[Federal Register Volume 59, Number 99 (Tuesday, May 24, 1994)]
[Unknown Section]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12593]
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[Federal Register: May 24, 1994]
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OFFICE OF MANAGEMENT AND BUDGET
Office of Federal Procurement Policy
Policy Letter on Management Oversight of Service Contracting
AGENCY: Executive Office of the President, Office of Management and
Budget (OMB), Office of Federal Procurement Policy.
ACTION: The Office of Federal Procurement Policy (OFPP) is reissuing
Policy Letter 93-1 on the ``Management Oversight of Service
Contracting.'' The Policy Letter includes appropriate changes from
proposed Supplement No. 1 which was issued on January 26, 1994 and
published in the Federal Register on February 2, 1994 (59 FR 4955).
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SUMMARY: OFPP Policy Letter 93-1, ``Management Oversight of Service
Contracting,'' was signed by the former OFPP Administrator on November
19, 1993 and published in the Federal Register on December 2, 1993 (58
Fed. Reg. 63593). The Policy Letter is being reissued in its entirety
to replace the November 19, 1993 version.
The Policy Letter is being reissued to provide agencies with a more
``results-oriented'' approach to managing and administering service
contracts through the ``best practices'' concept. One way to achieve
excellence in contractor performance is to improve the acquisition,
management, and administration of service contracts. OFPP has several
initiatives underway that should help to achieve excellence in
contractor performance, e.g., emphasizing past performance in source
selection, stressing the need for more performance-based service
contracts, and developing best practices in contract administration.
This Policy Letter provides guiding principles through the ``best
practices'' concept that should help agencies develop, analyze, and
perfect requirements for service contracts which, in turn, should
improve contract management and administration. Other ``best
practices'' models in contract management and administration will be
issued as separate guidance.
SUPPLEMENTARY INFORMATION: A proposed Supplement No. 1 and requests for
comments was published in the February 2, 1994 Federal Register (59 FR
4955). Twenty-one comment letters were received in response to the
Federal Register notice, of which, one was from the private sector. A
summary of the more significant comments received and OFPP response to
them follows:
1. Best practices in Lieu of Mandated Written Management Control
Procedures and a Single Management Official
Several Inspectors General (IGs) commented that changing to the
``best practices'' concept will not promote the improvements that are
needed in managing and administering service contracts. The commenters
suggested that eliminating the requirement for management control
procedures and the single management official will increase the
vulnerability of the procurement system to waste, fraud, and abuse.
Traditionally, OFPP has taken an ``input-oriented'' approach to
managing and administering service contracts to respond to concerns
raised in Congressional hearings and reports that better controls are
needed to prevent abuses from occurring in the acquisition and use of
service contracts. We believe that this input-oriented approach, i.e.,
developing procedures, designating a single official, and adding
reporting requirements, has not added significant value to management
practices being used in the federal government. Hence, we believe that
a more ``results-oriented'' approach that suggests best practices that
add value in contract management and administration should help to
streamline the procurement process and achieve excellence in contractor
performance.
Therefore, the proposed revisions in Supplement No. 1 to section 8
(Responsibilities) has been incorporated in this reissued Policy
Letter. We have included a definition of ``best practices'' to clarify
our intent of this concept.
2. Use of Best Practices as Mandatory Guidance for Audit Purposes
Several IGs expressed concern that they are unable to use ``best
practices'' as mandatory regulatory guidance for audit purposes. OFPP
believes that the guidelines in section 7 and the questions in appendix
A should be viewed as warning signals to help agencies analyze and
perfect requirements for service contracts to prevent abuses from
occurring. As we continue to work with the agencies and industry to
develop ``best practices'' in contract management and administration
agencies should be able to use these guiding principles to make
improvements that add value to the procurement system. In keeping with
the principles of the National Performance Review, we believe that the
IGs should work with the procurement community to help achieve needed
improvements in service contracting.
Therefore, the proposed changes to section 8(d) in Supplement No. 1
will be incorporated in this reissued Policy Letter.
