Chapter 1--General Provisions
- This Part sets forth the principles and procedures for managing the
Government's acquisition of recurring commercial support activities,
implementing the "Federal Activities Inventory Reform Act of 1998" ("The FAIR
Act"), P.L. 105-270, and Circular A-76. Exhibit 1 summarizes the conditions
that permit conversion to or from in-house, contract or Inter-Service Support
Agreement (ISSA) performance. The requirements of the FAIR Act apply to the
following executive agencies: (1) an executive department named in 5 USC 101,
(2) a military department named in 5 USC 102, and (3) an independent
establishment as defined in 5 USC 104. The requirements of the FAIR Act do not
apply to: (1) the General Accounting Office, (2) a Government corporation or a
Government controlled corporation as defined in 5 USC 103, (3) a
non-appropriated funds instrumentality if all of its employees are referred to
in 5 USC 2105(c), or (4) Depot-level maintenance and repair of the Department
of Defense as defined in 10 USC 2460.
B. Inherently Governmental Activities
- 1. Inherently Governmental activities are not subject to the FAIR
Act, Circular A-76 or this Supplemental Handbook. As a matter of policy, an
inherently Governmental activity is one that is so intimately related to the
exercise of the public interest as to mandate performance by Federal employees.
The Office of Federal Procurement Policy (OFPP) Policy Letter 92-1, dated
September 23, 1992 (Federal Register, September 30, 1992, page 45096), provides
guidance on the identification of inherently Governmental activities (see
Appendix 5). This guidance conforms to the definition provided at Section 5,
paragraph 2, of the FAIR Act.
- 2. The decision that a particular function is inherently
governmental or commercial rests on a number of factors, including: the level
of Federal control required, the ministerial nature of the function, certain
statutory provisions, and distinguishing between recurring operations and
oversight. Statutory authority to perform a function is not, itself, sufficient
to warrant continued in-house performance as an inherently governmental
function. The full range of issues addressed by the OFPP Policy Letter 92-1
must be considered. As provided by the Policy Letter, OMB remains available to
resolve agency concerns in this determination.
C. Government Performance of Commercial
- Consistent with paragraph 8. of the Circular, cost comparisons are
not required to convert the following activities to or from in-house, contract
or ISSA (The application of these conditions should be reviewed by the official
in paragraph 9.a. of the Circular, or designee, as a part of the annual
inventory of commercial activities.):
- 1. National Defense or Intelligence Security.--Commercial activities
may be performed by in-house, contract or ISSA, without cost comparison, when
required to assure the national defense or national intelligence security. The
Secretary of Defense, or designee, approves requests for conversions on the
basis of the national defense. The Director of Central Intelligence, or
designee, approves conversions on the basis of national security.
- 2. Patient Care.--As provided by paragraph 8.c. of the Circular,
commercial activities at Government-owned hospitals or other health facilities
may be performed by in-house, contract or ISSA, without cost comparison, when
needed to maintain the quality of direct patient care.
- 3. Core Capability.--A minimum core capability of specialized,
scientific or technical in-house or contract employees and related commercial
workload, may be maintained, without cost comparison, to ensure that the
Government has the necessary capabilities to fulfill its mission
responsibilities or meet emergency requirements.
- 4. Research and Development.--As provided by paragraph 7.c.(7) of
the Circular, research and development activities may be performed by in-house,
contract or ISSA without cost comparison. Recurring and severable activities
that are performed in support of direct research and development are subject to
the cost comparison requirements of this Supplement.
- 5. No Satisfactory Commercial Source Available.--
a. If a commercial activity could be contracted, but there is no
commercial source, the activity is to be operated using the Government's Most
Efficient Organization (MEO).
b. Efforts to solicit commercial interest are to be documented, to
include: (1) consideration of preferential and non-preferential procurement and
(2) a determination that the solicitation did not limit commercial
- 6. Functions With 10 or Fewer FTE.--Activities involving 10 or fewer
FTE may be converted from contract to in-house or ISSA, without cost
comparison, if the contracting officer determines that performance is
unsatisfactory or that fair and reasonable prices cannot be otherwise obtained.
- 7. Meet Performance Standard.--
a. Performance by in-house, contract or ISSA may be authorized if
an agency demonstrates that performance meets or exceeds generally recognized
industry performance and cost standards.
b. Competitions based upon output and cost performance measures
must reflect the agency's fully allocated costs of performance and must be
certified as being in full compliance with the Statement of Federal Accounting
Standards No.4, "Managerial Cost Accounting Standards for the Federal
Government." The cost comparability procedures described in this Supplement,
such as those related to fringe benefit factors, must also be considered in
assessing the comparability of Government and private sector performance
measures and costs. Adjustments to Government and private sector performance
measures and costs may be required. Performance standards should be monitored
in conjunction with the Chief Financial Officers Act (CFO Act) and the
Government Performance Results Act of 1993 (GPRA).
c. A full description of the standards, performance measures, costs
and adjustments made will be developed by the agency and made available to the
public upon request. The use of selected standards, performance measures and
adjustments are subject to the administrative appeal procedures provided at
Part I, Chapter 3, paragraph K, of this Supplement.
