The FAIR Act requires executive agencies to submit each year to the Office of Management and Budget (OMB) inventories of activities that, in the judgment of the head of the agency, are not inherently governmental functions. The first FAIR Act inventories were due to OMB by June 30, 1999. According to an OMB official, most agencies met this requirement. these inventories to include information about (1) the fiscal year the activity first appeared on the FAIR Act list, (2) the number of full-time- equivalent (FTE) staff years necessary to perform the activity by a federal government source; and (3) the name of a federal government employee responsible for the activity from whom additional information about the activity may be obtained. It is important to note that the FAIR Act does not require an agency to list activities that the agency determines are inherently governmental and therefore not commercial. OMB published draft guidance in March 1999 and issued final guidance on the implementation of the FAIR Act on June 24—about a week before the first inventories were due. OMB implemented the FAIR Act by revising its Circular A-76, “Performance of Commercial Activities,” and the A-76 Supplemental Handbook. Under Circular A-76, executive agencies are to conduct cost comparison studies of commercial activities performed by government personnel to determine whether it would be more cost efficient to maintain them in-house or contract with the private sector for their performance. Under OMB’s revised guidance, agencies were expected to list the activities the agency determined are not inherently governmental using specific codes established for A-76. These include both “reason” and “function” codes. The “reason codes” are used to show whether the agency believes that an activity determined to be commercial should be subject to an A-76 cost comparison or not, including identifying those commercial activities that cannot be competed because of a legislative or other exemption. The function codes are to characterize the types of activities that the agency performs. The function codes range from fairly broad categories, such as “family services,” to much more specific (and defense-related) activities, such as “Intermediate, Direct, or General Repair and Maintenance of Equipment—Missiles.” would group a set of inventories for release together, rather than releasing them on a rolling, agency-by-agency schedule. In a September 30, 1999, Federal Register announcement, OMB listed the first group of FAIR Act inventories—from 52 agencies—that were made available to the public. Of these 52 inventories, 10 were from CFO Act agencies. Five of these were from cabinet agencies (Agriculture, Commerce, Education, Health and Human Services, and Housing and Urban Development) and the other five were from EPA, GSA, the National Aeronautics and Space Administration, the Social Security Administration, and the Agency for International Development. The remaining 42 inventories released in September 1999 were from smaller executive agencies such as the Marine Mammal Commission and the Office of National Drug Control Policy. The next step in implementing the FAIR Act includes potential challenges to the lists. According to the FAIR Act, within 30 days after publication of the notice of the public availability of the list, an interested party may challenge the omission of a particular activity from, or an inclusion of a particular activity on, the FAIR Act inventory. Within 28 days after an executive agency receives a challenge, it must decide the challenge and provide written notification, including a discussion of the rationale for the decision, to the challenger. This decision can be appealed to the head of the agency within 10 days after the challenger receives written notification of the decision. Clearly, executive agencies and OMB still have plenty of work ahead to implement even the first step of the FAIR Act—the public release of inventories. Nevertheless, our initial review of selected inventories that have been released raise a number of important questions about the efforts thus far. On behalf of the Subcommittee, we will be seeking answers to these and related questions over the coming months in order to assess agencies’ efforts and to develop a body of best practices, as efforts under the FAIR Act move forward. A major area of interest during the initial implementation of the FAIR Act concerns the decisions agencies made about whether or not activities were eligible for competition and the reasons for those decisions. The FAIR Act provides that when an agency considers contracting with a private sector source for a commercial activity on its list, the agency shall use a competitive process to select the source unless it is exempted from doing so. A commercial activity in an agency can be exempted from competition for a variety of reasons. These reasons include legislative restrictions, other actions by Congress, Executive Orders, OMB decisions, or separate decisions by the relevant agency. Our initial review of the selected inventories suggests that questions can be raised about how agencies decided whether or not a commercial activity could be subject to competition, particularly when an agency reports that relatively few of its commercial