMB) Circular No. A-76 is an authoritative, nonexclusive list of functions which are not inherently governmental functions. 7.502 Applicability. The requirements of this subpart apply to all contracts for services. This subpart does not apply to services obtained through either personnel appointments, advisory committees, or personal services contracts issued under statutory authority. 7.503 Policy. (a) Contracts shall not be used for the performance of inherently governmental functions. (b) Agency decisions which determine whether a function is or is not an inherently governmental function may be reviewed and modified by appropriate Office of Management and Budget officials. (c) The following is a list of examples of functions considered to be inherently governmental functions or which shall be treated as such. This list is not all inclusive: (1) The direct conduct of criminal investigations. (2) The control of prosecutions and performance of adjudicatory functions other than those relating to arbitration or other methods of alternative dispute resolution. (3) The command of military forces, especially the leadership of military personnel who are members of the combat, combat support, or combat service support role. (4) The conduct of foreign relations and the determination of foreign policy. (5) The determination of agency policy, such as determining the content and application of regulations, among other things. (6) The determination of Federal program priorities for budget requests. (7) The direction and control of Federal employees. (8) The direction and control of intelligence and counter-intelligence operations. (9) The selection or non-selection of individuals for Federal Government employment, including the interviewing of individuals for employment. (10) The approval of position descriptions and performance standards for Federal employees. (11) The determination of what Government property is to be disposed of and on what terms (although an agency may give contractors authority to dispose of property at prices within specified ranges and subject to other reasonable conditions deemed appropriate by the agency). (12) In Federal procurement activities with respect to prime contracts— (i) Determining what supplies or services are to be acquired by the Government (although an agency may give contractors authority to acquire supplies at prices within specified ranges and subject to other reasonable conditions deemed appropriate by the agency); (ii) Participating as a voting member on any source selection boards; (iii) Approving any contractual documents, to include documents defining requirements, incentive plans, and evaluation criteria; (iv) Awarding contracts; (v) Administering contracts (including ordering changes in contract performance or contract quantities, taking action based on evaluations of contractor performance, and accepting or rejecting contractor products or services); (vi) Terminating contracts; (vii) Determining whether contract costs are reasonable, allocable, and allowable; and (viii) Participating as a voting member on performance evaluation boards. (13) The approval of agency responses to Freedom of Information Act requests (other than routine responses that, because of statute, regulation, or agency policy, do not require the exercise of judgment in determining whether documents are to be released or withheld), and the approval of agency responses to the administrative appeals of denials of Freedom of Information Act requests. (14) The conduct of administrative hearings to determine the eligibility of any person for a security clearance, or involving actions that affect matters of personal reputation or eligibility to participate in Government programs. (15) The approval of Federal licensing actions and inspections. (16) The determination of budget policy, guidance, and strategy. (17) The collection, control, and disbursement of fees, royalties, duties, fines, taxes, and other public funds, unless authorized by statute, such as 31 U.S.C. 952 (relating to private collection contractors) and 31 U.S.C. 3718 (relating to private attorney collection services), but not including— (i) Collection of fees, fines, penalties, costs, or other charges from visitors to or patrons of mess halls, post or base exchange concessions, national parks, and similar entities or activities, or from other persons, where the amount to be collected is easily calculated or predetermined and the funds collected can be easily controlled using standard case management techniques; and (ii) Routine voucher and invoice examination. 7-10

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Page 116 PART 7—ACQUISITION PLANNING              7.503 (18) The control of the treasury accounts. (19) The administration of public trusts. (20) The drafting of Congressional testimony, responses to Congressional correspondence, or agency responses to audit reports from the Inspector General, the General Accounting Office, or other Federal audit entity. (d) The following is a list of examples of functions generally not considered to be inherently governmental functions. However, certain services and actions that are not considered to be inherently governmental functions may approach being in that category because of the nature of the function, the manner in which the contractor performs the contract, or the manner in which the Government administers contractor performance. This list is not all inclusive: (1) Services that involve or relate to budget preparation, including workload modeling, fact finding, efficiency studies, and should-cost analyses, etc. (2) Services that involve or relate to reorganization and planning activities. (3) Services that involve or relate to analyses, feasibility studies, and strategy options to be used by agency personnel in developing policy. (4) Services that involve or relate to the development of regulations. (5) Services that involve or relate to the evaluation of another contractor's performance. (6) Services in support of acquisition planning. (7) Contractors providing assistance in contract management (such as where the contractor might influence official evaluations of other contractors). (8) Contractors providing technical evaluation of contract proposals. (9) Contractors providing assistance in the development of statements of work. (10) Contractors providing support in preparing responses to Freedom of Information Act requests. (11) Contractors working in any situation that permits or might permit them to gain access to confidential business information and/or any other sensitive information (other than situations covered by the National Industrial Security Program described in 4.402(b)). (12) Contractors providing information regarding agency policies or regulations, such as attending conferences on behalf of an agency, conducting community relations campaigns, or conducting agency training courses. (13) Contractors participating in any situation where it might be assumed that they are agency employees or representatives. (14) Contractors participating as technical advisors to a source selection board or participating as voting or nonvoting members of a source evaluation board. (15) Contractors serving as arbitrators or providing alternative methods of dispute resolution. (16) Contractors constructing buildings or structures intended to be secure from electronic eavesdropping or other penetration by foreign governments. (17) Contractors providing inspection services. (18) Contractors providing legal advice and interpretations of regulations and statutes to Government officials. (19) Contractors providing special non-law enforcement, security activities that do not directly involve criminal investigations, such as prisoner detention or transport and non-military national security details. (e) Agency implementation shall include procedures requiring the agency head or designated requirements official to provide the contracting officer, concurrent with transmittal of the statement of work (or any modification thereof), a written determination that none of the functions to be performed are inherently governmental. This assessment should place emphasis on the degree to which conditions and facts restrict the discretionary authority, decision-making responsibility, or accountability of Government officials using contractor services or work products. Disagreements regarding the determination will be resolved in accordance with agency procedures before issuance of a solicitation. * * * * * * 7-11