- 8. Lower Cost.--In-house, contract or ISSA performance of a
commercial activity may be warranted by the results of a cost comparison
conducted in accordance with the procedures described in this Supplement.
- 9. Temporary Authorizations for In-House Performance.--If a
contractor defaults or is otherwise terminated, agencies should seek interim
contract support. If interim contract performance is not feasible, in-house or
ISSA performance of a "contracted" activity may be authorized, on a temporary
and emergency basis. As soon as possible, but not later than at the end of the
next contract option period, a replacement contract should be awarded or a new
requirements cost comparison completed to justify permanent conversion to
D. Contract Performance of Commercial Activities
- As a matter of policy, the Government shall acquire non-recurring
commercial activities through contracts with the private sector. The
acquisition of a recurring commercial activity by contract may be warranted
under the following conditions (The application of these conditions should be
reviewed by the official in paragraph 9.a. of the Circular, or designee.):
- 1. Contracted Activities.--An activity obtained through a
competitively awarded contract will continue to be obtained by contract as long
as the quality of service is acceptable and competitive prices are fair and
reasonable. If the Government believes that quality is unacceptable or prices
appear unreasonable, a cost comparison is conducted to justify conversion to
in-house or ISSA performance.
- 2. New Requirements.--A new requirement will be obtained by a
competitively awarded contract. If there is reason to believe that contract
service quality or prices may be unreasonable, a cost comparison is conducted
to justify conversion to in-house or ISSA performance.
- 3. Severable Expansions.--Severable expansions of existing in-house,
contracted or ISSA performed activities are obtained by a competitively awarded
contract. If the expansion is not severable, a review of the entire activity,
including the proposed expansion, is conducted for potential contract
performance. If there is reason to believe that contract service quality or
prices may be unreasonable, a cost comparison is conducted to justify
conversion to in-house or ISSA performance.
- 4. Interservice Support Agreements (ISSA).--
a. Commercial activities may be performed by in-house or contract
resources or through ISSAs as provided by law and Part I, Chapter 2 of this
b. In responding to interservice support requests, potential agency
service providers will certify that their reimbursable cost estimates reflect
the full competitive costs to the Government as defined in this Supplement.
- 5. Activities With 10 or Fewer FTE.--Commercial activities involving
10 or fewer FTE may be performed by in-house, contract or ISSA performance,
without cost comparison, if the contracting officer determines that offerors
will provide required levels of service quality at fair and reasonable prices.
- 6. Activities of 11 or More FTE.--Commercial activities may be
converted to contract or ISSA, without cost comparison, if fair and reasonable
prices can be obtained through competitive award and all directly affected
Federal employees serving on permanent appointments are reassigned to other
comparable Federal positions for which they are qualified. In no case, shall
any commercial activity be modified, reorganized, divided or in any way changed
for the purpose of circumventing the requirements of this paragraph or this
- 7. Activities Performed by the Military.--
a. The official in paragraph 9.a. of the Circular, or designee, may
authorize the direct conversion of activities performed by uniformed military
service personnel to contract performance, without cost comparison, if the
contracting officer determines that fair and reasonable prices can be obtained
from qualified commercial sources.
b. If a cost comparison is conducted or otherwise required to
convert to ISSA performance, the uniformed military positions included in the
Government's in-house cost estimate are cost at the standard composite rate for
uniformed personnel published by the DOD or other applicable agency
Comptroller. The Comptroller will also establish the number of productive hours
for uniformed personnel (see Part II, Chapter 2, paragraph B, "Personnel").
c. Civilian personnel will be cost as provided by this Supplement.
While the uniformed positions may or may not be converted to civilian positions
as a part of this process, the conversion of in-house civilian positions to
uniformed positions is not authorized.
- 8. Preferential Procurement Programs.--A commercial activity of any
size that is performed by Federal employees may be converted to contract
performance, without cost comparison--even if it results in adverse employee
actions, if the contract is awarded to a preferential procurement source at a
fair market price. At the agency's discretion, a cost comparison may be
- 9. Lower Cost.--Contract or ISSA performance of a recurring
commercial activity may be authorized by the results of a cost comparison
conducted in accordance with the procedures described in this Supplement.
E. Agency Cost Comparison Waivers
- 1. The official in paragraph 9.a. of the Circular may authorize cost
comparison waivers and direct conversions to or from in-house, contract or ISSA
performance. ISSA cost comparison waivers may be granted by the requesting
- 2. Within the Department of Defense, the authority to issue general
cost comparison waivers may be delegated to the Service Assistant Secretary or
Departmental Agency Head, without further delegation.
- 3. Waivers shall be granted only as follows:
a. A written cost comparison waiver will be prepared and signed by
the authorized waiver official. The waiver will be accompanied by a detailed
determination that the conversion meets the following requirements:
(1) The conversion will result in a significant financial or
service quality improvement and a finding that the conversion will not serve to
reduce significantly the level or quality of competition in the future award or
performance of work; or
(2) The waiver will establish why in-house or contract offers have
no reasonable expectation of winning a competition conducted under the cost
comparison procedures of this Supplement.
