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This is historical material, "frozen in time."
The web site is no longer updated and links to external web sites and some internal pages will not work.
OFFICE OF MANAGEMENT AND BUDGET
Implementation of the Federal Activities Inventory Reform Act of 1998,
(Public Law 105-270) ("the FAIR Act")
AGENCY: Office of Management and Budget, Executive Office of the President
ACTION: Proposed Guidance on the Implementation of the FAIR Act Through Revisions to the
Supplemental Handbook to OMB Circular A-76.
SUMMARY: The Office of Management and Budget (OMB) requests agency and public comments
on its proposed guidance to implement the recently-enacted "Federal Activities Inventory Reform
Act of 1998" (Public Law 105-270) (the "FAIR Act"). The FAIR Act directs agencies to
develop inventories of their commercial activities and to conduct cost comparisons to determine
whether a commercial activity that is performed by a governmental source should instead be
performed by a private-sector source. The FAIR Act requires that Federal agencies must submit
to OMB, each fiscal year, a list of all their activities that are not inherently governmental
("commercial activities") and that are performed by Federal employees, with their associated Full-Time-Equivalents (FTE). (FAIR Act, Section 2(a)). OMB will review each agency's list for the
fiscal year and consult with the agency regarding its content. (FAIR Act, Section 2(b)). Upon
the completion of this review and consultation, the agency must transmit a copy of the list to
Congress and make the list available to the public. (FAIR Act, Section 2(c)). An interested party,
as defined by FAIR, may then challenge the omission or inclusion of a particular activity on the
list (FAIR Act, Section 3) and the agency must then notify Congress of any changes to the list
that result from this process and make the changes available to the public. (FAIR Act, Section
2(c)(2)). Finally, the Fair Act requires agencies, within a reasonable time after making final
decisions to include or exclude activities on the list, to review the activities on the list for possible
performance by the private sector. When an agency considers contracting with a private-sector
source for the performance of a commercial activity, the agency must use a competitive process to
select the source (except as may otherwise be provided in a law, Executive order, regulation, or
executive branch circular), in accordance with OMB guidance. In conducting cost comparisons,
agencies must ensure that all costs are considered (including certain specified costs) and that these
costs are realistic and fair. (FAIR Act, Section 2(d)-(e))
In complying with the FAIR Act, agencies will implement the OMB Circular A-76, "Performance
of Commercial Activities," which establishes Federal policy for the performance of recurring
commercial activities. The Circular distinguishes between those agency activities that are
commercial in nature and those that are inherently governmental. See Circular A-76, Sections 6a
and 6e (definitions of "commercial activity" and "governmental function"); Office of Federal
Procurement Policy Letter 92-1, "Inherently Governmental Functions," 57 FR 45096 (September
30, 1992). Guidance for implementing the Circular's general policies is contained in a
Supplemental Handbook for Circular A-76, which OMB revised in 1996. See 61 FR 14338
(April 1, 1996). Under the Circular and its Supplemental Handbook, agencies must develop and
maintain annual inventories of their commercial activities. When deciding whether to have an
activity performed by a governmental or private-sector source, agencies must also conduct cost
comparisons according to specified criteria and procedures. The proposed revisions to the
Handbook would inform agencies of the Act's requirements and conform the Handbook to those
requirements. The revisions also would revise the Handbook to clarify that agencies must rely on
the Handbook's guidance with respect to the cost-comparison competition requirements of the
FAIR Act. These requirements establish a competitive source-selection process which compares
costs in a complete, fair, and reasonable manner.
DATES: Written comments on the proposed revisions must be filed on or before
April 15 to be considered.
ADDRESSES: Address all comments to the Budget Analysis and Systems Division, NEOB Room
6002, Office of Management and Budget, 725 17th Street, N.W., Washington, D.C. 20503, FAX
Number (202) 395-7230.
FOR FURTHER INFORMATION CONTACT: Mr. David Childs, (202) 395-6104.
AVAILABILITY: Copies of the FAIR Act, the current OMB Circular A-76 and its Supplemental
Handbook may be obtained by contacting the Executive Office of the President, Office of
Administration, Publications Office, Washington, D.C. 20503, at (202) 395-7332. These
documents are also accessible on the OMB Home page. The online OMB Home page address
(URL) is /OMB/.
