United States General Accounting Office

GAO Report to Congressional Requesters

February 1999 FORCE STRUCTURE

A-76 Not Applicable to

Air Force 

38th Engineering

Installation Wing Plan

GAO/NSIAD-99-73

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-280525 

February 26, 1999

The Honorable James M. Inhofe

Chairman, Subcommittee on Readiness

 and Management Support

Committee on Armed Services

United States Senate

The Honorable Floyd D. Spence

Chairman

The Honorable Ike Skelton

Ranking Minority Member

Committee on Armed Services

House of Representatives

This report responds to the request of the Chairman of the Senate

Subcommittee on Readiness and Management Support, Committee on

Armed Services, that we determine whether the Air Force complied with

relevant policy and congressional notification requirements in reaching a

decision to deactivate the 38th Engineering Installation Wing (EIW) at

Tinker Air Force Base (AFB), Oklahoma, and reassign its work elsewhere.

It also fulfills a requirement of the House National Security Committee’s1

report on the National Defense Authorization Act for Fiscal Year 1999,

which directed us to analyze and determine whether information provided

by the Air Force supports this proposed action. Specifically, this report

discusses (1) the scope of the Air Force’s planned action, (2) whether it is

subject to the requirements of Office of Management and Budget (OMB)

Circular A-76 and 10 U.S.C. 2461, and (3) whether an analysis was

completed to examine the cost-effectiveness of the planned action.

Results in Brief The Air Force plans to deactivate the 38th EIW, headquartered at Tinker Air

Force Base, Oklahoma, and transfer its wartime mission to the Air

National Guard (ANG) without increasing the Guard’s authorized

end-strength. About 75 percent, or 1,752, of the unit’s authorized positions

will be eliminated, while 591 positions will be reassigned to existing or

new organizations to assume responsibilities previously assigned to the

38th EIW. These changes are expected to result in one-time savings of

$33 million and annual recurring savings of $28 million.

1

Now known as the House Armed Services Committee.

Page 1 GAO/NSIAD-99-73 Force Structure
B-280525 

Concerning questions raised about the need for notice and cost studies

related to the proposed action, we found:

• The proposed action is a comprehensive restructuring of an active

component unit, largely transferring its wartime mission to the Air

National Guard. It is not the type of action historically associated with OMB

Circular A-76 and is not a conversion as envisioned under the circular.

Accordingly, a cost comparison under that circular is not required.

• Likewise, the planned action is not a change in the performance from

civilian personnel to contractor employees of the kind subject to the

requirements of 10 U.S.C. 2461; accordingly, the Air Force was not

required to perform the cost study and provide congressional notification

under that provision.

• At the same time, the Air Force’s business case analysis supports the

cost-effectiveness of the proposed action, with the reduction of a

significant number of personnel.

Background Since 1955, federal agencies have been encouraged to obtain commercially

available goods and services from the private sector if doing so is

cost-effective. In 1966, OMB issued Circular A-76, which established federal

policy for the government’s performance of commercial activities and set

forth the procedures for studying them for potential contracting. In 1979,

OMB issued a supplemental handbook to the circular that included cost

comparison procedures for determining whether commercial activities

should be performed in-house, by another federal agency through an

interservice support agreement, or by the private sector. OMB updated this

handbook in 1983 and again in March 1996.

The March 1996 Revised Supplemental Handbook clarified numerous

areas, including the application of the A-76 cost comparison requirements.

The handbook’s introduction describes a wide range of options

government officials must consider as they contemplate reinventing

government operations. They include “the consolidation, restructuring or

reengineering of activities, privatization options, make or buy decisions,

the adoption of better business management practices, the development of

joint ventures with the private sector, asset sales, the possible devolution

of activities to state and local governments and the termination of obsolete

services or programs.” The introduction also explains that “in the context

of this larger reinvention effort, the scope of the Supplemental Handbook

Page 2 GAO/NSIAD-99-73 Force Structure
B-280525 

is limited to conversion of recurring commercial activities to or from

in-house, contract or interservice support agreement performance.”2

Where A-76 cost comparison procedures apply, the initial step is to

develop a performance work statement describing what is needed to

perform the activity. That statement is used as the technical performance

section of a solicitation for private-sector offers. The government also

develops a management plan that describes the most efficient organization

for in-house performance of the activity described in the performance

work statement. The cost of performance by the government in

accordance with the most efficient organization is compared to the cost

proposed by the private-sector source selected pursuant to the

solicitation. The activity will be converted to performance by the private

sector if the private sector’s offer represents a reduction of at least 

10 percent of direct personnel costs or $10 million over the performance

period. Further information about the A-76 process is included in 

appendix I.

