Contracting out procurement functions: current status

Defense AR Journal, Sept, 2007 by J. Scott Williams, Roland D. Kankey, Billy R. Harry, Alan S. Gilbreth

For years, the Department of Defense (DoD) acquisition workforce has been decreasing, yet workload often has not kept pace. This has created a dilemma for DoD procurement organizations that many have addressed by contracting out some of the work. The Air Force Deputy Assistant Secretary (Contracting), Mr. Charlie Williams, sponsored a study to assess the current status of contracting out procurement functions within DoD and federal agencies. Our study determined that government agencies display considerable variety in their use of contractor support for procurement functions. This article summarizes the current status of contracting out procurement functions and recommends that contracting managers retain a limited capability to contract out to meet their mission requirements.

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This article examines the use of contractor support to supplement government contracting personnel in the completion of procurement functions/activities using an advisory and assistance services (AAS) contract. When we address the issue of "contracting out," many automatically think we are concerned with contracting out the entire function. That is not the case. According to the Federal Acquisition Regulation (FAR), many procurement functions/activities are inherently governmental (IG). In other words IG functions must be performed by government personnel, which include participating as a voting member on any source selection boards; approving any contractual documents; and awarding, administering, and terminating contracts (FAR 7.503). The FAR succinctly precludes contracting out these activities: "Contracts shall not be used for the performance of inherently governmental functions" (FAR 7.503).

POLICY REVIEW

It has been a long-term policy of the Executive Branch to rely on contractors in the private sector to provide the goods and services needed to act on the public's behalf (General Accounting Office [GAO], 1981). Previously, the Office of Federal Procurement Policy (OFPP) Policy Letter 92-1 stated, "inherently governmental functions necessarily involve the exercise of substantial discretion," which "must have the effect of committing the Federal Government to a course of action when two or more alternative courses of action exist." Alternately, the FAR 2.101 describes an IG function as follows:

   Inherently governmental function means, as a matter of policy, a
   function that is so intimately related to the public interest as to
   mandate performance by Government employees. This definition is a
   policy determination, not a legal determination.... (FAR, 2005)

Guidance on IG functions was reiterated in the Office of Management and Budget (OMB) Circular A-76 when it was revised in 2003, officially superseding OFPP 92-1. The circular tightened the description of substantial discretion. It stressed that not every exercise of discretion is substantial. To quote OMB:

   The use of discretion shall be deemed inherently governmental
   [substantial discretion] if it commits the government to a course
   of action when two or more alternative courses of action exist and
   decision making is not already limited or guided by existing
   policies, procedures, directions, orders, and other guidance that
   (1) identify specified ranges of acceptable decisions or conduct
   and (2) subject the discretionary authority to final approval or
   regular oversight by agency officials. (OMB C A-76, 2003)

If a function is determined to be IG (e.g., the procurement function), but some parts of the work (activities) are noninherently governmental, then these activities could be contracted out as AAS in accordance with FAR 37.2 and Defense FAR Supplement (DFARS) 237.2. The definition of AAS is found in FAR 2.101(b), which states in part:

   Advisory and assistance services means those services provided
   under contract by nongovernmental sources to support or improve:
   organizational policy development; decision-making; management and
   administration; program and/or project management and
   administration; or research and development activities. (FAR, 2005)

A great deal of information is available on IG and the contracting-out decision. See the referenced Defense Acquisition University (DAU) Research Report for more historical detail and discussion. With respect to current policy, the FAR defines IG in FAR 2.1, lists functions normally and not normally considered IG and normally considered IG in FAR 7.5, and prescribes policies and procedures to ensure that IG functions are not performed by contractors in FAR 7.5. The DoD has chosen to supplement FAR 7.503 with some additional guidance in DFARS 207.503 with respect to those functions close to IG.

Another factor in the decision as to whether government personnel or contractors should perform specific activities deals with breadth of vision. The GAO (1991) indicated that government decision-making power means more than just being the final authority or signing the document. Government officials should be active throughout the decision-making process. The GAO related that the question often presented to courts was not whether the contractor can be involved, but to what extent can the contractor be involved. Per the GAO, a key criterion was whether the government maintains sufficient in-house capability to be thoroughly in control of the policy and management functions. It can be noted that OMB (2003) now calls for agencies to consider the ability of senior management to develop and consider options before contracting out activities. If contracting out is judged to inappropriately restrict this ability, then one may be transferring IG authority to a contractor.