# Presentation: 669119

## Procurement 2002

- Competitive Sourcing:The FAIR Act
- and
- OMB Circular A-76

- Ron Lentz
- Contract Management Division (HK)
- Agency Competitive Sourcing Team (ACST)
- March 2002

## President’s Management Agenda

- Competitive Sourcing
- Strategic Management of Human Capital
- Improved Financial Performance
- Expanded Electronic Government
- Budget and Performance Integration

## Competitive Sourcing: View from the Top

- 	*“**Government should be market-based – we should not be afraid of competition, innovation, and choice.  I will open government to the discipline of competition.”*
- 					            -- George W. Bush

## Competitive Sourcing: What

-  	Competitive sourcing is the act of exposing Government activities to competition with the private sector.  The process of competition provides an imperative for the public sector to focus on continuous improvement and removing roadblocks to better performance and greater efficiency.  The objective is to focus on the most effective and efficient way of accomplishing the agency’s mission regardless of whether it is done by civil servants or contractors.

## Competitive Sourcing: Why

- Angela B. Styles, Administrator OFPP, June 28, 2001
- Congressional Testimony:
-  “If there is one point to communicate today, it is this Administration’s commitment to public-private competitions, or what we commonly refer to as the Competitive Sourcing Initiative. Without regard to whether the public or private sector wins a competition, when a commercial function performed by the public sector undergoes competition, that competition results in significant economic savings to the taxpayer. Indeed, experience demonstrates that the use of public-private competition consistently reduces the cost of public performance by more than 30 percent.”
**“****Competition results in better value and improves performance by bringing viable, responsive, innovative and cost-effective competitors (public and private) to the table.”**

## Competitive Sourcing: Process

- Centers conduct thorough inventory of their _activities_ (not just FTE)
- Centers Characterize/Code the activities
- Centers develop competitive sourcing plans
- HQ Review and Integrate Inventories and Plans
- Centers implement competitive sourcing plans

## Competitive Sourcing: Status Near Term

- ACST Formed 					Feb 4
- Procurement Officers 2 –day training		Feb 5-6
- Points of Contact Network (Agencywide) 	Feb 12
- Tom Luedtke’s Senior Staff Presentation		Feb 19
- Tom Luedtke’s ViTS to Enterprises 		Feb 25
- Inventory Guidelines and Call Letter 		Feb 27
- Tom Luedtke’s Senior Staff Presentation 	March 4
- Two-hour training for HQ Senior Staff 		March 20
- Codes H/F Joint ViTS				March 29

## Competitive Sourcing: Status Mid-Term

- Issue OMB Update 				March 15
- Center inventories and Competitive
- 	Sourcing Plans (CSP) to HQ 		May 1
- HQ review/adjustment/approval 		June 1
- Agency CSP 					June 14
- Begin Executive Review of CSP		June 17
- OMB submission 				June 30

## Competitive Sourcing: Facts of Life

- Center Directors are the key players
- We all must promote competition
- Very little of what NASA does is inherently governmental
- R&D and Engineering, per se, are not inherently governmental
- Competitive Sourcing expends resources
- Workforce resistance

## What is the FAIR Act Inventory?

- Federal Activities Inventory Reform Act of 1998 (Public Law 105-270) (FAIR Act)
- “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 list for an activity on the list shall include the following:
- The fiscal year for which the activity first appeared on a list prepared under this section.
- The number of full-time employees (or its equivalent) that are necessary for the performance of the activity by a Federal Government source.
- The name of a Federal Government employee responsible for the activity from whom additional information about the activity may be obtained.”

## FAIR Act Inventory

- Requires Agency to identify activities as:
**Inherently Governmental (IG**) – A function that is so intimately related to the public interest as to require performance by Federal Government employees. Consistent with the definitions provided in section 5 of the FAIR Act and Office of Federal Procurement Policy (OFPP) Policy Letter 92-1, these functions include activities that require either the exercise of discretion in applying Governmental authority or the use of value judgment in making decisions for the Government.
**Commercial Activity (CA)** – An activity which is operated by a Federal executive agency and which provides a product or service that could be obtained from a commercial source.

## FAIR Act Inventory

- Commercial Activities must be given a reason code
- Nine reason codes (A-I)
**A - Specifically exempt by the agency**
**B - Subject to the cost comparison or direct conversion**
**C - Specifically exempt by Congress, Executive Order or OMB**
- D - In process of being cost compared of converted directly
- E - Retained in-house as a result of a cost comparison
- F - Review is pending force restructuring decisions
- G - Function is prohibited from conversion because of legislation
- H - Waiver issued
- I - Being performed in-house as a result of a cost comparison resulting from a decision to convert from contract to in-house performance

## Category A

-    Indicates that the function is performed by Federal employees _and_ is specifically exempt by the agency from the cost comparison requirements.