In addition to A-76, the Department of Defense (DOD) must consider the

effect of 10 U.S.C. 2461 when it plans changes to an industrial or

commercial type function performed by its civilian employees. 

Section 2461, as amended by the Strom Thurmond National Defense

Authorization Act for Fiscal Year 1999, Public Law 105-261, requires an

analysis of the activity, including a comparison of the cost of performance

by DOD civilian employees and by a contractor, to determine whether

contractor performance could result in a savings to the government. It also

requires DOD to notify Congress of the analysis and to provide other

information prior to instituting a change in performance.3

Process of

Deactivating 38th EIW

Involves Multiple

Actions

The 38th EIW is an active component Air Force unit with a wartime support

mission that has been greatly diminished since the end of the Cold War.

Deactivation of the 38th EIW will involve multiple actions to realign the

wartime mission and reassign other peacetime roles.

The 38th EIW provides engineering and installation (E&I) services in support

of the Air Force’s communications needs. It supports flight facilities,

intrusion detection, ground radio, wideband/satellite systems, local area

2

While A-76 addresses conversions in both directions, for purposes of this report, we will focus on

conversions from performance by government employees to the private sector.

3

Further, section 8014 of the Department of Defense Appropriations Act for Fiscal Year 1999, Public

Law 105-262, requires that DOD certify its in-house estimate to congressional committees before

converting any activity performed by more than 10 DOD civilian employees to contractor performance.

Page 3 GAO/NSIAD-99-73 Force Structure
B-280525 

networks, cable/fiber optic distribution systems, switching systems, and

other communications systems. The 38th EIW is an Air Force Materiel

Command unit headquartered at Tinker AFB, Oklahoma, with squadrons at

Keesler AFB, Mississippi; Kelly AFB, Texas; and McClellan AFB, California. In

addition, an active duty military advisor is stationed at each of the 19 ANG

units—units that also provide engineering and installation services.

Currently, the 38th EIW consists of 2,343 personnel (1,358 military and 985

civilian) at these bases and various ANG locations. Table 1 shows the active

component military and civilian personnel authorized for the 38th EIW at

each location.

Table 1: Current 38th EIW Active

Component Manpower Authorizations Location Military Civilian Total

Keesler AFB,

Mississippi 293 111 404

Kelly AFB, Texas 290 24 314

McClellan AFB, California 290 24 314

Tinker AFB, Oklahoma 466 826 1,292

ANG units, various locations 19 0 19

Total 1,358 985 2,343

Source: Air Force Engineering and Installation Reengineering Briefing Document, June 18, 1998.

The squadrons at Keesler, Kelly, and McClellan AFBs are composed

primarily of military personnel. About a third of the total EIW authorized

personnel (726 military and 40 civilian) perform installation services. The

remainder of the military and civilian personnel perform engineering;

logistics; and other support functions.

The 19 ANG units noted above have 2,314 authorized guard personnel: they

perform peacetime installation services as part of their training. Further,

the Air Force relies on the private sector to provide E&I services using

approximately 40 different indefinite delivery/indefinite quantity contracts.4

The 38th EIW’s structure was premised on its cold war mission of

reconstituting damaged fixed communications systems (radars, phone

lines, cables, etc.) at overseas bases. However, under the new Air

Expeditionary Force concept, existing military forces will go into bare

bases and use tactical, or mobile, communications gear. Consequently, the

4

An indefinite delivery/indefinite quantity contract provides for an indefinite quantity, within stated

limits, of supplies or services to be furnished during a fixed period with deliveries or performance to

be scheduled by placing orders with the contractor. See Federal Acquisition Regulation 16.504.

Page 4 GAO/NSIAD-99-73 Force Structure
B-280525 

need to repair these fixed communications is reduced and there is greater

reliance on tactical communications.

Based on the reassessment of its wartime mission requirements and the

Quadrennial Defense Review process (which recommended DOD improve

the efficiency and performance of support activities by reengineering), the

Air Force decided that the wartime E&I mission could be transferred to the

ANG. At the same time, the Air Force would retain a minimal active-duty

capability, provided by a new rapid response squadron at Keesler AFB.

