A-76 is obsolete, panel says

Commercial Activities Panel report

The regulation that defines the process for determining whether a government function should be kept in-house or outsourced has outlived its usefulness and must be replaced as quickly as possible, according to a year-long study released today by a public/private panel.

The long-awaited report and recommendations from the Commercial Activities Panel outline the reasons for moving from the competition practices defined in the Office of Management and Budget Circular A-76 to one defined by the more commercial-practice-friendly Federal Acquisition Regulation (FAR). Congress commissioned the panel as part of the Defense Authorization Act of 2001.

Under the implementation strategy outlined in the report, the change will occur across several years, with initial tests occurring within civilian agencies, where it is not necessary to modify any laws to make the changes.

Agencies use A-76 to compare the capabilities of the public-sector organization that is under consideration for outsourcing and any private-sector proposals. It has received increased attention in recent years because of the Federal Activities Inventory Reform (FAIR) Act of 1998 and the Bush administration's competitive sourcing initiative under the President's Management Agenda.

Under the FAIR Act, agencies are required to list all the functions they consider as possible for outsourcing to the private sector. And one feature of the competitive sourcing initiative is that agencies outsource 5 percent of their FAIR Act inventory in fiscal 2002 and another 10 percent in fiscal 2003.

A-76 does have some advantages, the panel found, including the fact that it ensures all competitions are conducted under a common set of rules. But those rules are based on an acquisition environment where low cost is the most important factor, and A-76 cannot address the more qualitative factor of best value that is now the basis of federal acquisitions.

"Circular A-76 has not worked well as the basis for competitions that seek to identify the best provider in terms of quality, innovation, flexibility and reliability," the report states. "This is particularly true in an area where solutions are increasingly driven by technology."

The panel recommends that a new "integrated competition process" be established, based on the FAR but also incorporating elements of A-76, that would provide competition rules considered to be fair by most people inside and outside government.

It will take time to develop this process, so the panel also recommends that the Bush administration make limited modifications to A-76. Those changes would include strengthening conflict of interest rules, improving auditing and cost accounting, and providing for binding performance agreements.

Under the panel's implementation strategy, OMB will oversee the creation of the FAR-type process and start with limited tests in civil agencies. The Defense Department performs most of the A-76 studies conducted right now, but changes to the FAR-type process will require repeal or amendment of DOD-specific laws.

The panel also calls for OMB to submit a detailed report to Congress on the benefits and costs of the new process within one year of implementation and again a year later. These reviews would allow OMB to make any changes or corrections necessary without affecting every agency, according to the report.