May 18, 1994
POLICY LETTER NO. 93-1 (REISSUED)
TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Management Oversight of Service Contracting
This Policy Letter establishes Government-wide policy, assigns responsibilities,
and provides guiding principles for Executive Departments and agencies
in managing the acquisition and use of services.
This Policy Letter is issued pursuant to section 6(a) of the Office
of Federal Procurement Policy (OFPP) Act, as amended, codified at 41
U.S.C. section 405.
On March 15, 1993, the Office of Management and Budget (OMB) Director
Leon Panetta requested that 17 major Executive Departments and agencies
review their service contracting programs. The purpose of the review
was to determine (1) if the service contracts were accomplishing what
was intended; (2) whether the contracts were cost effective; and (3)
whether inherently governmental functions were being performed by contractors.
The results of the reviews indicated that service contracting practices
and capabilities are uneven across the Executive branch and that various
common management problems need to be addressed.
addition to the Director's review, the National Performance Review
has found that improved support for customers of the procurement system
is needed. To do this, it is important that procurement officials work
closely with program and other officials to develop clear and precise
statements of work for the products and services being acquired. Contracting
for services is especially complex and demands close collaboration
between procurement personnel and the users of the service to ensure
that contractor performance meets contract requirements and performance
This Policy Letter -- which includes appropriate
changes from Supplement No. 1 [59 Fed. Reg. 4955 (1994)] -- has been
revised to provide agencies with a more results-oriented approach to
managing and administering service contracts through the "best practices" concept.
One way to achieve excellence in contractor performance is to improve
the acquisition, management, and administration of service contracts.
This Policy Letter provides guiding principles through the "best
practices" concept that should help agencies develop, analyze, and
perfect requirements for service contracts which, in turn, should help
to improve contract management and administration. Other
"best practices" models in contract management and administration
will be issued as separate guidance.
The guidance contained in the Office of Management
and Budget (OMB) Circular No. A-120, "Guidelines for the Use of
Advisory and Assistance Services," has been rescinded by Transmittal
Memorandum No. 1, [58 Fed. Reg. 63593 (1993) and 59 Fed. Reg. 789 (1994)].
The following definitions are applicable to the Policy Letter:
a. Services are
identifiable tasks to be performed, rather than the delivery of an end
item of supply. For purposes of this Policy Letter, only services obtained
under nonpersonal services contracts are covered.
b. Best Practices.
For purposes of this Policy Letter, best practices are techniques that
agencies may use to help detect problems in the acquisition, management,
and administration of service contracts. Best practices are practical
techniques gained from experience that agencies may use to improve the
Excluded from coverage of this Policy Letter are services that are
(1) obtained through personnel appointments and advisory committees,
(2) obtained through personal services contracts authorized by statute,
(3) for construction, as defined in section 36.102 of the Federal Acquisition
Regulation (FAR), or (4) obtained through interagency agreements where
the work is being performed by in-house federal employees.
Also excluded from coverage of this Policy Letter are
services obtained under contracts below the small purchase threshold, and services
incidental to supply contracts. However, agencies should ensure that they are
in compliance with appropriate OFPP Policy Letters applicable to service contracting
and use good management practices and contract administration techniques when
using these contracting methods to obtain services.
When contracting for services, it is the policy of the Federal Government
officials are responsible for accurately describing the need to be
filled or problem to be resolved through service contracting to assure
full understanding and responsive performance by contractors, and should
obtain assistance from contracting officials, as needed.
are to be obtained and used in ways that ensure that the Government
retains inherently governmental decision-making authority.
are to be obtained in the most cost effective manner, without barriers
to full and open competition, and free of any potential conflicts of
trained and experienced officials are available within the agency to
manage and oversee the contract administration function.
management practices are used to implement the guiding principles contained
herein to prevent waste, fraud, and abuse in services contracting.
Management Practices. While effective management oversight is required
for all types of service contracts, some require less oversight than
others, as, for example, such routine services as lawn mowing and food
preparation. Conversely, services that tend to affect Government decision-making,
support or influence policy development, or affect program management
are more susceptible to abuse. These, therefore, require a greater
level of scrutiny.
The following sections offer guidance to ensure that
good management practices are being followed. Agencies should involve procurement
and program officials when developing requirements for service contracts. Appendix
A contains a series of questions to help analyze and perfect service contract
requirements within these guidelines. If the below guidelines apply, and if
the response to any of the questions listed in the Appendix is affirmative,
agencies should ensure that they are in compliance with appropriate OFPP Policy
Letters applicable to service contracting, and use good management practices
and contract administration techniques. Agencies should also continue to comply
with the FAR guidance for specialized categories of contracting such as research
and development (Part 35) and architect and engineering (Part 36) as they use
the guidance in this Policy Letter.
a. Inherently Governmental
Functions. When contracting for services, agencies must ensure
that any final agency action reflects the informed, independent judgement
of agency officials. Contractors thus must not be allowed to perform
inherently Governmental functions as defined in OFPP Policy Letter
92-1, Inherently Governmental Functions (57 Fed. Reg. 45096 (1992).
b. Cost Effectiveness.
