On March 31, 2010, the Office of Federal Procurement Policy (OFPP) in the Office of Management and Budget (OMB) issued a proposed policy letter on inherently governmental functions and other "work reserved for performance by federal government employees." While not final, the policy letter represents the Obama Administration's proposed guidance for agencies determining (1) whether particular functions are inherently governmental and (2) when functions closely associated with the performance of inherently governmental functions and critical functions should be performed by government personnel. The proposed policy letter was, in part, issued under the authority of the Duncan Hunter National Defense Authorization Act for FY2009 (NDAA'09) and President Obama's memorandum of March 4, 2009, on government contracting. Section 321 of NDAA'09 tasked OMB with (1) reviewing existing definitions of "inherently governmental function" to determine whether such definitions are "sufficiently focused" to ensure that only government personnel perform inherently governmental functions or "other critical functions necessary for the mission of a Federal department or agency;" (2) developing a "single consistent definition" of "inherently governmental function" that would address any deficiencies in the existing definitions, reasonably apply to all agencies, and ensure that agency personnel can identify positions that perform inherently governmental functions; (3) developing criteria for identifying "critical functions" that should be performed by government personnel; and (4) developing criteria for identifying positions that government personnel should perform in order to ensure that agencies develop and maintain "sufficient organic expertise and technical capacity" to perform their missions and oversee contractors' work. President Obama's March 4, 2009, memorandum similarly charged OMB with clarifying when outsourcing is "appropriate." The Office of Federal Procurement Policy has reportedly indicated that a final policy letter will be released "in early 2011." Depending upon their views regarding the desirability and potential efficacy of the provisions of the final policy letter, Members of the 112 th Congress could hold hearings or introduce legislation like that enacted or introduced in the 111 th Congress (e.g., P.L. 111-8 , P.L. 111-84 , P.L. 111-117 ). Under existing law, inherently governmental functions cannot be contracted out. However, agencies generally have considerable discretion in determining whether particular functions are inherently governmental, and some Members of Congress and commentators have alleged that certain functions that have been contracted out should have been classified as inherently governmental (e.g., provision of personal security). There has been particular concern that the existence of multiple or inconsistent definitions of "inherently governmental function" may have facilitated improper contracting out, prompting the 110 th Congress to task OMB with reviewing the existing definitions of "inherently governmental function" and developing a single consistent one. Four definitions of "inherently governmental function" currently exist in law, with one additional definition in a government-wide policy document that lacks the force of law. These definitions arguably do not differ significantly in themselves. However, they are often accompanied by additional guidance, such as descriptions or listings of the types of functions included in or excluded from the category of inherently governmental functions, which differ in ways that some commentators view as significant. There are also numerous statutes classifying specific functions, or work performed by specific entities, as inherently governmental. Agencies are also required by law to give "special consideration" to using federal employees to perform functions closely associated with the performance of inherently governmental functions. However, they are not prohibited from contracting out such functions. According to the Federal Acquisition Regulation (FAR), functions that are not themselves inherently governmental nonetheless can "approach being [inherently governmental] because of the nature of the function, the manner in which the contractor performs the contract, or the manner in which the Government administers contract performance." The FAR lists 19 functions that "approach being" inherently governmental, but this list is not all-inclusive. Critical functions are not presently defined for purposes of federal law, and there are no limitations upon contracting them out. Legislation was introduced in the 111 th Congress that would have created a category of "mission essential functions" that must be performed by government employees, and some commentators consider mission-essential functions to be critical ones. However, this legislation was not enacted. Agencies are also not currently prohibited from contracting out functions when doing so could potentially lead to a loss of "organic expertise and technical capacity." While not final, the policy letter represents the Obama Administration's proposed guidance for agencies determining (1) whether particular functions are inherently governmental and (2) when functions closely associated with the performance of inherently governmental functions and critical functions should be performed by government personnel. It articulates that "[i]t 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." However, it also states the following: Nothing in this guidance is intended to discourage the appropriate use of contractors. Contractors can provide expertise, innovation, and cost-effective support to federal agencies for a wide range of services. Reliance on contractors is not, by itself, a cause for concern, provided that the work they perform is not work that should be reserved for federal employees and that federal officials are appropriately managing contractor performance. In its guidance on inherently governmental functions, the proposed policy