Since there will no longer be a need for the 38th EIW to supply the Air

Force’s peacetime E&I needs in order to maintain wartime skills, the Air

Force no longer has a requirement to maintain the large E&I infrastructure

of the 38th EIW.

5

As currently proposed, the deactivation of the 38th EIW would eliminate

1,200 of its 1,358 military positions and 552 of its 985 civilian positions.

After the wing is deactivated, the remaining 158 military personnel and 433

civilian personnel will be reassigned to existing or new organizations,

located principally at Tinker and Keesler AFBs. With the deactivation of the

38th EIW and transfer of the wartime mission to the ANG, other actions will

also occur:

• The Kelly and McClellan squadrons will be disestablished concurrent with

the realignment and closure actions being implemented as part of the 1995

base realignment and closure decision.

• All 19 active-duty authorizations at the ANG units will be eliminated.

• The squadron at Keesler AFB will become a rapid response squadron whose

mission would be wartime deployment, and also provide a quick reaction

E&I capability for emergency needs, and provide specialized engineering.

• A portion of the positions formerly with the 38th EIW will be reassigned to

a new organizational unit at Tinker AFB that will become a base

communication and information infrastructure planning and program

management office.

• Fifty civilian authorizations which are being eliminated at Tinker will be

transferred to the Air Force Communications Agency at Scott AFB, Illinois,

to more closely align their telecommunications sustainment workload

with the Air Force unit responsible for telecommunications policy.

• The wartime E&I mission will be substantially transferred to the existing

ANG E&I units without an increase in authorized positions.

Figure 1 portrays the planned actions.

5

The Air Force proposed deactivating the 38th EIW by July 2000.

Page 5 GAO/NSIAD-99-73 Force Structure
B-280525 

Figure 1: Actions Affecting Positions Formerly Associated With the 38th EIW

Source: Air Force Engineering and Installation Reengineering Briefing Document, June 18, 1998.

Viewed another way, of 1,358 authorized military positions, over

88 percent would be eliminated and out of the 985 authorized civilian

positions, 56 percent would be eliminated, while the remainder would be

shifted to other organizations.6

 Table 2 shows the number of 38th EIW

military and civilian positions that would be reduced at affected bases and

the numbers reassigned to other organizations.

6

Air Force officials told us that military end-strength would be reduced along with the civilian

positions that are not being reassigned elsewhere. The Air Force did notify Congress of these changes

through the annual force structure announcement of February 10, 1998.

Page 6 GAO/NSIAD-99-73 Force Structure
B-280525 

Table 2: 38th EIW Active Component Personnel Reductions and Transfers to Other Organizations

Location

Military

reductions

Civilian

reductions or

gain

Total

reductions or

gain

Military

assigned to

new org.

Civilians

assigned to

new org.

Total

reassigned

Keesler AFB (136) (76) ( 212) 157 35 192

Kelly AFB ( 290) ( 24) ( 314) 0 0 0

McClellan AFB ( 290) ( 24) ( 314) 0 0 0

Tinker AFB ( 465) ( 478) ( 943) 1 348 349

Scott AFB 0 50 50 0 50 50

ANG units at various

locations (19) 0 (19) 0 0 0

Total (1,200) (552) (1,752) 158 433 591

Source: Air Force Engineering and Installation Reengineering Briefing Document, June 18, 1998.

As a result of the deactivation and restructuring, 1,752, or 75 percent, of

the unit’s 2,343 positions would be eliminated, while 591 would be

reassigned elsewhere.

Following the deactivation of the 38th EIW, the responsibility for obtaining

peacetime E&I services will be transferred to the individual major

commands. These commands may acquire such services from

(1) contracts, (2) the ANG E&I units, or (3) the rapid response squadron at

Keesler, based on availability. The military units will need to perform some

of this peacetime work to maintain their wartime skills.

Applicability of OMB

Circular A-76 and 10

U.S.C. 2461

OMB Circular A-76 and the cost comparison requirements of its

accompanying handbook apply to the conversion of the performance of a

commercial activity from government civilian employees to the private

sector. According to the Air Force, A-76 does not apply to its plan because

the deactivation of the 38th EIW does not constitute a conversion of the

performance of an activity by civilian DOD employees as envisioned under

the circular. The Air Force’s changed wartime requirements have caused it

to propose a realignment of the responsibilities and missions of the 38th

EIW. Consequently, the original function of the 38th EIW has been

fundamentally altered and the need for civilian employee support is

significantly reduced. We find the Air Force’s conclusion that A-76 does

not apply to be reasonable. 7

7

However, this is not to say other business case analyses or cost-effectiveness studies should not be

done to validate the benefits of the proposed change as a matter of prudent management practice.