When a valid requirement exists, agency officials must ensure that the requirement
is obtained in the most cost effective manner. If contractor support is deemed
appropriate, agencies should ensure that their acquisition strategy will result
in the acquisition of services from a quality vendor that constitute the best
value considering costs and other relevant factors, and yield the greatest
benefit to the Government.
c. Control. When
contracting for services, in particular for highly specialized or technical
services, agencies should ensure that a sufficient number of trained
and experienced officials is available within the agency to manage and
oversee the contract administration function. This especially applies
to such services as management and professional support, studies, analyses,
and evaluations, and engineering and technical support. Agency officials
need to be able to make sound judgements on what the requirements should
be, the estimated costs, and whether the contractor is performing according
to the contract terms and conditions. Agency officials must retain control
over, and remain accountable for, policy decisions that may be based,
in part, on a contractor's performance and work products. Agency officials
must also provide an enhanced degree of management controls and oversight
when contracting for functions that closely support the performance of
inherently Governmental functions.
d. Conflicts of Interest. Agency
officials must ensure that any actual or potential conflicts of interest
are identified and that appropriate steps are taken to avoid, neutralize,
or mitigate them. Service contracts are not to be awarded to any individual
or organization that is unable, or potentially unable, to render impartial
advice or assistance to the Government, or that has an unfair competitive
advantage over competing contractors unless every effort is first taken
to mitigate such conflict or advantage. OFPP Policy Letter 89-1, Conflicts
of Interest Policies Applicable to Consultants, 54 Fed. Reg. 51805 (1989)
and FAR Subpart 9.5 provide detailed guidance on conflicts of interest.
e. Competition. Full
and open competition will assure cost effectiveness and reduce the potential
for favoritism and conflict of interest. To maximize competition, the
Competition in Contracting Act requires thorough acquisition planning
and limits exceptions. The Act provides that lack of advance planning
is not adequate justification for sole source contracting. Any justification
for a noncompetitive contract should provide a detailed explanation as
to why competition can not be achieved. Plans should be made to minimize
the number of subsequent noncompetitive awards.
a. Heads of Agencies. Agency
heads (or their designees) should ensure that:
for services are clearly defined and appropriate performance standards
are developed so that contractor performance meets contract terms and
contracts are awarded and administered in such a manner that will provide
the customer its goods and services of significant quality, on time,
and within budget.
procedures are in place when contracting for services to assure compliance
with OFPP Policy Letters 92-1, Inherently Governmental Functions (57
Fed. Reg. 45096 (1992), 91-2, Service Contracting (56 Fed. Reg. 15110
(1991), and 89-1, Conflicts of Interest Policies Applicable to Consultants,
54 Fed. Reg. 51805 (1989).
strategies are developed and necessary staff training is initiated to
assure effective implementation of these policies.
b. Contracting Officials.
Contracting officials should ensure that "best practice"
techniques, such as those set forth below, are used when contracting
corporate experience section of an offeror's proposal should be reviewed
to detect conflicts of interest. Usually, the corporate experience
section contains the contractor's prior business clients.
progress reports should be reviewed to detect whether the contractor
may be performing inherently governmental functions.
officials should also seek other best practices techniques in contract
management and administration that may be used within their own contracting
activities or other agencies that will help to achieve excellence in
OFPP will also be working
to develop governmentwide "best practices" models in contract
administration which will be issued as separate guidance.
c. Federal Acquisition
Regulatory Council. Pursuant to sections 6(a) and 25(f) of the
OFPP Act, as amended, 41 U.S.C. 401 et seq., the Federal Acquisition
Regulatory Council shall ensure that the policies established herein
are incorporated in the FAR within 210 days from the date this Policy
Letter is published in the Federal Register. The 210 day period is
considered a "timely manner" as prescribed in 41 U.S.C. 405(b).
d. Inspectors General. The
Inspectors General are encouraged to conduct vulnerability assessments
of service contracting and, where warranted, include in their annual
plans a review of service contracts to ensure compliance with this Policy
The guidance in section
7 which refers to the questions in Appendix A, or any resulting "best
models developed by OFPP should not be viewed as mandatory regulatory
guidance for audit purposes.