letter can be seen as a successor to OFPP Policy Letter 92-1, which established executive branch policy regarding "service contracting and inherently governmental functions" and was designed to assist agencies in "avoiding an unacceptable transfer of official responsibility to Government contractors." Policy Letter 92-1 expressly prohibited contracting out inherently governmental functions, which it defined as "[functions] that [are] so intimately related to the public interest as to mandate performance by Government employees." Although Policy Letter 92-1 is still occasionally cited as an authority on the definition of inherently governmental functions, the 2003 revision of OMB Circular A-76 incorporated some of its contents and superseded it. In contrast, the proposed policy letter's guidance on when functions closely associated with the performance of inherently governmental functions and critical functions should be performed by government personnel would arguably be unprecedented. There is nothing like it in Policy Letter 92-1 or OMB Circular A-76. OMB Circular A-76 provides guidance for agencies in determining whether government personnel or private contractors can more efficiently perform commercial activities on behalf of the government. It notes the existence of—but does not define or otherwise address—a category of activities that are commercial but "not appropriate for private sector performance." In keeping with Section 321 of the Duncan Hunter National Defense Authorization Act for FY2009, which tasked OMB with developing a "single consistent definition" of "inherently governmental function," the proposed policy letter adopts the definition of "inherently governmental function" in the Federal Activities Inventory Reform (FAIR) Act. The FAIR Act defines an "inherently governmental function" as one that is "so intimately related to the public interest as to require performance by Federal Government employees." However, neither the proposed policy letter nor the introductory comments on it indicates what, if any, changes the Obama Administration would make to other regulations or policy documents that also define "inherently governmental function" (e.g., the FAR, OMB Circular A-76). In addition to defining "inherently governmental function," the policy letter requires that agencies take certain steps to ensure that they do not contract out such functions. Before issuing a solicitation, agencies would be required to determine that none of the requirements are (1) designated as inherently governmental in statute, (2) listed among the functions included in Appendix A of the proposed letter, which corresponds to Subpart 7.5 of the FAR, or (3) qualify as such under one of several tests proposed in the letter. The first of these tests focuses on the nature of the function and requires that functions involving the exercise of sovereign powers, or "powers that are uniquely governmental," be classified as inherently governmental regardless of the "type or level of discretion associated with the function." The second test focuses on the exercise of discretion and prohibits agencies from contracting out functions involving an exercise of discretion that would commit[] the government to a course of action where two or more alternative courses of action exist and decision making is not already limited or guided by existing policies, procedures, directions, orders, and other guidance that: (A) [i]dentify specified ranges of acceptable decisions or conduct concerning the overall policy or direction of the action; and (B) [s]ubject the discretionary authority to final approval or regular oversight by agency officials. The notice of the proposed policy letter also requests comments on a third possible test, the principal-agent test, that would require agencies to identify functions as inherently governmental "where serious risks could be created by the performance of these functions by those outside the government, because of the difficulty of ensuring sufficient control over such performance." Written determinations that functions to be contracted out are not inherently governmental would have to be included in the contract file, along with the analysis that supports this determination. Agencies would also be required to monitor the functions currently being performed by contractors to ensure that contractor performance of functions closely associated with the performance of inherently governmental functions, in particular, "does not expand to include performance of inherently governmental functions or otherwise interfere with federal employees' ability to carry out their inherently governmental responsibilities." If they find that contractors are performing inherently governmental functions, agencies are instructed to reestablish control over these responsibilities by strengthening oversight, insourcing the work through the timely development and execution of hiring plans, refraining from exercising options under the contract, or terminating all or part of the contract. The proposed policy letter does not address the definition of "functions closely associated with the performance of an inherently governmental function." However, given that its Appendix B lists the same functions that the FAR lists as "approaching being" inherently governmental, the proposed policy letter appears to rely on the FAR's definition of such functions. The proposed policy letter also reiterates existing statutory requirements that agencies give "special consideration" to using government personnel to perform functions closely associated with the performance of inherently governmental functions. While the proposed policy letter would not prohibit agencies from contracting out functions that are closely associated with the performance of inherently governmental functions, it would require them to determine in writing before issuing a solicitation that (i) The function is closely associated with an inherently governmental function; (ii) Private sector performance of the function is