Page 7 GAO/NSIAD-99-73 Force Structure
B-280525 

The Air Force made a reasonable judgment in deciding that its

deactivation of the 38th EIW and the restructuring of the delivery of E&I

services is not subject to the requirements of 10 U.S.C. 2461 since the plan

does not constitute a change from performance of a particular workload

by DOD civilian employees to private sector performance.

Air Force Plan Does Not

Constitute an A-76

Conversion

The handbook does not provide detailed guidance as to what constitutes a

conversion of a commercial activity for purposes of A-76. Between 1979

and 1994, DOD conducted over 2,000 competitions using the A-76 process.

Most of these involved activities, such as groundskeeping, laundry, and

food service, where the conversions proposed were straightforward

exchanges of a government employee workforce for a contractor

workforce to perform a particular service. An agency must base its

judgment about whether A-76 applies on the individual facts of each

initiative. As each case usually involves a unique situation, an agency has

the discretion to determine the applicability of A-76 to its particular

initiative as long as the agency has exercised its judgment reasonably.8

The handbook introduction explains that a commercial activity is a

process resulting in a product or service that may be obtained from the

private sector and that some management initiatives, such as

“reengineering,” “privatization,” or “restructuring,” involving such

activities are beyond conversions and are not subject to the

cost-comparison requirements of A-76.9

 Therefore, it is reasonable to

interpret the guidance to mean that A-76 conversions are not intended to

encompass every initiative that results in the loss of civilian government

jobs. Further, the handbook provides that it is not to apply to the

conversion of activities performed by uniformed military personnel.10

The Air Force plan to deactivate the 38th EIW and transfer its E&I activities

to other organizations within the Air Force or to the ANG is a

comprehensive change to the missions and responsibilities of the 38th EIW.

The Air Force has decided that the 38th EIW’s wartime mission should be

transferred to the ANG. As a result, it appears that the Air Force no longer

has a requirement to maintain a large, centralized E&I infrastructure to

train personnel to meet this mission. The peacetime E&I work was

8

Department of the Air Force—Reconsideration, 72 Comptroller General 241 (1993).

9

A-76 does not define “restructuring” or “reengineering.” It does provide that “privatization” is a

change of a public entity or enterprise to private control or ownership.

10OMB Circular No. A-76 Revised Supplemental Handbook (Mar. 1996), chapter 1, section D.7.

Page 8 GAO/NSIAD-99-73 Force Structure
B-280525 

performed by the 38th EIW, in large part, to maintain its skills and

capabilities to perform its wartime mission. This included a large civilian

workforce performing peacetime E&I work to support the wartime mission

of the uniformed military personnel. Now that this wartime mission has

been transferred to the ANG, which does not need this civilian support,

there is no longer a requirement to maintain the infrastructure.

The type of E&I work being impacted by the Air Force plan would generally

fit within the definition of commercial activity for A-76 purposes.

However, the Air Force plan is not simply a changeover of this commercial

activity from performance by civilian employees to private sector workers.

In fact, the majority of positions affected are uniformed military personnel,

which are not subject to A-76. Of 1,358 military personnel assigned to the

38th EIW, only 158 will remain. The civilians in the 38th EIW were primarily

performing commercial E&I activities to provide continuity during

contingencies and support for military personnel to enhance their wartime

skills. Absent the military requirement, the E&I services could have been

supplied by contract with the private sector.

Under the restructuring, civilian positions will be lost and the different Air

Force units could meet some of their new responsibilities by obtaining E&I

services through contractors.11 However, this is an incidental result of a

plan that primarily involves the reassignment of uniformed military

personnel and the transfer of their responsibilities to other organizations.

The civilian performance of the commercial E&I activity was essentially an

adjunct of the military mission. The civilians who remain will be

reassigned to different organizations and locations. Thus, we find

reasonable the Air Force decision that its plan to change the wartime

mission of the 38th EIW is not the type of management initiative that is

subject to A-76.