- 4. These general-function A-76 cost comparison waivers are subject
to the administrative appeal procedures provided at Part I, Chapter 3,
paragraph K, of this Supplement. While the justification for a waiver is
subject to appeal, a decision not to issue a waiver is not subject to appeal.
- 5. Federal employees adversely affected by a decision to waive a
cost comparison shall be afforded the same personnel considerations provided at
Paragraph H of this Chapter.
- 6. Cost comparison waivers are granted to Department of Defense and
other Federal installations scheduled for closure or in cases where functions
are designated for termination on specified dates.
F. Commercial Activities Inventory
- As required by the FAIR Act, Circular A-76 and this Supplemental
Handbook, each agency will maintain a detailed inventory of all in-house
commercial activities performed by its Government employees. This inventory, as
described at Appendix 2 of this Supplement, and any supplemental information
requested by OMB, will be submitted not later than June 30 of each year.
Agencies should, as appropriate, permit employee involvement in the development
of this Commercial Activities Inventory.
G. Review of Documents
- 1. Access to Supporting Documentation.--
a. At the earliest possible stages of development, consistent with
procurement and conflict of interest requirements, affected parties will have
the opportunity to fully participate in the development of supporting documents
and proposals, including the development of performance standards, performance
work statements, management plans, and the development of in-house and contract
b. Upon issuance, a solicitation used in the conduct of a cost
comparison will be made available to directly affected Federal employees or
their representatives for comment. The employees or their representatives will
be given sufficient time to review the document and submit comments before
final receipt of offers from the private sector. Private sector offerors shall
comment as provided by the Federal Acquisition Regulations (FAR).
- 2. Appeals of Agency Decisions.--As provided by the Circular and
this Supplement at Part I, Chapter 3, paragraph K, agencies shall make all
relevant documents available for review as a part of the administrative appeal
process. The detailed documentation shall include, at a minimum, the in-house
cost estimate, with detailed supporting data, the completed cost comparison
form itself, and the management plan.
H. Personnel Considerations
- 1. Adversely affected Federal employees are employees identified for
release from their competitive level by an agency, in accordance with 5 CFR
Part 351 and Chapter 35 of Title 5, United States Code, as a direct result of a
decision to convert to contract, ISSA performance or the agency's Most
Efficient Organization (MEO).
- 2. Federal employees and existing Federal support contract employees
adversely affected by a decision to convert to contract or ISSA performance
have the Right-of-First-Refusal for jobs for which they are qualified that are
created by the award of the conversion.
a. A standard clause is included in direct conversion and A-76 cost
comparison solicitations notifying potential contractors of this requirement
(see FAR 52.207-3). The Right-of-First-Refusal is afforded to all Federal
employees adversely affected by the decision to convert to contract
b. Executive Order 12933, "Non-Displacement of Qualified Workers
Under Certain Contracts," dated October 20, 1994, also provides the
Right-of-First-Refusal to contract employees (see FAR 7.305 (c)). As a matter
of policy, the Right-of-First-Refusal offered at FAR 52.207-3 is superior.
c. Personnel officers should work with the contracting officer and
employees to implement these provisions.
- 3. Agencies should exert maximum efforts to find available positions
for Federal employees adversely affected by conversion decisions, including:
a. giving priority consideration for available positions within the
b. establishing a reemployment priority list and an effective
c. paying reasonable costs for training and relocation that
contribute directly to placement, and
d. coordinating with the Office of Personnel Management (OPM) to
ensure employees have access to placement programs, including the OPM-operated
Displaced Employee Program (DEP) and the Interagency Placement Assistance
- 4. Agencies should notify employees affected as soon as possible of
an impending cost comparison and keep them informed of its progress at every
major milestone of the process.
I. Relationship to the Budget
- 1. Workload and resulting cost estimates will be consistent with the
President's Budget covering the performance period. New or expanded work
requirements, ISSAs and conversions of existing work to or from in-house or
contract performance should be identified.
- 2. Agencies should include in each annual budget submission the
savings from changes in the method of obtaining commercial activities. These
savings will be submitted in accordance with the instructions of OMB Circular
No. A-11, "Preparation and Submission of Budget Estimates." Changes in the
method of performance should be timed to conform with the budget process.
- 3. Agencies may request OMB approval to retain or redistribute
budget savings to other critical missions.
CONDITIONS PERMITTING GOVERNMENT PERFORMANCE OF COMMERCIAL
1. National Defense or Intelligence Security. The Secretary of
Defense, or designee, approves national defense justifications. The Director of
Central Intelligence, or designee, approves national security justifications.
2. Patient Care. Commercial activities at Government-owned
hospitals or other health facilities may be performed by in-house, ISSA or
contract employees when needed to maintain the quality of direct patient care.
3. Core Capability. A core capability of in-house and contract
resources may be warranted for certain functional areas.
4. Research and Development. Research and development activities
may be converted to or from in-house, contract or ISSA without cost comparison.
