CIRCULAR NO. A–76

Revised Supplemental Handbook

PERFORMANCE OF COMMERCIAL 

ACTIVITIES

EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE OF MANAGEMENT AND BUDGET

MARCH 1996
ii

Table of Contents

Page

INTRODUCTION .............................................................................................................................................. iii

PART I—POLICY IMPLEMENTATION ......................................................................................................... 1

PART II—PREPARING THE COST COMPARISON ESTIMATES ............................................................. 15

APPENDICES:

1. DEFINITION OF TERMS .......................................................................................................................... 35

2. COMMERCIAL ACTIVITIES INVENTORY ............................................................................................. 38

3. USEFUL LIFE AND DISPOSAL VALUES ................................................................................................ 45

4. TAX TABLES .............................................................................................................................................. 52

5. OFPP POLICY LETTER 92–1, ‘‘INHERENTLY GOVERNMENTAL FUNCTIONS’’ .......................... 55

6. AVIATION COMPETITIONS .................................................................................................................... 62

7. MOTOR VEHICLE COMPETITIONS ...................................................................................................... 69
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook iii

INTRODUCTION

Introduction

The August 1983 Office of Management and Budget (OMB) Circular No. A–76, ‘‘Performance of Commercial Activities,’’ establishes Federal policy for the performance of recurring commercial activities. This

Supplement replaces the Handbook issued with the

1983 Circular and provides updated guidance and

procedures for determining whether recurring commercial activities should be operated under contract

with commercial sources, in-house using Government

facilities and personnel, or through interservice support agreements (ISSAs). The Revised Supplemental

Handbook is an integral part of the 1983 Circular.

As noted in the Vice President’s Third Report of

the National Performance Review, ‘‘Common Sense Government: Works Better and Costs Less,’’ (September

1995), Americans want to ‘‘get their money’s worth’’

and want a Government that is more businesslike

and better managed. The reinvention of Government

begins by focusing on core mission competencies and

service requirements. Thus, the reinvention process

must consider a wide range of options, including:

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. In the

context of this larger reinvention effort, the scope

of this Supplemental Handbook is limited to the conversion of recurring commercial activities to or from

in-house, contract or ISSA performance. Circular A–

76 is not designed to simply contract out. Rather,

it is designed to: (1) balance the interests of the

parties to a make or buy cost comparison, (2) provide

a level playing field between public and private

offerors to a competition, and (3) encourage competition and choice in the management and performance of commercial activities. It is designed to empower Federal managers to make sound and justifiable business decisions.

Reliable cost and performance information is crucial to the effective management of Government operations and to the conduct of competitions between

public or private sector offerors. Unfortunately, this

information has not been generally available and has

often been found to be unreliable. The Chief Financial Officers Act of 1990 (CFO Act) includes among

the functions of chief financial officers ‘‘the development and reporting of cost information’’ and ‘‘the

systematic measurement of performance.’’ This includes performance by in-house, contract or ISSA resources. In July 1993, Congress passed the Government Performance and Results Act (GPRA), which

mandates performance measurement by Federal

agencies. The Statement of Federal Financial Accounting Concepts No. 1, ‘‘Objectives of Federal Financial Reporting (1993),’’ stated that one of the objectives

of Federal financial reporting is to provide useful

information to assist in assessing the budget integrity,

operating performance, stewardship, and control of

the Federal Government. In 1995, the Federal Accounting Standards Advisory Board (FASAB) recommended standards for managerial cost accounting,

which were approved by the Director of OMB, the

Secretary of the Treasury and the Comptroller General. These standards were issued as the Statement

of Federal Accounting Standards No. 4, ‘‘Managerial

Cost Accounting Standards for the Federal Government.’’

This Supplement relies on the managerial cost accounting and performance standards established in

support of the CFO Act, GPRA, and the Federal Accounting Standards, as they are developed and implemented. Cost and performance information developed for cost comparisons required by the Circular

and this Supplement should be drawn from the data

base established by these standards and adjusted as

appropriate.

The Circular and this Supplement are not intended

and should not be construed to create any right or

benefit, substantive or procedural, enforceable at law

by a party against the United States, its agencies,

its officers or any person. It should not be construed

to create any substantive or procedural basis on

which to challenge any agency action or inaction,

except as set forth in Part I, Chapter 3, Paragraph

K, of this Supplement and as set forth in Appendix

2, Paragraph G, consistent with Section 3 of the Federal Activities Inventory Reform Act of 1998 (FAIR

Act, P.L. 105–270).
(March 1996)

iv OMB Circular No. A–76—Revised Supplemental Handbook

INTRODUCTION

This Supplement is divided into two parts (with a table of contents at the beginning of each Part) as follows:

Part I Policy Implementation

Sets forth the principles and procedures for implementing OMB Circular A–76.

Part II Preparing the Cost Comparison Estimates

Provides instructions for calculating the financial advantage to the Government of acquiring a product

or service through in-house, contract or interservice support agreement resources.

Appendices

Definition of Terms Defines terms within the context of OMB Circular A–76.

Commercial Activities Inventory Provides information and reporting guidance.

Useful Life and Disposal Values Provides useful expected life and disposal values for equipment.

Tax Tables Provides Federal tax rate tables for use in A–76 cost comparisons by industry

type.

OFPP Policy Letter 92–1 Provides guidance and criteria for determining whether activities may be considered inherently governmental and not subject to the requirements of the

Circular or this Supplement.

Aviation/Motor Vehicle Provides sector-specific alternatives to the cost comparison methodologies in

Part II.
1

PART I

POLICY IMPLEMENTATION
2

Table of Contents

Page

Chapter 1—General Provisions:

A. General ....................................................... 3

B. Inherently Governmental Activities ......... 3

C. Government Performance of Commercial Activities .......................................... 3

1. National Defense or Intelligence

Security ............................................... 3

2. Patient Care ...................................... 3

3. Core Capability ................................. 3

4. Research and Development ............. 3

5. No Satisfactory Commercial Source 3

6. Functions with 10 or Fewer FTE ..... 3

7. Meet Performance Standard ........... 4

8. Lower Cost ........................................ 4

9. Temporary Authorization for InHouse Performance .......................... 4

D. Contract Performance of Commercial

Activities ................................................. 4

1. Contracted Activities ........................ 4

2. New Requirements ........................... 4

3. Severable Expansions ....................... 4

4. Interservice Support Agreements

(ISSA) ................................................. 4

5. Activities With 10 or Fewer FTE ..... 4

6. Activities with 11 or More FTE ....... 4

7. Activities Performed by the Military 5

8. Preferential Procurement Programs 5

9. Lower Cost ........................................ 5

Page

E. Agency Cost Comparison Waivers ........... 5

F. Commercial Activities Inventory .............. 5

G. Review of Documents ............................... 5

1. Access to Supporting Documents ... 5

2. Appeals of Agency Decisions ........... 6

H. Personnel Considerations ......................... 6

I. Relationship to the Budget ...................... 6

Chapter 2—Interservice Support Agreements

(ISSA):

A. General ....................................................... 8

B. Specific ....................................................... 8

Chapter 3—Cost Comparisons:

A. General ....................................................... 10

B. Cost Comparison Study Team ................. 10

C. Performance Work Statements ................ 10

D. Quality Assurance Surveillance Plans ...... 11

E. Management Plans .................................... 11

F. Safeguarding the MEO ............................. 11

G. Solicitations ................................................ 11

H. Methods of Procurement ......................... 12

I. The Independent Review ......................... 12

J. Evaluation of Bids and Tentative Decisions ........................................................ 12

K. Appeals of Tentative Waiver and Cost

Comparison Decisions .......................... 13

L. Post-MEO Performance Review ............... 14
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 3

PART I—POLICY IMPLEMENTATION

Chapter 1—General Provisions

A. General

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 InterService 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 Activities

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 Governmentowned 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 participation.

6. Functions With 10 or Fewer FTE.—Activities involving 10 or fewer FTE may be converted from contract
(March 1996)

4 OMB Circular No. A–76—Revised Supplemental Handbook

CHAPTER 1—GENERAL PROVISIONS

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, inhouse 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 in-house performance.

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 inhouse or contract resources or through ISSAs as provided by law and Part I, Chapter 2 of this Supplement.

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,
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 5

PART I—POLICY IMPLEMENTATION

reorganized, divided or in any way changed for the

purpose of circumventing the requirements of this

paragraph or this Supplement.

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 conducted.

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 agency only.

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 cost estimates.

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 represent-
(March 1996)

6 OMB Circular No. A–76—Revised Supplemental Handbook

CHAPTER 1—GENERAL PROVISIONS

atives 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 performance.

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 agency;

b. establishing a reemployment priority list and an

effective placement program;

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 Program (IPAP).

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.
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 7

PART I—POLICY IMPLEMENTATION

EXHIBIT 1

CONDITIONS PERMITTING GOVERNMENT PERFORMANCE OF COMMERCIAL ACTIVITIES

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 this Supplement.

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 ACTIVITIES

1. Contracted Activities. Should be obtained by contract, unless a cost comparison demonstrates that in-house or

ISSA performance is more cost effective.

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 procurement program.

9. Lower Cost. Conversion to contract is required if a cost comparison indicates that contract performance is

the lower cost alternative.
(March 1996)

8 OMB Circular No. A–76—Revised Supplemental Handbook

CHAPTER 2—INTERSERVICE SUPPORT AGREEMENTS (ISSA)

Chapter 2—Interservice Support Agreements (ISSA)

A. General

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 requirements.

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 6).

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.

B. Specific

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
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 9

PART I—POLICY IMPLEMENTATION

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 Price

—Contract Administration Costs

—Additional 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.
(March 1996)

10 OMB Circular No. A–76—Revised Supplemental Handbook

CHAPTER 3—COST COMPARISONS

Chapter 3—Cost Comparisons

A. General

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 or

services.

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 officials.

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.
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 11

PART I—POLICY IMPLEMENTATION

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

Supplement.

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 effective manner.

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 why.

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 Supplement.

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 inhouse cost estimate.

G. Solicitations

1. The contracting officer reviews the PWS to ensure that it is adequate and appropriate to serve as
(March 1996)

12 OMB Circular No. A–76—Revised Supplemental Handbook

CHAPTER 3—COST COMPARISONS

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 Supplement.

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
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 13

PART I—POLICY IMPLEMENTATION

is revised. All affected parties should be notified of

any such revision.

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 inhouse 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 Decisions

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 particularly complex.

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 comparison;

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 eligible appellant.

6. Agency A–76 Administrative Appeal procedures

do not apply to questions concerning:

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 Supplement.

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
(March 1996)

14 OMB Circular No. A–76—Revised Supplemental Handbook

CHAPTER 3—COST COMPARISONS

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 performance.

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 Plan.

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 necessary.

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.
15

PART II

PREPARING THE COST COMPARISON ESTIMATES
16

Table of Contents

Page

Chapter 1—Implementation Instructions

A. General ................................................................. 17

B. Organization ........................................................ 17

Chapter 2—Developing the Cost of Government Performance

A. General ................................................................. 18

1. Overview ...................................................... 18

2. Standard Cost Factors ................................ 18

3. Common Costs ............................................ 18

4. Retained and Save Pay ............................... 18

5. Cost of Conducting a Cost Comparison ... 18

6. Proration of Performance Periods ............ 18

7. In-House Costs ............................................ 18

8. Minimum Cost Differentials ...................... 19

9. Rounding Rule ............................................ 19

10. Inflation ..................................................... 19

11. Other ISSA Adjustments .......................... 19

B. Personnel (Line 1) .............................................. 19

C. Material and Supply (Line 2) ............................ 21

D. Other Specifically Attributable (Line 3) ........... 21

1. Overview ...................................................... 21

2. Depreciation ................................................ 22

3. Cost of Capital ............................................ 22

4. Rent .............................................................. 22

5. Maintenance and Repair ............................ 22

6. Utilities ........................................................ 22

7. Insurance ..................................................... 23

8. Travel ........................................................... 23

9. MEO Subcontract Costs ............................. 23

10. Other Costs. .............................................. 23

E. Overhead (Line 4) .............................................. 23

F. Additional (Line 5) ............................................. 23

G. Total Cost—In-House Performance (Line 6) ... 24

Page

Chapter 3—Developing the Cost of Contract Performance

A. General ................................................................. 25

B. Contract Price (Line 7) ...................................... 25

1. Overview ...................................................... 25

2. Contract Types ............................................ 25

3. Tax Exempt Organizations ........................ 25

4. Procurement Preference Eligible Organizations ........................................................... 25

C. Contract Administration (Line 8) ..................... 25

D. Additional (Line 9) ............................................. 26

E. One-Time Conversion (Line 10) ....................... 26

1. Overview ...................................................... 26

2. Material Related Costs ................................ 26

3. Labor Related Costs ................................... 26

4. Other Costs. ................................................ 26

5. One-Time Cost Computation .................... 26

F. Gain from the Disposal/Transfer of Assets

(Line 11) .......................................................... 26

G. Federal Income Tax (Line 12) .......................... 27

H. Total Cost—Contract Performance (Line 13) .. 27

Chapter 4—Calculating the Cost Comparison Decision

A. Conversion Differential (Line 14) ..................... 28

B. Adjusted Total In-house Cost (Line 15) ........... 28

C. Adjusted Total Contract Cost (Line 16) ........... 28

D. The Cost Comparison Decision (Lines 17/18) 28

Chapter 5—Streamlined Cost Comparisons for Activities with 65 FTE or Less

A. General ................................................................. 31

B. Procedure ............................................................. 31
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 17

PART II—PREPARING THE IN–HOUSE AND CONTRACT COST ESTIMATES

Chapter 1—Implementation Instructions

A. General

1. Part II provides generic and streamlined cost

comparison guidance to comply with the provisions

of the FAIR Act and Circular A–76. This includes

guidance for developing in-house costs based upon

the Government’s Most Efficient Organization

(MEO) and other adjustments to the contract and

inter-service 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.

2. The guidance provided by this Part relies on

the managerial cost accounting and performance

standards established in support of the CFO Act,

GPRA and Federal Accounting Standards. Cost and

performance information developed for competitions

subject to the Circular and this Supplement should

be drawn from the data base established by these

standards and adjusted as appropriate. This guidance

is to be used by Federal agencies to ensure that

cost comparisons are fair and reasonable.

3. A cost comparison between in-house, contract

or ISSA performance seems straight-forward, but, in

fact, is complicated by the very different ways Government agencies and commercial sources account for

cost. For example, the Government buys capital

equipment and may recognize the entire expense

when payment is made. The commercial sector may

borrow funds and recognize the expense of capital

equipment as it is used. All costs incurred by commercial sources are ultimately charged to a ‘‘customer,’’ whereas agency costs may be met by several

different appropriations accounts, revolving funds or

mixes thereof. Insurance is a real cost of doing business in the commercial sector, while the Federal Government is a ‘‘self-insured entity.’’ Taxes are paid

by most commercial sources and received and used

by the public sector. Assets are purchased from owners equity in the commercial sector, yet they are purchased by the taxpayer in the public sector. The

Government may incur employee retained pay or save

pay as a way of mitigating the adverse impacts of

a management decision, without assessing these costs

to the activity. The commercial sector passes these

types of costs on to the customer. These and other

differences necessitate cost comparison requirements

that equalize the systems to reflect the total alternative costs to the Government and the taxpayer.

Such costs may or may not be fully reflected by agency accounts.

4. The procedures set forth in this Part recognize

the absence of a uniform accounting system throughout the Federal Government and are intended to

establish a practical level of consistency to assure that

all substantive factors are considered.

B. Organization

1. Part II is divided into five chapters.

2. Chapter 2 provides the generic principles and

procedures for developing the cost of in-house performance to the Government. The principles and

procedures of Chapter 2 represent a competitive cost

comparison.

3. Chapter 3 provides the generic principles and

procedures for developing the cost of contract or

ISSA performance to the Government. The principles

and procedures of Chapter 3 represent a competitive

cost comparison.

4. Chapter 4 provides procedures for computing

the minimum conversion differential, calculating the

financial advantages to the Government associated

with Government or contract performance and the

cost comparison decision.

5. Chapter 5 provides an alternative cost comparison methodology for activities involving 65 in-house

FTE or less at the time of study announcement.

While the principles and procedures of Chapter 5

represent a competitive cost comparison, this nonmandatory alternative approach is provided to minimize the administrative costs associated with cost

comparisons, ensure timely completion and preserve

the equity and cost comparability requirements of

this Supplement.
(March 1996)

18 OMB Circular No. A–76—Revised Supplemental Handbook

CHAPTER 2—DEVELOPING THE COST OF GOVERNMENT PERFORMANCE

Chapter 2—Developing the Cost of Government Performance

A. General

1. Overview.—

a. This Chapter provides the policies and procedures that will be used when the Government determines that a cost comparison between in-house

(agency), contract or interservice support agreement

(ISSA) performance is warranted.

b. The procedures of Part I of this Supplement

regarding cost comparison waivers, the certification

of the Government’s MEO, review by an Independent

Review Officer and the Administrative Appeals process apply. Cost comparisons will be based upon the

same scope of work and performance requirements

contained in the Performance Work Statement

(PWS).

c. Cost comparisons are conducted in accordance

with this guidance, modified to the extent applicable

by Chapter 5 of this Part. The procedures differ for

the conversion of work from contract or ISSA to

in-house performance, however, in four basic areas:

(1) the identification of new or increased in-house

costs, (2) one-time conversion costs and (3) the calculation of the minimum cost differential, and (4)

certain other adjustments that may be necessary if

an ISSA is being considered.

2. Standard Cost Factors.—Standard cost factors are

to be used as prescribed in this Part. Agencies are

encouraged to collect agency or sector-specific data

to update and improve upon the standard cost factors

provided herein. The official in paragraph 9.a. of

the Circular, or designee, may develop alternative

agency-wide or sector-specific standard cost factors,

including overhead, for approval by OMB.

3. Common Costs.—Costs that would be the same

for in-house, contract or ISSA performance, without

organizational, workload, or responsibility changes

need not be computed or entered into the cost comparison. Common costs or ‘‘wash’’ items will be identified in the Management Plan for review.

4. Retained and Save Pay.—Retained and save pay

are not included in the in-house cost estimates. Agencies are encouraged to seek their Most Efficient Organization (MEO), without penalty of historical inefficiencies. Agencies cost only the ‘‘positions’’ in the

MEO.

5. Cost of Conducting a Cost Comparison.—The cost

of conducting a cost comparison is not added to

the in-house cost estimate or contract price. This

is an administrative expense associated with good

management practices and is irrelevant to the cost

of performance.

6. Proration of Performance Periods.—Cost comparisons are conducted using not less than three years

of proposal/cost data, submitted by the Government

and commercial sources. In-house cost estimates and

contract prices will reflect the same multi-year basis.

If permitted by statute and the Federal Acquisition

Regulations (FAR), performance periods for cost

comparisons in excess of five years may be approved

by the official in paragraph 9.a. of the Circular, or

designee. Multi-year procurement or pre-priced renewal options provide advantages such as continuity

of operations, the possibility of lower prices, and reduced turbulence and disruption. However, in extending the performance period, the official in paragraph 9.a. of the Circular, or designee, must certify

that no known cost comparison advantage be conveyed to the in-house, contract or ISSA bid by the

extension.

7. In-House Costs.—

a. The competitive cost of in-house performance

includes all significant performance costs associated

with the activity that are not common to the inhouse, contract or ISSA options. The in-house cost

estimate is based upon the following:

—Personnel Costs

—Materials and Supply Costs

—Other Specifically Attributable Costs

—Depreciation

—Cost of Capital

—Rent

—Maintenance and Repair

—Utilities

—Insurance

—Travel

—MEO Subcontracts

—Other Costs

—Overhead Costs

—Additional Costs

b. In addition to costs generally associated with

the in-house performance of an activity, including

personnel, material and overhead costs, a conversion

from contract or ISSA performance to in-house performance may require increased costs for facilities

and equipment. The cost of all capital assets not

currently provided to the contractor will be computed using the depreciation and cost of capital

methods provided in this Chapter. Increases for the

rent, maintenance and repair, utilities, travel and
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 19

PART II—PREPARING THE IN–HOUSE AND CONTRACT COST ESTIMATES

their associated overhead is also calculated. Government costs that would be the same for in-house, contract or ISSA operation, should be identified, but

need not be computed.

8. Minimum Cost Differentials.—

a. This Supplement establishes a minimum threshold of undefined costs that must be exceeded prior

to a conversion to or from in-house, contract or ISSA

performance. The minimum differential is also established to ensure that the Government will not undertake a conversion for marginal estimated savings.

b. An activity will not be converted to or from

in-house, contract or ISSA performance, on the basis

of a cost comparison, unless the minimum cost differential is met. The minimum cost differential is

the lesser of 10 percent of in-house personnel-related

costs (Line 1) or, $10 million over the performance

period. Factors such as decreased productivity, and

other costs of disruption that cannot be easily quantified at the time of the cost comparison are included

in this differential.

c. Whenever a cost comparison involves a mix of

existing in-house, contract, new or expanded requirements, or assumes full or partial conversions to inhouse performance, each portion is addressed individually and the total minimum differential is calculated accordingly.

