The Kinder, Gentler Outsourcing Bill

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Infotech and the Law James C. Fontana

The Kinder, Gentler Outsourcing Bill

Privatizing traditional government functions is not a new concept. Whether you call it outsourcing or service contracting, the U.S. government and many state and local governments have increasingly relied on private contractors to perform work that public agencies had routinely performed in the past.

What an agency outsources to contractors and keeps for itself is usually part of the government's "make or buy" decision making. If some on Capitol Hill and industry have their way, however, most commercial activities commonly performed by federal agencies will, by statutory mandate, be open to competition by the private sector.

The proposed law is called the Competition in Commercial Activities Act. The bill was first introduced last year and originally titled the Freedom From Government Competition Act of 1997. Unfortunately, the original bill essentially died in committee last summer. The revised bill is now before the House Government Marketing Subcommittee, with hearings scheduled for March 24.

The original bill basically derided government competition with the private sector and decreed that each agency procure from private sources most of its goods and services. But this concept of privatizing for privatizing's sake did not sit well with several agencies, including the Office of Management and Budget. Hence, there is now a kinder, gentler bill for consideration.

The newly revised bill requires the use of best value judgments in privatizing the work, emphasizing that the government should allow more competition between public and private sector sources for many traditional governmental functions, rather than stating up front that such activities will be outsourced to the private sector. Thus, under the revised bill, private companies, as well as the using agency, will have an opportunity to compete for the work.

In determining what government activities will be eligible for outsourcing, agency heads would be required to create a special activities list. Excluded from this list (and ineligible for privatization) are "inherently governmental" activities, small administrative service agreements provided by one agency for other agencies, contracts negotiated between agencies, activities for which there is an ongoing make-or-buy comparison (under the so-called A-76 Program) or where national security or a national emergency necessitates using the government.

The bill defines an "inherently governmental" activity as a task "so intimately related to the public interest as to mandate performance by Federal Government employees." That would include such functions as military or diplomatic matters, activities not generally available from commercial sources, matters requiring application of special government authority (e.g., treasury policies), matters that would contractually bind the government or its property, judicial proceedings, appointment and control of federal employees, and matters that affect the life, liberty or property of private persons.

The publicly available list would also specify the number of full-time employees as well as estimated revenues associated with the activity, with points of contact for further information. Open competition between agencies and private sources would be mandated within two years after the activity appears on the list, and every five years or more after that time. The bill requires the government to phase in this competition requirement starting in September 2000, with all government commercial activities eligible for privatization in the year 2004. Other cost comparison mechanisms, like the A-76 program, would be phased out by March 2000.

In addition, the bill provides, as did the original bill, for the establishment of a Center for Commercial Activities and Privatization within the OMB, contemplating a type of "privatization czar" to oversee the law's implementation. Also, the existing federal law would be changed to require each agency to include data on privatized as opposed to retained activities in its annual performance plans. The agency would be required to explain why it decided to keep the work in-house.

The revised bill would also require 20 percent of the full-time equivalent positions performing commercial activities in federal agencies to be competed each year for the next five years, allowing for outsourcing of all such positions by the year 2004. The required competitions would include all the direct and indirect costs involved in contract performance. In particular, this would ensure an equitable evaluation in competing the work between the private and public sectors.

The new law will certainly open up more opportunities for companies specializing in outsourcing in areas such as information technology, training and data processing. But there are still some in the industry who prefer that most if not all noninherently government work be outsourced over a period of time, while others argue that government work should stay in the government's hands. The point of outsourcing is to increase efficiency and save costs in the long run.

The question is whether most government agencies, strapped with their inherently inefficient bureaucracies, can effectively compete with their commercial counterparts.

James C. Fontana is vice president and corporate counsel of Wang Government Services Inc. in McLean, Va. His e-mail address is

Copyright 1998 Post-Newsweek Business Information, Inc. All rights reserved


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