Severable support activities are subject to the cost comparison provisions of
5. No Satisfactory Commercial Source Available. Agencies will
solicit private sector interest and certify that the solicitation did not
restrict or otherwise limit competition.
6. Functions With 10 or Fewer FTE. May be converted to or from
in-house, contract or ISSA, without a cost comparison, if the contracting
officer determines that reasonable prices cannot otherwise be obtained.
7. Meet Performance Standard. Agencies may demonstrate that the
activity meets or exceeds generally recognized industry cost and performance
standards, after all adjustments required by this Supplement.
8. Lower Cost. Results of a cost comparison demonstrate that
in-house performance is less costly.
9. Temporary Authorization. Temporary emergency performance may be
warranted not to exceed the next full contract option year.
CONDITIONS PERMITTING CONTRACT PERFORMANCE OF COMMERCIAL
1. Contracted Activities. Should be obtained by contract, unless a
cost comparison demonstrates that in-house or ISSA performance is more cost
2. New Requirement. Should be obtained by contract, unless contract
quality or price appear unreasonable. A cost comparison is performed to convert
the activity to in-house or ISSA performance.
3. Severable Expansions. Same as above.
4. ISSAs. Commercial activities should not be performed through new
or expanded ISSAs, except as provided by law or this Supplement.
5. Activities With 10 or Fewer FTE. May be converted to or from
in-house, contract or ISSA, without a cost comparison.
6. Activities with 11 or More FTE. May be converted to contract or
ISSA, without cost comparison, if fair and reasonable contract prices can be
obtained by competitive award and all directly affected Federal employees on
permanent appointments can be reassigned to other comparable Federal positions.
7. Activities Performed by the Military. Activities performed by
military (uniformed) personnel may be converted to contract without cost
comparison. Military positions included in cost comparisons are cost at the
composite rates provided by the DOD or other appropriate agency Comptroller.
8. Preferential Procurement Programs. Contract performance may be
granted, without cost comparison, if the contract is awarded to a preferential
9. Lower Cost. Conversion to contract is required if a cost
comparison indicates that contract performance is the lower cost alternative.
- 1. In accordance with the provisions of the Federal Property and
Administrative Services Act of 1949, the Economy Act of 1932 (31 USC 1535), and
the Government Management Reform Act of 1994 (103 USC 356), excess property and
common administrative services available from other Federal departments or
agencies may be used, unless the needed product or service can be obtained more
economically through agency or private sector resources. The cost principles
and competition procedures established by this Supplement are to be used to
determine when services should be performed by in-house, contract or
interservice support agreement (ISSA) resources.
- 2. Federal agencies shall not provide commercial activities to the
private sector. OMB approval or specific statutory authority is required to
deviate from this policy.
- 3. In accordance with OMB Circular A-97, "Rules and Regulations
Permitting Federal Agencies to Provide Specialized or Technical Services to
State and Local Units of Government," Federal agencies must conduct cost
comparisons prior to offering to provide or receive commercial services to or
from State or local government agencies. This requirement does not, however,
apply to exceptional emergency circumstances such as disaster relief
- 4. In accordance with OMB Circular A-126, "Improving the Management
and Use of Government Aircraft," dated May 22, 1992, agencies will conduct
approved cost comparisons before retaining, purchasing or otherwise providing,
directly or through ISSAs, Federal aircraft or aviation services (see Appendix
- 5. In recognition of Government-wide downsizing and reinvention
efforts, the cost comparison requirements of this Supplemental Handbook shall
not apply to any ISSA consolidations, where the transfer of work is
accomplished prior to October 1, 1997, unless that consolidation includes the
conversion of work to or from contract performance and such conversion is not
otherwise authorized by this Supplemental Handbook.
a. Effective October 1, 1997, the cost comparison requirements of
this Supplemental Handbook will not apply to existing or renewed ISSAs or to
the consolidation of commercial or other services within a Department or
agency, unless that consolidation includes the conversion of work to or from
in-house or contract performance. New, expanded or transferred work
requirements will be authorized for performance by an ISSA only as provided by
the cost comparison or other provisions of this Supplemental Handbook.
- 6. The cost comparison provisions of this Chapter do not apply to
the performance of inherently governmental functions, such as reimbursable
procurement or contract administration services.
- 1. The prospective providing agency will furnish the requesting
agency a firm price or reimbursable rate for the requested new or expanded
product or service. The prospective provider will also issue a certification
that its price or reimbursable rate is calculated in accordance with Part II of
this Supplement. This cost estimate will then be compared by the requesting
agency to an in-house and/or a commercial offer, also calculated or adjusted in
accordance with this Supplement. A contract shall be awarded by the requesting
agency, if the commercial offer is more economical.
a. If the prospective provider is responding to a formal
solicitation issued by the requesting agency, the prospective provider shall
submit to the requesting agency a synopsis, management plan and Government cost
estimate developed in accordance with this Supplement. A complete response, as
required by the Federal Acquisition Regulations (FAR), is not required.
(1) Under no condition, shall the requesting agency cancel or
otherwise delay bid opening or contract award in order to permit an agency to
submit an ISSA price or reimbursable rate.