## Category A - OMB Clarification:

*    *This Reason Code is designed to permit the _Agency Head _to identify specific commercial activities as those that he/she does not believe should be subjected to privatization, outsourcing, reinvention or competition.  Certainly, these are core mission activities that are commercial in nature.  Many core activities may however, be achieved through contract support and may also be found in either Reason Code “B” or “C.”  **Functions assigned Reason Code “A” are commercial functions that the Agency Head has determined must remain in-house.**  A justification of each use of Reason Code “A”, by function code will accompany the Inventory as a part of the Annual Management Report.

## Category B

-    Indicates that the activity is performed by Federal employees _and_ is subject to the cost comparison or direct conversion requirements of the OMB Circular A-76 and its Supplemental Handbook.

## Category B - OMB Clarification

*   *This Reason Code should be applied to any Function or Activity where the decision as to who should perform the work is **a quality and cost based decision** and the agency would expect that this decision would be based upon the results of a direct conversion competition (when authorized), or a cost comparison, **conducted in accordance with OMB Circular A-76** and its Supplemental Handbook.

## Category C

-    Indicates that the activity is performed by Federal employees, but it has been specifically made exempt from the provisions of the OMB Circular A-76 and its Supplemental Handbook by Congress, Executive Order or OMB.

- Conditions Permitting Government Performance of Commercial Activities

- Cost comparisons are **not** required to convert the following activities to or from in-house, contract or Inter Service Support Agreements.
- National Defense of Intelligence Security
- Patient Care
**Core Capability**
**Research and Development**
- No Satisfactory Commercial Source Available
**Functions With 10 or Fewer FTE**
- Meet Performance Standard
- Lower Cost
- Temporary Authorizations for In-House Performance
**NOTE: The application of these conditions should be reviewed by the Assistant Administrator for Procurement.**

## Category C - OMB Clarification

-    This Reason Code should be applied to any Function/Activity where the decision as to who should perform the work **is generally not a cost-based decision** and a cost comparison would be inappropriate.  This code applies to the Supplemental Handbook’s exemption from the cost comparison requirements of the Circular for national defense related activities, direct patient care, core and research and development activities.  **Here the decision to convert to or from in-house or contract performance is not a cost-based decision.**  The problem is to get the right people, the right skills, the right knowledge at the right place and at the right time.  These activities are currently performed by Federal employees, but, they do not enjoy the cost comparison protections afforded by the Circular; cost is a secondary consideration.

## Five Possible Processes

**1.  Activities with 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.
**2.  Activities of 11 or More FTE** – 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.

## Five Possible Processes

**3.  Activities of 11-65 FTE** **and any** **Federal employees adversely affected:**
-  	Streamlined Cost Comparison. No solicitation is issued.  The in house estimate is based on the existing organization.  Compare the in house estimate with four comparable service contracts.
**4.  Activities 65+ FTE** **and any Federal employees adversely affected:**
- 		Full A-76 Cost Comparison Required

- Five Possible Processes

**5.  Preferential Procurement Programs** – A commercial activity of any size 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 conducted.
**Definition: *****“Preferential Procurement Program**** – These are special “commercial” source programs, such as Federal Prison Industries and the workshops administered by the Committee for the Purchase from the Blind and Other Severely Handicapped under the Javits-Wagner-O’Day Act.”*

- OMB Circular A-76Cost Comparisons

- The cost comparison process consists of six major components
- Development of the Performance Work Statement (PWS and the Quality Assurance Surveillance Plan (QASP)
- Performance of a management study to determine the Government’s Most Efficient Organization (MEO)
- Development of an in-house Government cost estimate
- Issuance of the Request for Proposal (RFP) or Invitation for Bid (IFB)
- Comparison of the in-house bid against a proposed contract or Inter Service Support Agreement (ISSA) price
- The Administrative Appeal Process, which is designated to assure that all costs entered on the Cost Comparison Form (CCF) are fair, accurate and calculated in accordance with the Supplemental Handbook

## Cost Comparisons

- Chapter 3 – Revised Supplemental Handbook
**Performance Work Statement** – Defines what is being requested, the performance standards and measures, and timeframes required.
**Quality Assurance Surveillance Plans** – Describes the methods of inspection to be used, the reports required and the resources to be employed with estimated work-hours.

- Cost Comparisons

- Chapter 3 – Revised Supplemental Handbook
**Management Plans** – Describes the Government’s Most Efficient Organization (MEO) and is the basis of the Government’s in-house cost estimates.
- Agencies may consider existing management reinvention, consolidation, re-engineering, personnel classification, market and other analyses in the identification and development of the MEO.
- 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 Management Plan will document the assumptions used in the development of the MEO and in-house cost estimate
- Summary, Quality Assurance Surveillance Plan, Assets, Transition Plan, In-house Cost Estimate

## Cost Comparisons

- Chapter 3 – Revised Supplemental Handbook
**Solicitations** – The contracting officer inserts the clauses at FAR 52.207-3 and 7.305, the Right-of-First-Refusal of Employment, in all direct conversions and cost comparisons.
**Safeguarding the MEO** – 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.