SUPPLEMENTARY INFORMATION: On October 12, 1998, President Clinton signed into law the
"Federal Activities Inventory Reform Act of 1998" (Public Law 105-270) (the "FAIR Act"). The
FAIR Act directs agencies to develop inventories of their commercial activities and to conduct
cost comparisons to determine whether a commercial activity that is performed by a governmental
source should instead be performed by a private-sector source.
To facilitate agency implementation of the FAIR Act, OMB proposes to revise the Supplemental
Handbook (particularly Appendix 2, which addresses the commercial-activity inventory). These
proposed revisions would inform agencies of the FAIR Act's requirements and, to avoid
duplication, conform Handbook provisions so that they cross-reference and parallel relevant FAIR
Act provisions. The changes would incorporate the statutory deadline of June 30th for agency
submissions to OMB of annual commercial-activity inventories and would add two data elements
to the inventory's description of each activity.
Under the FAIR Act, when an agency considers contracting with a private-sector source for the
performance of an activity on the inventory, it must use a competitive process to select the source
and must ensure that all costs are considered (including certain specified costs) and that the costs
considered are realistic and fair. See FAIR Act, Section 2(d)-(e). This proposal would revise the
Supplemental Handbook (in Part I, Chapter 1, Paragraph A, and in Part II, Chapter 1, Paragraph
A) to clarify that agencies conducting such cost-comparisons must rely on the guidance in
Circular A-76 and the Supplemental Handbook. They require that all competitive costs of in-house and contract performance be included in the cost comparison, including all costs of quality
assurance, technical monitoring, liability insurance, retirement benefits, disability benefits, and
overhead that may be allocated to the function under study or may otherwise be expected to
change as a result of changing the method of performance. Since the Supplemental Handbook's
guidance on cost comparisons has been recently revised and is fully consistent with the FAIR Act,
OMB does not propose to revise that guidance at this time.
OMB requests comments on its proposed guidance for implementing the FAIR Act through
revisions to the Supplemental Handbook for Circular A-76.
G. Edward DeSeve Deputy Director for Management
To implement the FAIR Act, OMB proposes to make the following revisions to the Supplemental
Handbook for OMB Circular A-76:
1. Part I, Chapter 1, Paragraph A of the Supplemental Handbook (p. 3) is revised by adding a
reference to the FAIR Act in the first sentence. As revised, Paragraph A would read as follows:
"A. General
"This Part sets forth the principles and procedures for managing the Government's acquisition of
recurring commercial supporting activities, implementing the "Federal Activities Inventory
Reform Act of 1998" (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 interservice support agreement
(ISSA) performance."
2. Part II, Chapter 1, Paragraph A.1 of the Supplemental Handbook (p. 17) is revised by adding a
reference to the FAIR Act in the first sentence. No revisions are proposed to Paragraph A.2-4.
As revised, Paragraph A.1 would read as follows:
"1. Part II provides generic and streamlined cost comparison guidance to comply with the
provisions of the "Federal Activities Inventory Reform Act of 1998" (P.L. 105-270)(the "FAIR
Act"), Circular A-76 and this Supplement. This includes guidance for developing in-house costs
based upon the Government's Most Efficient Organization (MEO) and other adjustments to the
contract and interservice support agreement (ISSA) price. It also sets out the principles for
development of cost-based performance standards or other measures that are comparable to those
used by commercial sources. Appendices 6 and 7 provide sector-specific cost comparison
guidance."
3. The title of Appendix 2 of the Supplemental Handbook (p. 38) is revised from "OMB Circular
No. A-76 Inventory" to "Commercial Activity Inventory". This inventory is now required by the
FAIR Act as well as by Circular A-76.
4. Paragraph A of Appendix 2 of the Supplemental Handbook (p. 38) is revised in several ways.
The introductory sentences now refer to the FAIR Act's requirements and incorporate its due date
(June 30th) for submission to OMB of an agency's commercial-activity inventory. Two data
elements are added to the inventory's description of an activity. These additional data elements
(k and l, below) correspond to the data elements required under Section 2(a)(1) and (3) of the
FAIR Act (the Handbook already requests the full-time employee data under Section 2(a)(2)). In
addition, the existing data element for "Location/organization unit" is being separated out into
two elements ("Location" and "Organization Unit"). Finally, a concluding sentence is added to
clarify that agencies have the flexibility to automate and structure the inventory so long as all data
elements are included. As revised, Paragraph A would read as follows:
"A. Preface
"Agencies must implement and manage cost comparisons in accordance with the "Federal
Activities Inventory Reform Act of 1998" (P.L. 105-270)(the "FAIR Act"), Circular A-76 and
this Supplement. In this regard, by June 30 of each year, each agency must submit to OMB a
report that contains an inventory of the agency's commercial activities. These reports must
identify those commercial activities that are exempt from cost comparison requirements and must
describe the status of activities that are subject to cost comparison. Each agency must maintain
an annual inventory of all commercial activities performed by in-house FTE, including, at a
minimum, the following data elements:
a. State.