(2) The requesting agency may accept or reject the prospective
provider's offer as technically qualified or unqualified as it deems
appropriate and without appeal. Prospective providers who submit a technically
acceptable offer shall compete with private sector and other in-house offers.
b. Agencies that wish to provide a commercial activity to another
Department or agency may petition the agency to conduct a cost comparison.
c. At the sole discretion of the requesting agency, the prospective
provider may submit performance standard data, as provided by Chapter 1,
paragraph C.7. of this Part. The prospective provider shall certify that all
necessary adjustments to its performance measures and cost standards have been
made. The requesting agency shall review the documentation for these
adjustments and make similar adjustments to the private and other in-house
offers based upon the submission of performance measures.
- 2. Competitions between a requesting agency, private sector offeror
and a potential ISSA provider may require special performance and price
adjustments to ensure that all competitors are treated equitably. These
performance and price adjustments, include:
--Contract Administration Costs
--One-time Conversion Costs
--Gain/Loss on Disposal/Transfer of Assets
--Federal Income Taxes
--Other Adjustment Costs
--Minimum Differential Costs
- 3. Proposals to obtain new or expanded products or services from
another Government agency or private sector offeror, including ISSA proposals,
will be published in the Commerce Business Daily.
- 4. An agency that is currently obtaining a commercial support
service from another Department or agency may, with proper notification,
terminate that relationship and convert directly to contract performance
without cost comparison. If, however, the agency wishes to perform that work
directly with in-house resources, it will need to justify that decision through
a cost comparison for a "new requirement." Again, this provision does not apply
to the performance of inherently governmental activities.
- 5. Agencies will not retain, create or expand capacity for the
purpose of providing new or expanded levels of interservice support services,
unless justified by the cost comparison requirements of this Supplement.
a. Once an interservice support provider has competed its entire
interservice support workload with the private sector, that provider may
provide new or expanded interservice support work--of the same type--to other
agencies, without further review or cost comparison on its or the requesting
agency's part. This ability to offer services, without cost comparison, will
continue until the providing agency has increased its capability and total
workload by the lesser of (1) the expansion requirements of this Supplement or
(2) more than 65 FTE are added to the in-house capability, at which time
another full review or individual cost comparisons are required.
b. Paragraph 5.a. notwithstanding, if a new or expanded ISSA
results in a general conversion of work to or from in-house or contract
performance and a cost comparison has not previously justified the provider's
method of performance, a cost comparison is required.
- 6. Cost comparisons conducted to justify ISSAs are subject to
independent review and appeal. Prior to bid opening, the requesting agency's
Independent Review Officer shall review all Government bids for compliance with
the requirements of this Supplement. Appeals shall be conducted in accordance
with Chapter 3, paragraph K, of this Part.
- 1. Except as provided in Chapter 1 of this Part, agencies will
conduct cost comparisons when activities do not meet established performance
standards, when agencies believe fair and reasonable prices cannot be obtained
from qualified commercial sources, or as otherwise provided to permit the
conversion of work to or from in-house, contract or interservice support
agreement (ISSA) performance. Detailed guidance on the conduct of cost
comparisons is contained in Part II of this Supplement.
- 2. In consolidating activities for cost comparison, agencies should
take existing industry structures, contract administration and other management
considerations into account.
- 3. In general, the cost comparison process consists of six major
components. They are: (1) the development of a Performance Work Statement (PWS)
and Quality Assurance Surveillance Plan (QASP); (2) the performance of a
management study to determine the Government's Most Efficient Organization
(MEO); (3) the development of an in-house Government cost estimate; (4)
issuance of the Request for Proposal (RFP) or Invitation for Bid (IFB); (5) the
comparison of the in-house bid against a proposed contract or ISSA price, and
(6) the Administrative Appeal Process, which is designed to assure that all
costs entered on the Cost Comparison Form (CCF) are fair, accurate and
calculated in accordance with Part II of this Supplement.
- 4. Cost comparisons should be completed within eighteen months for a
single activity (or thirty-six months for multiple activities) from the cost
comparison start date, i.e., public or union notification and designation of
the study team. Agencies are to provide an annual report to OMB on all cost
comparisons that exceed these time frames, including a description of the
problems encountered, remedial actions, status and expected completion date.
B. The Cost Comparison Study Team
- 1. Generally, a central or field agency study team should be formed.
Over time, the team may include individuals with expertise in management
analysis, position classification, work measurement, value engineering (see OMB
Circular A-131), industrial engineering, cost analysis, procurement and the
technical aspects of the activity under study. The team should document mission
requirements and seek new and innovative ways to provide the required products
- 2. Agencies are encouraged to seek training on the policies and
procedures of Circular A-76 and this Supplement, and to ensure that the skills
necessary to prepare the Performance Work Statement, in-house management plan
and cost estimate are available. Joint training for employees and their
representatives is encouraged.
- 3. Procurement restrictions prohibit Federal procurement officials
from subsequently working for a contractor on a procurement in which the
procurement official was involved. "Procurement official" in this sense
includes personnel in the commercial activity who are directly and
substantially involved in preparing or approving the PWS, management plan, the
in-house cost estimate, or supporting the source selection evaluation process.