9. Rounding Rule.—Round all line entries on the

Cost Comparison Form (CCF) to the nearest dollar.

10. Inflation.—

a. Agencies will use the annual inflation guidance

developed annually for the President’s Budget and

provided by OMB for use in cost comparisons conducted in accordance with this Supplement.

b. In preparing cost estimates, all known or anticipated increases incurred before the end of the first

performance period; e.g., salary increases for Government employees, are included in each cost element—

prorated as appropriate. For subsequent periods, the

cost of anticipated changes in the scope of work,

as described in the PWS, is determined. Inflation

factors for pay and non-pay categories will then be

applied to the estimated year-end costs for the first

year of performance. There are some exceptions to

the inflation adjustments as discussed later, such as

personnel costs subject to economic price adjustment

clauses of the Service Contract Act, Davis-Bacon Act,

depreciation costs for facilities and equipment, and

the cost of minor items.

c. To calculate out-year costs: (1) determine the

cost elements affected by inflation during each performance period. For each period, ensure that the

number of months in the period and the changes

in the PWS for each period have been considered;

(2) multiply each cost element for each performance

period by the respective salary/wage or material cost

inflation factors to the applicable performance period, and (3) once adjusted for inflation, calculate

the total cost of that CCF Line item.

11. Other ISSA Adjustments.—

a. It is not the intent of this Supplement to require

an ISSA offeror to significantly alter its methods of

operation to provide unique or site specific services.

While such services may meet agency missions and

may legitimately be included in the solicitation, additional adjustments to the ISSA cost estimate may be

necessary to reflect differences in in-house and contractor bids.

b. Agencies should identify the minor differences

between the requirements of the solicitation (contractor bid) and the ISSA cost estimate. The agency determines if any item or combination of items will

impact the agency’s ability to perform. If the agency’s

ability to perform would be adversely impacted, the

ISSA cost estimates may be rejected as non-responsive. If the differences will have minimal agency performance implications, and/or can continue to be

performed by agency personnel, the ISSA cost estimates will be adjusted for purposes of comparison

with the contractor and MEO offers, based upon the

comparable costs contained in the agency’s MEO.

c. A complete record of all adjustments to the

contractor and ISSA cost estimates should be maintained and made available to the public upon request.

B. Personnel—Line 1

1. This Line includes the cost of all direct in-house

labor and supervision necessary to accomplish the

requirements specified in the PWS. Included are salaries, wages, fringe benefits, and other entitlements,

such as uniform allowances and overtime. To determine Line 1 Personnel costs, identify the in-house

staffing estimate and proper wage/grade classifications as described in the Management Plan.

2. In-house cost estimates that assume a mix of

in-house labor and existing contract support should

include the cost of labor for the Government’s administration and in-house inspection of those support

contracts on Line 1. Table 3–1, of this Part, may

be used to estimate contract administration costs,

based upon the estimated number of contract employees involved. The cost of the support contracts

themselves, including the cost of related Government

furnished equipment and facilities not provided to
(March 1996)

20 OMB Circular No. A–76—Revised Supplemental Handbook

CHAPTER 2—DEVELOPING THE COST OF GOVERNMENT PERFORMANCE

the contractor under this cost comparison, should

be entered on Line 3 Other Specifically Attributable

costs.

3. Line 1 includes all competitive costs that could

change if performance is converted to or from inhouse, contract or ISSA. Thus, Line 1 may also include certain management and oversight activities,

such as personnel support, environmental or OSHA

compliance management, legal or other direct administrative support costs.

4. The conclusion that an activity may be performed by contract or ISSA also reflects a decision

that the work need not be accomplished by military

or other uniformed Government personnel. The cost

of military labor in a cost comparison, even if the

work will remain military if retained in-house, will

be determined by the composite rate for uniformed

personnel established by the DOD or other applicable Comptroller.

5. Generally, in-house staffing should be expressed

in terms of productive work hours. With the establishment of the number of productive work hours required, a conversion to the number of full-time

equivalents (FTE) is needed. For full-time and parttime positions, estimate the total hours required by

skill and divide by 1,776 annual available hours to

determine the number of FTE positions required.

For intermittent positions to be expressed in FTE,

estimate total hours required by skill and divide by

2,007 annual available hours to determine the number of FTE positions required. The military agency

comptroller will establish comparable productive

hours for military personnel included in an MEO

as military positions. The productive hours exclude

annual leave, sick leave, administrative leave, training

and other nonproductive hours. The factors result

from differences in nonproductive time between

types of positions.

6. The following considerations are used to compute personnel costs:

a. Position Title or Skill—Identify the job. Example:

carpenter, driver, janitor, supervisor, foreman, administrative clerk or department head.

b. Grade—Identify the appropriate GS/FWS grade

for each position title or skill.

c. Number of FTE Required—Identify the FTE required for each grade. Identify the temporary and

intermittent employee work years. This is important

for later fringe benefit calculations, since intermittent

and temporary employees get fewer benefits than fulltime or part-time employees.

d. Annual Salary/Wages—Pay information can be obtained from the personnel or finance office. Use current pay rates based on the Government-wide representative rate of step 5 for GS and step 4 for FWS

employees. Multiply that pay rate by the number of

FTE, except for intermittent positions where actual

hours are used. As a rule, GS salary is expressed

as an annual rate of pay and the FWS salary is expressed as an hourly rate. For positions to be used

on a prearranged regularly scheduled tour of duty,

this hourly rate is multiplied by 2,087 (the number

of hours employees are paid annually).

e. Other Entitlements—Include entitlements that will

also earn fringe benefits. Work closely with the personnel office to make sure all entitlements are considered and to obtain current factors. Examples include:

night differential pay for FWS employees, environmental differential pay and premium pay for Federal

civilian fire fighters and law enforcement officers.

f. Fringe Benefits or FICA—The following fringe benefit factors are estimated according to the Federal

Accounting Standards for Liabilities-Exposure. Multiply the following Governmentwide standard factors

by the appropriate basic pay:

(1) Full or part-time permanent Federal civilian

employees:

(a) The standard retirement cost factor represents

the Federal Government’s complete share of the

weighted CSRS/FERS retirement cost to the Government, based upon the full dynamic normal cost of

the retirement systems; the normal cost of accruing

retiree health benefits based on average participation

rates; Social Security, and Thrift Savings Plan (TSP)

contributions. The current (1996) rate is 23.7 percent

of base payroll for all agencies. The comparable retirement cost factors for special class employees are

32.3 percent for air traffic controllers and 37.7 percent for law enforcement and fire protection employees.

(b) The cost factor to be used for Federal employee insurance and health benefits, based on actual

cost, is 5.6 percent, plus an additional 1.45 percent

for Medicare.

(c) The cost factor to be used for Federal employee miscellaneous fringe benefits (workmen’s compensation, bonuses and awards, and unemployment

programs) is 1.7 percent.

(2) Intermittent or temporary Federal civilian employees.—The Federal Insurance Contribution Act

(FICA) employer cost factor of 7.65 (or the current

rate established by law) will be applied to civilian

employees not covered by either of the two civilian
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 21

PART II—PREPARING THE IN–HOUSE AND CONTRACT COST ESTIMATES

civil service retirement systems (normally intermittent

and temporary employees). Apply the FICA rate only

to wages and salaries subject to the tax; there is

an annual salary limitation for FICA tax.

g. Other Pay—Include entitlements that do not earn

fringe benefits. Some examples are night differential

pay for GS employees, overtime, holiday, awards, bonuses, and uniform allowances.

h. Personnel Cost—Add Basic Pay, Fringe Benefits

or FICA and other pay for all positions and total

for both Federal Wage System (FWS) and General

Schedule (GS) categories. This figure can now be

used as a basis to compute the annual personnel

costs for each performance period.

7. Adjustments to annual personnel costs for each

performance period are made to reflect anticipated

pay increases.

8. All in-house wages, salaries and other costs are

adjusted for inflation consistent with the economic

assumptions used in the President’s most recent

Budget, through the end of the first year of performance. Federal wages and salaries for contracts that

contain an economic adjustment clause or are subject

to the Service Contract Act (SCA) (41 USC 351–

357) or the Davis-Bacon Act (DBA) (40 USC 276a—

276a–7) are inflated to the end of the first performance period. However, when using the Department

of Labor criteria, certain potential contract positions

may not be covered under the SCA/DBA provisions;

accordingly, the in-house related costs for such positions are escalated through the end of the cost comparison period.

C. Material and supply—Line 2

1. Material and supply costs are incurred in each

performance period for goods such as raw materials,

parts, subassemblies, components and office supplies.

Material costs are calculated only if the materials are

used by the activity and will not be provided to the

contractor or ISSA provider by the Government.

2. Review the PWS to determine the materials required for in-house performance that will not be furnished to the contractor or ISSA provider. Normally,

the contractor or ISSA provider will be expected to

provide the supplies and materials necessary to perform the work described in the PWS. The policy

regarding contractor or ISSA use of Government provided supplies and materials is set forth in FAR

51.101. Adjust historical material use and cost data

to reflect the requirements of the PWS.

3. Determine if materials can be obtained on the

open market at less cost than from other Government

agencies. Material cost includes material, transport,

handling and availability/delay costs. If so, obtain any

necessary waivers from the other Government

agency(s) to purchase materials on the open market.

Include established allowances for normal scrap,

spoilage, overruns and defective work. List required

material by quantity needed, unit price, escalation

for out-years and total cost. A single entry may be

made for miscellaneous items such as office supplies.

4. If the furnishing agency establishes and certifies

that all costs of acquiring, managing, storing and

transporting its material are included in its pricing

structure, including overhead, no material mark-up

is required. If not, escalation factors based upon the

principles and procedures of this Supplement should

be developed.

5. Material and supply costs are projected for all

performance periods, including adjustments for inflation, consistent with the economic assumption contained in the President’s most recent Budget and

the rate of transition to the contractor or ISSA provider, as provided in the PWS. Ensure that unit prices

are calculated to the end of the first performance

period. Future performance period material costs

may not be inflated, if the PWS includes an escalation

or economic adjustment clause. Such a clause enables

a contractor or ISSA provider to be reimbursed for

future price increases. The Management Plan shows

the computations used to derive the entries for all

performance periods.

D. Other specifically attributable—Line 3

1. Overview.—Personnel and material costs are normally the primary sources of Government costs. The

remaining elements of competitive cost are also attributable to the activity. When requirements differ

by period due to changes in the PWS or the Transition Plan, additional adjustments will be necessary.

Ensure that such adjustments are made before applying inflation factors, if appropriate. Costs that would

be the same regardless of the eventual decision,

should be identified for each cost element.

Elements of Cost Paragraph

Depreciation ................................................. 2D2

Cost of Capital ............................................. 2D3

Rent ............................................................... 2D4

Maintenance and Repair ............................. 2D5

Utilities .......................................................... 2D6

Insurance ...................................................... 2D7

Travel ............................................................ 2D8

MEO Subcontracts ....................................... 2D9

Other Costs .................................................. 2D10
(March 1996)

22 OMB Circular No. A–76—Revised Supplemental Handbook

CHAPTER 2—DEVELOPING THE COST OF GOVERNMENT PERFORMANCE

2. Depreciation.—

a. Depreciation represents the cost of ownership

and the consumption of an asset’s useful life.

b. Unless an asset is fully depreciated, the Federal

Accounting Standards for Property, Plant and Equipment will be used. If an applicable asset is fully depreciated, is to be used by the MEO during the performance period and is not to be provided to the contractor or ISSA provider, extend the life of the asset

through the end of the performance period. The

cost of depreciation is then recalculated using the

extended life and original acquisition cost.

c. Individual assets costing less than $5,000 are

considered minor items and will not be depreciated,

but will be added to other costs (see paragraph D.10).

The joint use of minor items need not be prorated

to the function under study. Assets costing more than

$5,000 are major items for depreciation.

d. If an in-house activity shares an asset with another activity not under review or cost comparison

and that asset will not be provided for use by the

contractor or ISSA, allocate depreciation to the inhouse estimate on the basis of use or other appropriate methodology. If the activity is converted to

contract or ISSA performance, the asset’s life and

utilization rate may change.

e. To find the cost of depreciation added to each

option year, subtract the residual value from the total

of the acquisition cost plus any capital improvements

and, then, divide by the estimated useful life of the

asset. Include the resultant annual depreciation for

each year of the cost comparison. If the asset was

acquired through transfer, seizure or forfeiture, an

industry specific standard or engineering appraisal

may be used to establish the market or ‘‘acquisition’’

value of the asset at transfer.

f. Facilities are generally categorized as permanent,

semi-permanent or temporary and the useful life will

be standardized for the entire grouping. The useful

life expectancies listed below may be used by type

of facility. If useful life has been exceeded, obtain

an engineering projection of anticipated remaining

useful life. These costs will be prorated to the activity

under study by a unit of measure that varies directly

with consumption (e.g., floor space, type of facility,

number of telephones). Estimates of expenses to be

incurred for the first year of performance should

be based on current experience, appropriately adjusted for anticipated requirements. Engineering estimates should be used when historical data are not

available. All estimates should be appropriately documented with supporting detail.

Facility Category Useful Life

Permanent (P) ......................................... 75 years

Semi-Permanent (S) ................................ 50 years

Temporary (T) ........................................ 25 years

3. Cost of Capital.—

a. The annual cost of capital is added to the depreciation cost of any asset costing more than $5,000

acquired by the Government if: (1) not provided

for the contractor’s or ISSA provider’s use, (2) is

purchased less than two years prior to the cost comparison date or (3) is scheduled for purchase within

the performance period.

b. The cost of capital is defined as an imputed

charge on the Government’s investment in capital

assets necessary for the activity to provide the product

or service.

c. To estimate the annual cost of capital, it is necessary to identify the total depreciable acquisition cost

of new assets or, if acquired by transfer, forfeiture

or seizure, the market value of the assets. The total

cost results from the value of the asset, transportation

costs (if not already included in the purchase price)

and any installation costs to place the asset in operation. The cost of capital will be computed by applying the nominal rate provided by OMB Circular A–

94 to the determined total cost of the asset.

4. Rent.—Rent is incurred for the use, operation

and maintenance of land, building space, plant and

machinery, etc., by the activity under study. Compute

only those costs that are associated with the MEO,

on an allocated basis, not provided to the contractor

or ISSA provider.

5. Maintenance and Repair.—This cost is incurred

to keep buildings and equipment in normal operating condition. It does not include capital improvements that add value to an asset and are accounted

for under depreciation. Allocate maintenance and repair costs for those assets that will not be furnished

to the contractor or ISSA provider but are: (1) needed for MEO performance and (2) are not covered

by rental fees.

6. Utilities.—This category includes charges for fuel,

electricity, telephone, water and sewage services, etc.,

that will not be furnished to the contractor or ISSA

provider by the Government but are needed for inhouse performance of the activity. The amount of

these costs applicable to the activity under study will

be determined either on a metered or allocated basis

of consumption.
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 23

PART II—PREPARING THE IN–HOUSE AND CONTRACT COST ESTIMATES

7. Insurance.—

a. Operation of any Government activity involves

risks and potential costs from property losses (fire,

flood, accident, etc.) and liability claims. These risks

are normally covered by insurance included in any

commercial cost estimate.

b. To the extent assets are not provided to the

contractor or to the extent that property losses may

be assessed against a contractor who uses Government space, facilities or equipment, in-house casualty

premiums must be computed. Generally, the Government’s casualty premium equivalent cost will be computed by multiplying .005 times the net book value

of Government’s equipment and/or facilities, plus

the average value of material and supplies.

c. Insurance to be computed on assets will depend

on the requirements of the Performance Work Statement (PWS). If the contractor or ISSA provides special casualty insurance on all Government furnished

assets, compute insurance for all assets used by the

activity under study. If the contract does not require

the contractor to furnish special casualty insurance,

e.g., the Government will self indemnify, compute

casualty insurance on only those assets to be used

by the activity under study that would not be provided to the contractor or ISSA provider, as appropriate.

d. Personnel liability losses will be computed by

multiplying .007 times the Government’s total personnel-related costs on Line 1. Additional liabilities assigned to the contractor or ISSA provider by the

PWS that are not associated with personnel will also

be computed by applying the standard .007 factor

to the estimated liability ceiling identified in the PWS

and included in the in-house cost estimate.

8. Travel.—This category covers the expected cost

of in-house travel that would not continue in the

event of contract or ISSA performance. These costs

should be readily available from budgeted amounts

of per diem and transportation cost for the activity

under study.

9. MEO Subcontract Costs.—Solicitations that include

work currently performed by contract and by Federal

employees, should include the MEO cost of labor

for the Government’s administration and inspection

of the continued support contracts on Line 1. The

cost of the support contract itself, including the cost

of related Government furnished equipment and facilities not provided to the contractor or ISSA, should

be entered on Line 3. Escalate to each performance

period as appropriate. Support contract costs should

also be adjusted (downward) to offset for potential

Federal income tax revenue to the Government. This

is done by applying the appropriate tax rates in Appendix 4 of this supplement.

10. Other Costs.—

a. Other Costs is a general category for specifically

attributable costs that do not properly fit into one

of the other cost elements, but would change in the

event of contract or ISSA performance. Some examples are purchased services packaging and crating

(if not already a part of material and supplies); transportation costs; and royalties. Ensure these costs are

not also covered in Line 4 overhead costs.

b. Include the cost of minor items that are not immediately consumed by the activity and not provided

to the contractor or ISSA provider. This includes

items such as overhead projectors, office equipment,

tools, chairs, desks, cabinets, etc. Estimate the cost

of minor items for each performance period by allocating 10 percent of the total estimated replacement

cost of all such items. Should the supply source markup increase the item’s cost to more than $5,000,

it will still be considered a minor item.

E. Overhead—Line 4

1. While direct labor, supervision and material costs

are prorated, as appropriate, to Lines 1 and 2, overhead expenses, which include general management

and administrative expenses, are entered on Line 4.

2. Line 4 includes two major categories of cost.

The first is operations overhead and is defined as those

costs that are not 100 percent attributable to the

activity under study, but are generally associated with

the recurring management or support of the activity.

The second is general and administrative overhead and

includes salaries, equipment, space and other activities related to headquarters management, accounting,

personnel, legal support, data processing management and similar common services performed outside

the activity, but in support of the activity. These costs

are affected by the conversion of work to or from

in-house, contract or ISSA.

3. For each year of the cost comparison, Line 4

is calculated by multiplying Line 1, including fringe,

by 12 percent (.12) and entering the total on Line

4. If military personnel are included in Line 1, apply

the 12 percent factor to civilian MEO Line 1 costs

only. The composite military rate should include all

military related overhead.

F. Additional—Line 5

1. This cost element includes costs not otherwise

properly classified on Lines 1 through 4. This cost

category should reflect those additional costs result-
(March 1996)

24 OMB Circular No. A–76—Revised Supplemental Handbook

CHAPTER 2—DEVELOPING THE COST OF GOVERNMENT PERFORMANCE

ing from unusual or special circumstances that may

be encountered in particular comparisons. Examples

include office and plant rearrangements, transport,

employee recruitment, training, relocation, and other

expenses.

2. Amounts entered on Line 5 should be supported

by a definition of the type of cost reported, a justification for its inclusion in the cost comparison, an explanation of the underlying assumptions, and methods of computation.

3. The additional costs of an expansion, new requirement or conversion from contract or ISSA to

in-house performance, which are added to the inhouse costs, should be made on Line 5 in consultation with engineering, production, management and

contracting personnel.

a. New investment by the Government in facilities

and equipment should not be included as one-time

costs. The costs incurred in acquiring facilities or

equipment and installing the equipment should be

included in the capitalized cost of in-house performance.

b. Government facilities and equipment will not

normally be expanded to accommodate new or expanded work if cost-effective contract or ISSA facilities and equipment are available. Likewise, agency

ownership shall not preclude a contractor or an ISSA

provider from competing for the service. If in-house

operation is dependent upon the Government’s purchase or construction of new facilities or other major

capital asset purchases, the cost comparison and conversion to in-house performance will be delayed until

the approval to purchase or construct such items

is obtained, subject to the cost comparison.

G. Total cost—in–house performance—Line 6

Enter the sum of Lines 1 through 5 on Line 6.
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 25

PART II—PREPARING THE IN–HOUSE AND CONTRACT COST ESTIMATES

Chapter 3—Developing the Cost of Contract Performance

A. General

This Chapter provides guidance for the determination of the cost to the Government of obtaining a

commercial product or service by contract or interservice support agreement (ISSA). It includes a determination of not only the amount to be paid to the

contractor/provider (price) but also a determination

of the additional costs to the taxpayer that would

be incurred in the event of a conversion.

B. Contract price—Line 7

1. Overview.—The contract or ISSA price reflects

the cost to perform the requirements of the PWS

as presented by the offeror selected to compete with

the in-house work force. The solicitation for bids or

proposals will notify the offerors that a comparison

will be made between the cost of contracting, the

cost of the in-house performance and, if appropriate,

the cost of performance through an ISSA. A contract

may or may not be awarded as a result.

