Infotech and the Law: OMB proposes major changes to A-76 competitive sourcing

Jonathan Cain

Last April, the congressionally mandated panel to review and recommend changes to the process for public-private competitions for government activities issued its report. The report included several recommendations to reduce the advantages that government employees hold when competing with industry under the Office of Management and Budget's Circular A-76. In November, OMB released for public comment major proposed revisions to Circular A-76.

Any government contractor providing information technology systems or services to government agencies should be familiar with this proposal. The administration's expressed intent to subject more than 400,000 government positions to commercial competition under the revised circular means that, regardless of its final details, there will be changes in how business is done by and for large parts of the federal bureaucracy.

The proposed circular starts with a presumption that all activities of the government are commercial in nature, unless proven to be inherently governmental. Commercial activities include any recurring service that could be performed by the private sector and are paid for, performed and controlled by the agency, whether through a contract to a vendor or by an agency employee.

If an activity is commercial rather than inherently governmental, then it is subject to competition and possible award to a vendor.

The list of inherently governmental activities has been narrowed. Only those that require the exercise of sovereign government authority or the establishment of procedures and processes related to the oversight of monetary transactions or entitlements are deemed to be inherently governmental.

Noncontroversial examples of inherently governmental activity include protecting territorial interests of the United States by military or diplomatic action, criminal judicial proceedings, or appropriating and disbursing federal funds.

The proposed circular goes farther, however, and cautions agencies that they should classify early stages of a governmental activity (analysis, preparation of options, etc.) as commercial rather than governmental even if the ultimate policy, financial or regulatory decision is made by a government official.

If an activity is not proven to be inherently governmental, then it should be subject to periodic competition. The competition process envisioned by the proposed circular will differ significantly from the current process. The public-private competition will be closer to standard source selection processes under the Federal Acquisition Regulation.

Both in-house and outside proposals would have to respond to the solicitation at the same time, and the source selection team would evaluate all offers at the same time. The rules intended to limit sharing of information about technical solutions between proposals and other inappropriate exchanges of information between the source selection team and commercial offerors also would be applied to in-house offers.

The proposed circular would authorize comparison of quality and innovation between outside and in-house offers, rather than an evaluation limited solely to cost considerations.

One aspect of outsourcing that appears to be missing from the proposed circular is any emphasis on small business participation in the public-private competitions. There has been about a 50 percent reduction in the number of small businesses receiving prime contracts in the past decade, as government buyers consolidate procurements among smaller numbers of larger businesses. It is somewhat surprising that in a proposal designed to increase competition in the provision of government services, retaining a vibrant small business element in government outsourcing appears to have drawn no attention from policymakers.

Comments on the proposed Circular A-76 must be filed with OMB by Dec. 19, and the revised circular will be effective for all solicitations after Jan. 1, 2003. *

Jonathan Cain is a member of the law firm Mintz Levin Cohn Ferris Glovsky & Popeo PC in Reston, Va. The opinions expressed in this article are his. He can be reached by e-mail at

About the Author

Jonathan Cain is a member of law firm Mintz Levin.

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