3. Exclusion of Interagency Acquisitions Under the Economy Act
Several commenters raised concern about excluding interagency
agreements from coverage of the Policy Letter in view of the problems
identified in the recent hearings on contract offloading. Other
commenters suggested that the exclusion should be clarified since an
interagency agreement under the Economy Act can be used to obtain
either in-house support from another agency or to obtain support from a
contract sponsored by another government organization.
OFPP's intent was to exclude interagency agreements where the
support service is being provided by in-house government employees.
Interagency acquisitions under the Economy Act where the servicing
agency contracts out for the support are covered by the Policy Letter.
In developing the requirement for the interagency agreement, the
requesting and servicing agencies should ensure that the principles
outlined in the Policy Letter are being followed.
Section 5 (Exclusions) has been revised to make clear that only
interagency acquisitions/agreements where support is provided by in-
house government employees are excluded from coverage of the Policy
Letter.
4. Other Exclusions
One agency suggested that the coverage of the Policy Letter was too
broad which creates an enormous administrative burden without a
demonstrated need. The agency suggested that such services as ADP and
telecommunications, training, medical services, or those that do not
affect government decisionmaking, support or influence agency policy
development, or affect program design and implementation should be
excluded. In addition it was suggested that research and development
(R&D) should be excluded since contracts for R&D are inherently
different from service contracts. The concern is that many of the
questions may be misapplied to R&D contracts since the very nature of
the work is very broad and imprecise.
OFPP disagrees with excluding the other suggested services since
they may be susceptible to abuse in those problem areas identified in
the Policy Letter. Prior GAO reports, the SWAT Report on Civilian
Agency Contracting, and the Director's recent services contract review
revealed that services contracting practices are uneven across the
Executive Branch and that various contract management problems should
be addressed.
We understand that a distinction can be made between R&D and
service contracts. Moreover, some of the questions may not be
appropriate for R&D because of the technical and scientific nature of
the work. We believe, however, that R&D contracts may be susceptible to
the problem areas identified in the Policy Letter and should not be
excluded. We have included a statement in the second introductory
paragraph in section 7 to recognize that R&D, as well as architect and
engineering services, are specialized categories of contracting.
Agencies should also ensure that they are in compliance with applicable
FAR guidance pertaining to those categories when using the guiding
principles in the Policy Letter.
As part of the National Performance Review, the procurement reform
legislation includes a provision to increase the small purchase
threshold to $100,000. This would significantly reduce the number of
service contracts subject to the Policy Letter because the Letter does
not apply to contracts below the small purchase threshold. Moreover, we
believe that the questions in appendix A are good guiding principles
that should help agencies better structure their requirements for all
services so that excellence in contractor performance is achieved.
DATES: The Policy Letter is June 23, 1994. It directs that
governmentwide regulations be promulgated to implement the policies
contained therein within December 20, 1994.
FOR FURTHER INFORMATION CONTACT: Linda G. Williams, Deputy Associate
Administrator, Office of Federal Procurement Policy, 725 17th Street
NW., New Executive Office Building, room 9013, Washington, DC 20503,
telephone (202) 395-3302. To obtain a copy of this reissued Policy
Letter, please call the Executive Office of the President's
Publications Office at (202) 395-7332.
Steven Kelman,
Administrator.
Policy Letter No. 93-1 [Reissued]
To the Heads of Executive Departments and Establishments
Subject: Management Oversight of Service Contracting
May 18, 1994.
1. Purpose
This Policy Letter establishes Government-wide policy, assigns
responsibilities, and provides guiding principles for Executive
Departments and agencies in managing the acquisition and use of
services.
2. Authority
This Policy Letter is issued pursuant to section 6(a) of the
Office of Federal Procurement Policy (OFPP) Act, as amended,
codified at 41 U.S.C. Section 405.