Air Force Plan Does Not

Constitute Change in

Performance of a Function

Under 10 U.S.C. 2461

We believe that the Air Force made a reasonable judgment in deciding that

its deactivation of the 38th EIW and the restructuring of the delivery of E&I

services which that necessitates is not subject to the requirements of

section 2461 since the plan does not constitute a change from performance

of a particular workload by DOD civilian employees to private-sector

performance.12

11The handbook provides that new requirements are generally to be obtained by contract. See chapter

1, section D.2.

12See Israel Aircraft Industries, Ltd.—Reconsideration (B-258229, July 26, 1995).

Page 9 GAO/NSIAD-99-73 Force Structure
B-280525 

Section 2461 requires that before any commercial or industrial type

function is changed from performance by DOD civilian employees to

private-sector performance, DOD must report to Congress and perform an

analysis showing that private sector performance will result in a savings to

the government over the life of the contract. As under A-76, the cost of

performance of the function by the government employees is to be based

on an estimate of their most cost-effective manner for performance of the

function.

Section 2461 applies to initiatives that result in functions performed by

DOD civilian employees being changed to performance by private-sector

employees. As discussed earlier, the Air Force proposal is more than just a

change of the 38th EIW function from DOD civilian employees to

contractors. Rather, it is a transfer of the E&I wartime mission to the ANG

units which primarily affects uniformed military personnel who are not

subject to 10 U.S.C. 2461. Once this occurs, there will no longer be a need

for the 38th EIW, which was designed to support the military personnel and

their wartime mission. The action being taken in this case is not a change

of the kind contemplated by section 2461.13

Cost-Effectiveness of

the Change Proposed

by the Air Force

While neither an A-76 cost comparison nor a section 2461 cost study was

required, the Air Force nevertheless did complete a business case analysis

to estimate the cost-effectiveness of restructuring the 38th EIW. That

analysis showed an estimated annual recurring savings of approximately

$28 million, based on reported fiscal year 1997 costs and projected costs

(including contract costs) of the restructured organizations. The estimated

contract costs were based on existing negotiated contract rates for an

equivalent level of effort. The analysis showed that most of the recurring

savings would result from engineer and installer manpower cuts and unit

operations and maintenance reductions. Also, the business case analysis

found that the Air Force will realize an estimated one-time savings of

$33 million, of which $28 million is due to the cancellation of planned Base

Realignment and Closure construction projects associated with the future

realignment of Kelly AFB and the closure of McClellan AFB. (These

construction projects were planned at other bases in order to

accommodate the E&I workload being transferred from the squadrons at

McClellan and Kelly AFBs as the result of 1995 base realignment and

closure decisions.) The study also found that another $5 million will be

13For the same reasons we believe that the requirement to certify the government estimate in section

8014 of the 1999 DOD Appropriations Act is not applicable.

Page 10 GAO/NSIAD-99-73 Force Structure
B-280525 

saved due to the cancellation of building construction projects at Tinker

AFB.

The Air Force Audit Agency performed a management advisory review of

the 38th EIW business case analysis.14 The Audit Agency sampled two of the

five wing functions, representing 78 percent of the wing’s total functions.

It concluded that the methodology the Air Force had used for its analysis

was sound and that the analysis was materially correct and well

documented. It also concluded that the estimate of expected savings was

conservative because the Air Force used the most conservative rates in

place. We also found the analysis to be reasonable based on the cost

factors and type of methodology the Air Force used.

Conclusions The Air Force’s proposal concerning the 38th EIW is a comprehensive

change to the missions and responsibilities performed by the 38th EIW and

does not constitute a conversion of civilian to contractor personnel as

envisioned under A-76. Thus, the Air Force was reasonable in concluding

that it did not have to undergo the A-76 process in this instance. Similarly,

the planned action is not a change of the kind contemplated by 10 U.S.C.

2461. Accordingly, the Air Force was not required to perform the cost

study and provide congressional notification under that provision. At the

same time, the Air Force’s business case analysis supports the

cost-effectiveness of the proposed action, with the reduction of a

significant number of personnel.

Agency Comments

and Our Evaluation

We requested comments on a draft of this report from the Secretary of

Defense or his designee. On February 11, 1999, DOD officials concurred

with the report findings. They also provided technical comments which

have been incorporated as approriate.