- Cost Comparisons

**Methods of Procurement** – All competitive methods of Federal procurement provided by the FAR are appropriate for cost comparison under the Circular and the Supplement
**Selection**
- The Source Selection Authority (SSA) reviews the contract offers and identifies that offer which represents the “best overall value to the Government.” This offer competes with the Government’s in-house cost estimate.
- The Source Selection 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.
- The Government makes all changes necessary to meet the performance standards accepted by the Authority. Revised cost estimates are resubmitted to the Independent Review Officer (IRO) for acceptance.

- Cost Comparisons

**The Independent Review**
- IRO certifies in writing the Government’s cost estimate
- IRO acts as an independent authority to:
- 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
- ensure that all costs entered on the Cost Comparison Form are fully justified and calculated in accordance with the procedures described in the Revised Supplemental Handbook.
**Evaluation of Bids and Tentative Decisions**
- 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 Cost Comparison Form.

- Cost Comparisons

**Appeals of Tentative Waiver and Cost Comparison Decisions**
**Post-MEO Performance Review**
- When services are performed in-house as a result of a cost comparison, a formal review and inspection should be conducted after the first full year of performance.

## More Information

- WEB Sites
- _[http://www.](http://www.whitehouse.gov/omb/procurement/fair-index.html)__[whitehouse](http://www.whitehouse.gov/omb/procurement/fair-index.html)__[.](http://www.whitehouse.gov/omb/procurement/fair-index.html)__[gov](http://www.whitehouse.gov/omb/procurement/fair-index.html)__[/](http://www.whitehouse.gov/omb/procurement/fair-index.html)__[omb](http://www.whitehouse.gov/omb/procurement/fair-index.html)__[/procurement/fair-index.html](http://www.whitehouse.gov/omb/procurement/fair-index.html)_
- _[www.](http://www.govexec.com/outsourcing)__[govexec](http://www.govexec.com/outsourcing)__[.com/outsourcing](http://www.govexec.com/outsourcing)_
- _[www.](http://www.whitehouse.gov/omb/circulars)__[whitehouse](http://www.whitehouse.gov/omb/circulars)__[.](http://www.whitehouse.gov/omb/circulars)__[gov](http://www.whitehouse.gov/omb/circulars)__[/](http://www.whitehouse.gov/omb/circulars)__[omb](http://www.whitehouse.gov/omb/circulars)__[/circulars](http://www.whitehouse.gov/omb/circulars)_
- _[emissary.](file:///C:/Documents%20and%20Settings/smarucci/My%20Documents/attach/emissary.acq.osd.mil/inst/share.nsf)__[acq](file:///C:/Documents%20and%20Settings/smarucci/My%20Documents/attach/emissary.acq.osd.mil/inst/share.nsf)__[.](file:///C:/Documents%20and%20Settings/smarucci/My%20Documents/attach/emissary.acq.osd.mil/inst/share.nsf)__[osd](file:///C:/Documents%20and%20Settings/smarucci/My%20Documents/attach/emissary.acq.osd.mil/inst/share.nsf)__[.mil/inst/share.](file:///C:/Documents%20and%20Settings/smarucci/My%20Documents/attach/emissary.acq.osd.mil/inst/share.nsf)__[nsf ](file:///C:/Documents%20and%20Settings/smarucci/My%20Documents/attach/emissary.acq.osd.mil/inst/share.nsf)_
- ACST
- Joe LeCren, 202-358-0431, _[jlecren](mailto:jlecren@hq.nasa.gov)__[@hq.](mailto:jlecren@hq.nasa.gov)__[nasa](mailto:jlecren@hq.nasa.gov)__[.](mailto:jlecren@hq.nasa.gov)__[gov](mailto:jlecren@hq.nasa.gov)_
- Ron Lentz, 202-358-1064, _[rlentz@hq.nasa.gov](mailto:rlentz@hq.nasa.gov)_
- Deborah O’Neill, 202-358-1534, _[doneill@hq.nasa.](mailto:doneill@hq.nasa.gov)__[gov](mailto:doneill@hq.nasa.gov)_
- Ken Sateriale, 202-358-0491, _[ksateria](mailto:ksateria@hq.nasa.gov)__[@hq.](mailto:ksateria@hq.nasa.gov)__[nasa](mailto:ksateria@hq.nasa.gov)__[.](mailto:ksateria@hq.nasa.gov)__[gov](mailto:ksateria@hq.nasa.gov)_

## Center Points of Contact

| Center | Name | Telephone |
| --- | --- | --- |
| ARC | Nancy Bingham | 650-604-6544 |
| DFRC | Monique Sullivan | 661-276-2593 |
| GRC | Brad Baker | 216-433-2800 |
| GSFC | Mike Ladomirak | 301-286-7522 |
| JSC | Gregory Hayes | 281-483-2316 |
| KSC | Jim Hattaway | 321-867-7212 |
| LaRC | Lana Couch | 757-864-6114 |
| MSFC | Steve Beale | 256-544-0257 |
| SSC | Rebecca Dubuisson | 228-688-1636 |