appropriate and the most cost effective source of support for the agency; and (iii) The agency has sufficient internal capability to control its missions and operations, oversee the contractor's performance of the contract, limit or guide the contractor's exercise of discretion, ensure reasonable identification of contractors and contractor work products, and avoid or mitigate conflicts of interest and unauthorized personal services. When functions closely associated with the performance of inherently governmental functions are contracted out, agencies would be expected to "[l]imit or guide" contractors' exercise of discretion by incorporating in the contract a specified range of acceptable decisions or conduct or establishing a process for subjecting contractors' discretionary decisions or conduct to final agency approval. They would also be expected to (1) assign a sufficient number of qualified government personnel to monitor contractors' activities; (2) ensure that contractors and contractor work product are "reasonably identified" when "there is a risk that Congress, the public or other persons outside the government might confuse contractor personnel or work products with government officials or work products"; and (3) take certain steps to avoid or mitigate contractor conflicts of interest, including by physically separating contractor and government personnel on any shared worksites. Because "critical function" is presently not defined for purposes of federal law, the proposed policy letter defines a "critical function" as one that is "necessary to the agency being able to effectively perform and maintain control of its mission and operations." The proposed policy letter requires that agencies (1) dedicate a "sufficient number of employees to the performance of critical functions so that federal employees may maintain control of agencies' missions and operations" and (2) retain control of "highly critical functions," which could vary by agency. However, the proposed policy letter otherwise allows agencies to contract out critical functions provided that the agency determines in writing, prior to issuing a solicitation, that it (1) has sufficient internal capability to control its missions and operations and (2) the cost-savings of private-sector performance "clearly outweigh" any considerations relating to performance or risk that favor federal employee performance of the functions. Agencies would also have to monitor post-award performance of any contracts that involve critical functions and take the necessary steps to insource these functions (e.g., developing hiring plans, securing funding for in-house capacity) when internal control of mission and operations is at risk due to overreliance on contractors. Although it is not final, the policy letter raises several legal and policy issues of potential interest to Congress, given recently enacted and proposed legislation regarding inherently governmental functions and other limitations upon contracting out (e.g., P.L. 111-8 , P.L. 111-84 , P.L. 111-117 ). Key among these issues are (1) the relationship between the proposed policy letter and other executive branch authorities on inherently governmental and related functions; (2) whether the proposed policy letter would necessarily result in changes in agencies' use of contractors to perform certain functions that some Members of Congress and commentators claim are inherently governmental (e.g., security services during contingency operations); and (3) the potential demands of any new requirements upon the acquisition workforce. Certain reforms contemplated by the proposed policy letter could require congressional action (e.g., its call for comments on whether changes should be made to existing laws that deem specific functions or the work of specific organizations to be inherently governmental), and some proposals may suggest opportunities for additional reforms (e.g., interagency contracting, the definition of commercial items, the policies underlying OMB Circular A-76). The proposed policy letter and other executive branch authorities on inherently governmental and related functions arguably diverge somewhat in their terminology, definitions, and explanations. Among other things, the proposed policy letter uses the term "functions closely associated with the performance of inherently governmental functions," while the FAR speaks of functions that "approach being" inherently governmental and several statutes refer to "functions closely associated with inherently governmental functions." Such differences might be merely semantic. However, they could potentially form the basis for more substantive distinctions because the category of functions that are themselves nearly inherently governmental is arguably narrower than the category of functions associated with the performance of inherently governmental functions. For example, serving as an interpreter during an interrogation of an enemy prisoner of war could potentially constitute a function approaching inherently governmental. It is less clear that transcribing a recording of that interrogation approaches being inherently governmental. However, transcription could potentially be a function closely associated with the performance of an inherently governmental function. Given that the notice accompanying the proposed policy letter itself suggests that even minor "variations can create confusion and uncertainty," additional precision in the use of terms might be desirable. Similarly, while the proposed policy letter adopts the definition of "inherently governmental function" used in the FAIR Act, neither it nor the notice accompanying it addresses whether or how the Obama Administration would change the definitions in the FAR, OMB Circular A-76, and other executive branch regulations and policy documents to ensure that there is a "single consistent definition" of inherently governmental functions. The actual definitions contained in these sources arguably differ only slightly (e.g., the FAIR Act speaks