Scope and

Methodology

To determine whether the planned action was subject to the requirements

of OMB Circular A-76, we reviewed the Air Force’s programming and

implementation plans and reviewed and analyzed Circular A-76. Also, we

interviewed senior officials at Air Force Headquarters, Washington, D.C.;

14A management advisory review is done in accordance with the Air Force Audit Agency’s management

advisory service. This service does not follow the traditional audit process and is not subject to formal

reporting requirements. Instead, the service is completed in response to specific management requests

for independent data gathering and analysis on taskings such as evaluating management alternatives,

performing fact finding, and scoping known problems. The results are communicated in a briefing or

memorandum.

Page 11 GAO/NSIAD-99-73 Force Structure
B-280525 

the 38th EIW, Tinker AFB, Oklahoma; and the Office of Management and

Budget, Washington, D.C. We also reviewed our prior work reviewing 

A-76 issues.

To determine whether the Air Force action was subject to the

requirements of 10 U.S.C. 2461, we identified and reviewed relevant

legislation and discussed the applicability of section 2461 with senior

officials of the Office of Management and Budget and the Air Force’s

Office of General Counsel.

To determine whether the Air Force analyzed the cost-effectiveness of the

proposed action, we reviewed its business case analysis and discussed it

with the Air Force Audit Agency. We also reviewed the Air Force’s rates

and cost methodology.

We conducted our review from May 1998 to January 1999 in accordance

with generally accepted government auditing standards.

We are sending copies of this report to the Ranking Minority Member of

the Subcommittee on Readiness and Management Support, Senate Armed

Services Committee; Chairmen and Ranking Minority Members of the

Senate and House Committees on Appropriations; the Secretaries of

Defense and the Air Force; and the Director of OMB. We will make copies

available to others upon request.

Please contact me at 202-512-8412 if you or your staff have any questions

concerning this report. Major contributors to this report are listed in

appendix II.

David R. Warren, Director

Defense Management Issues

Page 12 GAO/NSIAD-99-73 Force Structure
Page 13 GAO/NSIAD-99-73 Force Structure
Contents

Letter 1

Appendix I 

The A-76 Process

16

Apppendix II 

Major Contributors to

This Report

20

Tables Table 1: Current 38th EIW Active Component Manpower

Authorizations

4

Table 2: 38th EIW Active Component Personnel Reductions and

Transfers to Other Organizations

7

Figures Figure 1: Actions Affecting Positions Formerly Associated with

the 38th EIW

6

Figure I.1: Overview of the A-76 Process 17

Abbreviations

AFB Air Force Base

ANG Air National Guard

DOD Department of Defense

EIW Engineering Installation Wing

E&I Engineering and Installation

IFB Invitation for Bid

MEO most efficient organization

OMB Office of Management and Budget

RFP Request for Proposals

Page 14 GAO/NSIAD-99-73 Force Structure
Page 15 GAO/NSIAD-99-73 Force Structure
Appendix I 

The A-76 Process

In general, the A-76 process consists of six key activities. They are:

(1) developing a performance work statement and quality assurance

surveillance plan; (2) conducting a management study to determine the

government’s most efficient organization (MEO); (3) developing an in-house

government cost estimate for the MEO; (4) issuing a Request for Proposals

(RFP) or Invitation for Bid (IFB); (5) evaluating the proposals or bids and

comparing the in-house estimate with a private sector offer or interservice

support agreement and selecting the winner of the cost comparison; and

(6) addressing any appeals submitted under the administrative appeals

process, which is designed to ensure that all costs are fair, accurate, and

calculated in the manner prescribed by the A-76 handbook.

Figure I.1 shows an overview of the process. The solid lines indicate the

process used when the government issues an IFB, requesting firm bids on

the cost of performing a commercial activity. This process is normally

used for more routine commercial activities, such as grass-cutting or

cafeteria operations, where the work process and requirements are well

defined. The dotted lines indicate the additional steps that take place

when the government wants to pursue a negotiated, “best value”

procurement. While it may not be appropriate for use in all cases, this

process is often used when the commercial activity involves high levels of

complexity, expertise, and risk.