2. Contract Types.—

a. In determining the amount to be recorded as

the contract price, consider the contract type. The

following guidance is provided in this regard.

b. In the case of a sealed bid, firm fixed price

contract, the price of the low responsible, responsive

offeror will be entered. If a firm fixed price contract

is to be negotiated, the negotiated price will be entered.

c. If a cost-reimbursement or cost-sharing type contract is proposed, enter the low negotiated estimate.

d. If a contract with an incentive or award fee

is proposed, enter 65 percent of the potential maximum incentive or award fee plus the contract costs

of the most advantageous offer to the Government.

e. If a time and material or labor-hour contract

is proposed, enter the estimated total cost of performance. Alternatively, comparable rates can be developed for the Government cost estimate, developed

in accordance with this Supplement, and the comparison can be made on the basis of rates, rather

than costs.

3. Tax Exempt Organizations.—

a. If the apparent low contract offeror is a taxexempt organization, the tax-exempt’s contract price

is adjusted by an amount equal to the estimated Federal income taxes that the lowest non tax-exempt

offeror would pay. This adjustment is necessary to

determine which offeror has the lowest overall cost

to the Government.

b. Calculate the Federal tax adjustment by using

the procedures in paragraph G of this Chapter. Add

the Federal taxes calculated to the tax-exempt’s offer

for comparison with other non tax-exempt offerors.

c. Compare the tax-exempt’s adjusted offer to the

low non tax-exempt offer. The lowest cost offeror,

after this comparison, will then compete against the

Government’s in-house cost estimate and any ISSA

proposals. If the tax-exempt’s adjusted offer is lower

than the low non tax-exempt offer, enter the

unadjusted tax-exempt’s offer on Line 7.

4. Procurement Preference Eligible Organizations.—

a. If a preference eligible contractor meets the

requirements of an unrestricted solicitation, and is

an otherwise fully responsive offeror, the preference

eligible may compete with non-preference eligible

offerors. This is accomplished by adding 10 percent

of each non-preference eligible’s offer to their offer

for initial comparison purposes only. The lowest

offer, after adjustment, will be chosen to compete

with the Government’s in-house cost estimate and

ISSA offers.

b. If the preference eligible’s offer is lower than

all other commercial sources—after adjustments—

enter the preference eligible’s price on Line 7. If

the non-preference eligible’s adjusted price is lower,

enter the unadjusted non-preference eligible’s price

on Line 7.

C. Contract administration—Line 8

1. Contract administration costs are incurred in

administering a contract or ISSA. It includes the cost

of reviewing compliance with the terms of the contract, processing payments, negotiating change orders, and monitoring the closeout of contract operations. It does not include inspection and other administrative requirements that would be common to

contract and Government performance to assure acceptable performance.

2. The contract administration costs entered on

Line 8 are limited to the personnel shown at Table

3–1.

3. Table 3–1 represents the estimated additional

cost to administer a contract or ISSA over and above

the cost to administer the same work performed by

in-house employees.

4. Contract administration organization and grade

structure should be certified as being in compliance

with all applicable personnel regulations.
(March 1996)

26 OMB Circular No. A–76—Revised Supplemental Handbook

CHAPTER 3—DEVELOPING THE COST OF CONTRACT PERFORMANCE

Table 3–1. Contract Administration Factors

MEO Staffing Contract

Administration FTE

10 or less ............................................................ .5

11–20 .................................................................. 1

21–50 .................................................................. 2

51–75 .................................................................. 3

76–100 ................................................................ 4

101–120 .............................................................. 5

121–150 .............................................................. 6

151–200 .............................................................. 7

201–250 .............................................................. 8

251–300 .............................................................. 9

301–350 .............................................................. 10

351–450 .............................................................. 11

451 and above ................................................... 2.5 percent of inhouse MEO staffing

D. Additional—Line 9

1. This cost element includes any additional costs

to the Government such as transportation or purchased services resulting from unusual or special circumstances that may be encountered in particular

cost comparisons.

2. The supporting documentation for additional

costs should describe the nature of the cost item

and indicate the reason the additional cost will not

be incurred if the activity is performed with the agency’s in-house resources.

3. The costs entered on Line 9 should be supported by a definition of the type of cost reported,

justification for inclusion, methods of computation,

and, if applicable, a detailed listing of the cost components.

4. When an in-house activity is terminated in favor

of contract or ISSA performance and the agency

elects to hold MEO equipment and facilities on

standby, solely to maintain performance capability,

the standby costs are not to be charged to the cost

of the contract.

E. One–time Conversion—Line 10

1. Overview—When the Government converts to or

from in-house, contract or ISSA performance, there

are usually one-time costs incurred as a result of

the conversion.

2. Material Related Cost—

a. A conversion may result in certain items of Government material or equipment, that would otherwise

have been used by the in-house MEO, becoming excess and available for transfer to another in-house

activity or to the contractor.

b. It should be possible to transfer the material

to the contract or ISSA offeror. In this case, it may

be appropriate to conduct a special joint physical

inventory and include the Government’s cost of conducting the joint inventory (costs may be shared with

the winning bidder) on Line 10.

c. If the transfer of existing materials to the contract or ISSA offeror is feasible, and the agency elects

not to provide the material, no charge for conducting

the inventory is permitted.

3. Labor-Related Costs—

a. A conversion will also normally result in certain

one-time labor-related expenses. These may include

health benefit costs, severance pay, homeowner assistance, relocation and retraining expenses and initial

contractor security clearance requirements.

b. Estimated severance pay is calculated at four

percent of the annual basic pay (performance period

1 only) entered on Line 1, without fringe benefits.

c. If there is a requirement for the commercial

source to have access to classified information or

other security clearances under existing agency directives, only those costs that would be necessitated by

the conversion may be calculated. Recurring requirements necessitated by in-house attrition or by employees that may be hired under the Right-of-First-Refusal

will not be included.

4. Other Costs.—A conversion to contract or ISSA

performance may require an agency to take certain

actions that would not be necessary if the activity

were continued in-house. Agencies have an obligation

to mitigate these costs and justify why such costs are

necessary. For example, it may not be possible to

terminate a rent or lease agreement without a penalty

fee, or it may be necessary to move materials that

are not associated with the activity under study to

another location in order to facilitate conversion or

the contractor’s or ISSA’s use of a facility. Such termination, penalty or facilitation costs are also costs

caused by the conversion.

5. One-Time Cost Computation.—Supporting documentation should clearly state the type of cost anticipated, justification for inclusion or exclusion and

methods of computation.

F. Gain from disposal/transfer of assets—Line 11

1. As the Government develops its MEO, certain

assets may be found to be no longer needed. These

assets may be disposed of or transferred without consideration in a cost comparison. The cost comparison

is concerned with comparing the Government’s MEO

with that of the best commercial or ISSA provider.

Therefore, only those assets that are to be used by

the Government’s MEO and not made available to

the contractor or ISSA are considered on Line 11.
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 27

PART II—PREPARING THE IN–HOUSE AND CONTRACT COST ESTIMATES

2. The Government should not dispose of or transfer MEO assets unless there is an economic advantage

to the Government to do so. If the cost of transfer

exceeds the net book value of the asset, such that

there is a net loss, no such losses are assessed against

the contractor or ISSA. Management has made a decision not to make such assets available to the contractor or ISSA irrespective of the economic costs

related to such a decision.

3. The net gain generated to the Government as

a result of a conversion to a contract or ISSA and

a decision not to provide certain MEO assets to the

contractor or ISSA should equate to the net book

value of the asset less any costs incurred to remove

the asset.

G. Federal income tax—Line 12

1. When developing the Government’s cost of contract performance, the potential Federal income tax

revenue should be considered. Since contract performance would provide the contractor with income

subject to tax, an estimated amount of such taxes

is an appropriate deduction from the net cost to

the Government, unless the prospective contractor

is a tax-exempt organization.

2. To simplify the tax computation, Appendix 4,

prepared by the Internal Revenue Service, provides,

by types of industry, appropriate tax rates in relation

to business receipts. The industry groupings conform

to the Enterprise Standard Industrial Classification

issued by the Department of Commerce. To determine the amount of estimated Federal income tax,

the contract price (Line 7 of the GCCF) for each

performance period will be multiplied by the applicable tax rate. The estimated amount of Federal income tax will be entered on Line 12 as a deduction,

i.e. negative, reducing the cost of contracting.

H. Total cost—contract or ISSA performance—Line

13

Add Lines 7, 8, 9 and 10. If there is a number

in parenthesis, i.e., a deduction, in Line 11, add to

Line 12 and subtract this total from the total of

Lines 7 through 10 and enter the difference on Line

13.
(March 1996)

28 OMB Circular No. A–76—Revised Supplemental Handbook

CHAPTER 4—CALCULATING THE COST COMPARISON DECISION

Chapter 4—Calculating the Cost Comparison Decision

A. Conversion differential—Line 14

1. A minimum cost differential of the lesser of;

(1) 10 percent of personnel costs (line 1) or (2)

$10 million over the performance period, has been

established that must be met before converting to

or from in-house, contract or interservice support

agreement (ISSA) performance. The minimum differential is established to ensure that the Government

will not convert for marginal estimated savings.

2. Whenever a cost comparison involves a mix of

existing in-house, contract, new or expanded requirements, or assumes full or partial conversions to inhouse performance, each portion is addressed individually and the total minimum differential is calculated accordingly.

B. Adjusted total in-house cost—Line 15

If the cost comparison is being conducted to determine if an activity should be converted from contract

or ISSA performance to in-house operation, the conversion differential as calculated above (Line 14) is

added to the In-house performance cost estimate

(Line 6, Total Column only) and the sum is entered

under Adjusted Total Cost of In-House Performance

(Line 15). The amount in the Total Column for

Line 13 is replicated on Line 16.

C. Adjusted total contract or ISSA cost—Line 16

If the cost comparison is being conducted to determine if an activity should be converted from in-house

operation to contract or ISSA performance, the conversion differential as calculated above (Line 14) is

added to the Contract performance cost estimate

(Line 13, Total Column only) and the sum is entered

under Adjusted Total Cost of Contract or ISSA

Performance(Line 16). The amount in the Total Column for Line 6 is replicated on Line 15.

D. The cost comparison decision—Lines 17 and 18

Subtract Line 15 from Line 16 and enter the result

on Line 17. A positive amount on Line 17 supports

a decision to perform the activity with in-house resources. A negative amount on Line 17 supports a

decision to accomplish the work with contract resources. Indicate in the appropriate block on Line

18 the decision supported by Line 17.
ILLUSTRATION II1

THE GENERIC A76 COST COMPARISON FORM (GCCF)

IN-HOUSE VS. CONTRACT OR ISSA PERFORMANCE

Performance Periods

1st 2nd 3rd Addl Total Reference

IN-HOUSE PERFORMANCE

1. Personnel 

2. Material and Supply

3. Other Specifically Attributable 

4. Overhead

5. Additional 

6. Total In-house 

CONTRACT OR ISSA PERFORMANCE

7. Contract/ISSA Price

8. Contract Administration

9. Additional 

10. One-time Conversion

11. Gain on Assets ( ) ( ) ( ) ( ) ( )

12. Federal Income Taxes ( ) ( ) ( ) ( ) ( )

13. Total Contract or ISSA 

DECISION

14. Minimum Conversion Differential

15. Adjusted Total Cost of In-house Performance

16. Adjusted Total Cost of Contract or ISSA 

 Performance

17. DecisionLine 16 minum Line 15

18. Cost Comparison Decision: Accomplish Work 

 In-House (+)

 Contract or ISSA ()

PART IIPREPARING THE IN-HOUSE AND CONTRACT COST ESTIMATES

OMB Circular No. A76Revised Supplemental Handbook

(March 1996)

29
THE GENERIC A76 COST COMPARISON FORM (GCCF)

19. In-House MEO Certified By: __________________________ Date: _______

26. In-House MEO Certified By: __________________________

 Office and Title

I certify that, to the best of my knowledge and belief, the in-house organization reflected in this cost comparison

is the most efficient and cost effective organization that is fully capable of performing the scope of work and tasks

required by the Performance Work Statement. I further certify that I have obtained from the appropriate

authority concurrence that the organizational structure, as proposed, can and will be fully implemented  subject

to this cost comparison, in accordance with all applicable Federal regulations.

20. In-House Cost Estimate Prepared By: ________________________ Date: ________

21. Independent Reviewer: _________________________ Date: ________

28. Independent Reviewer: _________________________

 Office and Title

I certify that I have reviewed the Performance Work Statement, Management Plan, In-house cost estimates and

supporting documentation available prior to bid opening and, to the best of my knowledge and ability, have

determined that: (1) the ability of the in-house MEO to perform the work contained in the Performance Work

Statement at the estimated costs included in this cost comparison is reasonably established and, (2) that all costs

entered on the cost comparison have been prepared in accordance with the requirements of Circular A76 and its

Supplement.

22. Cost Comparison Completed By: _________________________ Date: ________

23. Contracting Officer: _________________________ Date: ________

24. Tentative Cost Comparison 

 Decision Announced By: _________________________ Date: ________

25. Appeal Authority (if applicable): _________________________ Date: ________ 

CHAPTER 4CALCULATING THE COST COMPARISON DECISION

OMB Circular No. A76Revised Supplemental Handbook

(March 1996)

30
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 31

PART II—PREPARING THE IN–HOUSE AND CONTRACT COST ESTIMATES

Chapter 5—Streamlined Cost Comparisons for Activities with 65 FTE or Less.

A. General

1. This chapter provides procedures that may be

used when the Government determines that a simplified cost comparison will serve the equity and fairness purposes of Circular A–76 for conversion to or

from in-house, contract or interagency support agreement (ISSA). The methodology is limited to activities

that meet the following criteria:

a. possible conversion to or from in-house, contract

or ISSA performance involving 65 FTE or less;

b. activities that will compete largely on a labor

and material cost basis such as, but not limited to,

custodial, grounds, guard, refuse, pest control,

warehousing and maintenance services;

c. activities for which significant capital asset purchases are not required or for which all equipment

requirements will be Government Furnished/Contractor Operated (GOCO), and

d. activities that are commonly contracted by the

Government and/or private sector, e.g., there are

not less than four comparable agency contracts of

the same general type and scope and the range of

the existing service contract costs are reasonably

grouped.

2. In no case, shall any commercial activity involving 66 or more FTE be modified, reorganized, divided or in any way changed for the purpose of

circumventing the requirements of this section or

other procedures of this Supplement.

3. A Streamlined Cost Comparison Form (SCCF)

is provided at Illustration II–2.

B. Procedure

1. The streamlined A–76 cost comparison process

assumes that the activity being considered is regularly

performed by contract. Thus, it assumes that existing

fixed price contracts can be used, with only minor

modification, to define the scope of the competition

and to avoid the need for the development of a

new or original Performance Work Statement (PWS)

or a formal solicitation.

2. The employee participation and notification provisions of Part I apply.

3. The Government will base its in-house costs on

the current organization.

4. The Government’s in-house Labor and Material

costs (Lines 1 and 2 of the Generic A–76 Cost Comparison Form) will be calculated in accordance with

Chapter 2 of this Part. Overhead costs will be calculated as provided by Chapter 2 of this Part for

Line 4. Any contract support costs normally included

in Line 5 of the GCCF will be calculated. No other

in-house costs will be calculated. The provisions for

an Independent Review apply. Upon acceptance by

the agency’s A–76 IRO, the in-house cost estimate

will be sealed and submitted to the contracting officer.

5. Upon receipt of the in-house cost estimate, the

contracting officer will develop a range of contract

cost estimates, based upon not less than four comparable service contracts or ISSA offers. Adjustments

for differences in scope may be necessary. The contracting officer is not required to issue a solicitation

for bids from the private sector. If, however, the contracting officer finds that four comparable contracts

or ISSA offers are not available, the contracting officer may issue a solicitation for bids and the agency

may conduct a cost comparison as otherwise provided

by this Supplement.

6. At cost comparison, the in-house cost estimate

will be compared with ISSA offers and the range

of estimated contract costs developed by the contracting officer. The range of estimated contract costs

will then be adjusted for the cost of contract administration (limited to Table 3–1) and Federal tax impacts. In calculating the Adjusted Total Costs, the

minimum conversion differential shall be added to

the total cost of contract or ISSA performance if

the cost comparison is being conducted to determine

if an activity should be converted from in-house operation to contract or ISSA performance. If the comparison is being conducted to determine if an activity

should be converted from contract or ISSA performance to in-house operation, the differential is added

to the total cost of in-house performance.

7. If the Government’s Adjusted Total In-house

Cost estimate is greater than the range of Adjusted

Total Contract or ISSA Cost estimates, the contracting officer will announce a tentative decision to contract or enter into an ISSA. Upon notification of

adversely affected Federal employees and publication

of this tentative decision in the Commerce Business

Daily, the A–76 Administrative Appeal process outlined in this Supplement will be initiated. With the

A–76 Administrative Appeal Authority’s confirmation

of all costs entered on the SCCF and certification

of the reasonableness of the contract and ISSA pricing adjustments made by the contracting officer, the

contracting officer will solicit for award to contract

or ISSA performance. The Right-of-First-Refusal will
(March 1996)

32 OMB Circular No. A–76—Revised Supplemental Handbook

CHAPTER 5—STREAMLINED COST COMPARISONS FOR ACTIVITIES WITH 65 FTE OR LESS.

be offered to employees adversely affected by the

award.

8. If the Government’s Adjusted Total In-house

Cost estimate is below or within the range of Adjusted Total Contract or ISSA Cost estimates, the contracting officer will announce a tentative decision that

the activity will be performed in-house. Again, upon

notification of Federal employees and publication of

the tentative decision in the Commerce Business Daily,

the A–76 Administrative Appeal process will be initiated.

9. Activities to be performed or retained in-house

as a result of a streamlined cost comparison should

be submitted to Post-MEO Performance Review, in

compliance with this Supplement. This recognizes

that, for retained activities, the existing organization

is assumed to be the MEO and no management plan

is required.
ILLUSTRATION II2

THE STREAMLINED A76 COST COMPARISON FORM (SCCF)

(LIMITED TO 65 FTE OR LESS)

IN-HOUSE VS. CONTRACT OR ISSA PERFORMANCE

Performance Periods

1st 2nd 3rd Addl Total Reference

IN-HOUSE PERFORMANCE

1. Personnel 

2. Material

3. Overhead

4. Other

5. Total In-house 

CONTRACT OR ISSA PERFORMANCE

6. Contract and ISSA Price Range

7. Contract Administration

8. Federal Taxes ()

9. Total Contract and ISSA Price Range

DECISION

10. Minimum Conversion Differential

11. Adjusted Total Cost of In-house Performance

12. Adjusted Total Cost of Contract or ISSA

 Performance

13. Cost Comparison(Line 12 minus Line 11) 

14. Cost Comparison Decision:

 Perform In-House 

 Convert to Contract or ISSA

PART IIPREPARING THE IN-HOUSE AND CONTRACT COST ESTIMATES

OMB Circular No. A76Revised Supplemental Handbook

(March 1996)

33
THE STREAMLINED A76 COST COMPARISON FORM (SCCF)

(LIMITED TO 65 FTE OR LESS)

15. In-House Cost Estimate Prepared By: __________________________ Date: _______

16. Independent Reviewer: ______________________________________ Date: _______

26. In-House MEO Certified By : __________________________

 Office and Title

I certify that I have reviewed the proposed contract, in-house and ISSA cost estimates and contract prices and find

them to be reasonable and calculated in accordance with the principles and procedures of Circular A76 and its

Supplement.

17. Cost Comparison Completed By: _______________________________ Date: ________

18. Contracting Officer: _______________________________ Date: ________

19. Tentative Cost Comparison 

 Decision Announced By: _______________________________ Date: ________

20. Appeal Authority (if applicable): _______________________________ Date: ________ 

CHAPTER 4CALCULATING THE COST COMPARISON DECISION

OMB Circular No. A76Revised Supplemental Handbook

(March 1996)

34
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 35

APPENDIX 1

APPENDIX 1

Definition of Terms

Administrative appeal authority.—With receipt of an

appeal, the official designated in paragraph 9.a. of

the Circular A–76, or designee, assigns an official(s)

to serve on an A–76 Administrative Appeal Authority

for that appeal. The individual(s) selected must be:

(a) independent of the activity under review or, (b)

at least two organizational levels above the official

who certified the Government’s Management Plan

and MEO. The Appeal Authority reviews appeals to

ensure that all costs are properly accounted for in

accordance with the principles and procedures of this

Supplemental Handbook. The Authority shall also ensure that all participants have full and equal access

to the decision process.

Affected parties.—Federal employees and existing

Federal contractors that will or could be impacted

by a decision to waive a cost comparison or have

submitted bids to convert to or from in-house, contract or ISSA performance, as a result of a cost comparison, and their representatives are affected parties.

Agencies or parts of agencies that have submitted

formal bids or offers, in order to compete for the

right to provide services through ISSAs, are also considered affected parties.

Commercial activity.—A commercial activity is the

process resulting in a product or service that is or

could be obtained from a private sector source. Agency missions may be accomplished through commercial facilities and resources, Government facilities and

resources or mixes thereof, depending upon the

product, service, type of mission and the equipment

required.

Commercial source.—A commercial source is any

business or other concern that is eligible for contract

award in accordance with Federal Acquisition Regulations.