activities could be considered for competition. Out of a total of 829 FTEs performing commercial activities listed in EPA’s FAIR Act inventory, about 30 FTEs (about 3.6 percent) were listed in commercial activities that could be considered for competition. These activities were listed under six function codes, including (1) nonmanufacturing operations (such as mapping and charting or printing and reproduction activities); (2) maintenance, repair, alteration, and minor construction of real property; (3) regulatory management and support services; (4) installation services; (5) administrative support for environmental activities; and (6) other selected functions. EPA listed about 24 FTEs, or about 3 percent of the total of the commercial activities listed, as performing activities that are exempt from competition because of actions by Congress, Executive Order, or OMB. Most of these FTEs provide support for two function codes—research, development, testing, and evaluation; or administrative support for environmental activities. house expertise to effectively apply and enforce the nation’s environmental laws in fulfilling its mission and meeting emergency requirements. For example, EPA’s Deputy CFO told us that the agency exempted selected positions requiring scientific expertise in its research and development office in order to oversee the work produced by laboratories run by contractors. Out of a total of 7,249 FTEs GSA determined were providing commercial activities, it listed 4,556 FTEs (63 percent) who perform commercial activities that could be subject to competition. Almost half of these FTEs were involved in the maintenance, repair, or minor construction of real property. GSA also listed 874 FTEs (12 percent of the total commercial activities identified) as exempt from competition—more than half of these FTEs also perform activities involved with the maintenance, repair, or minor construction of real property. According to GSA’s FAIR Act inventory, 1,819 FTEs (25 percent of its FTEs performing commercial activities) should be retained in-house because the activities are being “reinvented.” GSA plans to reassess the activities for possible recategorization once reinvention efforts are completed. The FTEs are devoted to various activities, including financial and payment services, information and telecommunication program management, and security and protection. Agencies used a variety of approaches to develop their FAIR Act inventories. For example, a number of agencies used their “Raines inventories” as a basis for their FAIR Act inventories. The Raines inventories were developed as part of a 1998 effort led by OMB under which agencies were to identify commercial and other activities and provide that information to OMB. Specifically, agencies were asked to list agency functions and positions supporting activities that were inherently governmental; commercial, but specifically exempt from the cost comparison requirements of OMB Circular A-76; commercial and should be competed; and commercial, but must be retained in-house (including the reason why). Officials from the Department of Commerce said that Commerce based its FAIR Act inventory almost entirely on the information from its Raines inventory. The Department asked its component organizations to update the information that previously had been prepared for OMB as part of its Raines inventory. According to Commerce officials, these organizations made only minor changes for the FAIR Act inventory. GSA described its approach as starting from the top and working down, with agency management forming a team to develop its FAIR Act inventory. GSA’s team was composed of one or two staff members from each of GSA’s service divisions and regional offices. GSA officials said that this team held lengthy discussions about GSA’s core mission and about which of its functions should be considered inherently governmental. In addition, a contractor was hired to train staff and to facilitate discussions on the topic of inherently governmental activities. GSA officials said that making the training as inclusive as possible was important to address the staff’s apprehensions about privatization. EPA delegated the responsibility for developing its inventory to its 10 regional offices because it decided that the regional officials closest to the work should make determinations about specific activities. EPA headquarters reviewed and compared the submissions from its regions and offices and worked to resolve any discrepancies. EPA’s Deputy CFO said that he does not expect the percentage of activities EPA identifies as commercial to remain static. He predicted that it would increase in the future, although he also emphasized that EPA is already very reliant on contractor support to fulfill its mission. The inventories now being released represent the first time that agencies have produced inventories under the FAIR Act. Thus, it is not surprising that a variety of different reporting formats are being used. It will likely take several reporting cycles before a documented set of best practices emerges that meets the needs of Congress and other interested parties. Also, it is not surprising that these inventories will become more useful as they become clearer and more complete. competition.