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 Inter-Service
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
Inherently Governmental Activities
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.
Government Performance of Commercial Activities
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
Government-owned 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
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.--
- 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
- 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
6. Functions With
10 or Fewer FTE.--Activities involving 10 or fewer FTE may be converted
from contract 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
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.
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).
- 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
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, in-house 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.
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.):
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.
Support Agreements (ISSA).--
activities may be performed by in-house or contract resources
or through ISSAs as provided by law and Part I, Chapter 2 of
- 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.
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
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, reorganized, divided or
in any way changed for the purpose of circumventing the requirements
of this paragraph or this Supplement.
Performed by the Military.--
- 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.
- 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").
- 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.
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
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.
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
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 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.
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.
Review of Documents
1. Access to Supporting
- 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.
- 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 representatives
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.
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
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 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.
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.
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:
priority consideration for available positions within the agency;
a reemployment priority list and an effective placement program;
- paying reasonable
costs for training and relocation that contribute directly to
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.
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
PERMITTING GOVERNMENT PERFORMANCE OF COMMERCIAL ACTIVITIES
Defense or Intelligence Security. The Secretary of Defense, or
designee, approves national defense justifications. The Director
of Central Intelligence, or designee, approves national security
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
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.
Authorization. Temporary emergency performance may be warranted not
to exceed the next full contract option year.
PERMITTING CONTRACT PERFORMANCE OF COMMERCIAL ACTIVITIES
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.
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.
With 10 or Fewer FTE. May be converted to or from in-house, contract
or ISSA, without a cost comparison.
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
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.
Procurement Programs. Contract performance may be granted, without
cost comparison, if the contract is awarded to a preferential procurement
9. Lower Cost.
Conversion to contract is required if a cost comparison indicates
that contract performance is the lower cost alternative.
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
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.
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
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.
- 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
- Agencies that
wish to provide a commercial activity to another Department or
agency may petition the agency to conduct a cost comparison.
- 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 the private and other in-house offers based upon
the submission of performance measures.
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:
Disposal/Transfer of Assets
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.
- 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.
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.
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
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
The Cost Comparison Study Team
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.
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.)
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
- 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.
- 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
Performance Work Statements
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.
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.
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.
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:
An overall comparison of the current organization with the MEO
and a review of any special initiatives or assumptions, including
equipment or productivity changes.
- 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.
- 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.
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.
- 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.
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 in-house cost estimate.
1. The contracting
officer reviews the PWS to ensure that it is adequate and appropriate
to serve as 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
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.
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:
- 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.
- 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.
- 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.
- 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.
- 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.
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:
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
- ensure that
all costs entered on the CCF are fully justified and calculated
in accordance with the procedures described in Part II of this
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 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 in-house
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.
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:
- Be submitted
by an eligible appellant.
- 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.
- 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.
- Identify specific
instances of agency denials of information not otherwise protected
by law or regulation.
that the items appealed, individually or in aggregate, would
reverse the tentative decision.
2. An eligible
appellant is defined as:
employees (or their representatives) and existing Federal contractors
affected by a tentative decision to waive a cost comparison;
- 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
- 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
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
6. Agency A-76
Administrative Appeal procedures do not apply to questions concerning:
- the selection
of one contract offeror or another for competition with the in-house
- award to one
contractor in preference to another;
management decisions involving the Government's certified in-house
- 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 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.
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.
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