June 19, 2003





TO:      Chapter Presidents


RE:       OMB Rewrite of the Circular A-76


         SUMMARY:   The Office of Management and Budget (OMB) recently released the revised Circular A-76.  NTEU believes the revised Circular falls short of creating a level playing field in the competition for federal government jobs.


            The Administration has rewritten the Circular A-76 process through which the private vendors are given the opportunity to perform the duties of federal employees.  Copies of the new Circular A-76 can be found on the Office and Management and Budget’s (OMB) web site at  www.omb.gov.  This effort to change the rules the agencies must follow when evaluating who should perform the work of the federal government began with OMB’s proposed rule changes issued for public comment in the Federal Register on November 19, 2002.  NTEU was one of the over 700 voices of opposition received by OMB from federal employees, unions, and other members of the public.  While OMB claimed that the changes, as they were proposed, were intended to improve the procedures for conducting competitions between the federal employees and the private vendors and to increase competitions, the volume of comments demonstrates that the proposed improvements fall short of creating a more level playing field for competition.


            NTEU submitted comments to the proposed rule changes in December 2003.  We advised OMB that the draft Circular fell short in six primary areas:


1)        The draft Circular puts inherently governmental functions at risk of falling into the hands of unaccountable vendors by further limiting the definitions of “inherently governmental” and making it difficult for an agency to classify a function as inherently governmental.  The new Circular continues to discourage agencies from protecting the work that should be performed by federal employees by requiring the agencies to prepare formal documentation to justify exempting a function from vendor performance.  That documentation must now be made available for the vendors to challenge.


2)        The draft Circular expanded the opportunity for the agencies to convert work directly to the private sector without competition.  While a number of the issues raised by NTEU in our formal comment to the draft Circular were not addressed in the revised A-76 Circular, I am pleased that the new Circular eliminates the use of direct conversions. 

3)        The draft Circular required that competitions that could not be completed by the agency within 12 months be short-circuited, with the work directly converted to the private sector, eliminating the right of the employees to participate in the competition.  While the 12-month time frame still exists under the revised Circular, agencies are no longer required to automatically end the competition between the employees and the vendors, but instead the agencies are required to report to OMB on their status of moving the studies along.  Further, the revised Circular requires agencies to hold their executives involved in competitive sourcing studies accountable for ensuring that the studies are conducted quickly.


4)        The draft Circular contained language that would stack the deck against the federal employees in a competition.  The federal bid would be required to include speculative costs in its bid, while the vendor bids would enjoy the benefit of excluding actual costs from their bids.  For example, the government would have to include in its bid a presumed one-time cost of paying severance pay to separated federal employees to achieve the organization included in the agency’s bid.  That factor is a presumed 4% of pay.  However, the vendor’s cost used to compare with the agency bid excludes any inevitable severance cost associated with separating all of the impacted federal employees should the vendor win the competition.  As another example of a vendor windfall in the costing process, the cost that a private vendor must incur for a performance bond, if required by the solicitation, would be excluded from the vendor’s contract price when compared against the agency bid.  This is an actual cost incurred by the government for doing business with the private vendors, yet once again the vendors enjoy the benefit of exclusion.  Those questionable costing requirements remain in the revised Circular.


5)        The draft Circular eliminated the right of federal employees to challenge a faulty award decision through the administrative appeal process.  The revised Circular now reinstates the right of federal employees to use the administrative appeal process to challenge a regular competition.  However, the revised Circular continues to deny federal employees the right to challenge decisions of studies involving functions of 65 or less employees.


6)        The draft Circular contained no effective provisions for tracking contractor performance.  The revised Circular continues to fail in effectively holding vendors accountable for their costs and performance.


            There are other highlights of the revised Circular A-76 that you should be aware of:



·           The effective date of the application of the new rules is May 29, 2003.  The rules will apply to the development of the agency’s 2003 FAIR Act inventory (which is due to OMB by June 30, 2003), streamlined studies that were not publically announced at www.fedbizopps.gov prior to May 29, 2003, standard studies not publically announced at www.fedbizopps.gov prior to May 29, 2003, and direct conversions not publically announced at www.fedbizopps.gov prior to May 29, 2003 (which must now be conducted as a streamlined study or a standard study since direct conversions are prohibited by the revised Circular).

·           Under the revised Circular, an A-76 competition allowing federal employees to compete is not required for new work of the agency, segregable work, or the continued performance of work by the private sector once the work is lost to the contractor.


·           The revised Circular further limits the opportunity for employees to challenge their position on the FAIR Act list.  The Circular limits the basis for challenging a position on the list to a situation where the position has been reclassified from “inherently governmental” to “commercial” or to challenging a reason code given to a function.


·           The revised Circular requires the agencies to refine the scope of the function to be studied consistent with the way the vendors perform services, making it easier for vendors to understand the work and encouraging vendors to bid on the work of the federal government.  In fact, if vendors do not bid on a solicitation, the revised Circular requires the agency to rewrite the solicitation so that vendors are encouraged to bid for the work.


·           When the agency announces the study to the public, the agency must include in that public announcement the number of federal employees that are performing that function that is being offered for bid.


·           The revised Circular allows the agencies to conduct streamlined studies on functions that have 65 or less employees doing the work under study.  The agency is only allowed 90–135 days to complete the study.  Further, the decisions made by the agency as a result of this expedited study cannot be challenged by the impacted employees.


·           Once a decision has been made on the winner of the competition, the agency is required under the revised Circular to publically release the agency cost for performing the function, but is not required to release the cost information about the vendors who bid on the work.  


·           The revised Circular now allows the agencies the flexibility to use one of four (4) possible procedures for selecting a winner in a competition between the employees and private vendors:


1)         Sealed Bid — lowest priced bid wins.

2)         Negotiated Acquisition — Lowest Price Technically Acceptable — selection is based upon those that are technically acceptable. 

3)         Negotiated Acquisition — Phased Evaluation — bidders can propose an alternative performance standard than what is identified in the solicitation.  If the agency accepts the new standard, all other bidders must adjust their bid to meet the new standard.  Selection is made on lowest price among the bidders who can meet the newly accepted standard.

4)         Tradeoff — award is based on something other than lowest cost.  Cost must be at least 50% in weight (i.e., the deciding factor) to other factors that the agency determines to be important in their decision-making, unless the other factors can be given a quantifiable value.  Then, lowest cost is not the deciding factor.  This is also known as the “best value” selection process.



·           If the agency bid is determined to be nonresponsive (for example, because it cannot meet the new standard accepted by the agency in a Phased Evaluation), the agency bid can be eliminated from the competition.


·           The conversion differential (i.e., 10% of labor costs or $10 million) is not added to the vendor costs in a streamlined study (fewer than 65 employees).


·           If the MEO defaults in performance, the agency must terminate the performance and hold another competition.  However, if the vendor defaults in performance, the agency is not required to hold another A-76 competition.  Further, the agency employees cannot perform the work for more than one year after default by the vendor.


            So that you can begin to become familiar with the changes to the revised Circular A-76, I recommend you go to the OMB web site (www.omb.gov) and download a copy of the new document and the preamble document.  I have also attached a memo from Angela Styles, Administrator for the Office of Federal Procurement Policy (OFPP) and OMB point person for this revision project of the Administration, OMB’s talking points on the new A-76, and OMB’s side-by-side comparison of the old, November 2002 draft, and new Circulars.


            Should you have any questions about the changes in the revised Circular A-76, please contact Kim Moseley at (202) 572-5500.  If you need specific information about how the changes will impact studies in your agency, first contact your National Field Representative. 



                                                Colleen M. Kelley

                                                                                    National President