Review. This Policy Letter is not intended to provide a constitutional
or statutory interpretation of any kind and it is not intended, and
should not be construed, to create any right or benefit, substantive
or procedural, enforceable at law by a party against the United States,
its agencies, its officers, or any person. It is intended only to provide
policy guidance to agencies in the exercise of their discretion concerning
Federal contracting. Thus, this Policy Letter is not intended, and
should not be construed, to create any substantive or procedural basis
on which to challenge any agency action or inaction on the ground that
such action or inaction was not in accordance with this Policy Letter.
Contact. For information regarding this Policy Letter contact Linda
G. Williams, Deputy Associate Administrator, Office of Federal Procurement
Policy, 725 17th Street, NW, Washington, DC, 20503. Telephone (202)
Date. This Policy Letter is effective 30 days after the date of issuance.
While these policies must be implemented in the FAR, it is expected
that agencies will take all appropriate actions in the interim to develop
implementation strategies and initiate staff training, consistent with
section 8a(4), to ensure effective implementation of these policies.
The following is a series of questions to help agencies analyze and
review requirements for service contracts.
A. Inherently Governmental Functions
If the response
to the first question is affirmative, the contract requirement is for
an inherently Governmental function that must be performed by Government
officials; if the response to the second question is affirmative, the
contract requirement may be for an inherently governmental function:
(1) Is the requirement for a
function that is listed in Appendix A of OFPP Policy Letter 92-1, Inherently
(2) If the function is
not listed in Appendix A, do any of the factors in the "totality
of the circumstances" analysis discussed in section 7(b) of Policy
Letter 92- 1 indicate that the function may be inherently governmental?
B. Cost Effectiveness
If the response to any of the following questions is affirmative, the
agency may not have a valid requirement or not be obtaining the requirement
in the most cost effective manner:
the statement of work so broadly written that it does not support the
need for a specific service?
the statement of work so broadly written that it does not permit adequate
evaluation of contractor versus in-house cost and performance?
the choice of contract type, quality assurance plan, competition strategy,
or other related acquisition strategies and procedures in the acquisition
plan inappropriate to ensure good contractor performance to meet the
a cost reimbursement contract is contemplated, is the acquisition plan
inadequate to address the proper type of cost reimbursement to ensure
that the contractor will have the incentive to control costs under
the acquisition plan inadequate to address the cost effectiveness of
using contractor support (either long- term or short-term) versus in-house
the cost estimate, or other supporting cost information, inadequate
to enable the contracting office to effectively determine whether costs
(7) Is the statement
of work inadequate to describe the requirement in terms of "what" is
to be performed as opposed to "how" the work is be accomplished?
(8) Is the acquisition
plan inadequate to ensure that there is proper consideration given to "quality" and
If the response to any of the following questions is affirmative, there
may be a control problem:
there insufficient resources to evaluate contractor performance when
the statement of work requires the contractor to provide advice, analysis
and evaluation, opinions, alternatives, or recommendations that could
significantly influence agency policy development or decision-making?
the quality assurance plan too general to monitor adequately contractor
the statement of work so broadly written that it does not specify a
contract deliverable or require progress reporting on contractor performance?
there concern that the agency lacks the expertise to evaluate independently
the contractor's approach, methodology, results, options, conclusions,
the requirement for a function or service listed in Appendix B of OFPP
Policy Letter 92-1, or similar to a function or service on that list,
such that greater management scrutiny is required of the contract terms
and the manner of its performance?
D. Conflicts of Interests
If the response to any of the following questions is affirmative, there
may be a conflict of interest:
the potential offeror perform under the contract in such a way as to
devise solutions or make recommendations
that would influence the award of future contracts to that contractor?
the requirement is for support services (such as system engineering
or technical direction), were any of the potential offerors involved
in developing the system design specifications or in the production
of the system?
the potential offeror participated in earlier work involving the same
program or activity that is the subject of the present contract wherein
the offeror had access to source selection or proprietary information
not available to other offerors competing for the contract?
the contractor be evaluating a competitor's work?
the contract allow the contractor to accept its own products or activities
on behalf of the Government?
the work, under this contract, put the contractor in a position to
influence Government decision-making, e.g., developing regulations,
that will affect the contractor's current or future business?
the work under this contract affect the interests of the contractor's
any of the potential offerors, or their personnel who will perform
the contract, former agency officials who -- while employed by the
agency -- personally and substantially participated in (a) the development
of the requirement for, or (b) the procurement of, these services within
the past two years?
If the response to any of the following questions is affirmative, competition
may be unnecessarily limited:
the statement of work narrowly defined with overly restrictive specifications
or performance standards?
the contract formulated in such a way as to create a continuous and
dependent arrangement with the same contractor?
the use of an indefinite quantity or term contract arrangement inappropriate
to obtain the required services?
the requirement be obtained through the use of other than full and
Return to Policy Letters