Air Traffic Services Brief -- A76 Process: A Congressionally Mandated Competitive Sourcing Study of the Flight Service Station (FSS) Program

A-76 Supplement Introduction
(Source: web site)

The August 1983 Office of Management and Budget (OMB) Circular No. A-76, " Performance of Commercial Activities," establishes Federal policy for the performance of recurring commercial activities. This Supplement replaces the Handbook issued with the 1983 Circular and provides updated guidance and procedures for determining whether recurring commercial activities should be operated under contract with commercial sources, in-house using Government facilities and personnel, or through interservice support agreement (ISSAs). The Revised Supplemental Handbook is an integral part of the 1983 Circular.

As noted in the Vice President's Third Report of the National Performance Review, "Common Sense Government: Works Better and Costs Less," (September 1995), Americans want to "get their money's worth" and want a Government that is more businesslike and better managed. The reinvention of Government begins by focusing on core mission competencies and service requirements. Thus, the reinvention process must consider a wide range of options, including: the consolidation, restructuring or reengineering of activities, privatization options, make or buy decisions, the adoption of better business management practices, the development of joint ventures with the private sector, asset sales, the possible devolution of activities to State and local governments and the termination of obsolete services or programs. In the context of this larger reinvention effort, the scope of this Supplemental Handbook is limited to the conversion of recurring commercial activities to or from in-house, contract or ISSA performance.

Circular A-76 is not designed to simply contract out. Rather, it is designed to:

  1. balance the interests of the parties to a make or buy cost comparison,
  2. provide a level playing field between public and private offerors to a competition, and (3) encourage competition and choice in the management and performance of commercial activities. It is designed to empower Federal managers to make sound and justifiable business decisions.

Reliable cost and performance information is crucial to the effective management of Government operations and to the conduct of competitions between public or private sector offerors. Unfortunately, this information has not been generally available and has often been found to be unreliable.

The Chief Financial Officers Act of 1990 (CFO Act) includes among the functions of chief financial officers "the development and reporting of cost information" and "the systematic measurement of performance." This includes performance by in-house, contract or ISSA resources. In July 1993, Congress passed the Government Performance and Results Act (GPRA), which mandates performance measurement by Federal agencies. The Statement of Federal Financial Accounting Concepts No. 1, "Objectives of Federal Financial Reporting (1993)," stated that one of the objectives of Federal financial reporting is to provide useful information to assist in assessing the budget integrity, operating performance, stewardship, and control of the Federal Government. In 1995, the Federal Accounting Standards Advisory Board (FASAB) recommended standards for managerial cost accounting, which were approved by the Director of OMB, the Secretary of the Treasury and the Comptroller General. These standards were issued as the Statement of Federal Accounting Standards No. 4, "Managerial Cost Accounting Standards for the Federal Government." This Supplement relies on the managerial cost accounting and performance standards established in support of the CFO Act, GPRA, and the Federal Accounting Standards, as they are developed and implemented. Cost and performance information developed for cost comparisons required by the Circular and this Supplement should be drawn from the data base established by these standards and adjusted as appropriate.

The Circular and this Supplement are not intended and should not be construed to create any right or benefit, substantive or procedural, enforceable at law by a party against the United States, its agencies, its officers or any person. It should not be construed to create any substantive or procedural basis on which to challenge any agency action or inaction, except as set forth in Part I, Chapter 3, Paragraph K, of this Supplement and as set forth in Appendix 2, Paragraph G, consistent with Section 3 of the Federal Activities Inventory Reform Act of 1998 (FAIR Act, P.L. 105-270).

This Supplement is divided into two parts (with a table of contents at the beginning of each Part) as follows:

Part I Policy Implementation

Sets forth the principles and procedures for implementing OMB Circular A-76.

Part II Preparing the Cost Comparison Estimates

Provides instructions for calculating the financial advantage to the Government of acquiring a product or service through in-house, contract or interservice support agreement resources.