of "functions" whose relationship to the public interest is such as to "require performance by Federal Government employees," while OMB Circular A-76 speaks of "activities" whose relationship to the public interest is such as to "mandate performance by government personnel"). However, the explication accompanying these definitions diverges to a greater degree, with OMB Circular A-76 speaking of activities that involve the exercise of "substantial discretion," while other sources speak only of the exercise of discretion. Additionally, one of the two tests for identifying inherently governmental functions in the proposed policy letter introduces a new term, "sovereign," that does not appear in the FAIR Act's definition or discussion of inherently governmental functions. While the concept of sovereignty is arguably implicit in the FAIR Act's listing of the types of functions included within the definition of "inherently governmental function" and in the case law regarding inherently governmental functions, the FAIR Act's discussion of inherently governmental functions arguably focuses more upon the exercise of discretion, which is the focus of the second of the proposed policy letter's tests for identifying inherently governmental functions. Additionally, the proposed policy letter does not explain how its requirements would relate to existing requirements under OMB Circular A-76. Assuming the proposed policy letter is implemented and OMB Circular A-76 is not amended, agency personnel would apparently be required to determine which agency functions are inherently governmental for purposes of two different processes. Under the policy letter, agency personnel would be required to ensure, on a contract-by-contract basis, that inherently governmental functions are not performed by contractors. That is, agency personnel would have to make a determination prior to issuing a solicitation for a particular procurement. Separately, and in accordance with Circular A-76, each agency would continue to compile, and submit to OMB by June 30 each year, a list of its inherently governmental functions. Potentially significant differences between the proposed policy letter and Circular A-76 involve, at a minimum, the level of detail (i.e., a solicitation or contract versus an agency function or work center) and the definition of "inherently governmental," including related guidance. The existence of two related, yet somewhat disparate, procedures (and guidance) for identifying inherently governmental work raises several questions. Could the two processes result in different outcomes, or designations, for the same function? If so, might this undermine the government's effort to adopt a single, consistent definition of "inherently governmental"? Setting aside these issues, might the implementation of OFPP's proposed policy letter render the Circular A-76 requirement for the submission of inventories of inherently governmental activities moot? The proposed policy letter acknowledges that certain functions are particularly difficult to "properly classify" and invites comments on "[w]hat specific steps should be taken to address this challenge" and "[w]hat should guidance say—in place of, or in addition to, the draft guidance or currently existing federal regulations and policies—to address the use (if any) of contractors performing any [such] functions." These functions include physical security involving guard services and "the use of deadly force, including combat, security operations performed in direct support of combat, and security that could evolve into combat." Some Members of Congress have had their own concerns about the contracting out of such functions, which might still be possible, albeit more difficult, under the proposed policy letter. The Obama Administration separately ended contractor performance of another function—collection of taxpayer debts—whose performance by contractors had also been of concern to some Members. The FAIR Act defines federal building security as not being an inherently governmental function. The proposed policy letter asks, among other things, what federal government guidance should say regarding the use of contractors to perform physical security, including guard services at buildings. One might conclude that this would include the Federal Protective Service's (FPS's) use of contract security guards. Because the federal government's real property portfolio comprises approximately 446,000 buildings, FPS relies on the majority of on-site security to be provided by contract security guards. FPS's contract security guard responsibilities include federal building access control, employee and visitor identification checks, security equipment monitoring, and roving patrols of the interior and exterior of federal property. Within the National Capital Region, FPS contracts with 54 private security guard companies to provide approximately 5,700 guards to protect 125 federal facilities. FPS issues task orders to contract security guard services that detail the terms and conditions under which the contract security guard services are to be provided. Some of these task orders include the identification of buildings requiring protection, specific guard post locations, and the hours and days of the week each post is to be staffed; whether security guards are to be armed; and the number of guards at each post. FPS currently employs approximately 15,000 contract security guards across the nation, and, according to the Department of Homeland Security inspector general, contract guard services "represent the single largest item in the FPS operating budget, with an estimated FY2006 budget of $487 million." Some Members of Congress have shown recent interest in the FPS's use of contract security guards, including a House Homeland Security Committee hearing on April 14, 2010, on the "Federal Protective Service: Would Federalization of Guards Improve Security at Critical Facilities?" Specifically, the Committee discussed the possibility of federalizing portions