Page 16 GAO/NSIAD-99-73 Force Structure
Appendix I 

The A-76 Process

Figure I.1: Overview of the A-76 Process

Issue performance 

work statement 

and RFP or IFB

Compare selected 

Best Value and MEO

technical proposals

Prepare in-house 

cost estimate

Revise

MEO 

Revise 

in-house 

cost estimate 

Compare 

costs/select 

contractor

Most Efficient Organization (MEO) activities

 Government technical evaluation activities

MEO

management study

Select lowest

cost alternative

Additional steps required for request for 

proposals (RFP)

Process for invitation for bid (IFB)

Prepare technical

proposal

Conduct technical 

evaluation of MEO

Conduct technical

evaluation of 

bids/proposals

Accept 

contractor

bids/proposals

Source: Air Force Air Education and Training Command documents.

Page 17 GAO/NSIAD-99-73 Force Structure
Appendix I 

The A-76 Process

The circular requires the government to develop a performance work

statement. This statement, which is incorporated into either the IFB or RFP,

serves as the basis for both government estimates and private sector

offers. If the IFB process is used, each private sector company develops

and submits a bid, giving its firm price for performing the commercial

activity. While this process is taking place, the government activity

performs a management study to determine the most efficient and

effective way of performing the activity with in-house staff. Based on this

“most efficient organization,” the government develops a cost estimate and

submits it to the selecting authority. The selecting authority concurrently

opens the government’s estimate along with the bids of all private sector

firms. According to OMB’s A-76 guidance, the government’s in-house

estimate wins the competition unless the private sector’s offer meets a

threshold of savings that is at least 10 percent of direct personnel costs or

$10 million over the performance period. This minimum cost differential

was established by OMB to ensure that the government would not contract

out for marginal estimated savings.

If the RFP—best value process—is used, the Federal Procurement

Regulations and the A-76 Supplemental Handbook require several

additional steps. The private sector offerors submit proposals that often

include a technical performance proposal, and a price. The government

prepares an in-house management plan and cost estimate based strictly on

the performance work statement. On the other hand, private sector

proposals can offer a higher level of performance or service.

The government’s selection authority reviews the private sector proposals

to determine which one represents the best overall value to the

government based on such considerations as (1) higher performance

levels, (2) lower proposal risk, (3) better past performance, and (4) cost to

do the work. After the completion of this analysis, the selection authority

prepares a written justification supporting its decision. This includes the

basis for selecting a contractor other than the one that offered the lowest

price to the government. Next, the authority evaluates the government’s

offer and determines whether it can achieve the same level of performance

and quality as the selected private sector proposal. If not, the government

must then make changes to meet the performance standards accepted by

the authority. This ensures that the in-house cost estimate is based upon

the same scope of work and performance levels as the best value private

sector offer. After determining that the offers are based on the same level

of performance, the cost estimates are compared. As with the IFB process,

the work will remain in-house unless the private offer is (1) 10 percent less

Page 18 GAO/NSIAD-99-73 Force Structure
Appendix I 

The A-76 Process

in direct personnel costs or (2) $10 million less over the performance

period.

Participants in the process—for either the IFB or RFP process—may appeal

the selection authority’s decision if they believe the costs submitted by

one or more of the participants were not fair, accurate, or calculated in the

manner prescribed by the A-76 handbook. Appeals must be submitted in

writing and within 20 days after the date that all supporting documentation

is made publicly available. The appeal period may be extended to 30 days

if the cost comparison is particularly complex. Appeals are supposed to be

adjudicated within 30 days after they are received.

Waivers of Cost

Comparison Requirement

The A-76 Supplemental Handbook provides that, under certain

circumstances, agencies may authorize cost comparison waivers and

direct conversions to or from in-house, contract or interservice support

agreements. A waiver may be granted where:

• 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

• 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 the Handbook.

Additionally, the supplemental handbook provides that under certain

circumstances, such as situations involving 65 or less full time equivalent

personnel, streamlined cost comparisons may be permitted.

Page 19 GAO/NSIAD-99-73 Force Structure
Apppendix II 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Barry Holman, Associate Director

Marilyn Wasleski, Assistant Director

Debra McKinney, Evaluator-in-Charge

Bonita Page, Senior Evaluator

Office of the General

Counsel

John Brosnan, Assistant General Counsel

Stephanie May, Senior Attorney

Dallas Field Office Kimberly Seay, Site Senior

Bonnie Carter, Senior Evaluator

(709353) Page 20 GAO/NSIAD-99-73 Force Structure
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. VISA and MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address

are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 37050

Washington, DC 20013

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (202) 512-6000 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

For information on how to access GAO reports on the INTERNET,

send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. G100