Definition of Terms Defines terms within the context of OMB Circular A-76.

Commercial Activities Inventory Provides information and reporting guidance.

Useful Life and Disposal Provides useful expected life and Values disposal values for equipment.

Tax Tables Provides Federal tax rate tables for use in A-76 cost comparisons by industry type.

OFPP Policy Letter 92-1 Provides guidance and criteria for determining whether activities may be considered inherently governmental and not subject to the requirements of the Circular or this Supplement.

Aviation/Motor Vehicle Provides sector-specific alternatives to the cost comparison methodologies in Part II.

Steps in the A-76 process

A cost comparison can be understood as a series of steps, which the Process Model illustrates.

The process begins with the Packaging phase, in which competable functions are grouped together to make for a logical business unit. Next, in the Public Announcement phase, the news that an A-76 study is going to take place is released to the affected workforce, Congress, and local community officials. This announcement starts the timeline for completion of the study.

The Commercial Activities (CA) Team, in the Develop PWS/QASP step, then defines the specific results or outcomes of the commercial activity, including performance measures, standards and timeframes in the Performance Work Statement (PWS), which become Section C of the Request For Proposal (RFP). The Quality Assurance Surveillance Plan (QASP) describes methods of inspection, required reports, and resources to be used, including estimated work hours. The Solicitation step is where the Contracting Officer, in conjunction with the CA team leader, determines what type of contract to use and then releases an RFP solicitation so that commercial vendors can respond with formal offers. The heart of the solicitation is the PWS, which identifies the performance expectations for the commercial activity under review.

The Government Management Plan is where the government team develops and identifies the organizational structures, staffing and operating procedures, transition and inspection plans, and equipment necessary to ensure that it can perform the activity in an efficient and cost effective manner.

The Management Plan includes four documents, the Government Most Efficient Organization (MEO), the In-House Cost Estimate (IHCE), the Technical Performance Plan (TPP), and the Transition Plan (TP). This process can be begun in conjunction with the PWS development phase, as there is overlap between what functions need to be performed and how the in-house team thinks that they can staff those needs. After the Management Plan is completed, it is checked in the Independent Review step. The purpose of this review is to certify that data contained in the Government Management Plan reasonably establishes the government's ability to perform the PWS within the resources provided by the MEO and to ensure that all costs in the IHCE are fully justified.

In the Negotiation phase, the Contracting Officer holds discussions with offerors to resolve any deficiencies in their respective technical and/or cost proposals. Each offeror is given the same amount of time to submit a revised proposal which is reevaluated by the technical evaluation panel. The Contracting Officer then selects the single contractor that will compete with the MEO in the cost comparison. In the Cost Comparison, the Contracting Officer makes a tentative decision between the MEO and the ISSA/contractor bid. This decision may be appealed in the Administrative Appeals Process if the losing offeror feels that there were errors in the cost comparison process. Finally, after any appeals have been settled, the final decision is made and the winning organization puts their new organization into place during the Implement MEO or Contract step.


Why do people refer to competitive sourcing as "A-76"?
The competitive sourcing process is a DoD term for the competitive process required by the Office of Management and Budget (OMB) Circular A-76, Performance of Commercial Activities.

What is a commercial activity?
A commercial activity is a recurring service that could be obtained appropriately from a private sector source.

Government agency missions may be accomplished through commercial facilities and resources, through Government facilities and resources, or through of mix of these, depending upon the products and services needed and the agency missions involved.

How does competitive sourcing differ from outsourcing?
Outsourcing is the contracting of a commercial activity. Competitive sourcing is the process whereby the cost of government performance of a commercial activity is formally compared to the cost of performance of commercial sources.

How are privatization and competitive sourcing different?
Under competitive sourcing, the Government retains ownership and control of the commercial activity regardless if the service provider is from the public or private sector. Under privatization, the Government divests itself of ownership and control of the activity.