3. Background
On March 15, 1993, the Office of Management and Budget (OMB)
Director Leon Panetta requested that 17 major Executive Departments
and agencies review their service contracting programs. The purpose
of the review was to determine (1) if the service contracts were
accomplishing what was intended; (2) whether the contracts were cost
effective; and (3) whether inherently governmental functions were
being performed by contractors. The results of the reviews indicated
that service contracting practices and capabilities are uneven
across the Executive branch and that various common management
problems need to be addressed.
In addition to the Director's review, the National Performance
Review has found that improved support for customers of the
procurement system is needed. To do this it is important that
procurement officials work closely with program and other officials
to develop clear and precise statements of work for the products and
services being acquired. Contracting for services is especially
complex and demands close collaboration between procurement
personnel and the users of the service to ensure that contractor
performance meets contract requirements and performance standards.
This Policy Letter--which includes appropriate changes from
Supplement No. 1 [59 FR 4955 (1994)]--has been revised to provide
agencies with a more results-oriented approach to managing and
administering service contracts through the ``best practices''
concept. One way to achieve excellence in contractor performance is
to improve the acquisition, management, and administration of
service contracts. This Policy Letter provides guiding principles
through the ``best practices'' concept that should help agencies
develop, analyze, and perfect requirements for service contracts
which, in turn, should help to improve contract management and
administration. Other ``best practices'' models in contract
management and administration will be issued as separate guidance.
The guidance contained in the Office of Management and Budget
(OMB) Circular No. A-120, ``Guidelines for the Use of Advisory and
Assistance Services,'' has been rescinded by Transmittal Memorandum
No. 1, [58 FR 63593 (1993) and 59 FR 789 (1994)].
4. Definition
The following definitions are applicable to the Policy Letter:
a. Services are identifiable tasks to be performed, rather than
the delivery of an end item of supply. For purposes of this Policy
Letter, only services obtained under nonpersonal services contracts
are covered.
b. Best Practices. For purposes of this Policy Letter, best
practices are techniques that agencies may use to help detect
problems in the acquisition, management, and administration of
service contracts. Best practices are practical techniques gained
from experience that agencies may use to improve the procurement
process.
5. Exclusions
Excluded from coverage of this Policy Letter are services that
are (1) obtained through personnel appointments and advisory
committees, (2) obtained through personal services contracts
authorized by statute, (3) for construction, as defined in
Sec. 36.102 of the Federal Acquisition Regulation (FAR), or (4)
obtained through interagency agreements where the work is being
performed by in-house federal employees.
Also excluded from coverage of this Policy Letter are services
obtained under contracts below the small purchase threshold, and
services incidental to supply contracts. However, agencies should
ensure that they are in compliance with appropriate OFPP Policy
Letters applicable to service contracting and use good management
practices and contract administration techniques when using these
contracting methods to obtain services.
6. Policy
When contracting for services, it is the policy of the Federal
Government that:
a. Program officials are responsible for accurately describing
the need to be filled or problem to be resolved through service
contracting to assure full understanding and responsive performance
by contractors, and should obtain assistance from contracting
officials, as needed.
b. Services are to be obtained and used in ways that ensure that
the Government retains inherently governmental decision-making
authority.
c. Services are to be obtained in the most cost-effective
manner, without barriers to full and open competition, and free of
any potential conflicts of interest.
d. Sufficient trained and experienced officials are available
within the agency to manage and oversee the contract administration
function.
e. Effective management practices are used to implement the
guiding principles contained herein to prevent waste, fraud, and
abuse in services contracting.
7. Good Management Practices
While effective management oversight is required for all types
of service contracts, some require less oversight than others, as,
for example, such routine services as lawn mowing and food
preparation. Conversely, services that tend to affect Government
decision-making, support or influence policy development, or affect
program management are more susceptible to abuse. These, therefore,
require a greater level of scrutiny.
The following sections offer guidance to ensure that good
management practices are being followed. Agencies should involve
procurement and program officials when developing requirements for
service contracts. Appendix A contains a series of questions to help
analyze and perfect service contract requirements within these
guidelines. If the below guidelines apply, and if the response to
any of the questions listed in the appendix is affirmative, agencies
should ensure that they are in compliance with appropriate OFPP
Policy Letters applicable to service contracting, and use good
management practices and contract administration techniques.