Contract administration.—Contract administration includes those inherently governmental activities performed by warranted contracting officers (CO), the

contracting officer’s technical representatives

(COTR), and related payment evaluation staff. Contract administration is not to be confused with contract quality control, performance evaluation or inspection, which are defined as commercial activities

by this Supplement and OFPP Policy Letter 92–1.

Conversion to contract.—A conversion to contract is

the change of performance of a commercial activity

from in-house performance by Federal employees to

performance by a commercial source.

Conversion from contract.—Conversion from contract

to in-house performance means the change of a commercial activity from performance by contract with

a commercial source to performance by Federal employees with Government resources. It also includes

the conversion of expansions and/or new requirements (work) from contract performance to in-house

performance.

Core capability.—A core capability is a commercial

activity operated by a cadre of highly skilled employees, in a specialized technical or scientific development area, to ensure that a minimum capability is

maintained. The core capability does not include the

skills, functions or FTE that may be retained in-house

for reasons of National Defense, including military

mobilization, security or rotational necessity, or to

the patient care or research and development activities, as provided in Part I, Chapter 1 of this Supplement.

Cost comparison.—A cost comparison is the process

whereby the estimated cost of Government performance of a commercial activity is formally compared,

in accordance with the principles and procedures of

this Circular and Supplement, to the cost of performance by commercial or ISSA sources.

Expansion.—An expansion is the modernization, replacement, upgrading or the enlargement of an inhouse commercial activity or capability. If the expansion involves a 30-percent increase in the operating

cost of the activity, a 30-percent increase in the total

capital investment to perform the activity or an increase of 65 FTE or more, a cost comparison is required prior to authorizing in-house performance. A

consolidation of two or more existing commercial

activities is not an expansion, unless the total operating cost is 30 percent greater than the total of the

individual components or it requires an increase of

65 FTE or more.

The above definition notwithstanding, pursuant to

OMB Circular A–126 all aircraft purchase decisions

should be justified through formal cost comparison,

as provided by this Supplement.

Exemption.—An exemption is a determination,

made in accordance with Circular A–76 and this Supplement, that a commercial activity may be converted

to or from in-house, contract or ISSA performance,
(March 1996)

36 OMB Circular No. A–76—Revised Supplemental Handbook

DEFINITION OF TERMS

without cost comparison and may be justified by reasons other than cost.

Inherently governmental activity.—An inherently governmental activity is one that is so intimately related

to the public interest as to mandate performance

by Federal employees. Activities that meet these criteria are not in competition with commercial sources,

are not generally available from commercial sources

and are, therefore, not subject to Circular A–76 or

this Supplement. Guidance to avoid an unacceptable

transfer of official responsibility to contract performance may be found in the Office of Federal Procurement Policy (OFPP) Policy Letter 92–1. See Appendix

5.

Independent Review Officer (IRO).—The agency official who certifies—prior to bid opening—that the

Government’s performance and cost comparison estimates have been prepared in accordance with Circular A–76 and this Supplement.

ISSA.—The provision of a commercial activity, in

accordance with an interservice support agreement,

on a reimbursable basis. This includes franchise

funds, revolving funds and working capital funds.

Management Plan.—The Management Plan is the

document that outlines the changes that will result

in the Government’s Most Efficient Organization

(MEO) to perform a commercial activity in-house.

It provides the staffing patterns and operating procedures that serve as a baseline for in-house cost estimates.

Most Efficient Organization (MEO).—The MEO refers

to the Government’s in-house organization to perform a commercial activity. It may include a mix

of Federal employees and contract support. It is the

basis for all Government costs entered on the Cost

Comparison Form. The Most Efficient Organization

(MEO) is the product of the Management Plan and

is based upon the Performance Work Statement

(PWS).

National defense activity.—A national defense activity

is a commercial activity that is approved by the Secretary of Defense, or designee, as being subject to

deployment in a direct military combat support role.

National security.—A national security activity is a

commercial activity that is approved by the Director

of Central Intelligence, or designee, as being necessary to meet the national security.

New requirements.—A new requirement is a newly

established need for a commercial product or service.

Overhead.—Overhead is included in the in-house

estimate and is defined as those costs that are not

directly attributable to the activity under study.

Performance measures.—Performance measures provide a series of indicators, expressed in qualitative,

quantitative or other tangible terms, that indicate

whether current performance is reasonable and cost

effective. Performance measures can include workload and output-to-cost ratios, transaction ratios, error

rates, consumption rates, inventory fill rates, timeliness measures, completion and back order rates, etc.

Quality service measures may include responsiveness

rates, user satisfaction rates, etc.

Performance standard.—A performance standard reflects the minimum, sector-specific, Federal requirement for the performance of a commercial activity.

It incorporates both quality measures and cost measures. Cost measures reflect the cost comparability

procedures of Part II of this Supplement to assure

equity in the comparison of performance standards

with private industry standards.

Performance Work Statement (PWS).—A Performance

Work Statement is a statement of the technical, functional and performance characteristics of the work

to be performed, identifies essential functions to be

performed, determines performance factors, including the location of the work, the units of work, the

quantity of work units, and the quality and timeliness

of the work units. It serves as the scope of work

and is the basis for all costs entered on the Cost

Comparison Form.

Post-MEO performance review.—When services are

performed in-house, as a result of a cost comparison,

including those involving an interservice support

agreement, 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 performance. Post-MEO Performance Reviews confirm that

the MEO has been implemented in accordance with

the Transition Plan, establish the MEO’s ability to

perform the services of the PWS and confirm that

actual costs are within the estimates contained in

the in-house cost estimate. Adjustments may be made

for formal mission or scope of work changes.

Preferential procurement programs.—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-WagnerO’Day Act.

Performance requirements summary (PRS).—A PRS is

a synopsis of the scope of work and output performance measurements that may be used in conjunction
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 37

APPENDIX 1

with aviation cost comparisons that rely on the GSA

FAMIS data system for identifying contract costs.

Privatization.—Privatization is the process of changing a public entity or enterprise to private control

and ownership. It does not include determinations

as to whether a support service should be obtained

through public or private resources, when the Government retains full responsibility and control over

the delivery of those services.

Quality assurance surveillance.—Quality Assurance

Surveillance is the method by which Federal employees will supervise in-house or contract performance

to ensure that the standards of the PWS are met

within the costs bid.

Reasonable or competitive prices.—The expected

range of prices resulting from experience obtained

through the competitive free enterprise system for

like or similar activities. Determinations are to be

made by the contracting officer.

Recurring commercial activity.—A recurring commercial activity is one that is required by the Government

on a consistent and long term basis. This definition

does not imply an hourly, daily, monthly or annual

requirement, but must, in a general sense, be repetitive in nature, wherein the expected workload can

be reasonably estimated.

Sector.—Certain commercial activities are common

to more than one agency. Many of these commercial

activities can be aggregated. For example, an agency

may inventory transportation acquisition, operations,

maintenance and disposal as independent commercial activities.

Severable expansion.—A severable expansion is an

expansion of currently contracted, in-house or interservice support agreement provided work that could

be provided using the current approach or could,

without severe additional administrative burden, be

provided by another competitive offeror. Economies

of scale are not justification for dismissing new or

expanded work as severable, these economies will be

tested through competitive offer.

Start date.—This term is used in two ways. First,

it is the date when a cost comparison begins, generally defined as the date that a local Study Team

is formed and actual work on the Performance Work

Statement, Management Plan and in-house cost estimate begins. Second, it may refer to the actual date

work is scheduled to begin under a contract, as provided in the solicitation.
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 38

APPENDIX 2

APPENDIX 2

Commercial Activities Inventory

A. Annual Inventory Submission

In accordance with the FAIR Act, Circular A–76

and this Handbook, each agency must submit to

OMB, by June 30 of each year, a detailed Commercial

Activities Inventory of all commercial activities performed by in-house employees, including, at a minimum, the following:

a. Organization unit.

b. State(s).

c. Location(s).

d. FTE.

e. Activity function code.

f. Reason code.

g. Year the activity first appeared on FAIR Act

Commercial Activities Inventory (initial value will

be 1999).

h. Name of a Federal employee responsible for

the activity or contact person from whom additional information about the activity may be obtained.

i. Year of cost comparison or conversion (if applicable).

j. CIV/FTE savings (if applicable).

k. Estimated annualized Cost Comparison dollar

savings (if applicable).

l. Date of completed Post-MEO Performance Review (if applicable).

Agencies have the discretion to automate and to

structure the initial submission of the detailed inventory as they believe most appropriate, so long as the

inventory includes each of these data elements. Agencies must transmit an electronic version of the inventory to OMB as well as two paper copies. The electronic version should be in a commonly used software

format (commercial off-the-shelf spreadsheet, database or word processing format). OMB anticipates

issuing additional guidance on the structure and format of future inventory submissions, based on the

experience gained from the first annual review and

consultation process.

B. Reporting

The above is public information. The data may

be summarized into reports for the Congress, the

General Accounting Office (GAO), agency officials,

OMB or the public.

C. FTE

Enter the number of authorized full-time employees or FTE (as applicable) in the commercial activity

function or functions as of the date of the inventory.

Employees performing inherently Governmental activities are not reported in the Commercial Activities

Inventory.

D. A–76 Commercial activity functional codes

The Department of Defense has developed a comprehensive list of function codes for use in their

A–76 inventory system. In applying these function

codes Government-wide, the codes standardize the

functional descriptions of activities and facilitate the

aggregation of activities Government-wide and by

agency.

E. Reason codes

The following reason codes will be used in the

Commercial Activities Inventory. Agencies may add

additional sub-groupings (A1, A2 for example) within

any reason code, as deemed necessary.
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 39

APPENDIX 2

Code Explanation

A Indicates that the function is performed by Federal

employees and is specifically exempt by the agency

from the cost comparison requirements of the Circular and this Supplement.

B Indicates that the activity is performed by Federal

employees and is subject to the cost comparison or

direct conversion requirements of the Circular and

this Supplement.

C Indicates that the activity is performed by Federal

employees, but is has been specifically made exempt from the provisions of the Circular and this

Supplement by Congress, Executive Order or OMB.

D Indicates that the function is currently performed

by in-house Federal employees and is in the process of being cost compared or converted directly to

contract or interservice support agreement performance.

E Indicates that the function is retained in-house as a

result of a cost comparison.

F Indicates the function is currently being performed

by Federal employees, but a review is pending force

restructuring decisions (i.e., base closure, realignment, consolidation, etc.).

G Indicates that the function is prohibited from conversion to contract because of legislation.

H Waiver issued.

I Indicates the function is being performed in-house

as a result of a cost comparison resulting from a

decision to convert from contract to in-house performance.

F. Maintenance of aggregate data

Agencies should maintain aggregate program implementation data by fiscal year, to include: total

number of studies, FTE and dollar savings by conversion to contract, conversion to in-house or otherwise

retained in-house. Agencies should also track total

FTE studied and MEO savings generated.

G. Inventory Review and Publication; Challenges and

Appeals.

1. Review and Publication: In accordance with Section 2 of the FAIR Act, OMB will review the agency’s

Commercial Activities Inventory and consult with the

agency regarding its content. After this review is completed, OMB will publish a notice in the Federal

Register stating that the inventory is are available

to the public. Once the notice is published, the agency will transmit a copy of the detailed Commercial

Activities Inventory to Congress and make the materials available to the public through its Washington,

D.C. or headquarters offices.

2. Challenges and Appeals: Under Section 3 of

the FAIR Act, an agency’s decision to include or

exclude a particular activity from the Commercial

Activities Inventory is subject to administrative challenge and, then, possible appeal by an ‘‘interested

party.’’ Section 3(b) of the FAIR Act defines ‘‘interested party’’ as:

a. 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.

b. A representative of any business or professional

association that includes within its membership private sector sources referred to in a. above.

c. An officer or employee of an organization within

an executive agency that is an actual or prospective

offeror to perform the activity.

d. 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 c.

above.

3. An interested party may submit to an executive

agency an initial challenge to the inclusion or exclusion of an activity within 30 calendar days after publication of OMB’s Federal Register notice stating that

the inventory is available. The challenge must set

forth the activity being challenged with as much specificity as possible, and 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 on inherently Governmental functions (see Appendix 5) or as established by precedent (such as when other agencies

have contracted for the activity or undergone competitions for this or similar activities).

4. The agency head may delegate the responsibility

to designate the appropriate official(s) to receive and

decide the initial challenges. As mandated by the

FAIR Act, 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.

5. An interested party may appeal an adverse decision to an initial challenge within 10 working days

after receiving the written notification of the deci-
(March 1996)

40 OMB Circular No. A–76—Revised Supplemental Handbook

COMMERCIAL ACTIVITIES INVENTORY

sion. The agency head may delegate the responsibility

to receive and decide appeals to the official identified

in paragraph 9.a of the Circular (or an equivalent

senior policy official), without further delegation.

Within 10 working days of receipt of the appeal,

the official 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. The agency must also transmit to OMB

and the Congress a copy of any changes to the inventory that result from this process, make the changes

available to the public and publish a notice of public

availability in the Federal Register.

H. Agency Review and Use of Inventory.

Section 2(d) of the FAIR Act requires that each

agency, within a reasonable time after the publication

of the notice that its inventories are publicly available,

review the activities on the detailed commercial activities inventory. Agencies will report to OMB on this

process as part of the Report on Agency Management

of Commercial Activities required under Paragraph

I, below. In addition, Section 2(d)-(e) of the FAIR

Act provides that, each time the head of the executive agency considers contracting with a private-sector

source for the performance of an activity included

on the inventory, the agency must use a competitive

process to select the source and must ensure that,

when a cost comparison is used or otherwise required

for the comparison of costs, all costs are considered

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 to determine if cost comparisons are required and what competitive method

is appropriate. All competitive costs of in-house and

contract performance are included in the cost comparison, when such comparison is required, 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.

I. Annual Report on Agency Management of Commercial Activities.

As part of ongoing agency responsibility to manage

their performance of commercial activities and ongoing OMB oversight, OMB will require agencies to

report annually on such management. The content

of the reports is likely to vary depending upon the

progress made by each agency in reviewing their inventory and on the experience OMB gains from the

first round of inventory submissions, review, challenges and appeals mandated by the FAIR Act. OMB

anticipates issuing subsequent guidance if it determines that supplemental reports or other information

is needed for future inventory submissions to assure

that agencies have correctly implemented all of the

provisions of the FAIR Act and taken advantage of

the management information inherent in the detailed

Commercial Activities Inventory.
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 41

APPENDIX 2

A–76 Commercial Activition Functional Codes

G—Social Services

G001 Care of Remains of Deceased Personnel & Funeral Services

G008 Commissary Store Operation

G009 Clothing Sales Store Operations

G010 Recreational Library Services

G011 Morale, Welfare, and Recreation Services

G012 Community Services

G900 Chaplain Activities and Support Services

G901 Housing Administrative Services

G904 Family Services

G999 Other Social Services

H—Health Services

H101 Hospital Care

H102 Surgical Care

H105 Nutritional Care

H106 Pathology Services

H107 Radiology Services

H108 Pharmacy Services

H109 Physical Therapy

H110 Materiel Services

H111 Orthopedic Services

H112 Ambulance Services

H113 Dental Care

H114 Dental Laboratories

H115 Clinics and Dispensaries

H116 Veterinary Services

H117 Medical Records

H118 Nursing Services

H119 Preventive Medicine

H120 Occupational Health

H121 Drug Rehabilitation

H999 Other Health Services

J—Intermediate, Direct or General Repair and Maintenance of Equipment

J501 Aircraft Maintenance

J502 Aircraft Engine Maintenance

J503 Missiles

J504 Vessels

J505 Combat Vehicles

J506 Noncombat Vehicles

J507 Electronic and Communication Equipment Maintenance

J510 Railway Equipment

J511 Special Equipment

J512 Armament

J513 Dining Facility Equipment

J514 Medical and Dental Equipment

J515 Containers, Textile, Tents, and Tarpaulins

J516 Metal Containers

J517 Training Devices and Audiovisual Equipment

J519 Industrial Plant Equipment

J520 Test, Measurement and Diagnostic Equipment

J521 Other Test, Measurement and Diagnostic Equipment

J522 Aeronautical Support Equipment

J999 Maintenance of Other Equipment
(March 1996)

42 OMB Circular No. A–76—Revised Supplemental Handbook

COMMERCIAL ACTIVITIES INVENTORY

A–76 Commercial Activition Functional Codes—Continued

K—Depot Repair, Maintenance, Modification,

Conversion or Overhaul of Equipment

K531 Aircraft

K532 Aircraft Engines

K533 Missiles

K534 Vessels

K535 Combat Vehicles

K536 Noncombat Vehicles

K537 Electronic and Communication Equipment

K538 Railway Equipment

K539 Special Equipment

K540 Armament

K541 Industrial Plant Equipment

K542 Dinning and Facility Equipment

K543 Medical and Dental Equipment

K544 Containers, Textile, Tents, and Tarpaulins

K545 Metal Containers

K546 Test, Measurement and Diagnostic Equipment

K547 Other Test, Measurement and Diagnostic Equipment

K548 Aeronautical Support Equipment

K999 Other Depot Repair, Maintenance, Modification, Conversion or Overhaul of Equipment

P—Base Maintenance/Multifunction Contracts

P100 Installation Operation Contracts (Multi-function)

R—Research, Development, Test, and Evaluation (RDT&E) Support

R660 RDT&E Support

S—Installation Services

S700 Natural Resource Services

S701 Advertising and Public Relations

S702 Financial and Payroll Services

S703 Debt Collection

S706 Bus Services

S708 Laundry and Dry Cleaning

S709 Custodial Services

S710 Pest Management

S712 Refuse Collection and Disposal Services

S713 Food Services

S714 Furniture Repair

S715 Office Equipment Maintenance and Repair

S716 Motor Vehicle Operation

S717 Motor Vehicle Maintenance

S718 Fire Prevention and Protection

S719 Military Clothing

S724 Guard Service

S725 Electrical Plants and Systems Operation and Maintenance

S726 Heating Plants and Systems Operation and Maintenance

S727 Water Plants and Systems Operation and Maintenance

S728 Sewage and Waste Plants Operation and Maintenance

S729 Air Conditioning and Refrigeration Plants

S730 Other Utilities Operation and Maintenance

S731 Supply Operations

S732 Warehousing and Distribution of Publications

S740 Transportation Management Services

S750 Museum Operations

S760 Contractor-Operated Parts Stores & Civil Engineering Supply Stores
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 43

APPENDIX 2

A–76 Commercial Activition Functional Codes—Continued

S999 Other Installation Services

T—Other NonManufacturing Operations

T800 Ocean Terminal Operations

T801 Storage and Warehousing

T802 Cataloging

T803 Acceptance Testing

T804 Architect-Engineering

T805 Operation of Bulk Liquid Storage

T806 Printing and Reproduction

T807 Visual Information

T808 Mapping and Charting

T809 Administrative Telephone Services

T810 Air Transportation Services

T811 Water Transportation Services

T812 Rail Transportation Services

T813 Engineering and Technical Services

T814 Aircraft Fueling Services

T815 Scrap Metal Operation

T816 Telecommunication Centers

T817 Other Communications and Electronics Systems

T818 Systems Engineering and Installation of Communications Systems

T819 Preparation and Disposal of Excess and Surplus Property

T820 Administrative Support Services

T821 Special Studies and Analysis

T900 Training Aids, Devices, and Simulator Support

T999 Other NonManufacturing Operations

U—Education and Training

U100 Recruit Training

U200 Officer Acquisition Training

U300 Specialized Skill Training

U400 Flight Training

U500 Professional Development Training

U510 Professional Military Education

U520 Graduate Education, Fully Funded, Full-time

U530 Other Full-time Education Programs

U540 Off-Duty (Voluntary) and On-Duty Education Programs

U600 Civilian Education and Training

U700 Dependent Education

U800 Training Development and Support

U999 Other Training Functions

W—Automatic Data Processing

W824 Data Processing Services

W825 Maintenance of ADP Equipment

W826 Systems Design, Development and Programming Services

W827 Software Services

W999 Other ADP Functions

X—Products Manufactured and Fabricated In-House

X931 Ordnance Equipment

X932 Products Made From Fabric or Similar Materials

X933 Container Products and Related Items

X934 Preparation of Food and Bakery Products

X935 Liquid, Gaseous and Chemical Products

X936 Rope, Cordage, and Twine Products; Chains and Metal Cable Products
(March 1996)

44 OMB Circular No. A–76—Revised Supplemental Handbook

COMMERCIAL ACTIVITIES INVENTORY

A–76 Commercial Activition Functional Codes—Continued

X937 Logging and Lumber Products

X938 Communications and Electronic Products

X939 Construction Products

X940 Rubber and Plastic Products

X941 Optical and Related Products

X942 Sheet Metal Products

X943 Foundry Products

X944 Machined Parts

X999 Other Products Manufactured and Fabricated In-House

Z—Maintenance, Repair, Alteration, and Minor Construction of Real Property

Z991 Maintenance and Repair of Family Housing Buildings and Structures

Z992 Maintenance and Repair of Buildings and Structures Other Than Family Housing

Z993 Maintenance and Repair of Grounds and Surfaced Areas

Z997 Maintenance and Repair of Railroad Facilities

Z998 Maintenance and Repair of Waterways

Z999 Other Maintenance, Repair, Alteration, and Minor Construction of Real Property
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 45

APPENDIX 3

APPENDIX 3

Useful Life and Disposal Value

The attached useful life and disposal values are

estimated by the Defense Logistics Agency. The disposal value factor, as a percent of acquisition cost,is based upon the rate of return.