of the FPS's contract security guard force to ensure federal building security. A congressionally mandated federalization of a portion of FPS's contract security guard force or an increase to FPS's law enforcement officer full-time equivalents—to provide some federal buildings with a federal law enforcement presence—may result in some federal agencies, specifically the Department of Homeland Security, commenting on the proposed policy letter and its effects on their use of contract security guards. OFPP's proposed policy letter and recent congressional action could affect federal agencies' continued use of contract security guards and the role FPS has in administering contract security guards. Additionally, Congress could amend the FAIR Act and its list of functions excluded from the definition of inherently governmental functions, which could result in reduced use of contract security guards. The proposed policy letter does not list armed security as an inherently governmental, closely associated with inherently governmental, or critical function. OFPP is soliciting public comment on how to categorize contractors engaging in "[t]he use of deadly force, including combat, security operations performed in direct support of combat, and security that could evolve into combat." However, the proposed policy letter is relevant to the use of private security contractors (PSCs) to the extent that it would impose on agencies pre- and post-award responsibilities for evaluating whether a function is inherently governmental. Generally, analysts, industry officials, and Department of Defense (DOD) and Department of State officials agree that the current draft of the policy letter probably would not substantially alter the DOD's use of private security contractors during contingency operations, including current operations in Iraq and Afghanistan. DOD has already performed an initial agency analysis to determine whether the use of PSCs in Iraq and Afghanistan should be considered inherently governmental, much as it would be required to do under the proposed policy letter. On January 10, 2006, DOD's Office of General Counsel issued an opinion permitting the use of contractors to protect U.S. personnel and property. The opinion does not directly address whether PSCs perform inherently governmental functions, but does state that "when using contractors for security services, the purpose must be to provide such services other than uniquely military functions." The opinion goes on to state that it would be inappropriate to use armed security contractors in "situations where the likelihood of direct participation in hostilities is high. For example, they should not be employed in quick-reaction force missions, local patrolling, or military convoy security operations where the likelihood of hostile contact is high." In a DOD instruction issued in July 2009, DOD addressed the issue more directly, stating that "[c]ontractors performing private security functions are not authorized to perform inherently governmental functions. In this regard, they are limited to a defensive response to hostile acts or demonstrated hostile intent." The post-award requirements under the proposed policy letter would include the responsibility of "review[ing], on an ongoing basis, the functions being performed by … contractors, paying particular attention to the way in which contractors are performing, and agency personnel are managing, contracts involving functions that are closely associated with inherently governmental functions or contractors for professional and technical services." As discussed earlier in this report, the notice for the proposed policy letter requests public comment on a possible test that would require agencies to consider functions inherently governmental "where serious risks could be created by the performance of these functions by those outside the government, because of the difficulty of ensuring sufficient control over such performance." Many analysts and government agencies—including the Government Accountability Office, the Special Inspector General for Iraq Reconstruction, and the Commission on Wartime Contracting—have raised questions about DOD and the Department of State's ability to manage armed security contractors effectively. Depending upon the final draft of the letter, some analysts could argue that the use of PSCs has undermined the U.S. mission in Iraq and Afghanistan and that the inability to effectively manage PSCs makes armed security an inherently governmental function. Other analysts could argue that both departments are in line with the draft policy letter; both departments have periodically reviewed their contractor management, have evaluated the performance of their contractors, and have taken steps to improve oversight. For example, the Department of State reportedly did not renew certain armed security contracts with Blackwater and ArmourGroup because of poor performance and the contractors' conduct. Further, on April 12, 2010, DOD issued an instruction that includes a detailed discussion of what is and is not an appropriate use of armed contractors in contingency operations. Analysts could also argue that not using PSCs in Iraq and Afghanistan would deprive DOD and the Department of State of the manpower necessary to successfully perform their mission in Iraq, thereby posing a much greater risk to the overall mission than the risk posed by imperfect contract management. Congress has addressed the issue of what functions should not be performed by PSCs, stating that it is the sense of Congress that security should ordinarily be provided by the Armed Forces in high-threat environments where it could reasonably be expected that deadly force will be initiated by security personnel. In an area of combat operation, Section 832 of the Duncan Hunter National Defense Authorization Act for FY2009 vests sole discretion for determining the appropriateness of using armed contractors with the combatant commander. DOD instructions generally conform with the