(See FAR 3.104-4(h)(3) and 41 USC 423.)
a. Employees who participate or provide data to support the
development of the various study elements, but do not review, approve or have
direct knowledge of the final performance work statement, performance
standards, MEO, in-house or contract cost estimates are not considered
"procurement officials" and are not affected by this restriction.
b. The participation of functional experts is essential to the
quality of the cost comparison. However, when participation on the study team
could adversely affect their rights under the Right-of-First-Refusal or the
opportunity for future employment with the contractor, employees should be
given the option to decline participation.
c. At a minimum, certifying officials for the PWS and Management
Plan, the Independent Review Officer(s), those who sign the cost comparison
form and the Administrative Appeal Authority are considered procurement
C. Performance Work Statements
- 1. Performance Work Statements (PWS) should be developed for all
activities being resolicited for contract or scheduled for direct conversion to
or from in-house, contract or ISSA performance.
- 2. The PWS defines what is being requested, the performance
standards and measures, and timeframes required. It provides the technical
performance sections of the Request for Proposals (RFP) or Invitation for Bid
(IFB) issued by the contracting officer.
- 3. In the development of the PWS, agencies should refer to the
Office of Federal Procurement Policy's (OFPP) Policy Letter 91-2, "Service
Contracting," dated April 9, 1991; OFPP Policy Letter 93-1, "Management
Oversight of Service Contracting," dated May 18, 1994, and the OFPP Best
Practices Guide to Performance-Based Service Contracting.
- 4. Special care should be taken when developing the PWS to ensure
that it does not limit service options, arbitrarily increase risk, reduce
competition, unnecessarily violate industry service or service grouping norms
or omit statutory or regulatory requirements without full justification. The
PWS should be performance-oriented, specifying what outputs or measures are
desired and limiting directions as to how the results are achieved. Agencies
should not consider a PWS that limits the options available for providing the
required product or service, or otherwise unnecessarily restricts private
sector participation as being in compliance with Circular A-76 or this
D. Quality Assurance Surveillance Plans
- 1. The Quality Assurance Surveillance Plan (QASP) describes the
methods of inspection to be used, the reports required and the resources to be
employed with estimated work-hours. Although the QASP accompanies the PWS to
the Independent Review Officer (IRO) for a cost comparison, it need not be
included as a part of the solicitation or provided to private sector offerors.
In-house, contract and ISSA offerors should develop their offers based upon the
requirements of the PWS alone. The QASP process is supplemented with periodic
Post-MEO Performance Reviews.
E. Management Plans
- 1. The Management Plan describes the Government's Most Efficient
Organization (MEO) and is the basis of the Government's in-house cost
estimates. The Management Plan, which must reflect the scope of the Performance
Work Statement, should identify the organizational structures, staffing and
operating procedures, equipment, transition and inspection plans necessary to
ensure that the in-house activity is performed in an efficient and cost
- 2. Agencies may consider existing management reinvention,
consolidation, re-engineering, personnel classification, market and other
analyses in the identification and development of the MEO.
- 3. The Management Plan is certified as reflecting the Government's
Most Efficient Organization (MEO). The certifying official may be any
technically competent individual: (a) organizationally independent of the
function under study or (b) at least two levels above the most senior official
included in the in-house cost estimate. The certifying official must also be
able to commit to the provision of necessary resources to perform the activity.
Such certification is made before the review of bids or proposals.
- 4. The Management Plan will document the assumptions used in the
development of the MEO and in-house cost estimate, including:
a. Summary. An overall comparison of the current organization with
the MEO and a review of any special initiatives or assumptions, including
equipment or productivity changes.
b. The Quality Assurance Surveillance Plan (QASP). A description of
the Government's in-house Quality Assurance Surveillance Plan and how it will
differ, including resources, if services are provided by ISSA or contract, and
c. Assets. When existing assets used by the Government's MEO are
not provided to the ISSA or contractor for use, an analysis of the benefits to
the Government may be warranted.
d. Transition Plan. A plan for the transition to or from current
organizational structure to MEO, contract or ISSA performance--designed to
minimize disruption, adverse impacts, capitalization and start-up requirements.
e. In-house Cost Estimate. A description of all costs associated
with the performance of the MEO, calculated in accordance with Part II of this
F. Safeguarding the MEO
- 1. The Management Plan and the MEO are considered procurement
sensitive documents until a tentative decision is reached, e.g., at bid opening
and completion of the cost comparison form.
- 2. The Management Plan, MEO and in-house cost estimate are delivered
as sealed documents to the contracting officer prior to the due date for the
receipt of bids or technical proposals. The period available to deliver
contract offers will be extended until the MEO and the in-house cost estimates
are sealed. No private sector offer is opened or otherwise reviewed prior to
the sealing of the Government's in-house cost estimate.
- 1. The contracting officer reviews the PWS to ensure that it is
adequate and appropriate to serve as a basis for award. The Contracting Officer
issues a solicitation based on the PWS.