Useful Life * and Disposal Value Table

FSC No. Nomenclature

Expected

Useful Life

(Years)

Disposal Value

Factor as a

Percent of

Acquisition

Cost

Guns, through 30mm 15 3.15

Guns, over 30mm up to 75mm 1.18

Guns, 75mm through 125mm 25 0.63

Guns, over 125mm through 200mm 2.14

Guns, over 200mm through 300mm 2.61

1040 Chemical Weapons and Equipment 16

Launchers, Rocket and Pyrotechnic 15 2.00

1080 Camouflage and Deception Equipment 10 1.75

1090 Assemblies Interchangeable between Weapons in Two or More Classes 25 2.25

1095 Misc. Weapons 1.06

1135 Fusing and Firing Devices Nuclear Ordnance 16 0.08

1190 Specialized Test and Handling Equipment, Nuclear Ordnance 8 0.60

1220 Fire Control Computing Sights and Devices 8 0.29

1230 Fire Control System, Complete 11

1240 Optical Sighting and Ranging Equipment 11 1.80

1250 Fire Control Stabilizing Mechanisms 11 1.76

1260 Fire Control Designating and Indicating Equipment 12 0.58

1265 Fire Control Transmitting and Receiving Equipment, except Airborne 11 0.39

1270 Aircraft Gunnery Fire Control Components 0.22

1285 Fire Control Radar Equipment, except Airborne 1.19

1290 Misc. Fire Control Equipment 19 0.79

1340 Rockets, Rocket Ammo and Rocket Components 18 3.62

1375 Demolition Materials

1377 Cartridge and Propellant Activated Devices and Components 1.28

1398 Specialized Ammo Handling and Servicing Equipment 12 0.52

1410 Guided Missiles 19 1.55

1420 Guided Missile Components 15 0.13

1430 Guided Missile Remote Control Systems 19 0.45

1440 Launchers, Guided Missile 17 0.66

2450 Guided Missile Handling and Servicing Equipment 27 0.65

1560 Airframe Structural Components 20 2.48

1610 Aircraft Propellers 10 4.58

1615 Helicopter Rotor Blades, Drive Mechanisms and Components 10 3.52

1620 Aircraft Landing Gear Components 10 2.71

1630 Aircraft Wheel and Brake Systems 10 4.92

1650 Aircraft Hydraulic, Vacuum and De-icing System Components 10 2.19

1660 Aircraft Air Conditioning, Heating and Pressurizing Equipment 10 2.23

1670 Parachutes; Aerial Pick Up, Delivery, Recovery Systems and Cargo Tie

Down Equipment

7 5.52

1680 Misc. Aircraft Accessories and Components 7 1.92

1720 Aircraft Launching Equipment 25 1.91

1730 Aircraft Ground Servicing Equipment 20 3.12

1740 Airfield Specialized Trucks and Trailers 6.37

1905 Combat Ships and Landing Vessels 20 2.53
(March 1996)

46 OMB Circular No. A–76—Revised Supplemental Handbook

USEFUL LIFE AND DISPOSAL VALUE

Useful Life * and Disposal Value Table—Continued

FSC No. Nomenclature

Expected

Useful Life

(Years)

Disposal Value

Factor as a

Percent of

Acquisition

Cost

1915 Cargo and Tanker Vessels 30 8.54

1925 Special Service Vessels 25 8.54

1930 Barges and Lighters, Cargo 27 11.05

1935 Barges and Lighters, Special Purpose 30 19.83

1940 Small Craft 23 6.35

1945 Pontoons and Floating Docks 30 14.42

1990 Misc. Vessels 8.74

2010 Ship and Boat Propulsion Components 20 10.26

2030 Deck Machinery 3.31

2040 Marine Hardware and Hull Items 20 16.57

2050 Buoys 11.05

2090 Misc. Ship and Marine Equipment 4.81

2210 Locomotives 29 16.51

2220 Rail Cars 40 10.27

2230 Right-of-Way Construction and Maintenance Equipment, Railroad 20 18.69

2240 Locomotive and Rail Car Accessories and Components 9.98

2250 Track Materials, Railroad 41.00

2305 Ground Effect Vehicles 15

2310 Passenger Motor Vehicles * 17.00

Passenger Cars and Station Wagons 6

Buses (11 or more passengers) 8

Ambulances 7

2320 Trucks and Truck Tractors, Wheeled * 17.96

Less than 12,500 (payload I ton and 6

less) 12,500 through 16,999 (payload,

11⁄2 through 21⁄2 tons) 7

17,000 and over (payload, tons and (over) 9

Multiple Drive Vehicles 6

2330 Trailers 23 10.09

2340 Motorcycles, Motor Scooters and Bicycles 12 27.31

2350 Combat, Assault and Tactical Vehicles, Tracked 14 32.82

2410 Tractors, Full Track, Low Speed 14 27.62

2420 Tractors, Wheeled 13 22.70

2430 Tractors, Track Laying High Speed 7.42

2510 Vehicular Cab, Body and Frame Structural Components 10 14.18

2520 Vehicular Power Transmission Components 12 16.22

2530 Vehicular Brake, Steering, Axle, Wheel and Track Components 12 12.17

2540 Vehicular Furniture and Accessories 18 6.95

2590 Misc. Vehicular Components 10 7.04

2805 Gasoline Reciprocating Engines except Aircraft and Components 7 5.68

2810 Gasoline Reciprocating Engines, Aircraft and Components 3.43

2815 Diesel Engines and Components 13.33

2835 Gas Turbines and Jet Engines, except Aircraft and Components 15 3.59

2840 Gas Turbines and Jet Engines, Aircraft, and Components 1.77

2845 Rocket Engines and Components 0.11

2910 Engine Fuel System Components, Nonaircraft 8.01

2915 Engine Fuel System Components, Aircraft 3.01

2920 Engine Electrical System Components, Nonaircraft 10.32

2925 Engine Electrical System Components, Aircraft 7.94

2930 Engine Cooling System Components, Nonaircraft 21.96

2935 Engine Cooling System Components, Aircraft 7.41

2945 Engine Air and Oil Filters, Strainers and Cleaners, Aircraft 1.71

2950 Turbosuperchargers 8.26

2990 Misc. Engine Accessories, Nonaircraft 7.77

2995 Misc. Engine Accessories, Aircraft 4.10
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 47

APPENDIX 3

Useful Life * and Disposal Value Table—Continued

FSC No. Nomenclature

Expected

Useful Life

(Years)

Disposal Value

Factor as a

Percent of

Acquisition

Cost

3010 Torque Converters and Speed Changers 5.93

3020 Gears, Pulleys, Sprockets and Transmission Chain 4.64

3040 Misc. Power Transmission Equipment 3.22

3110 Bearings, Antifriction, Unmounted 22.14

3120 Bearings, Plain, Unmounted 4.78

3130 Bearings, Mounted 7.80

3210 Sawmill and Planing Mill Machinery 15 28.41

3220 Woodworking Machines 15 27.37

3405 Saws and Filing Machines 20 30.87

3408 Machining Centers and Way-Type Machines 7.49

3410 Electrical and Ultrasonic Erosion Machines 10 9.75

3411 Boring Machines 20 49.61

3413 Drilling and Tapping Machines 15 40.16

3414 Gear Cutting and Finishing Machines 10 29.58

3415 Grinding Machines 15 35.06

3416 Lathes 20 39.84

3417 Milling Machines 20 28.22

3418 Planners and Shakers 20 27.66

3419 Misc. Machine Tools 15 17.92

3422 Rolling Mills and Drawing Machines 10 68.35

3424 Metal Heat Treating and Nonthermal Treating Equipment 25 11.72

3426 Metal Finishing Equipment 20 6.63

3655 Gas Generating and Dispersing Systems 12 7.35

Industrial Size Reduction Machinery 9 27.30

3680 Foundry Machinery, Related Equipment and Supplies 10 12.61

3690 Specialized Ammo and Ordnance Machinery and Related Equipment 3.41

3693 Industrial Assembly Machine 0.45

3694 Clean Work Stations, Controlled Environment and Related Equipment 6.43

3695 Misc. Special Industry Equipment 4 7.58

3910 Conveyors 12 6.85

3920 Materials Handling Equipment Nonself Propelled 22 9.07

3930 Warehouse Trucks and Tractors, Self Propelled * 18.60

Gasoline

Fork Truck (2,000 pounds to 16,000 Pounds) 8

Fork Truck (over 6,000 pounds) 10

Tractor 8

Crane 12

Platform Truck 8

Straddle Truck 15

Electric

All types 15

3940 Blocks, Tackle, Rigging and Slings 9.61

3950 Winches, Hoists, Cranes and Derricks 13 10.23

3990 Misc. Materials Handling Equipment 30 8.71

4010 Chain and Wire Rope 5.11

4020 Fiber Rope, Cordage and Twine 6.81

4030 Fittings for Rope, Cable and Chain 13.16

4110 Refrigeration Equipment 11 7.07

4120 Air Conditioning Equipment 10 3.82

4130 Refrigeration and Air Conditioning Components 16 4.26

4140 Fans, Air Circulators and Blow Equipment 4.79

4210 Fire Fighting Equipment 14 6.55

4220 Marine Lifesaving and Diving Equipment 10 5.65

4230 Decontaminating and Impregnating Equip. 17 5.87

4240 Safety and Rescue Equipment 19 2.53
(March 1996)

48 OMB Circular No. A–76—Revised Supplemental Handbook

USEFUL LIFE AND DISPOSAL VALUE

Useful Life * and Disposal Value Table—Continued

FSC No. Nomenclature

Expected

Useful Life

(Years)

Disposal Value

Factor as a

Percent of

Acquisition

Cost

4310 Compressors and Vacuum Pumps 10 7.59

4320 Power and Hand Pumps 15 4.27

4330 Centrifuges, Separators and Pressure and Vacuum Filters 20 4.90

4410 Industrial Boilers 9 3.78

4420 Heat Exchanges and Steam Condensers 9.73

4430 Industrial Furnaces, Kilns, Lehrs and Ovens 10 6.59

4440 Driers, Dehydrators and Anhydrators 10 4.55

4460 Air Purification Equipment 11 3.71

4510 Plumbing Fixtures and Accessories 15 5.91

4520 Space Heating Equipment and Domestic Water Heaters 8 8.36

4540 Misc. Plumbing, Heating and Sanitation Equipment 8 3.01

4610 Water Purification Equipment 14 4.55

4620 Water Distillation Equipment, Marine and Industrial 15 15.61

4710 Pipe and Tube 7.79

4720 Hose and Tubing, Flexible 6.13

4730 Fittings and Specialties, Hose, Pipe and Tube 4.83

4810 Valves, Powered 2.20

4820 Valves Nonpowered 4.91

4910 Motor Vehicle, Maintenance and Repair Shop Specialized Equipment 11 6.63

4920 Aircraft Maintenance and Repair Shop Specialized Equipment 20 1.58

4925 Ammo, Maintenance, Repair and Checkout Specialized Equipment 21 1.67

4927 Rocket Maintenance, Repair and Checkout Specialized Equipment

4930 Lubrication and Fuel Dispensing Equipment 15 5.00

4931 Fire Control Maintenance and Repair Shop Specialized Equipment 9 1.18

4933 Weapons Maintenance and Repair Shop Specialized Equipment 15 1.91

4935 Guided Missile Maintenance, Repair and Checkout Specialized Equipment 19 0.40

4940 Misc. Maintenance and Repair Shop Specialized Equipment 20 4.48

5110 Hand tools, Edged-Nonpowered 10 9.26

5120 Hand tools, Nonedged, Nonpowered 21 5.53

5130 Hand tools, Power Driven 10 10.31

5133 Drill Bits, Counterbores and Countersinks, Hand and Machine 10 24.07

5136 Taps, Dies and Collets, Hand and Machine 10 8.08

5140 Tool and Hardware Boxes 20 26.42

5180 Sets, Kits and Outfits of Hand Tools 23 3.83

5210 Measuring Tools, Craftsmen 10 4.87

5220 Inspection Gages and Precision Layout Tools 12 3.17

5280 Sets, Kits and Outfits of Measuring Tools 25 1.01

5410 Prefabricated and Portable Building 8 2.48

5411 Rigid Wall Shelters 20 2.44

5420 Bridges, Fixed and Floating 17 7.25

5430 Storage Tanks 7 6.83

5440 Scaffolding Equipment and Concrete Forms 5 6.83

5445 Prefabricated Tower Structures 23 5.23

5450 Misc. Prefabricated Structures 25 1.30

5670 Architectural and Related Metal Products 10 59.16

5680 Misc. Construction Materials 69 9.59

5805 Telephone and Telegraph Equipment 23 2.37

5810 Communications Security Equipment and Components 16 0.40

5811 Other Cryptologic Equipment and Components 11 1.25

5815 Teletype and Facsimile Equipment 22 0.99

5820 Radio and Television Communications Equipment, except Airborne 8 2.44

5821 Radio and Television Communications Equipment, Airborne 24 1.01

5825 Radio Navigation Equipment, except Airborne 24 1.37

5826 Radio Navigation Equipment, Airborne 24 1.44

5830 Intercommunication and Public Address Systems, except Airborne 24 1.74
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 49

APPENDIX 3

Useful Life * and Disposal Value Table—Continued

FSC No. Nomenclature

Expected

Useful Life

(Years)

Disposal Value

Factor as a

Percent of

Acquisition

Cost

5831 Intercommunication and Public Address Systems, Airborne 25 0.61

5835 Sound Recording and Reproducing Equipment 22 1.43

5840 Radar Equipment, except Airborne 23 0.92

5841 Radar Equipment, Airborne 24 0.53

5845 Underwater Sound Equipment 13 1.14

5850 Visible and Invisible Light Communication Equipment 24 0.32

5855 Night Vision Equipment, Emitted and Reflected Radiation 25 1.18

5860 Stimulated Coherent Radiation Devices, Components and Accessories 25

5865 Electronic Countermeasures, Counter Countermeasures and Quick Reaction Capability Equipment20 0.27

5895 Misc. Communications Equipment 23 0.67

5905 Resistors 8 1.02

5910 Capacitors 8 2.32

5915 Filters and Networks 25 0.93

5920 Fuses and Lightning Arrestors 25 3.12

5925 Circuit Breakers 10 7.49

5930 Switches 10 1.55

5935 Connectors, Electrical 22 20.61

5940 Lugs, Terminals and Terminal Strips 8 1.66

5945 Relays and Solenoids 25 1.36

5950 Coils and Transformers 8 1.35

5955 Piezoelectric Crystals 8 0.65

5960 Electron Tubes and Associated Hardware 8 1.00

5961 Semiconductor Devices and Associated Hardware 8 1.04

5962 Microcircuits, Electronic 8 0.54

5963 Electronic Modules 8

5965 Headsets, Handsets, Microphones and Speakers 24 4.28

5970 Electrical Insulators and Insulating Materials 8 34.93

5975 Electrical Hardware and Supplies 23 3.73

5977 Electrical Contact Brushes and Electrodes 8 2.08

5985 Antennas, Waveguide and Related Equipment 8 2.02

5990 Synchros and Resolvers 14 1.65

5995 Cable, Cord and Wire Assemblies, Communications Equipment 24 4.16

5999 Misc. Electrical and Electronic Components 20 1.01

6105 Motors, Electrical 10 5.31

6110 Electrical Control Equipment 8 2.45

6115 Generators and Generator Sets, Electrical 19 6.50

6116 Fuel Cell Power Units, Components and Accessories 15 22.88

6120 Transformers: Distribution and Power

6125 Converters, Electrical, Rotating 25 2.88

6130 Converters, Electrical, Nonrotating 22 1.75

6135 Batteries, Primary 15 2.51

6140 Batteries, Secondary 25 6.91

6145 Wire and Cable, Electrical 25 16.29

6150 Misc. Electric Power and Distribution Equipment 15 2.55

6210 Indoor and Outdoor Electric Lighting Fixtures 16 3.95

6220 Electric Vehicular Light and Fixtures 10 4.58

6230 Electric Portable and Hand Lighting Equipment 17 3.44

6240 Electric Lamps 10 6.92

6250 Ballasts, Lampholders and Starters 10 3.91

6310 Traffic and Transit Signal Systems 4 3.52

6320 Shipboard Alarm and Signal Systems 4 2.68

6350 Misc. Alarm, Signal and Security Detection Systems 6 1.38

6515 Medical and Surgical Instruments Equipment and Supplies 9 2.54

6520 Dental Instruments, Equipment and Supplies 8 7.66
(March 1996)

50 OMB Circular No. A–76—Revised Supplemental Handbook

USEFUL LIFE AND DISPOSAL VALUE

Useful Life * and Disposal Value Table—Continued

FSC No. Nomenclature

Expected

Useful Life

(Years)

Disposal Value

Factor as a

Percent of

Acquisition

Cost

6525 X-Ray Equipment and Supplies: Medical Dental, Veterinary 9 3.57

6530 Hospital Furniture, Equipment, Utensils and Supplies 10 4.18

6540 Opticians’ Instruments, Equipment and Supplies 10 6.23

6545 Medical Sets, Kits and Outfits 10 5.60

6605 Navigational Instruments 15 0.87

6610 Flight Instruments 17 2.30

6615 Automatic Pilot Mechanisms and Airborne Gyro Components 25 1.17

6620 Engine Instruments 15 3.04

6625 Electrical and Electronic Properties Measuring and Testing Instruments 15 1.55

6630 Chemical Analysis Instruments 5 1.70

6635 Physical Properties Testing Equipment 13 6.62

6636 Environmental Chambers and Related Equipment 10 2.20

6640 Laboratory Equipment and Supplies 20 2.12

6645 Time Measuring Instruments 25 5.54

6650 Optical Instruments 8 2.31

6655 Geophysical and Astronomical Instruments 25 2.02

6660 Meteorological Instruments and Apparatus 20 1.05

6665 Hazard-Detecting Instruments and Apparatus 16 1.44

6670 Scales and Balances 18 4.77

6675 Drafting, Surveying and Mapping Instruments 19 2.44

6680 Liquid and Gas Flow, Liquid Level and Mechanical Motion Measuring Instruments10 2.87

6685 Pressure, Temperature and Humidity Measuring Controlling Instruments 10 2.53

6695 Combination and Misc. Instruments 8 2.06

6710 Cameras, Motion Pictures 25 5.29

6720 Cameras, Still Picture 24 1.82

6730 Photographic Projection Equipment 25 3.52

6740 Photographic Developing and Finishing Equipment 24 3.32

6750 Photographic Supplies 25 8.64

6760 Photographic Equipment and Accessories 24 1.36

6780 Photographic Sets, Kits and Outfits 22 3.24

6910 Training Aids 20 0.96

6920 Armament Training Devices 20 3.22

6930 Operation Training Devices 21 0.62

6940 Communication Training Devices 21 0.79

7010 ADPE Configuration 8 0.73

7021 ADP Central Processing Unit, Digital 15 0.73

7022 ADP Central Processing Unit, Hybrid 15

7025 ADP Input/Output and Storage Devices 13 1.01

7030 ADP Software 15 0.97

7035 ADP Accessorial Equipment 13 0.72

7040 Punched Card Equipment 15 0.87

7045 ADP Supplies and Support Equipment 11 1.50

7050 ADP Components 15 0.95

7105 Household Furniture 10 9.94

7110 Office Furniture 10 16.20

7125 Cabinets, Lockers, Bins and Shelving 20 9.47

7195 Misc. Furniture and Fixtures 10 6.17

7310 Food Cooking, Baking and Serving Equipment 12 5.40

7320 Kitchen Equipment and Appliances 18 5.60

7420 Accounting and Calculating Machine 12 Electric

15 Manual

1.46

7439 Typewriters and Office Type Composing Machines 12 Electric

15 Manuaal

6.10

7450 Office Type Sound Recording and Reproducing Machines 12 1.17
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 51

APPENDIX 3

Useful Life * and Disposal Value Table—Continued

FSC No. Nomenclature

Expected

Useful Life

(Years)

Disposal Value

Factor as a

Percent of

Acquisition

Cost

7460 Visible Record Equipment 2.26

7490 Misc. Office Machines 12 3.30

7710 Musical Instruments 12 14.67

7910 Floor Polishers and Vacuum Cleaning Equipment 5.72

8140 Ammo and Nuclear Ordnance Boxes, Packages and Special Containers 15 12.33

8145 Specialized Shipping and Storage Containers 22 6.55

8340 Tents and Tarpaulins 5 4.86

8345 Flags and Pennants 5 8.30

8415 Clothing, Special Purpose 5 10.81

8820 Live Animals, Not Raised for Food 3 55.05

9320 Rubber Fabricated Materials 5 19.40

9340 Glass Fabricated Materials 5 4.14

9515 Armor Plate 10 19.00

9530 Metal Bar 10 47.51

9535 Metal Plate 10 52.44

*There is no expected useful life for those items left blank.
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 52

APPENDIX 4

APPENDIX 4

Tax Tables

The estimated Federal income tax rates, presented

for use in comparisons of commercial and in-house

cost estimates, are derived from the Department of

the Treasury’s Internal Revenue Service 1988 Corporation Source Book of Statistics of Income, Publication 1053. The formula for estimating the tax rates

is based upon total income before credits divided

by the business receipts for each unique industry.