sense of Congress, including vesting the discretion for determining the appropriateness of using armed contractors with the combatant commander. Considering the responsibilities and tasks that an agency would be expected to fulfill and accomplish, successful implementation of OFPP's proposed policy letter would depend, in large part, on the capability of each agency's acquisition workforce. Agency personnel would be required to, for example, carry out a host of pre-award and post-award tasks regarding inherently governmental functions and critical functions, develop and implement a plan for managing each contractor who performs one or more functions closely associated with the performance of inherently governmental functions, and develop and review internal management controls. Throughout the proposed policy letter, OFFP acknowledges the importance of the acquisition workforce, stating that agencies are to "employ an adequate number of government personnel," "[e]nsure that sufficient personnel are available," and "identify specific strategies and goals for addressing both the size and capability of the acquisition workforce." It is probably unlikely that, for at least the foreseeable future, the government's acquisition workforce—particularly the civilian agencies' acquisition workforce—will have sufficient capability to accomplish the tasks required by the proposed policy letter while fulfilling all of their other responsibilities. The following excerpt from a fall 2009 OFPP memorandum summarizes the problem: The inflation-adjusted dollar value of civilian agency contracting increased by 56 percent between FY 2000 and FY 2008, but the capability and capacity of the federal acquisition workforce has not kept pace with the increase in spending, the number of [contract] actions, or the complexity of federal purchases. As a result of this, FAI's [Federal Acquisition Institute's] 2008 Acquisition Workforce Competencies Survey found that the acquisition workforce spends less time on critical steps in the acquisition process—such as planning, requirements development, market research, competition, and contract administration. This lack of capacity requires the workforce to make tradeoffs during the acquisition lifecycle that may reduce the chance of successful acquisition outcomes. Although efforts are under way to bolster the acquisition workforce, the extent of the problem suggests that it is not realistic to expect that the situation will be remedied easily, or in the short term. Thus, as OFPP notes in the excerpt above, members of the acquisition workforce most likely will have to continue to make trade-offs among the many acquisition-related tasks that they are required to accomplish, including those described in the proposed policy letter. Certain actions apparently contemplated by the proposed policy letter, such as "changes … to existing laws that currently deem specific functions or the work performed by specific organizations to be inherently governmental," would require congressional action. Because these designations are based in statute, the executive branch cannot remove or modify them in the same way that it can amend the FAR or OMB Circular A-76. Congress could also take legislative action to establish a statutory basis for any desirable features of the proposed policy letter that would otherwise lack such a basis. For example, assuming that no further legislation is enacted on this issue, the definition of "critical functions" would exist only in a policy document, which could be changed by the executive branch at any time. It would not have a statutory or other legal basis. Conversely, Congress could legislate to modify any aspects of the proposed policy letter that might not comport with its intent. Given that the proposed policy letter would allow agencies to contract out functions closely associated with the performance of inherently governmental functions and critical functions provided that certain conditions are met, its restrictions on contracting out functions that are not themselves inherently governmental might not be as stringent as some Members of Congress would wish. Relatedly, it is unclear whether the proposed policy letter's inclusion within its definition of "critical functions" of functions that should be performed by government personnel to ensure that agencies develop and maintain "sufficient internal capacity to effectively perform and maintain control over functions that are core to the agency's mission and operations" comports with Congress's intent in Section 321 of the Duncan Hunter National Defense Authorization Act. Section 321 appears to group critical functions in a separate category from those that should be performed by the government to maintain in-house expertise. While commentators generally suggest that OFPP has undertaken a systematic, thoughtful approach to "work reserved for performance by federal government employees," certain aspects of the proposed policy letter may raise related questions that Congress might wish to explore, or instruct the executive branch to explore. For example, a principal-agent test, which is not among the two tests for identifying inherently governmental functions included in the proposed policy letter but which OFPP has requested comments on, would "require agencies to identify functions as inherently governmental where serious risks could be created by the performance of these functions by those outside government, because of the difficulty of ensuring sufficient control over such performance." Interagency contracting, in particular, might be subject to this particular type of problem and also might be more susceptible to attenuated accountability, or limited transparency, than intra-agency contracting. For these reasons, a review of interagency contracting (or particular forms of interagency contracting) might be warranted in light of the proposed policy letter. A review of the definition of "commercial activity" might also be warranted in light of the proposed changes. OMB