- 2. The contracting officer, when contracting by sealed bid, inserts
in cost comparison solicitations the provision at FAR 52.207-1, Notice of Cost
Comparison (Sealed Bid).
- 3. The contracting officer, when contracting by competitive
negotiation or source selection, inserts in cost comparison solicitations the
provision at FAR 52.207-2, Notice of Cost Comparison (Negotiated).
- 4. The contracting officer inserts the clauses at FAR 52.207-3 and
7.305, the Right-of-First-Refusal of Employment, in all direct conversion and
cost comparison solicitations.
H. Methods of Procurement
- 1. All competitive methods of Federal procurement provided by the
FAR are appropriate for cost comparison under the Circular and this Supplement.
This includes: sealed bid, two-step, source selection and other competitive
qualifications-based or negotiated procurement techniques.
- 2. In selecting the method of procurement and contract type, the
contracting officer analyzes the PWS and applies the guidance contained in OFPP
Policy Letter 91-2 and FAR Part 16.
- 3. Source Selection or negotiated procurement techniques may be used
for some A-76 Cost Comparisons. To ensure equity in the cost comparison
process, the following guidelines are provided:
a. In addition to the PWS, Management Plan and in-house cost
estimate, the Government, like the private sector offerors, shall submit the
Technical Performance Plan required by the solicitation to the A-76 Independent
Review Officer (IRO). The Technical Performance Plan reflects the MEO and is
sealed prior to the consideration of any part of any contract offer.
b. As required by the FAR, the Government should establish a Source
Selection Authority, including assurances that there are no potential conflicts
of interest in the membership of the Authority.
c. The Authority reviews contract and ISSA offers and identifies
that offer which represents the "best overall value to the Government." This
contract offer competes with the Government's in-house cost estimate.
d. With the selection of the competitive offer, the contracting
officer submits to the Authority the Government's in-house Management Plan,
which must comply with the technical proposal requirements of the solicitation.
The Authority evaluates the in-house offer and assesses whether or not the same
level of performance and performance quality will be achieved. The Authority
should not review or have access to the in-house cost estimate.
e. The Government makes all changes necessary to meet the
performance standards accepted by the Authority. Revised cost estimates are
resubmitted to the IRO for acceptance. This will assure that the Government's
in-house cost estimate is based upon the same scope of work and performance
levels as the best value contract offer.
I. The Independent Review
- 1. The Government's cost estimates are certified in writing by the
agency's A-76 Independent Review Officer (IRO), or designee, as being in full
compliance with the procedures and requirements described in this Supplement.
The IRO should be a qualified person from an impartial activity that is
organizationally independent of the commercial activity being studied and the
activity preparing the cost comparison.
- 2. The PWS, Management Plan, QASP and all Government developed cost
estimates, with supporting documentation, are forwarded to the agency IRO, or
designee, for review. This is done prior to submission of the Cost Comparison
Form (CCF) and supporting data to the contracting officer.
- 3. The IRO acts as an independent authority to:
a. ensure that the data contained in the Management Plan reasonably
establish the Government's ability to perform the PWS within the resources
provided by the MEO, and
b. ensure that all costs entered on the CCF are fully justified and
calculated in accordance with the procedures described in Part II of this
J. Evaluation of Bids and Tentative Decisions
- 1. For sealed bid procurements, the contracting officer opens the
bids, including the Government's in-house cost estimate, and enters the price
of the apparent low offeror on the Cost Comparison Form (CCF). After all
necessary adjustments are made and the CCF is completed, the contracting
officer announces the tentative decision, subject to evaluation of bids for
responsiveness, responsibility and resolution of possible administrative
appeals. The appeal period begins when access to the completed CCF, and all
supporting documentation, is provided to affected parties for review, usually
the day of bid opening.
- 2. If, as a result of an appeal or other problem, the selected
competitive offeror is other than the previously announced apparent low bidder,
the CCF is revised. All affected parties should be notified of any such
- 3. For a negotiated or best value procurement, after selection of
the private sector's most advantageous proposal, and all necessary adjustments
have been made to ensure that the Government's in-house cost estimate and the
other offers are based upon the same scope of work and performance standards,
the contracting officer opens the Government's in-house cost estimate, and
completes the CCF.
- 4. If, after contract start, the cost comparison "winner" is found
to be unresponsive or otherwise unable to perform, the Government should seek a
reaffirmation of bids received from the in-house, private sector and ISSA, as
appropriate, to the cost comparison solicitation. Adjustments, limited to time
delays or inflation, should be accommodated for all offerors. The CCF is then
recalculated and award made to the next lowest bidder.
K. Appeals of Tentative Waiver and Cost Comparison
- 1. Following a tentative waiver or A-76 cost comparison decision,
the A-76 Administrative Appeals process is invoked. To be eligible for review
under the A-76 Administrative Appeals process, appeals must:
a. Be submitted by an eligible appellant.
b. In the case of a waiver, be received by the official in
paragraph 9.a. of the Circular, or designee. In the case of a tentative cost
comparison decision, be received by the contracting officer. In either case,
the appeal must be received in writing and within 20 calendar days after the
date that all supporting documentation is made publicly available. The agency
may extend the appeal period to a maximum of 30 days if the cost comparison is
c. Address specific questions regarding an agency's compliance with
the requirements and procedures of this Circular, factual questions regarding
agency justifications to waive a cost comparison, or address specific questions
regarding the costs entered by the Government on the applicable Cost Comparison
Form and set forth the rationale for questioning those items.
d. Identify specific instances of agency denials of information not
otherwise protected by law or regulation.
e. Demonstrate that the items appealed, individually or in
aggregate, would reverse the tentative decision.
