The White House took an important step this week toward rolling back one of the most pernicious pieces of contracting law on the federal books.

The Office of Mangement and Budget (OMB) yesterday issued a memo proposing that agencies prohibit contractors from performing “inherently governmental functions” as defined by the 1998 Federal Activities Inventory Reform Act (FAIR Act).  The move would essentially repeal a 2003 revision to the act  known as Circular A-76 that watered down the definition of inherently governmental activities. The revision increased confusion within federal agencies about what functions to contract out and accelerated the trend toward outsourcing government work. 

The FAIR Act defines inherently governmental functions as “intimately related to the public interest.” The proposed memo includes several examples of inherently governmental functions, such as determining agency policy; drafting Congressional correspondence; directing intelligence and counter-intelligence, hiring other Federal employees, or awarding or administering contracts. The memo also discourages outsourcing functions “closely associated” with inherently governmental functions, such as evaluating other contractors’ performance or assisting in contract management. OMB plans to develop official guidance for agencies on how to identify inherently governmental functions.

However, writing a memo is the easy part. The real change can only come with rigorous enforcement, something that has not historically accompanied acquisition reform. Multiple examples of contractors performing inherently governmental functions exist today: A June 2009 report by the DHS Inspector General slammed Customs and Border Patrol for relying on contractors so extensively—more than half of the SBI office’s 340 employees in 2008 were contractors—and with so little oversight that many performed governmental duties such as drafting Congressional testimony.  And the Government Accountability Office’s 2010 weapons assessment roundup released this week says that for the first time since it began reporting on staffing in 2008, the number of contractors in Defense Department offices managing major weapons programs has surpassed that of government workers. The greatest increase is in the number of “support” contractors, which are performing program management and contracting functions, according to GAO.

The new memo was mandated by a March 2009 memorandum on government contracting issued by the Obama administration that also told OMB to improve existing acquisition policies and maximize competition, among other directives. The memorandum has resulted in several OMB reports for federal agencies, including a July 2009 directive to save seven percent of agencies' baseline contract spending by the end of FY 2011.

OMB is soliciting public comment on the proposed memo until June 1, 2010. See the beginning of the memo for directions on how to submit comments.

For more information contact Laura Peterson