These tax rates will be updated periodically.

Tax Rate Table *

Code No. Industry Tax Rate (Percent)

Extractive Industries

10–01–0400 Agriculture Production 0.8

10–01–0600 Agricultural Services 0.5

20–02–1010 Mining Iron Ores 3.8

20–02–1070 Mining Copper, Lead, Zinc, Gold and Silver Ores 8.3

20–02–1098 Mining other Metals 0.6

20–03–1150 Coal Mining 1.1

20–05–1430 Sand, Gravel, Dimension, Crushed and Broken Stone 2.2

Construction

30–06–1510 General building (construction) 0.4

30–06–1531 Operative builders (construction) 0.8

30–07–1600 Heavy construction 0.8

30–08–1711 Plumbing, heating, air conditioning 0.4

30–08–1731 Electrical work 0.5

30–08–1798 Other special trades 0.5

Manufacturing

40–09–2010 Meat products 0.5

40–09–2020 Dairy products 2.1

40–09–2030 Preserved fruits and vegetables 2.0

40–09–2040 Grain mill products 2.1

40–09–2050 Bakery products 1.1

40–09–2060 Sugar and confectionery products 1.9

40–09–2089 Bottled soft drinks and flavorings 2.1

40–09–2096 Other food and kindred products 0.9

40–12–2315 Men’s and boy’s clothing 1.5

40–12–2345 Women’s and children’s clothing 1.1

40–12–2388 Other apparel and accessories 0.5

40–12–2390 Other fabricated textile products 0.5

40–13–2415 Logging, sawmills and planing mills 2.1

40–13–2430 Millwork, plywood, related products 1.3

40–13–2498 Other wood products 0.5

40–14–2500 Furniture and fixtures 1.1

40–15–2625 Pulp, paper and board mills 2.8

40–15–2699 Other paper products 2.4

40–16–2710 Newspapers (printing and publishing) 3.7

40–16–2720 Periodicals (printing and publishing) 1.6

40–16–2735 Books, greeting cards and miscellaneous publishing 3.9

40–16–2799 Commercial and other printing and printing trade services 1.1

40–17–2815 Industrial chemicals, plastics materials and synthetics 3.3

40–17–2830 Drugs 5.9

40–17–2840 Soap, cleaners and toilet goods 2.1

40–17–2850 Paints and allied products 1.5

40–17–2898 Agricultural and other chemical products 1.6
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 53

APPENDIX 4

Tax Rate Table *—Continued

Code No. Industry Tax Rate (Percent)

40–18–2998 Petroleum and coal products, not elsewhere classified 1.3

40–19–3050 Rubber products; plastics, footwear, hose and belting 1.6

40–19–3070 Miscellaneous plastics products 1.0

40–20–3140 Leather footwear 1.3

40–20–3198 Leather and leather products not elsewhere classified 0.8

40–21–3225 Glass products 1.8

40–21–3240 Cement, hydraulic 0.8

40–21–3270 Concrete, gypsum and plaster products 1.4

40–21–3298 Other nonmetallic mineral products 2.3

40–22–3370 Ferrous metal industries; miscella neous primary metal product 1.2

40–22–3380 Nonferrous metal industries 1.1

40–23–3410 Metal cans and shipping containers 1.9

40–23–3428 Cutlery, hand tools and hardware; screw machine products, bolts and similar products2.2

40–23–3430 Plumbing and heating, except electric and warm air 2.0

40–23–3440 Fabricated structural metal products 1.0

40–23–3460 Metal forgings and stamping 1.0

40–23–3470 Casting, engraving and allied services 1.0

40–23–3480 Ordnance and accessories, except vehicles and guided missiles 1.2

40–23–3490 Miscellaneous fabricated metal products 1.0

40–24–3520 Farm machinery 1.2

40–24–3530 Construction and related machinery 1.6

40–24–3540 Metal working machinery 1.1

40–24–3550 Special industry machinery 1.1

40–24–3570 Office and computing machines 5.2

40–24–3598 Other machinery, except electrical 1.7

40–25–3665 Radio, television, communication equipment 1.3

40–25–3670 Electronic components and accessories 2.4

40–25–3698 Other electrical equipment 2.2

40–26–3710 Motor vehicles and equipment 1.7

40–27–3725 Aircraft, guided missiles and parts 3.0

40–27–3730 Ship and boat building and repairing 0.8

40–27–3798 Other transportation equipment, except motor vehicles 1.3

40–28–3815 Scientific instruments and measuring devices; watches and clocks 4.0

40–28–3845 Optical, medical and ophthalmic goods 2.9

40–28–3860 Photographic equipment and supplies 2.5

40–29–3998 Miscellaneous manufacturing and manufacturing not allocable 1.4

Transportation And Utilities

50–30–4000 Railroad transportation 2.5

50–30–4100 Local and interurban passenger transit 0.4

50–30–4200 Trucking and warehousing 0.6

50–30–4400 Water transportation 1.2

50–30–4500 Transportation by air 2.0

50–30–4600 Pipe lines, except natural gas 10.5

50–30–4700 Transportation services not else where classified 0.4

50–31–4825 Telephone, telegraph and other communication services 3.1

50–31–4830 Radio and Television broadcasting 4.4

50–32–4910 Electric services 3.0

50–32–4920 Gas production and distribution 1.7

50–32–4930 Combination utility services 3.0

50–32–4990 Water supply and other sanitary services 2.7

Wholesale Trade

61–33–5004 Groceries and related products 0.3

61–34–5008 Machinery, equipment and supplies 0.6

61–35–5010 Motor vehicles and automotive equipment 0.6
(March 1996)

54 OMB Circular No. A–76—Revised Supplemental Handbook

TAX TABLES

Tax Rate Table *—Continued

Code No. Industry Tax Rate (Percent)

61–35–5030 Lumber and construction materials 0.3

61–35–5050 Metals and minerals, except petroleum and scrap 0.7

61–35–5060 Electrical goods 0.5

61–35–5070 Hardware, plumbing and heating 0.5

61–35–5098 Other durable goods 0.5

61–35–5110 Paper and paper products 0.4

61–35–5129 Drugs, chemicals and allied products 0.5

61–35–5130 Apparel, piece goods and notions 0.6

61–35–5150 Farm–product raw materials 0.3

61–35–5170 Petroleum and petroleum products 0.3

61–35–5180 Alcoholic beverages 0.3

61–35–5190 Miscellaneous nondurable goods; wholesale trade not allocable 0.5

Retail Trade

62–36–5220 Building materials dealers 0.4

62–36–5251 Hardware stores 0.4

62–36–5265 Garden supplies and mobile home dealers 0.4

62–37–5300 General merchandise stores 1.1

62–38–5400 Food stores 0.3

62–39–5541 Gasoline service stations 0.2

62–39–5598 Other automotive dealers 0.3

62–40–5600 Apparel and accessory stores 1.1

62–41–5700 Furniture and home furnishings stores 0.8

62–42–5800 Eating and drinking places 0.6

62–43–5912 Drug stores and proprietary stores 0.6

62–43–5921 Liquor stores 0.2

62–43–5995 Other retail stores 0.6

63–44–5997 Wholesale and retail trade not allocable 0.3

Services

80–52–7000 Hotels and other lodging places 1.0

80–53–7200 Personal services 0.8

80–54–7310 Advertising services 0.7

80–54–7389 Business services, except advertising 0.8

80–55–7500 Auto repair and services 0.7

80–55–7600 Miscellaneous repair services 0.4

Services

80–56–7812 Motion picture production, distribution and services 1.8

80–56–7830 Motion picture theaters 1.1

80–56–7900 Amusement and recreation services, except motion pictures 1.4

80–57–8015 Physicians’ services 0.2

80–57–8021 Dentists’ services 0.1

80–57–8050 Nursing and personal care facilities 0.2

80–57–8071 Medical Laboratories 1.2

80–57–8099 Other medical services 0.7

80–57–8111 Legal services 0.2

80–57–8200 Educational services 0.5

80–57–8980 Miscellaneous services, not elsewhere classified 0.5

*Tax Rates are in relation to business receipts.

** Does not reflect revisions contained in the 1987 Standard Classification Manual.
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 55

APPENDIX 5

APPENDIX 5

Office of Federal Procurement Policy (OFPP) Policy Letter 92–1, ‘‘Inherently

Governmental Functions’’

September 23, 1992

TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS

SUBJECT: Inherently Governmental Functions.

1. Purpose. This policy letter establishes Executive

Branch policy relating to service contracting and inherently governmental functions. Its purpose is to

assist Executive Branch officers and employees in

avoiding an unacceptable transfer of official responsibility to Government contractors.

2. Authority. This policy letter is issued pursuant

to subsection 6(a) of the Office of Federal Procurement Policy (OFPP) Act, as amended, codified at

41 U.S.C. § 405(a).

3. Exclusions. Services obtained by personnel appointments and advisory committees are not covered

by this policy letter.

4. Background. Contractors, when properly used,

provide a wide variety of useful services that play

an important part in helping agencies to accomplish

their missions. Agencies use service contracts to acquire special knowledge and skills not available in

the Government, obtain cost effective services, or obtain temporary or intermittent services, among other

reasons.

Not all functions may be performed by contractors,

however. Just as it is clear that certain functions,

such as the command of combat troops, may not

be contracted, it is also clear that other functions,

such as building maintenance and food services, may

be contracted. The difficulty is in determining which

of these services that fall between these extremes

may be acquired by contract. Agencies have occasionally relied on contractors to perform certain functions in such a way as to raise questions about whether Government policy is being created by private persons. Also, from time to time questions have arisen

regarding the extent to which de facto control over

contract performance has been transferred to contractors. This policy letter provides an illustrative list

of functions, that are, as a matter of policy, inherently

governmental (see Appendix A), and articulates the

practical and policy considerations that underlie such

determinations (see para. 7).

As stated in paragraph 9, however, this policy letter

does not purport to specify which functions are, as

a legal matter, inherently governmental, or to define

the factors used in making such legal determination.

Thus, the fact that a function is listed in Appendix

A, or a factor is set forth in paragraph 7(b), does

not necessarily mean that the function is inherently

governmental as a legal matter or that the factor

would be relevant in making the legal determination.

5. Definition. As a matter of policy, an ‘‘inherently

governmental function’’ is a function that is so intimately related to the public interest as to mandate

performance by Government employees. These functions include those activities that require either the

exercise of discretion in applying Government authority or the making of value judgements in making

decisions for the Government. Governmental functions normally fall into two categories: (1) the act

of governing, i.e., the discretionary exercise of Government authority, and (2) monetary transactions

and entitlement.

An inherently governmental function involves,

among other things, the interpretation and execution

of the laws of the United States so as to:

(a) bind the United States to take or not to take

some action by contract, policy, regulation, authorization, order, or otherwise;

(b) determine, protect, and advance its economic,

political, territorial, property, or other interests by

military or diplomatic action, civil or criminal judicial

proceedings, contract management, or otherwise;

(c) significantly affect the life, liberty, or property

of private persons;

(d) commission, appoint, direct, or control officers

or employees of the United States; or

(e) exert ultimate control over the acquisition, use,

or disposition of the property, real or personal, tangible or intangible, of the United States, including

the collection, control, or disbursement of appropriated and other Federal funds.

Inherently governmental functions do not normally

include gathering information for or providing advice, opinions, recommendations, or ideas to Government officials. They also do not include functions
(March 1996)

56 OMB Circular No. A–76—Revised Supplemental Handbook

INHERENTLY GOVERNMENTAL FUNCTIONS

that are primarily ministerial and internal in nature,

such as building security; mail operations; operation

of cafeterias; housekeeping; facilities operations and

maintenance, warehouse operations, motor vehicle

fleet management and operations, or other routine

electrical or mechanical services.

The detailed list of examples of commercial activities found as an attachment to Office of Management

and Budget (OMB) Circular No. A–76 is an authoritative, nonexclusive list of functions that are not inherently governmental functions. These functions

therefore may be contracted.

6. Policy.

(a) Accountability. It is the policy of the Executive

Branch to ensure that Government action is taken

as a result of informed, independent judgments made

by Government officials who are ultimately accountable to the President. When the Government uses

service contracts, such informed, independent judgment is ensured by:

(1) prohibiting the use of service contracts for the

performance of inherently governmental functions

(See Appendix A);

(2) providing greater scrutiny and an appropriate

enhanced degree of management oversight (see subsection 7(f)) when contracting for functions that are

not inherently governmental but closely support the

performance of inherently governmental functions

(see Appendix B);

(3) ensuring, in using the products of those contracts, that any final agency action complies with the

laws and policies of the United States and reflects

the independent conclusions of agency officials and

not those of contractors who may have interests that

are not in concert with the public interest, and who

may be beyond the reach of management controls

otherwise applicable to public employees; and

(4) ensuring that reasonable identification of contractors and contractor work products is made whenever there is a risk that the public, Congress, or

other persons outside of the Government might confuse them with Government officials or with Government work products, respectively.

(b) OMB Circular No. A–76. This policy letter does

not purport to supersede or otherwise effect any

change in OMB Circular No. A–76, Performance of

Commercial Activities.

(c) Drafting of congressional testimony, responses to congressional correspondence, and agency responses to audit

reports from an Inspector General, the General Accounting

Office, or other Federal audit entity. While the approval

of a Government document is an inherently governmental function, its drafting is not necessarily such

a function. Accordingly, in most situations the drafting of a document, or portions thereof, may be contracted, and the agency should review and revise the

draft document, to the extent necessary, to ensure

that the final document expresses the agency’s views

and advances the public interest. However, even

though the drafting function is not necessarily an

inherently governmental function, it may be inappropriate, for various reasons, for a private party to draft

a document in particular circumstances. Because of

the appearance of private influence with respect to

documents that are prepared for Congress or for

law enforcement or oversight agencies and that may

be particularly sensitive, contractors are not to be

used for the drafting of congressional testimony; responses to congressional correspondence; or agency

responses to audit reports from an Inspector General,

the General Accounting Office, or other Federal

audit entity.

7. Guidelines. If a function proposed for contract

performance is not found in Appendix A, the following guidelines will assist agencies in understanding

the application of this policy letter, determining

whether the function is, as a matter of policy, inherently governmental and forestalling potential problems.

(a) The exercise of discretion. While inherently governmental functions necessarily involve the exercise of

substantial discretion, not every exercise of discretion

is evidence that such a function is involved. Rather,

the use of discretion must have the effect of committing the Federal Government to a course of action

when two or more alternative courses of action exist

(e.g., purchasing a minicomputer rather than a mainframe computer, hiring a statistician rather than an

economist, supporting proposed legislation rather

than opposing it, devoting more resources to prosecuting one type of criminal case than another,

awarding a contract to one firm rather than another,

adopting one policy rather than another, and so

forth).

A contract may thus properly be awarded where

the contractor does not have the authority to decide

on the course of action to be pursued but is rather

tasked to develop options to inform an agency decision maker, or to develop or expand decisions already made by Federal officials. Moreover, the mere

fact that decisions are made by the contractor in

performing his or her duties (e.g., how to allocate

the contractor’s own or subcontract resources, what

techniques and procedures to employ, whether and
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 57

APPENDIX 5

whom to consult, what research alternatives to explore given the scope of the contract, what conclusions to emphasize, how frequently to test) is not

determinative of whether he or she is performing

an inherently governmental function.

(b) Totality of the circumstances. Determining whether a function is an inherently governmental function

often is difficult and depends upon an analysis of

the facts of the case. Such analysis involves consideration of a number of factors, and the presence or

absence of any one is not in itself determinative of

the issue. Nor will the same emphasis necessarily be

placed on any one factor at different times, due to

the changing nature of the Government’s requirements.

The following factors should be considered when

deciding whether award of a contract might effect,

or the performance of a contract has effected, a

transfer of official responsibility:

(1) Congressional legislative restrictions or authorizations.

(2) The degree to which official discretion is or

would be limited, i.e., whether the contractor’s involvement in agency functions is or would be so extensive or his or her work product is so far advanced

toward completion that the agency’s ability to develop

and consider options other than those provided by

the contractor is restricted.

(3) In claims adjudication and related services, (i)

the finality of any contractor’s action affecting individual claimants or applicants, and whether or not

review of the contractor’s own is de novo (i.e., to

be effected without the appellate body’s being bound

by prior legal rulings or factual determinations) on

appeal of his or her decision to an agency official;

(ii) the degree to which contractor activities may

involve wide-ranging interpretations of complex, ambiguous case law and other legal authorities, as opposed to being circumscribed by detailed laws, regulations, and procedures;

(iii) the degree to which matters for decision by

the contractor involve recurring fact patterns or

unique fact patterns; and

(iv) The contractor’s discretion to determine an

appropriate award or penalty.

(4) The contractor’s ability to take action that will

significantly and directly affect the life, liberty, or

property of individual members of the public, including the likelihood of the contractor’s need to resort

to force in support of a police or judicial function;

whether force, especially deadly force, is more likely

to be initiated by the contractor or by some other

person; and the degree to which force may have

to be exercised in public or relatively uncontrolled

areas. (Note that contracting for guard, convoy security, and plant protection services, armed or unarmed, is not proscribed by these policies.)

(5) The availability of special agency authorities

and the appropriateness of their application to the

situation at hand, such as the power to deputize private persons.

(6) Whether the function in question is already

being performed by private persons, and the circumstances under which it is being performed by

them.

(c) Finality of agency determinations. Whether or not

a function is an inherently governmental function,

for purposes of this policy letter, is a matter for

agency determination. However, agency decisions that

a function is or is not an inherently governmental

function may be reviewed, and, if necessary, modified

by appropriate OMB officials.

(d) Preaward responsibilities. Whether a function

being considered for performance by contract is an

inherently governmental function is an issue to be

addressed prior to issuance of the solicitation.

(e) Post-award responsibilities. After award, even when

a contract does not involve performance of an inherently governmental function, agencies must take steps

to protect the public interest by playing an active,

informed role in contract administration. This ensures that contractors comply with the terms of the

contract and that Government policies, rather than

private ones, are implemented. Such participation

should be appropriate to the nature of the contract,

and should leave no doubt that the contract is under

the control of Government officials. This does not

relieve contractors of their performance responsibilities under the contract. Nor does this responsibility

to administer the contract require Government officials to exercise such control over contractor activities

as to convert the contract, or portion thereof, to

a personal service contract.

In deciding whether Government officials have lost

or might lose control of the administration of a contract, the following are relevant considerations: the

degree to which agencies have effective management

procedures and policies that enable meaningful oversight of contractor performance, the resources available for such oversight, the actual practice of the

agency regarding oversight, the duration of the contract, and the complexity of the tasks to be performed.
(March 1996)

58 OMB Circular No. A–76—Revised Supplemental Handbook

INHERENTLY GOVERNMENTAL FUNCTIONS

(f) Management controls. When functions described

in Appendix B are involved, additional management

attention to the terms of the contract and the manner of performance is necessary. How close the scrutiny or how extensive or stringent the management

controls need to be is for agencies to determine.

Examples of additional control measures that might

be employed are:

(1) developing carefully crafted statements of work

and quality assurance plans, as described in OFPP

Policy Letter 91–2, Service Contracting, that focus

on the issue of Government oversight and measurement of contractor performance;

(2) establishing audit plans for periodic review of

contracts by Government auditors;

(3) conducting preaward conflict of interest reviews

to ensure contract performance in accordance with

objective standards and contract specifications;

(4) physically separating contractor personnel from

Government personnel at the worksite; and

(5) requiring contractors to (a) submit reports that

contain recommendations and that explain and rank

policy or action alternatives, if any, (b) describe what

procedures they used to arrive at their recommendations, summarize the substance of their deliberations,

(d) report any dissenting views, (e) list sources relied

upon, and/or (f) otherwise make clear the methods

and considerations upon which their recommendations are based.

(g) Identification of contractor personnel and acknowledgment of contractor participation. Contractor personnel

attending meetings, answering Government telephones, and working in other situations where their

contractor status is not obvious to third parties must

be required to identify themselves as such to avoid

creating an impression in the minds of members of

the public or the Congress that they are Government

officials, unless, in the judgment of the agency, no

harm can come from failing to identify themselves.

All documents or reports produced by contractors

are to be suitably marked as contractor products.

(h) Degree of reliance. The extent of reliance on

service contractors is not by itself a cause for concern.

Agencies must, however, have a sufficient number

of trained and experienced staff to manage Government programs properly. The greater the degree of

reliance on contractors the greater the need for oversight by agencies. What number of Government officials is needed to oversee a particular contract is

a management decision to be made after analysis

of a number of factors. These include, among others,

the scope of the activity in question; the technical

complexity of the project or its components; the technical capability, numbers, and workloads of Federal

oversight officials; the inspection techniques available;

and the importance of the activity. Current contract

administration resources shall not be determinative.

The most efficient and cost effective approach shall

be utilized.