Circular A-76 defines a "commercial activity" as "[a] recurring service that could be performed by the private sector. This recurring service is an agency requirement that is funded and controlled through a contract, fee-for-service agreement, or performance by government personnel." A narrowing of this definition might be in keeping with the proposed policy letter. Alternatively, some observers might suggest that a broad review of the appropriate role of the private sector in performing work for the federal government could be helpful in determining how to balance government performance and contractor performance of agency functions. A rigorous examination of the private sector's role also might aid in addressing the following questions posed by OFPP: What, if any, additional guidance might be provided to help an agency analyze whether it has the best mix of private and public sector labor? Are there benchmarks that exist to help agencies make this determination? Can the concept of 'overreliance' be effectively understood without also providing guidance on 'underreliance'? Some might equate, or attempt to equate, the concepts of "overreliance" and "underreliance" with the number, extent, and type of contract opportunities publicized by the federal government; the value, or number, of contracts awarded by the federal government; or the number of companies that have been awarded government contracts. For others, the standard by which to judge the government's appropriate degree of reliance on the private sector might be found in an excerpt from the Circular A-76 policy statement, which reads as follows: "The longstanding policy of the federal government has been to rely on the private sector for needed commercial services." However, others might respond that this and similar policy statements are no longer valid, or useful, as the scope and complexity of government activities and procurement have grown. Additionally, they might note that other objectives, policies, or principles have become as important (if not more so) than reliance on contractors. Examples of this type of change may be found in OFPP's proposed policy letter. Yet another approach might be to consider why, or under what circumstances, it could be preferable to use contractors. For example, OFPP notes that "[c]ontractors can provide expertise, innovation, and cost-effective support to federal agencies for a wide range of services."

Summary: On March 31, 2010, the Office of Federal Procurement Policy (OFPP) in the Office of Management and Budget (OMB) issued a proposed policy letter on inherently governmental functions and other "work reserved for performance by federal government employees." While not final, the policy letter represents the Obama Administration's proposed guidance for agencies determining (1) whether particular functions are inherently governmental and (2) when functions closely associated with the performance of inherently governmental functions and critical functions should be performed by government personnel. Under existing law, agencies cannot contract out inherently governmental functions, and they must give "special consideration" to using government personnel in performing functions closely associated with the performance of inherently governmental functions. No limitations upon contracting out critical functions currently exist. In keeping with the requirements of Section 321 of the Duncan Hunter National Defense Authorization Act for FY2009 (P.L. 110-417), which tasked OMB with developing a "single consistent definition" of "inherently governmental function," the proposed policy letter adopts the definition of the Federal Activities Inventory Reform (FAIR) Act. The FAIR Act defines an "inherently governmental function" as one that is "so intimately related to the public interest as to require performance by Federal Government employees." However, neither the proposed policy letter nor the notice from OFPP introducing it indicates whether or how the Obama Administration would amend the definitions of "inherently governmental function" in the Federal Acquisition Regulation, OMB Circular A-76, or other executive branch regulations and policy documents. The proposed policy letter defines a "critical function" as one that is "necessary to the agency being able to effectively perform and maintain control of its mission and operations." This definition, and the accompanying guidance on when critical functions and functions associated with the performance of inherently governmental functions should be performed in-house, also respond to the requirements of Section 321 of the Duncan Hunter National Defense Authorization Act. Among other things, Section 321 tasked OMB with developing criteria that agencies could use in identifying critical functions and positions that should be performed by government personnel to ensure that agencies develop and maintain "sufficient organic expertise and technical capacity." President Obama's March 4, 2009, memorandum on government contracting similarly charged OMB with clarifying when outsourcing is "appropriate." The proposed policy letter raises several legal and policy issues of potential interest to Congress, given recently enacted and proposed legislation regarding inherently governmental functions and other limitations upon contracting out (e.g., P.L. 111-8, P.L. 111-84, P.L. 111-117). Key among these issues are (1) the relationship between the proposed policy letter and other executive branch authorities on inherently governmental and related functions; (2) whether the proposed policy letter would necessarily result in changes in agencies' use of contractors to perform certain functions that some Members of Congress and commentators claim are inherently governmental (e.g., security services during contingency operations); and (3) the potential demands of any new requirements upon the acquisition workforce. The Office of Federal Procurement Policy has reportedly indicated that a final policy letter will be released "in early 2011."