What happens in an A-76 cost comparison?
The A-76 cost comparison process has nine essential steps. After a public announcement is made that a cost comparison will be performed, a Performance Work Statement (PWS) and Quality Assurance Surveillance Plan (QASP) are developed. This PWS becomes part of the solicitation issued by the contracting officer to solicit offers from the private sector. Other Federal agencies may submit offers which are evaluated with the private sector offers prior to selection of the InterService Support Agreement (ISSA) or contract offer that will compete against the in-house offer. The in-house organization is responsible for developing a Government Management Plan as their bid, which may include a TPP, TP, MEO and IHCE.

The offers of the contractor and, if submitted, ISSA, are evaluated by a Source Selection Evaluation Board (SSEB), and the Source Selection Authority (SSA) selects the most advantageous offer to compete against the in-house offer. The Independent Review is performed by the Independent Review Official (IRO), a qualified person from an impartial activity that is organizationally independent of the function being competed and the group developing the in-house offer. The IRO reviews the in-house offer to ensure that the data contained in the Government Management Plan reasonably establishes the in-house's ability to perform the requirements of the PWS. The IRO ensures that all costs entered on the cost comparison form are fully justified and calculated in accordance with Part II of the Revised Supplemental Handbook and the DoD A-76 Costing Manual.

The actual comparison of costs between the in-house and contract/ISSA offer is the "cost comparison." If the contract/ISSA costs are not less than the in-house cost estimate by at least 10% of the in-house personnel cost or $10 million (whichever is lower) over the period of performance, the function will be performed by the Government MEO. After the tentative cost comparison decision is made, the cost comparison form and all supporting documentation is provided to affected parties and the public review period begins. It is during this public review period that the affected parties may submit an appeal of the tentative decision. The Administrative Appeal Process is used to determine the final cost comparison decision.

After a final cost comparison decision has been made, implementation of the MEO or conversion to contract occurs.

Who can compete against the in-house offer?
In a negotiated acquisition, the Source Selection Authority makes a determination among contract and ISSA offerors who will compete against the in-house offer. It is only this selected offeror that will compete against the in-house offer.

What are the advantages of Centralized Management for the A-76 process?
A Centralized Management approach can greatly improve the quality, timeliness, and consistency of the A-76 process.

Quality: Centralized Management can ensure compliance with A-76 policy and procedures, minimize bias, and result in a fair and equitable process for both private industry and government employees.

Timeliness: Centralized Management can ensure, through control and organization, that the process is completed on schedule.

Consistency: Centralized Management can ensure that program implementation and policy interpretation are the same from organization to organization and from installation to installation.

Is there bias in the A-76 process?
Both industry and government personnel may express concern about a perceived bias in the A-76 process. The organization undergoing cost comparison may believe that a centrally managed A-76 process encourages a contract decision because of bias at the HQ or Command level. Industry may believe that a non-centrally managed A-76 process will encourage the in-house workforce, based on local bias, to manipulate the system. Though the issue of bias is difficult to defend against, the application of a centrally managed process is just one method for completing multiple A-76 cost comparisons in a fair and timely fashion.

Are there disadvantages to a centralized management approach to the A-76 process?
A potential disadvantage of applying Centralized Management is the risk associated with conducting multiple cost comparisons incorrectly. The idea that a template (used for the timeline, PWS, or even the MEO) can be used to approach all cost comparisons can create a false sense of security. Under a centrally managed approach, questions about A-76 policies and procedures are less likely to be critically examined after an initial interpretation is provided. Additionally, incorrect application of the policies and procedures associated with A-76 cost comparisons in a centrally managed environment may lead to a series of flawed cost comparisons. There is also the reality that Centralized Management does not always allow for quick and accurate communications between a centrally managed office and CC Team or affected workforce. The workforce can only stay involved - which ensures they have ownership - if the centrally managed office remains in constant communication through regularly scheduled meetings. A strong communication plan can ensure that the correct lines of communication are established early in the process.