Ethics Aspects of Outsourcing and Privatization

Article excerpt

I. REFERENCES

A. Statutes

1. Statutes regulating the Contracting Out Process - 10 U.S.C. 2461, 2462, 2463, 2467; Sections 8014 and 8026 (FY99 DoD Appropriations Act)

2. Statutes impacting depot maintenance - 10 U.S.C. 2460, 2464, 2466, 2469, 2469a, 2470, 2472, 2474

3. Statutes prohibiting all contracting out - 10 U.S.C. 2465; Sec. 317 of the FY87 DOD Authorization Act

4. Conflicts of Interest - 18 U.S.C. 208

5. Post-employment - 18 U.S.C. 207

6. Representation - 18 U.S.C. 203 and 205

7. Procurement Integrity - 41 U.S.C. 423

B. Regulations

1. OMB Circular A-76 with Supplemental handbook (March 1996)

2. OFPP Policy Letter 92-1, Inherently Governmental Functions

3. FAR Subpart 7.5, Inherently Governmental Functions

4. FAR Subpart 3.1, Procurement Integrity

5. DODD 4100.15, Commercial Activities Program

6. DOD 5500-7-R, Joint Ethics Regulation

7. DODI 4100.33, CA Program Procedures (under revision)

8. AR 5-20 and Army Pam 5-20, Commercial Activities Program

9. Air Force Instruction 38-203, Commercial Activities Program

10.Air Force Policy Directive 38-6, Outsourcing and Privatization

C. Other Sources

1. White Paper, Materiel Management Outsourcing and Privatization, Army, May 9, 1997

2. Outsourcing Guide for Contracting, Air Force, June 97

3. Article by Major Mary E. Harney, "The Quiet Revolution: Downsizing, Outsourcing, and Best Value," Military Law Review, Vol. 158, December 1998

4. Office of Government Ethics Letter 95 X 10, originally an article in the Government Ethics Newsgram, Summer 1995, entitled "Privatization Issues Affect Federal Employees." (Vol. 12, no. 2, pp. 1-3)

5. AFMC LO/JAF memorandum by Mr. Mark Stone, SUBJECT: Conflicts of Interest and A-76, dated 7 November 1997

II. Background

A. Definitions

1. Outsourcing - transfer of a function that had been performed by government employees to performance by contractor employees. Also called competition. OMB Circular A-76 cost comparison procedures apply unless an exception, exemption or waiver applies.

2. Privatization - process of changing a public entity to private control and ownership. It does not include determinations of whether a service should be obtained through private or public resources when the government retains full responsibility and control over the delivery of the services. See OMB Circular A-76 Supplemental Handbook, Appendix 1. Also called competitive sourcing. Example: utilities divestiture

3. Reengineering - a sufficiently encompassing restructuring of government requirements for which any reduction in the number of government employees or any increase in contractor performance is incidental. Example: Air Force restructuring of the 38th Engineering Installation Wing Plan (GAO Report GAO/NSIAD 99-73, February 1999)

4. Inherently governmental - functions so intimately related to the public interest as to mandate performance by federal employees. See OFPP Policy Letter 92-1

B. Some History

1. Contracting out is not new. OMB Circular A-76 was first published in 1966, but is based on earlier Bureau of the Budget memorandums.

2. The Department of Defense has used contracting out extensively in the 1970s and 1980s. DoD reported to Congress in March 1999 that from 1979 to 1996, the Department competed, under A-76 rules, commercial activities involving more than 90,000 full time equivalents (FTEs). It further reported that it now saves $1.5 billion either by reorganizing in-house organizations to "most efficient organizations" or by shifting the work to the public sector, savings of about 30 percent. About half of the competitions were won by government organizations. This past year, DoD initiated studies impacting 34,000 FTEs, and developed plans to compete an additional 230,000 FTEs by FY05 with a projected cumulative savings of $11. …