(I) Exercise of approving or signature authority. Official

responsibility to approve the work of contractors is

a power reserved to Government officials. It should

be exercised with a thorough knowledge and understanding of the contents of documents submitted by

contractors and a recognition of the need to apply

independent judgment in the use of these work products.

8. Responsibilities.

(a) Heads of agencies. Heads of departments and

agencies are responsible for implementing this policy

letter. While these policies must be implemented in

the Federal Acquisition Regulation (FAR), it is expected that agencies will take all appropriate actions

in the interim to develop implementation strategies

and initiate staff training to ensure effective implementation of these policies.

(b) Federal Acquisition Regulatory Council. Pursuant

to subsections 6(a) and 25(f) of the OFPP Act, as

amended, 41 U.S.C. 405(a) and 421(f), the Federal

Acquisition Regulatory Council shall ensure that the

policies established herein are incorporated in the

FAR within 210 days from the date this policy letter

is published in the Federal Register. Issuance of final

regulations within this 210-day period shall be considered issuance ‘‘in a timely manner’’ as prescribed

in 41 U.S.C. § 405(b).

(c) Contracting officers. When requirements are developed, when solicitations are drafted, and when

contracts are being performed, contracting officers

are to ensure:

(1) that functions to be contracted are not among

those listed in Appendix A of this letter and do

not closely resemble any functions listed there;

(2) that functions to be contracted that are not

listed in Appendix A, and that do not closely resemble them, are not inherently governmental functions

according to the totality of the circumstances test

in subsection 7(b), above;

(3) that the terms and the manner of performance

of any contract involving functions listed in Appendix

B of this letter are subject to adequate scrutiny and

oversight in accordance with subsection 7(f), above;

and
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 59

APPENDIX 5

(4) that all other contractible functions are properly managed in accordance with subsection 7(e),

above.

(d) All officials. When they are aware that contractor advice, opinions, recommendations, ideas, reports, analyses, and other work products are to be

considered in the course of their official duties, all

Federal Government officials are to ensure that, they

exercise independent judgment and critically examine these products.

9. Judicial review. This policy letter is not intended

to provide a constitutional or statutory interpretation

of any kind and it is not intended, and should not

be construed, to create any right or benefit, substantive or procedural, enforceable at law by a party

against the United States, its agencies, its officers,

or any person. It is intended only to provide policy

guidance to agencies in the exercise of their discretion concerning Federal contracting. Thus, this policy

letter is not intended, and should not be construed,

to create any substantive or procedural basis on

which to challenge any agency action or inaction

on the ground that such action or inaction was not

in accordance with this policy letter.

10. Information contact. For information regarding

this policy letter contact Richard A. Ong, Deputy

Associate Administrator, the Office of Federal Procurement Policy, 725 17th Street, N.W., Washington,

DC 20503. Telephone (202) 395–7209. (UPDATED

8/1995—contact the Budget Analysis and Systems Division,

Office of Management and Budget, 725 17th Street, N.W.,

Washington, DC 20503. Telephone (202) 395–6104.)

11. Effective date. This policy letter is effective 30

days after the date of publication.

Signed by

ALLAN V. BURMAN

Administrator
(March 1996)

60 OMB Circular No. A–76—Revised Supplemental Handbook

INHERENTLY GOVERNMENTAL FUNCTIONS

1 With respect to the actual drafting of congressional testimony,

of responses to congressional correspondence, and of agency responses to audit reports from an Inspector General, the General

Accounting Office, or other Federal audit entity, please see special

provisions in subsection 6.c of the text of the policy letter, above.

Appendix A to OFFP Policy Letter 92–1

The following is an illustrative list of functions considered to be inherently governmental functions: 1

1. The direct conduct of criminal investigations.

2. The control of prosecutions and performance

of adjudicatory functions (other than those relating

to arbitration or other methods of alternative dispute

resolution).

3. The command of military forces, especially the

leadership of military personnel who are members

of the combat, combat support or combat service

support role.

4. The conduct of foreign relations and the determination of foreign policy.

5. The determination of agency policy, such as determining the content and application of regulations,

among other things.

6. The determination of Federal program priorities

or budget requests.

7. The direction and control of Federal employees.

8. The direction and control of intelligence and

counter-intelligence operations.

9. The selection or nonselection of individuals for

Federal Government employment.

10. The approval of position descriptions and performance standards for Federal employees.

11. The determination of what Government property is to be disposed of and on what terms (although

an agency may give contractors authority to dispose

of property at prices within specified ranges and subject to other reasonable conditions deemed appropriate by the agency).12. In Federal procurement activities with respect to prime contracts,

(a) determining what supplies or services are to

be acquired by the Government (although an agency

may give contractors authority to acquire supplies at

prices within specified ranges and subject to other

reasonable conditions deemed appropriate by the

agency);

(b) participating as a voting member on any source

selection boards;

(c) approval of any contractual documents, to include documents defining requirements, incentive

plans, and evaluation criteria;

(d) awarding contracts;

(e) administering contracts (including ordering

changes in contract performance or contract quantities, taking action based on evaluations of contractor

performance, and accepting or rejecting contractor

products or services);

(f) terminating contracts; and (g) determining

whether contract costs are reasonable, allocable, and

allowable.

13. The approval of agency responses to Freedom

of Information Act requests (other than routine responses that, because of statute, regulation, or agency

policy, do not require the exercise of judgment in

determining whether documents are to be released

or withheld), and the approval of agency responses

to the administrative appeals of denials of Freedom

of Information Act requests.

14. The conduct of administrative hearings to determine the eligibility of any person for a security

clearance, or involving actions that affect matters of

personal reputation or eligibility to participate in

Government programs.

15. The approval of Federal licensing actions and

inspections.

16. The determination of budget policy, guidance,

and strategy.

17. The collection, control, and disbursement of

fees, royalties, duties, fines, taxes and other public

funds, unless authorized by statute, such as title 31

U.S.C. § 952 (relating to private collection contractors) and title 31 U.S.C. § 3718 (relating to private

attorney collection services), but not including:

(a) collection of fees, fines, penalties, costs or other

charges from visitors to or patrons of mess halls,

post or base exchange concessions, national parks,

and similar entities or activities, or from other persons, where the amount to be collected is easily calculated or predetermined and the funds collected

can be easily controlled using standard cash management techniques, and

(b) routine voucher and invoice examination.

18. The control of the treasury accounts.

19. The administration of public trusts.
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 61

APPENDIX 5

Appendix B to OFFP Policy Letter 92–1

The following list is of services and actions that

are not considered to be inherently governmental

functions. However, they may approach being in that

category because of the way in which the contractor

performs the contract or the manner in which the

Government administers contractor performance.

When contracting for such services and actions, agencies should be fully aware of the terms of the contract, contractor performance, and contract administration to ensure that appropriate agency control is

preserved.

This is an illustrative listing, and is not intended

to promote or discourage the use of the following

types of contractor services:

1. Services that involve or relate to budget preparation, including workload modeling, fact finding, efficiency studies, and should-cost analyses, etc.

2. Services that involve or relate to reorganization

and planning activities.

3. Services that involve or relate to analyses, feasibility studies, and strategy options to be used by agency

personnel in developing policy.

4. Services that involve or relate to the development of regulations.

5. Services that involve or relate to the evaluation

of another contractor’s performance.

6. Services in support of acquisition planning.

7. Contractors’ providing assistance in contract

management (such as where the contractor might

influence official evaluations of other contractors).

8. Contractors’ providing technical evaluation of

contract proposals.

9. Contractors’ providing assistance in the development of statements of work.

10. Contractors’ providing support in preparing responses to Freedom of Information Act requests.

11. Contractors’ working in any situation that permits or might permit them to gain access to confidential business information and/or any other sensitive

information (other than situations covered by the

Defense Industrial Security Program described in FAR

4.402(b)).

12. Contractors’ providing information regarding

agency policies or regulations, such as attending conferences on behalf of an agency, conducting community relations campaigns, or conducting agency training courses.

13. Contractors’ participating in any situation

where it might be assumed that they are agency employees or representatives.

14. Contractors’ participating as technical advisors

to a source selection board or participating as voting

or nonvoting members of a source evaluation board.

15. Contractors’ serving as arbitrators or providing

alternative methods of dispute resolution.

16. Contractors’ constructing buildings or structures intended to be secure from electronic eavesdropping or other penetration by foreign governments.

17. Contractors’ providing inspection services.

18. Contractors’ providing legal advice and interpretations of regulations and statutes to Government

officials.

19. Contractors’ providing special non-law enforcement, security activities that do not directly involve

criminal investigations, such as prisoner detention or

transport and non-military national security details.
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 62

APPENDIX 6

APPENDIX 6

Aviation Competitions

A. General

1. This Appendix provides guidance for use in cost

comparisons involving the provision of aircraft or

aviation management support services. It has been

prepared to ease completion of cost comparisons conducted in accordance with OMB Circular A–76 and

OMB Circular A–126, ‘‘Improving the Management

and Use of Government Aircraft,’’ dated May 22,

1992.

2. In accordance with OMB Circular A–126, agencies should conduct approved cost comparisons before retaining, purchasing or otherwise providing

Federal aircraft or aviation services not otherwise exempt from Circular A–76 (see Part I). In reviewing

aviation programs, agencies should consider that although an activity or mission may be inherently governmental, the tools needed to perform the activity

are not necessarily inherently governmental. Related

aviation support services should be reviewed, in accordance with this Supplement, for possible conversion to or from in-house, contract or interservice support aggreement (ISSA) performance. Leases for aircraft of 90 days or more are subject to these principles and procedures.

3. Agencies may estimate lease, charter, or other

contract aviation support costs through the General

Services Administration’s (GSA) Federal Aviation

Management Information System (FAMIS) or other

pre-approved data sources. This approach avoids the

need for formal solicitations to acquire commercial

bids for comparison with an in-house Government

cost estimate. Other aspects of the process described

in this Supplement are maintained.

4. When an aviation cost comparison is conducted,

the agency will notify affected Federal employees and

announce the tentative cost comparison decision in

the Commerce Business Daily. The announcement will

initiate the A–76 Administrative Appeal process. The

Performance Requirements Summary, the Management Plan, including the calculation of commercial

costs, and the aviation cost comparison form will be

made available to the public upon request.

5. Appeals of tentative aviation cost comparison

decisions will be directed to the agency’s A–76 Administrative Appeal Authority, who will conduct the

appeal as provided in Part I and Part II of this Supplement.

6. These instructions incorporate the cost element

definitions used elsewhere in Parts I and II of this

Supplement. In addition, there are several cost definitions that pertain to only aircraft and aviation services

as provided by this Appendix.

7. Agencies will provide copies of each aircraft or

aviation cost comparison to the GSA Office of Aircraft Management Division, when completed, and to

the Office of Management and Budget (OMB) upon

request or as required by OMB Circular A–11 to

justify aircraft purchases.

B. Policy

1. Agencies should rely on commercial airline or

other aviation services to meet their aviation mission

and transportation support needs.

2. In general, the operations of aircraft and aviation services are commercial in nature and are not

inherently governmental. Certain Government officials or missions may require enhanced levels of security, both on the ground and in the air. In most

cases, however, the aviation industry can accommodate the Government’s need for services and for onboard security devices, special flight profiles, testing

equipment, etc.

3. The number of aircraft owned or leased by an

agency may not exceed the number necessary to carry

out direct mission requirements and, then, only

where commercial operations are not as cost effective

or are not available, as demonstrated by the procedures of this Supplement.

4. The size and capacity of agency aircraft acquired

or leased should not exceed that necessary to costeffectively meet mission requirements, including the

crew and equipment for the mission flight profiles.

C. The Aviation Management Plan

1. The Management Plan for aircraft or aviation

support services should conform to the principles and

procedures in Part I of this Supplement. The Management Plan is structured to identify the lowest overall cost to the taxpayer and to fully consider Government Owned Contractor Operated (GOCO) options.

2. A Performance Work Statement (PWS) or a Performance Requirements Summary (PRS) is a part of

the Management Plan. It should define the scope

of services, workload data and performance criteria

needed to meet agency mission requirements. It may
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 63

APPENDIX 6

not describe a specific kind or make or model of

aircraft.

3. Agencies should determine if equipment and/

or personnel can be fitted to a contract or charter/

rental aircraft agreement that results in a lower total

service cost to the Government. Equipment requirements include, but are not limited to, aircraft, unique

navigation, secure communication, and flight test devices.

4. GSA FAMIS data assume that the contractor will

provide all related equipment, including aircraft.

Agencies that wish to use these aircraft cost comparison procedures, under a GOCO arrangement, may

need to solicit adjusted rate schedules from a variety

of sources. If acceptable information sources are not

available, a formal competition with commercial and/

or ISSA sources may be necessary.

5. If the scope of the competition includes nonaviation support (ground support activities), the cost

of such in-house, contract or ISSA support is calculated as provided in Part II of this Supplement.

D. The cost of government performance

All labor, material and fuel costs are estimated and

escalated as provided in Part II of this Supplement.

E. Standard aviation operation cost elements—variable

The variable costs of operating aircraft are those

costs that vary depending on how much the aircraft

are used. The specific variable cost elements include:

1. Fuel and other fluids. These are the costs of aviation gasoline, jet fuel, and other fluids, e.g., engine

oil, hydraulic fluids, and water-methanol, consumed

by aircraft. Fuel costs are the cost per gallon times

gallons per hour. Engine oil and other lubricants

can be estimated using manufacturers’ estimates or

on the basis of an historic percentage of engine fuel

cost per hour.

2. Crew. The crew costs that vary according to aircraft usage consist of travel expenses, particularly reimbursement of subsistence, i.e., per diem and miscellaneous expenses, overtime charges, and wages

plus benefits of crew members hired on an hourly

or part-time basis.

3. Aircraft lease or rental. When aircraft are obtained

under an open-ended arrangement, such as an oncall (hourly/availability rate) basis, the associated

lease or rental costs are considered variable costs.

4. Landing and tie down fees (if applicable). Landing

and tie down fees that are not common costs and

are associated with aircraft usage are considered variable costs. Tie down fees for storing an aircraft at

its base of operations should be considered a fixed

cost. Include the historic fees paid or assessed per

landing, times landings, divided by projected flight

hours.

5. Variable maintenance and spares.

All maintenance activities and parts costs based on

aircraft use are variable costs. All non-scheduled

maintenance and all non-scheduled maintenance inspections are also variable costs. Maintenance and

inspection activities scheduled on a calendar interval

basis will be considered fixed. In addition to the

costs of normal maintenance activities, variable maintenance costs include aircraft refurbishment, such as

painting and interior restoration, and costs of or allowances for performing overhauls and modifications

required by service bulletins and airworthiness directives.

a. Maintenance labor. All labor expended by mechanics, exclusive of the overhaul or major repair

of components and engines.

b. Maintenance parts. This includes materials and

parts consumed in aircraft maintenance and inspections, exclusive of materials and parts for engine overhaul, aircraft refurbishment, and/or repair of major

components. Typical items in this category are tires,

instruments, avionics, generators, relays, pumps,

brakes, filters, airframe hardware, windows, interiors,

paint, shafting, and bearings not inside components

covered under an overhaul.

c. Maintenance contracts. This includes all contracted

costs for unscheduled maintenance and for maintenance scheduled on a flying hour basis or based

on the condition of the part or component.

d. Engine overhaul, aircraft refurbishment, and major

component repairs. These are the materials and labor

costs of overhauling engines, refurbishing aircraft,

and/or repairing major aircraft components.

e. Reserves. This is for overhauling components

of engines, and other major work including painting,

refurbishment of the aircraft interior, and expenses

not recognized in other maintenance accounts.

f. Add lines 5a through 5e and enter on line 5f

for the total cost of direct variable maintenance and

spares.

6. Add lines 1 through 4 and 5f to find the total

direct operations cost per flight hour.

7. Enter the annual number of flight hours from

the PWS/PRS.

8. Multiply the total direct operating cost per flight

hour (line 6) by the number of flight hours (line

7) to find the total direct operating cost.
(March 1996)

64 OMB Circular No. A–76—Revised Supplemental Handbook

AVIATION COMPETITIONS

F. Standard aviation operation cost elements—fixed

The fixed costs of operating aircraft are those that

result from owning and supporting the aircraft and

do not vary according to aircraft usage.

9. Crew. Federal pilots/crew are often paid whether

or not the aircraft are flown. These fixed crew costs

include the salaries, benefits, and training costs of

crew members who perform minimal aircraft maintenance or other administrative tasks that could be

impacted by a conversion to contract performance.

Also included in fixed crew costs are the costs of

their charts, personal protective equipment, uniforms,

and other personal equipment when the agency is

authorized to purchase such items. Non-aviation activities performed by pilots/crew that would continue

even if operations were converted to contract should

not be included.

10. Fixed maintenance.

Maintenance and inspection activities are scheduled on a calendar interval basis and take place regardless of whether or how much the aircraft are

flown. These are fixed costs, including labor and material.

a. Maintenance labor. This includes all projected

labor expended by mechanics, technicians, and inspectors associated with maintenance scheduled on

a calendar interval basis. This category also includes

costs associated with non-allocated maintenance labor

expenses; i.e., associated salaries, benefits, travel expenses, and training costs. These costs should be

evenly allocated over the number of aircraft in the

fleet.

b. Maintenance parts. This includes all parts and

consumables used for maintenance scheduled on a

calendar interval basis.

c. Maintenance contracts. This includes all contracted

costs for maintenance or inspections scheduled on

a calendar interval basis.

11. Aircraft lease. When aircraft are leased for 90

days or more, with a known fee, utilization rate or

minimum reimbursement guarantee, the associated

lease costs are considered fixed. Include the entire

amount paid.

12. Depreciation.

As provided in Part II of this Supplement, aircraft

and other major asset (hangar) depreciation costs

are added to each option year. Aircraft have finite

economic or useful service lives. Depreciation is the

method used to spread the acquisition cost, less residual value, over an asset’s useful life. Although these

costs are not direct outlays as is the case with most

other costs, it is important to recognize them for

analysis. Subtract the residual (not market) value

from the total of the acquisition cost plus any capital

improvements and, then, divide by the remaining estimated useful life of the asset—not less than the

cost comparison period.

a. The acquisition cost is the value initially recorded on agency property/accounting records at the

time of acquisition. If the aircraft is acquired through

an interagency transfer, the acquisition cost is the

greater of the aircraft net book value plus the cost

of returning the aircraft to an airworthy, mission

ready condition or the commercial retail value of

that aircraft in average condition, as established by

the Aircraft Bluebook Price Digest or other industry

standard. If it is a military aircraft without a direct

commercial equivalent, the acquisition cost is equal

to the most comparable commercial equivalent plus

the cost of returning the aircraft to an airworthy,

mission ready condition. The following explains the

relevant terms:

b. Useful life. Useful life is the estimated period

during which the aircraft will be used. If a new aircraft has an airframe with a design life of 10,000

hours and the agency expects to fly the aircraft 500

hours per year, the useful life is twenty years.

c. Residual value. Residual value reflects the historically expected condition of the asset at the end of

its useful life. It is the dollar value below which the

asset will not be depreciated. Residual value is established at the time of acquisition. Agencies will select

the lessor of the following methods to calculate the

residual value of aircraft:

(1) Assume a 10 percent residual value for purposes of calculating the depreciable value of the aircraft and annual depreciation expenses.

(2) Select the average of the historic resale value

of similar aircraft by age and type, as provided by

GSA.

d. Reconstructions, conversions, refurbishment, and certification of ex-military aircraft. These maintenance efforts add value or prolong the life of aircraft. They

are capital improvements that add to the Net Book

Value of the asset (acquisition cost less accumulated

depreciation). This revised total value should then

be depreciated over the remaining or extended useful life of the asset.

e. Fully depreciated assets. If an asset has been fully

depreciated or has exceeded its expected useful life,

recalculate the depreciation schedule through the

end of the cost comparison period.

13. Self insurance costs.
(March 1996)

OMB Circular No. A–76—Revised Supplemental Handbook 65

APPENDIX 6

Aviation activity involves risks, potential casualty

losses and liability claims. These risks are covered

in the commercial sector by purchasing insurance,

the costs for which are captured within the GSA

FAMIS system. Actual or historic agency costs are

not comparable with the costs included in the commercial bid (FAMIS) or representative of the overall

cost to the Government as a whole.

a. Agencies should calculate annual in-house hull

aircraft casualty insurance costs by multiplying the

‘‘Blue Book’’ or market value of the aircraft by the

insurance factors provided annually by the General

Services Administration’s Aircraft Management Division. Enter these cost estimates on line 13a.

b. Agencies should calculate annual Federal aircraft

liability insurance costs on the basis of the number

of aircraft seats the agency has or will install, including pilots, over the course of the cost comparison

period. Enter the aircraft liability cost developed

using data provided annually by the General Services

Administration’s Aircraft Management Division on

line 13b.

c. All other insurance costs incurred in the performance of the aviation service under study are calculated in accordance with Part II and entered on

Line 13a or 13b, as appropriate.

d. Enter the total for all insurance (sum of lines

13a through 13c) on Line 13d.

14. Overhead. This includes all costs associated with

operational and administrative overhead. As described in Part II of this Supplement, aviation management overhead costs shall be calculated by applying the standard overhead cost factor of 12 percent

to the total of lines 2, 5.a, 9 and 10.a of the Aircraft

and Aviation Cost comparison Form. Enter the total

of this calculation on Line 14.

