OFPP’S POLICY LETTER ON INSOURCING (and where to go if you have a complaint about its implementation)

Posted on 9/12/2011 12:29 PM

OFPP’s policy letter on inherently governmental, closely associated with inherently governmental and critical functions, issued September 12, 2011, complements The Federal Activities Inventory Reform Act (FAIR) and contemplates changes to FAR Subpart 7.5 which currently covers inherently governmental functions. The letter raises significant issues of concern to the services industry and to small businesses, in particular.

The Policy Letter expands the definition of inherently governmental functions and adds two new categories of functions (which contractors can perform) to be reviewed carefully by agency management: 1) closely associated with inherently governmental functions; and 2) critical functions. Many examples are provided. The problem with adding layers of definitions and providing examples which are not exclusive is that the definitions increase the chances that they will be more confusing and the listing of examples actually will drive work in house.
Work closely associated with inherently governmental functions and critical functions may be contracted out. But agencies are to scrutinize these functions carefully and if the work is outsourced, they must exercise careful management to assure proper control and to prevent the work from drifting into what really is inherently governmental. Moreover, although the work in the two additional categories may be performed by contractors, it also may be performed by federal employees. Essentially, then, there is a longer list of functions which may stay in house.
The letter says “OFPP does not anticipate a widespread shift away from contractors as a result of the requirements in the policy letter.” But this whole policy, including FAIR, is a response to criticism that the federal government relies too much on contractor services. Although it is not OFPP’s stated intention to do so, the inevitable conclusion is that work will be taken away from contractors and have it performed by federal employees. It already is happening. For example, all contract management type work, as we have defined it in these blogs, is now being treated as inherently governmental.
There is one bright spot in the letter for small businesses. When prioritizing what out sourced work should be reviewed for potential insourcing, agencies are encouraged to place a lower priority on reviewing work performed by small businesses (assuming the work is not inherently governmental) and “where continued contractor performance does not put the agency at risk of losing control”. If work under scrutiny remains out sourced, the rule of two is to be strictly enforced. That is, if there are two or more responsible small businesses or subsets of small businesses capable of performing the work at a fair market price, the work must be set aside for them.
We have briefed this question extensively in our webinar “How to Deal with Insourcing” available by contacting us at jen@spriggsconsultingservices.com. In summary, GAO will not get involved unless there is a solicitation on the street (A-76 type) or canceled to take work back in house. However, there is precedent at the Court of Federal Claims for hearing cases involving decisions to insource work. In a case called Santa Barbara Applied Research, Judge Firestone held this year that the court had jurisdiction and the plaintiff had standing to challenge the agency’s insourcing decision.


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