06/15/2010 05:12 am ET Updated May 25, 2011

To Be, or Not to Be, Inherent: That is the Question

There are two words which strike fear in the hearts of all those who follow the private contracting issue. And by private contractors I just don't mean those carrying out security or military function. Rather I mean any task that at some point was considered the domain of someone in the public sector.

Those two words are inherently governmental. Far stronger men than I have cowered in fear when asked to define what an inherently governmental task is.

Trying to define the term is like trying to nail Jell-O to the wall; only nailing Jell-O is easier. Yet the stakes are enormous. Obviously private sector companies would like the definition to be crafted as narrowly as possible as it potentially means more work for them.

Years ago it was reported that the use of private contractors as interrogators at Abu Ghraib and other prisons in Iraq violated an Army policy that requires such jobs to be filled by government employees because of the "risk to national security." An Army policy directive published in 2000 classifies any job that involves "the gathering and analysis" of tactical intelligence as "an inherently governmental function barred from private sector performance."

The Office of Management and Budget (OMB) lists the following functions as inherently governmental: interpreting and executing laws; ordering military or diplomatic action on behalf of the United States; conducting civil or criminal judicial proceedings; performing actions that significantly affect the life, liberty, or property of private persons; and collecting, controlling, or disbursing appropriated and other federal funds.

One has to give credit to the Obama administration for daring to try and do some thing in this area, where angels fear to tread.

Last year the Administration issued a Presidential Memorandum on Government Contracting, issued on March 4, 2009, which directs OMB to clarify when governmental outsourcing of services is, and is not, appropriate, consistent with section 321 of the National Defense Authorization Act for FY 2009. Section 321 requires OMB to (i) create a single definition for the term "inherently governmental function" that addresses any deficiencies in the existing definitions and reasonably applies to all agencies; (ii) establish criteria to be used by agencies to identify "critical" functions and positions that should only be performed by federal employees; and (iii) provide guidance to improve internal agency management of functions that are inherently governmental or critic.

On March 31 the Office of Federal Procurement Policy at the Office of Management and Budget issued a proposed policy letter to provide guidance addressing when work must be reserved for performance by federal employees. The letter was intended to implement direction in the President's Memorandum. The letter states:

A single definition of "inherently governmental function'' built around the well-established statutory definition in the Federal Activities Inventory Reform Act (FAIR Act), Public Law 105-270, would replace existing definitions in regulation and policy. The FAIR Act defines an activity as inherently governmental when it is so intimately related to the public interest as to mandate performance by Federal employees. Examples and tests would be provided to help agencies identify inherently governmental functions.

Given the existing multiple definitions of "inherently governmental" it is understandable the government wants to use just one. The letter states:

There are three main sources for definitions and guidance addressing inherently governmental function: (1) The FAIR Act, (2) the FAR, and (3) OMB Circular A-76.

a. Definition. The FAIR Act, FAR, and Circular A-76 each make clear that the term ``inherently governmental function'' addresses functions that are so intimately related to the public interest as to require performance by federal government employees. There are some variations in the language used by the three sources to describe the types of functions included in the definition. In particular, the FAIR Act states that the term includes activities that require the ``exercise of discretion'' in applying ``Federal Government authority,'' whereas the Circular speaks in terms of the exercise of ``substantial discretion'' in applying ``sovereign'' Federal government authority. It is unclear what the impact of this type of variation has been. This notwithstanding, these variations can create confusion and uncertainty.

The proposed policy letter retains an illustrative list of functions closely associated with inherently governmental functions. These include:

1. The direct conduct of criminal investigation.
2. The control of prosecutions and performance of adjudicatory functions (other than those relating to arbitration or other methods of alternative dispute resolution).
3. The command of military forces, especially the leadership of military personnel who are members of the combat, combat support or combat service support role.
4. The conduct of foreign relations and the determination of foreign policy.
5. The determination of agency policy, such as determining the content and application of regulations, among other things.
6. The determination of Federal program priorities or budget requests.
7. The direction and control of Federal employees.
8. The direction and control of intelligence and counter-intelligence operations.
9. The selection or non-selection of individuals for Federal Government employment.
10. The approval of position descriptions and performance standards for Federal employees.
11. The determination of what Government property is to be disposed of and on what terms (although an agency may give contractors authority to dispose of property at prices with specified ranges and subject to other reasonable conditions deemed appropriate by the agency).
12. In Federal procurement activities with respect to prime contracts:
(a) determining what supplies or services are to be acquired by the Government (although an agency may give contractors authority to acquire supplies at prices within specified ranges and subject to other reasonable conditions deemed appropriate by the agency);
(b) participating as a voting member on any source selection boards;
(c) approval of any contractual documents, to include documents defining requirements, incentive plans, and evaluation criteria;
(d) awarding contracts;
(e) administering contracts (including ordering changes in contract performance or contract quantities, taking action based on evaluations of contractor performance, and accepting or rejecting contractor products or services);
(f) terminating contracts;
(g) determining whether contract costs are reasonable, allocable, and allowable; and
(h) participating as a voting member on performance evaluation boards.
13. The approval of agency responses to Freedom of Information Act requests (other than routine responses that, because of statute, regulation, or agency policy, do not require the exercise of judgment in determining whether documents are to be released or
withheld), and the approval of agency responses to the administrative appeals of denials of Freedom of Information Act requests.
14. The conduct of administrative hearings to determine the eligibility of any person for a security clearance, or involving actions that affect matters of personal reputation or eligibility to participate in government programs.
15. The approval of federal licensing actions and inspections.
16. The determination of budget policy, guidance, and strategy.
17. The collection, control, and disbursement of fees, royalties, duties, fines, taxes and other public funds, unless authorized by statute, such as title 31 U.S.C. 952 (relating to
private collection contractors) and title 31 U.S.C. 3718 (relating to private attorney collection services), but not including:
(a) collection of fees, fines, penalties, costs or other charges from visitors to or patrons of mess halls, post or base exchange concessions, national parks, and similar entities or activities, or from other persons, where the amount to be collected is easily
calculated or predetermined and the funds collected can be easily controlled using standard cash management techniques, and
(b) routine voucher and invoice examination.
18. The control of the Treasury accounts.
19. The administration of public trusts.
20. The drafting of Congressional testimony, responses to Congressional correspondence, or agency responses to audit reports from the Inspector General, the Government Accountability Office, or other federal audit entity.

It will be interesting to see whether example three "The command of military forces, especially the leadership of military personnel who are members of the combat, combat support or combat service support role" will cause any problems for private military or security contractors. In theory it should not but reality on battlefields often has a way of throwing theory out the window.

For other functions that are not listed among the above twenty, OFPP says it will develop a test to analyze "whether a function is inherently governmental based on the nature of the function and the level of discretion to be exercised in performing the function."

OFPP says agencies should look on a case-by-case basis at the nature of the function to determine if it's uniquely governmental function and whether the job commits the government to decisions that deal with overall policy discretion or approval, or oversight by federal officials.

The policy also defines "closely associated" with inherently governmental functions and provides 19 examples. These include functions that involve or relate to budget preparation, including workforce modeling, fact finding, efficiency studies and cost analyses, involve or relate to development of regulations, in support of acquisition functions, such as assistance in contract management, technical evaluations and development of statements of work.

Finally the OFPP letter defines critical functions that are considered core capabilities of agency employees.

The proposed policy letter would define critical function to mean a function whose importance to the agency's mission and operation requires that at least a portion of the function must be reserved to federal employees in order to ensure the agency has sufficient internal capability to effectively perform and maintain control of its mission and operations," the letter states. "Agencies would be held responsible for ensuring a sufficient number of positions performing critical work are filled by federal employees with appropriate training, experience, and expertise to understand the agency's requirements, formulate alternatives, manage the work product, and manage any contractors used to support the federal workforce.

This would mean the situation one often finds where contractors supervise contractors would have to end. Although given the current state of the acquisition workforce it won't happen soon.

If you think the OFPP letter will finally clear things up all I can say is don't hold your breath. As a marvelously detailed February 1 Congressional Research Service report notes:

The current debate over which functions are inherently governmental is part of a larger debate about the proper role of the federal government vis-à-vis the private sector. This debate is as old as the Constitution, which prohibits privatization of certain functions (e.g., Congress's legislative function), a prohibition courts enforce under various judicial tests (e.g., nondelegation, functions "affected with the public interest," etc.). Since the 1920s, federal contracting has been a primary arena for the public/private debate, with the executive and legislative branches contesting (1) which functions the government must perform because they are inherently governmental; (2) which functions the government should perform because they are closely related to inherently governmental functions or for some policy reason; and (3) which functions should be left to the private sector. DOD functions are often central to debates over which functions are inherently governmental because of the specific functions DOD performs; its prominent role in federal contracting; and its unique workforce, which blends military and civilian personnel.

Ironically, this is not the only other inherent debate. Back in 2005 the Pentagon amended the Defense Federal Acquisition Regulation Supplement to address issues related to contract performance outside the United States. Many observers noted that the rule appeared to shift too much risk to contractors. One respondent noted that the use of the term inherently dangerous in paragraph (b) of the clause could jeopardize a contractor's ability to obtain insurance coverage under the Defense Base Act and other provisions.

When the Pentagon was amending acquisition rules in 2004, it received many comments. One response raised was how much risk contractors must accept. The government's proposed rule states that carrying out a contract for deployed forces is "inherently" dangerous. "The Contractor accepts the risks associated with required contract performance in such operations," the proposed rule states. But the Professional Services Council, a group representing companies that perform communications, engineering, and scientific services, interpreted that to mean that the contractor must assume all the risk and said the government should share some responsibility.