15. Cost of capital or finance expense.

a. The cost of capital is the annual cost to the

Government of acquiring the funds necessary for capital investments. The cost of capital is applied to

the outstanding balance of the aircraft purchase price

for each year of the performance period.

b. The annual cost of capital is included for any

depreciable asset acquired less than two years prior

to or after the cost comparison that will be used

as a part of the MEO. The cost of capital is only

applicable to assets required by the MEO that will

not be provided (GOCO) to the commercial source.

c. The cost of capital is calculated by applying

OMB Circular A–94 ‘‘Discount Rates to be Used in

Evaluating Deferred Costs and Benefits,’’ plus any

capital improvements.

d. If the purchase price is unknown, as in the

case of a forfeited asset or interagency transfer, the

acquisition cost is the greater of the aircraft net book

value plus the cost of returning the aircraft to an

airworthy, mission ready condition or the commercial

retail value of that aircraft in average condition, as

established by the Aircraft Bluebook Price Digest or other

industry standard. If it is a military aircraft without

a direct commercial equivalent, the acquisition cost

is equal to the most comparable commercial equivalent plus the cost of returning the aircraft to an

airworthy, mission ready condition.

e. Aircraft acquired through lease/purchase arrangements are not be burdened with the cost of

capital. The cost of capital is assumed to exist in

the lease/purchase agreement. At the transfer of title,

depreciation expenses, calculated from the then existent market price of the aircraft, will be incurred.

16. Total fixed operating costs. Add lines 9 through

15 and enter on line 16.

17. Total in-house MEO performance costs. Add lines

8 and 16 and enter on line 17.

G. Standard aviation operation cost elements—developing the cost of contract performance

18. Contract cost.

a. The comparable cost of contract performance

is to be calculated on the Aviation CCF.

b. The most efficient commercial cost of meeting

the service requirement is to be entered if a solicitation was issued requesting formal bids. If GSA/FAMIS

data is being used to estimate contract costs, this

figure is established by reviewing existing contracts

and rental/charter flight rate information provided

by FAMIS or from other GSA approved sources.

c. Enter the estimated trip costs times the number

of trips/missions or the hourly rate for that aircraft

times the number of estimated flight hours from the

PWS/PRS on line 19. If FAMIS does not reflect the

aircraft services requirements, and reasonably accurate costs cannot be constructed by extrapolation

from the FAMIS database, agencies may utilize other

approved data sources.

19. Cost construction to meet PWS/PRS.

There may be other adjustments necessary to estimate the cost of contract performance using GSA/

FAMIS data. The following are other costs that may

be considered and entered—to the extent that they

are not common costs or costs included in the published/developed rates. All such costs will be fully

justified and made available for public review.

a. Daily Availability/Standby/Guarantee Hours.
(March 1996)

66 OMB Circular No. A–76—Revised Supplemental Handbook

AVIATION COMPETITIONS

b. Additional Pilot and Crew Charges.

c. Additional Maintenance Support.

d. Airframe Alteration/Equipment Installation.

e. Equipment Not Provided by the Government.

f. Additional Ground Service Support.

g. Travel and Per Diem.

h. Service Equipment Mileage.

i. Airport Fees.

j. Other.

20. Contract administration. There will be costs that

the agency incurs in administering the contract.

These costs are relevant only if they differ between

in-house and contract alternatives. Agencies should

refer to Part II, Chapter 3, Table 3–1 for guidance.

21. One-time conversion costs. See Part II, Chapter

3 of this Supplement.

22. Gain from disposal/transfer of assets. See Part

II Chapter 3 of this Supplement.

23. Federal income tax. Multiply line 19 as provided

in Appendix 5 and enter as a savings/revenue to

the Government caused by the conversion to contract

performance.

24. Total estimated cost of contract performance. This

element reflects the total of lines 18 through 24.

H. Aviation cost comparison of in-house versus contractor or ISSA performance.

25. In-house performance costs. Data is taken from

Line 17—for each year of performance as established

in the PRS, but not less than three years.

26. Contract or ISSA performance. Data is taken from

line 24—for each year of performance.

27. Conversion differential. As provided in Part II

of this Supplement, a conversion differential equal

to the lesser of; (1) 10 percent of the in- house

personnel related costs (total of Lines 2, 5.a, 9 and

10.a.) or (2) $10 million over the performance period, is added to the total cost of current method

of performance. Enter the result of this calculation

on Line 27.

28. Adjusted total cost of in-house performance. If the

cost comparison is being conducted to determine if

an aircraft or aviation service should be converted

from contract or ISSA performance to in-house operation, the conversion differential as calculated above

(Line 27) is added to the In-house performance cost

estimate (Line 25, Total Column only) and the sum

is entered under Adjusted Total Cost of In-House

Performance (Line 28). The amount in the Total

Column for Line 26 is replicated on Line 29.

29. Adjusted total cost of contract performance. If the

cost comparison is being conducted to determine if

an aircraft or aviation service should be converted

from in-house operation to contract or ISSA performance, the conversion differential as calculated above

(Line 27) is added to the Contract performance cost

estimate (Line 26, Total Column only) and the sum

is entered under Adjusted Total Cost of Contract

Performance(Line 29). The amount in the Total Column for Line 25 is replicated on Line 28.

30. Decision. Subtract Line 28 from Line 29 and

enter the result on Line 30. A positive amount on

Line 30 supports a decision to perform the aircraft

and aviation support activity with in-house resources.

A negative amount on Line 30 supports a decision

to accomplish the work with contract resources.

31. Cost comparison decision.

Indicate in the appropriate block on line 31 the

decision supported by line 30.

a. If the result of the comparison is a decision

to accomplish the work with contract resource and

that decision is affirmed after adjustments by the public review, the agency will:

(1) Expand the Performance Requirements Summary developed under the aviation methodology to

meet the requirements of a Performance Work Statement.

(2) Issue a formal solicitation for bids from the

commercial sector and convert to contract.

b. If the decision of the aviation cost comparison

is to accomplish the work with in-house resources,

and that decision is affirmed after adjustments by

the public review, the agency will announce the final

decision in the Commerce Business Daily. The results

will be recorded in the OMB Circular A–76 tracking

system.
THE A76 AIRCRAFT AND AVIATION COST COMPARISON FORM

DIRECT OPERATION COST PER FLIGHT HOUR (PFH)

1. Fuel and and Other Fluids $ 

2. Crew (PFH) 

3. Aircraft Lease or Rental 

4. Landing and Tie-Down Fees (If applicable) 

5. Variable Maintenance and Spares 

a. Maintenance Labor @ $___ per hour multiplied by ___ man-hours PFH 

b. Maintenance Parts 

c. Maintenance Contracts 

d. Engine over-haul, etc. 

e. Reserves 

f. Total variable maintenance cost 

6. Total Direct Operating Cost Per Flight Hour 

7. Flight Hours for PWS 

8. TOTAL DIRECT OPERATING COST (line 6 x line 7) $ 

FIXED OPERATING ANNUAL COST

9. Crew

10. Fixed Maintenance 

a. Maintenance Labor 

b. Maintenance Parts 

c. Maintenance Contracts 

11. Aircraft Lease 

12. Depreciation 

13. Self Insurance 

a. Hull 

b. Liability 

c. Other 

c1. Casualty 

c2. Personnel Liability 

d. Total Self-Insurance 

14. Overhead 

15. Cost of Capital or Finance expense 

16. TOTAL FIXED OPERATING ANNUAL COST (Lines 9 thru 15) 

17. TOTAL IN-HOUSE PERFORMANCE COST (Lines 8 + 16) 

CONTRACT AVIATION OPERATIONS COST WORKSHEET 

18. Contract (PFH times number of hours) 

19. Cost construction to meet PWS

a. Daily availability/guarantee hours 

b. Additional pilot and crew charges 

c. Additional maintenance support 

d. Airframe alteration/equipment installation 

e. Equipment not provided by Government 

f. Additional ground service support 

g. Travel and per diem 

h. Service equipment mileage 

i. Airport fees 

j. Other 

20. Contract Administration 

21. One-time Conversion 

22. Gain on Disposal/Transfer of Assets (deduct) ( )

23. Federal income tax (deduct) ( )

24. TOTAL CONTRACT PERFORMANCE COST 

OMB Circular No. A76Revised Supplemental Handbook

APPENDIX 6

(March 1996)

65
IN-HOUSE VERSUS CONTRACT PERFORMANCE

Performance periods

1st 2nd 3rd Addl Total

25. In-house performance $ $ $ $ $ 

26. Contract performance $ $ $ $ $ 

27. Conversion Differential $ 

28. Adjusted Total Cost of In-House Performance $ 

29. Adjusted Total Cost of Contract Performance $ 

30. DecisionLine 29 minus Line 28: $ 

31. COST COMPARISON DECISION: Accomplish Work 

In-house (+) $ 

Contract (−) $ 

 32. In-House MEO Certified By: _______________________ Date: ________

31. In-House MEO Certified By: ______________________ 

 Office and Title

 I certify that, to the best of my knowledge and belief, the in-house organization reflected in this cost comparison

is the most efficient and cost effective organization that is fully capable of performing the scope of work and tasks

of the PWS/PRS. I further certify that I have obtained from the appropriate authority concurrence that the

organizational structure, as proposed, can and will be fully implemented  subject to this cost comparison, in

accordance with all applicable Federal regulations.

33. In-House Cost Estimate Prepared By: _________________ Date: ________

34. Independent Reviewer: _____________________________ Date: ________

 Office and Title

 I certify that I have reviewed the PWS/PRS, Management Plan, In-house and GSA/FAMIS cost estimates and

supporting documentation available prior to bid opening and to the best of my knowledge and ability have

determined that: (1) the ability of the in-house MEO to perform the work contained in the PWS/PRS at the

estimated costs included in this cost comparison is reasonably established, (2) that the selection and inclusion of

contract performance costs are reasonable and, (3) that all costs entered on the cost comparison have been

prepared in accordance with the principles and procedures of Circular A76 and its Supplement.

35. Cost Comparison Completed By: _____________________ Date: ________

36. Contracting Officer: _____________________ Date: ________

37. Tentative Cost Comparison

 Decision Announced By: _____________________ Date: ________

38. Appeal Authority (if applicable): _____________________ Date: ________

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OMB Circular No. A–76—Revised Supplemental Handbook 69

APPENDIX 7

APPENDIX 7

Motor Vehicle Competitions

A. General

This Appendix provides joint guidance by OMB

and The General Services Administration (GSA) for

use in cost comparisons involving the provision of

motor vehicle fleet management services. It apples

to conversions to or from in-house, contract or interservice support agreement (ISSA). Agencies should

consider the costs, benefits and feasibility of using

the agency’s fleet management system, the GSA Interagency Fleet Management System (IFMS), other ISSA

providers and qualified commercial management providers.

B. Specific

1. Cost comparisons will comply with Part I and

Part II of this Supplement, and as discussed in this

Appendix.

2. Cost comparisons should distinguish between the

benefits of centralized Government vehicle acquisition and the potential benefits of fleet acquisition,

operation, maintenance, and disposal management

support services. Solicitations should permit or may

require offerors to compete vehicle asset costs separately from fleet management services.

3. In accordance with Part I, Chapter 2 of this

Supplement, all Government offerors will certify that

their performance cost estimates or reimbursable

rates are calculated in accordance with this Supplement.

4. Agencies may include all of their fleet requirements, including those currently being met by the

GSA/IFMS or the private sector. Vehicles currently

provided by the GSA/IFMS may be included in the

agency’s in-house cost estimate as IFMS vehicles.

C. Developing the requesting agency’s in-house motor

vehicle fleet management costs

1. The requesting agency’s in-house costs are calculated as provided in Parts I and II of this Supplement and entered on Lines 1 through 7 as appropriate. Care should be taken to separate vehicle asset

costs (cost of vehicles) from vehicle acquisition and

other administrative management support costs.

D. Developing comparable motor vehicle fleet costs

1. Competitions between a requesting agency, private sector offeror, the GSA/IFMS or another ISSA

offeror may require that the requesting agency make

certain adjustments in scope and cost to ensure that

the cost comparison is equitable. These scope and

cost adjustments, as discussed below, include:

—Contract Price

—Contract Administration Costs

—Additional Costs

—One-time Conversion Costs

—Gain/Loss on Disposal/Transfer of Assets

—Federal Income Taxes

—Other Adjustment Costs

—Minimum Differential

2. Contract Price (Line 9 and Line 16).—The contract price is the price proposed by the lowest priced,

fully qualified commercial offeror, IFMS or ISSA

offeror. This will be obtained by issuing a solicitation

requesting offers. The agency should be careful that

the solicitation accurately describes its fleet management needs.

3. Contract administration costs (Line 10 and Line

17).

Include costs, as appropriate from Part II Table

3–1.

4. One-time conversion costs (Line 11 and Line 18).

a. One-time conversion costs may result when a

contractor, IFMS or ISSA offeror takes over the operation of the fleet. This can involve the costs of the

transfer of Government-owned supplies or temporary

labor costs incurred to facilitate the transition to a

new fleet manager.

b. When items of material become available for

transfer to the contractor, IFMS or ISSA, material

related conversion costs may result. If materials

consumed as a part of the requesting agency’s MEO

are clearly identified in the PWS to be transferred

to the contractor, IFMS or ISSA, the value of those

materials and supplies are common costs and not

considered a part of the comparison.

c. If, however, those same materials are not to

be provided to the contractor, IFMS or ISSA offeror,

but are instead to be transferred to another agency

location or excessed, the value of that material

should be subtracted from the contract, IFMS or ISSA

offers as a net savings to the Government resulting

from the conversion.

5. Gain on disposal of assets (Line 12 and Line 19).

a. If an agency requires the contractor, IFMS or

ISSA to replace existing Government (agency) owned
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MOTOR VEHICLE FLEET COMPETITIONS

vehicles (assets) by a specific date, the projected fair

market value of those existing assets, as established

by generally available industry guides, are subtracted

from the contractor’s, IFMS or ISSA’s cost estimates.

These values represent a net ‘‘savings’’ caused by

conversion.

b. Agencies may provide that vehicle replacement

by the contractor, IFMS or ISSA offeror will be in

accordance with the Government’s existing or MEO

replacement schedule. In this case, all parties to the

competition should assume replacement at the same

rate. Values from existing fleet to the Government

apply to all alternatives equally.

c. Agencies may also continue to provide vehicles

for contractor, IFMS or ISSA fleet management. No

adjustments are necessary.

d. Finally, agencies may require replacement by

the contractor, IFMS or ISSA offeror and may allow

the IFMS or ISSA offeror to simply assume ownership

of the existing fleet as Federal agencies. In this case,

the agency, IFMS or ISSA offeror receives a gain—

and a considerable competitive advantage over the

contract bid—estimated at the fair market value of

the existing fleet. An amount equal to the fair market

value of the existing fleet is added to the agency,

IFMS or ISSA offeror bid at Line 19 for cost comparison purposes.

6. Federal income tax (Line 13 and Line 20).

a. Agencies should recognize the current contract

support identified in Line 6, above. Calculate the

total Federal Income Tax, based upon the contractor’s offer (Line 9) and Appendix 5, Tax Rate Table.

Subtract from the contractor’s estimated tax liability

the Federal taxes paid within the in- house cost estimate (estimated from the appropriate share of Line

6 and as described in the Management Plan) and

enter the remainder.

b. The same treatment may be afforded to the

GSA/IFMS or ISSA offer, if the offeror certifies the

value of its contract support contained within its overall cost estimate. This estimate must be available to

the requesting agency’s Independent Review Officer

for review and concurrence.

7. Conversion differential (Line 7, Line 14 and Line

21).

The standard minimum differential, as provided

in Part II of this Supplement, shall be applied to

the contract, IFMS and ISSA offers. If the cost comparison is being conducted to determine if motor

vehicle fleet management services should be converted from contract, IFMS or ISSA performance to

in-house agency operation, the conversion differential

is added (on Line 7) to the in-house performance

cost estimate. If the cost comparison is being conducted to determine if motor vehicle fleet management services should be converted from in-house operation to contract, IFMS or ISSA performance, the

conversion differential is added (on Line 14 and Line

21) to the contract, IFMS or ISSA performance cost

estimates.

8. Other IFMS/ISSA Scope Adjustments (Line 22).

a. It is not the intent of this Supplement to require

the IFMS or other potential ISSA offerors to alter

their methods of operation to provide unique or site

specific services. While such services may meet agency

missions and may legitimately be included in the solicitation, additional adjustments to the IFMS/ISSA

cost estimate may be necessary to reflect differences

in the bids. Examples of such services include: dispatching, vehicle transition, maintenance work warranties, certain disposal services/costs, accessory installations and removals, tire replacements, etc.

b. Agencies should identify the differences between

the requirements of the solicitation (contractor bid)

and the IFMS/ISSA cost estimate. The agency determines if any item or combination of items will impact

the agency’s ability to perform. If the agency’s ability

to perform would be adversely impacted, the IFMS/

ISSA cost estimates may be rejected as non-responsive. If the differences will have minimal agency performance implications, and/or can continue to be

performed by agency personnel, the IFMS/ISSA cost

estimates will be adjusted for purposes of comparison

with the contractor and MEO offers, based upon the

comparable costs contained in the agency’s MEO.

c. A complete record of all adjustments to the

contractor’s, IFMS and ISSA’s cost estimates should

be maintained and made available to the public upon

request.

E. Motor vehicle cost comparison

1. A Motor Vehicle Cost Comparison Form

(MVCCF) has been developed. Use of this form will

help agencies move through the cost comparison in

a structured manner. The Form has been set up

with five sections. Each section relates to a different

set of costs or to the evaluation itself. Within each

section, the appropriate cost elements have been

shown.

2. Each cost listed is projected for all periods of

the cost comparison. The first year will reflect current

estimated costs. For each of the following years, the

inflation factors provided by this Supplement shall

be used for each element of cost that is affected
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APPENDIX 7

by inflation. A minimum of one year and three option years will be used for comparative purposes.

3. With the completion of the MVCCF, the agency

may evaluate the alternatives. In order to do this,

the total Lines (Lines 8, 15 and 23) should be entered on Lines 24, 25 and 26, respectively. The decision is based upon the lowest overall cost to the

Government over the minimum five-year cost comparison period. Enter the decision as appropriate.
THE A76/MV COST COMPARISON FORM FOR MOTOR VEHICLE FLEETS

Performance Periods (Fiscal Years)

Base Year Option Yr 1 Option Yr 2 Option Yr 3 Option Yr 4 Total

A. DEVELOPMENT OF IN-HOUSE COSTS

1. Personnel 

2. Material 

3. Other Direct 

4. Cost of Capital

5. Overhead 

6. Additional 

7. Conversion Differential 

8. Total In-house 

B. DEVELOPMENT OF CONTRACT COSTS

9. Contract Price

10. Contract Administration

11. One-time Conversion 

12. Gain on Disposal

13. Federal Income Taxes ( ) ( ) ( ) ( ) ( ) ( )

14. Conversion Differential

15. Total Adjusted Contract Price 

C. DEVELOPMENT OF IFMS OR ISSA COSTS

16. IFMS/ISSA cost estimate

17. Contract Administration

18. One-time Conversion 

19. Gain on Disposal

20. Federal Income Taxes ( ) ( ) ( ) ( ) ( ) ( )

21. Conversion Differential

22. Other Scope Adjustments

23. Total Adjusted IFMS or ISSA Price

D. COST COMPARISON

24. In-House

25. Contract

26. IFMS and/or ISSA

E. DECISION

_____ Retain In-House

_____ Contract

_____ Consolidate to GSA/IFMS or ISSA

_____ Convert from Contract to: In-house , IFMS or ISSA

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THE A76/MV COST COMPARISON FORM FOR MOTOR VEHICLE FLEETS

27. In-House MEO Certified By: __________________________ Date: _______

26. In-House MEO Certified By: __________________________

 Office and Title

I certify that, to the best of my knowledge and belief, the in-house organization reflected in this cost comparison

is the most efficient and cost effective organization that is fully capable of performing the scope of work and tasks

required by the Performance Work Statement. I further certify that I have obtained from the appropriate authority

concurrence that the organizational structure, as proposed, can and will be fully implementedsubject to this cost

comparison, in accordance with all applicable Federal regulations.

28. In-House Cost Estimate Prepared By: ________________________ Date: ________

29. Independent Reviewer: _________________________ Date: ________

28. Independent Reviewer: _________________________

 Office and Title

I certify that I have reviewed the PWS, Management Plan, In-house, GSA/IFMS or ISSA cost estimates and

supporting documentation available prior to bid opening and, to the best of my knowledge and ability, have

determined that: (1) the ability of the in-house MEO to perform the work contained in the Performance Work

Statement at the estimated costs included in this cost comparison is reasonably established and, (2) that all costs

entered on the cost comparison have been prepared in accordance with the requirements of Circular A76 and its

Supplement.

30. Cost Comparison Completed By: _________________________ Date: ________

31. Contracting Officer: _________________________ Date: ________

32. Tentative Cost Comparison 

 Decision Announced By: _________________________ Date: ________

33. Appeal Authority (if applicable): _________________________ Date: ________ 

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