- 2. An eligible appellant is defined as:
a. Federal employees (or their representatives) and existing
Federal contractors affected by a tentative decision to waive a cost
b. Federal employees (or their representatives) and contractors
that have submitted formal bids or offers who would be affected by a tentative
decision to convert to or from in-house, contract or ISSA performance as a
result of a cost comparison; or
c. agencies that have submitted formal offers to compete for the
right to provide services through ISSAs.
- 3. With receipt of an eligible appeal, the official designated in
paragraph 9.a. of the Circular, or designee, assigns an official(s) to serve as
the A-76 Administrative Appeal Authority for that appeal. The individual(s)
selected must be: (a) two levels above the official who signed the waiver, in
the case of a cost comparison waiver authorized under Chapter 1, paragraph E,
of this Part; or (b) independent of the activity under review or at least two
organizational levels above the official who certified the Government's
Management Plan and MEO, in the case of a tentative cost comparison appeal.
- 4. The Appeal Authority ensures that the cost items challenged in
the appeal are properly accounted for in accordance with the procedures of Part
II of this Supplement. The Authority also ensures that all participants to the
cost comparison process have appropriate access to the decision process.
- 5. If significant problems with the waiver justification or cost
comparison estimates are found, such that the tentative decision may be
unsupported or is in error, the Appeal Authority corrects the error and cost
comparison, if applicable, and the agency proceeds according to the amended
decision. The Authority will not review any item not formally challenged by an
- 6. Agency A-76 Administrative Appeal procedures do not apply to
a. the selection of one contract offeror or another for competition
with the in-house cost estimate;
b. award to one contractor in preference to another;
c. Government management decisions involving the Government's
certified in-house MEO, and
d. the policies or procedures contained in the Circular and this
- 7. The procedure does not authorize an appeal outside the agency or
judicial review, nor does it authorize sequential appeals. The appeal process
provides reasonable assurances that decisions to waive the cost comparison
requirements of this Supplement are properly reviewed and that the cost
comparison requirements of this Supplement are properly adhered to, when
applicable. Therefore, all directly affected parties are expected to submit
their appeals within the initial appeal period.
- 8. The appeals procedure should provide for a final decision within
30 days of receipt of the appeal by the Appeal Authority.
L. Post-MEO Performance Review
- 1. When services are performed in-house as a result of a cost
comparison, including those involving an ISSA, a formal review and inspection
of the Most Efficient Organization (MEO) should be conducted. Typically, this
review should be conducted following the end of the first full year of
- 2. The Post-MEO Performance Review confirms that the MEO has been
implemented in accordance with the Transition Plan, establishes the MEO's
ability to perform the services of the PWS and confirms that actual costs are
within the estimates contained in the in-house estimate. Adjustments may be
made for formal mission or scope of work changes.
- 3. Post-MEO Reviews will be conducted at the direction of the
official in paragraph 9.a. of the Circular, or designee, but must be
independent of the most senior official included in the Government's in-house
or ISSA cost estimate. Post-MEO Performance Reviews will be conducted on not
less than 20 percent of the functions performed by the Government as a result
of a cost comparison.
- 4. MEO implementation may be measured in terms of the FTE, grade
structure and the contract support included in the Transition and Management
- 5. MEO performance may be measured in terms of workload,
responsiveness and quality of work. Special inspections and a review of the
activity's implementation of the Quality Assurance Surveillance Plan may be
- 6. Cost conformance may be determined by an analysis of actual labor
and material costs against the Personnel, Material, and Other Specifically
Attributable costs on the final CCF. Care should be taken to assure that
adjustments are made for retained or saved pay and for fringe benefit factors
when using actual cost records.
- 7. Minor cost or performance deficiencies may be corrected to
maintain the integrity of the cost comparison process. A period of time
consistent with that given to a contractor may be given to the in-house or ISSA
activity to correct any deficiencies found. Failure to correct deficiencies
that would individually or in aggregate invalidate the original cost
comparison, or any finding of a significant deviation from the requirements of
the PWS, shall result in the following:
- As with a contract default, if an in-house or ISSA failure to
perform is identified, including failure to implement the MEO as provided by
the Transition Plan, the contracting officer will award the work to next lowest
offerer who participated in the cost comparison, if feasible. If award to the
next lowest offeror is not feasible the contracting officer will immediately
resolicit to conduct a revised and updated cost comparison.
- 8. An annual list of Post-MEO Performance Review certifications will
be made available to the public upon request. This list will identify the total
number of cost comparisons completed since the issuance of this Revised
Supplemental Handbook and the number of Post-MEO Performance Reviews completed.
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