b. Location.
c. Organization unit.
d. FTE.
e. Activity function code.
f. Reason code.
g. Year of cost comparison or conversion.
h. CIV/FTE savings.
i. Annual dollar savings.
j. Date of completed Post-MEO Performance Review.
k. Year the activity first appeared on the agency inventory, under FAIR.
l. Name of a Federal employee responsible for the activity from whom additional information
about the activity may be obtained.
Agencies have the discretion to automate and to structure this detailed inventory as they believe
most appropriate, so long as the inventory includes each of these data elements."
5. Appendix 2 of the Supplemental Handbook (p. 38) is revised by adding two new paragraphs
that reflect the requirements of the FAIR Act. New Paragraph G describes the review and
publication of the agency commercial-activity inventories and the challenge-and-appeals process
pertaining to their development. New Paragraph H requires agencies to review the activities on
their inventories of commercial activities and to use a competitive process, with established cost
comparison procedures, when the agency considers contracting with a private-sector source for
the performance of an activity on the inventory. The new Paragraphs G and H would read as
follows:
"G. FAIR Act review and publication of inventories; challenges and appeals regarding such
inventories
"In accordance with Section 2 of the FAIR Act, OMB will review the agency's inventory of
commercial activities and consult with the agency regarding its content. (Section 4 of the FAIR
Act specifies the agencies that are subject to the Act, and exceptions from the Act's coverage.)
Upon completion of this review and consultation, the agency must transmit a copy of the
inventory to Congress and make the inventory available to the public. OMB will publish a notice
in the Federal Register that the inventories are available to the public.
"Under Section 3 of the FAIR Act, an agency's decision to include or exclude a particular activity
from the inventory is subject to administrative challenge and appeal by an "interested party."
Section 3(b) of the FAIR Act defines "interested party"as:
1. A private sector source that (A) is an actual or prospective offeror 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 1. above.
3. An officer or employee of an organization within an executive agency that is an actual or
prospective offeror 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
3. above.
An interested party may submit an initial challenge, to the inclusion or exclusion of an activity,
within 30 calendar days after publication of the notice of availability in the Federal Register. The
challenge must set forth the reasons for the interested party's belief that the particular activity
should be reclassified as inherently governmental (and therefore be deleted from the inventory) or
as commercial (and therefore be added to the inventory), in accordance with OFPP Policy Letter
92-1 (see Appendix 5). Each agency must designate the agency official who has the responsibility
for receiving and deciding such challenges (that official may be the official identified in paragraph
9.a of the Circular, or that official's designee). The deciding official must decide the initial
challenge and transmit to the interested party a written notification of the decision within 28
calendar days of receiving the challenge. The notification must include a discussion of the
rationale for the decision and, if the decision is adverse, an explanation of the party's right to file
an appeal. An interested party may appeal an adverse decision to the head of the agency within
10 working days after receiving the written notification of the decision. Within 10 working days
of receipt of the appeal, the agency head must decide the appeal and transmit to the interested
party a written notification of the decision together with a discussion of the rationale for the
decision."
"H. FAIR Act competitions
"Section 2(d) of the FAIR Act requires each agency, within a reasonable time after the publication
of its commercial-activity inventory, to review the activities on the inventory. In addition, Section
2(d)-(e) of the FAIR Act provides that, when an agency considers contracting with a private-sector source for the performance of an activity on the inventory, the agency must use a
competitive process to select the source and must ensure that, for the comparison of costs, all
costs are considered (including certain specified costs) and the costs considered are realistic and
fair. In carrying out these requirements, agencies must rely on the guidance contained in
Circular A-76 and this Supplemental Handbook. All competitive costs of in-house and contract
performance are included in the cost comparison, including the costs of quality assurance,
technical monitoring, liability insurance, retirement benefits, disability benefits and overhead that
may be allocated to the function under study or may otherwise be expected to change as a result
of changing the method of performance."