Agencies should also continue to comply with the FAR guidance for
specialized categories of contracting such as research and
development (part 35) and architect and engineering (part 36) as
they use the guidance in this Policy Letter.
a. Inherently Governmental Functions
When contracting for services, agencies must ensure that any
final agency action reflects the informed, independent judgment of
agency officials. Contractors thus must not be allowed to perform
inherently Governmental functions as defined in OFPP Policy Letter
92-1, Inherently Governmental Functions (57 FR 45096 (1992)).
b. Cost Effectiveness
When a valid requirement exists, agency officials must ensure
that the requirement is obtained in the most cost-effective manner.
If contractor support is deemed appropriate, agencies should ensure
that their acquisition strategy will result in the acquisition of
services from a quality vendor that constitute the best value
considering costs and other relevant factors, and yield the greatest
benefit to the Government.
c. Control
When contracting for services, in particular for highly
specialized or technical services, agencies should ensure that a
sufficient number of trained and experienced officials is available
within the agency to manage and oversee the contract administration
function. This especially applies to such services as management and
professional support, studies, analyses, and evaluations, and
engineering and technical support. Agency officials need to be able
to make sound judgements on what the requirements should be, the
estimated costs, and whether the contractor is performing according
to the contract terms and conditions. Agency officials must retain
control over, and remain accountable for, policy decisions that may
be based, in part, on a contractor's performance and work products.
Agency officials must also provide an enhanced degree of management
controls and oversight when contracting for functions that closely
support the performance of inherently Governmental functions.
d. Conflicts of Interest
Agency officials must ensure that any actual or potential
conflicts of interest are identified and that appropriate steps are
taken to avoid, neutralized, or mitigate them. Service contracts are
not to be awarded to any individual or organization that is unable,
or potentially unable, to render impartial advice or assistance to
the Government, or that has an unfair competitive advantage over
competing contractors unless every effort is first taken to mitigate
such conflict or advantage. OFPP Policy Letter 89-1, Conflicts of
Interest Policies Applicable to Consultants, 54 FR 51805 (1989) and
FAR subpart 9.5 provide detailed guidance on conflicts of interest.
e. Competition
Full and open competition will assure cost effectiveness and
reduce the potential for favoritism and conflict of interest. To
maximize competition, the Competition in Contracting Act requires
thorough acquisition planning and limits exceptions. The Act
provides that lack of advance planning is not adequate justification
for sole source contracting. Any justification for a noncompetitive
contract should provide a detailed explanation as to why competition
cannot be achieved. Plans should be made to minimize the number of
subsequent noncompetitive awards.
8. Responsibilities
a. Heads of Agencies
Agency head (or their designees should ensure that:
(1) Requirements for servicers are clearly defined and
appropriate performance standards are developed so that contractor
performance meets contract terms and conditions.
(2) Service contracts are awarded and administered in such a
manner that will provide the customer is goods and services of
significant quality, on time and within budget.
(3) Specific procedures are in place when contracting for
services to assure compliance with OFPP Policy Letters 92-1,
Inherently Governmental Functions (57 FR 45096 (1992), 91-2, Service
Contracting (56 FR 15110 (1991), and 89-1, Conflicts of Interest
Policies Applicable to Consultants, 54 FR 51805 (1989).
(4) Implementation strategies are developed and necessary staff
training is initiated to assure effective implementation of these
policies.
b. Contracting Officials
Contracting officials should ensure that ``best practice''
techniques, such as those set forth below, are used when contracting
for services:
(1) The corporate experience section of an offeror's proposal
should be reviewed to detect conflicts of interest. Usually, the
corporate experience section contains the contractor's prior
business clients.
(2) Monthly progress reports should be reviewed to detect
whether the contractor may be performing inherently governmental
functions.
Contracting officials should also seek other best practices
techniques in contract management and administration that may be
used within their own contracting activities or other agencies that
will help to achieve excellence in contractor performance.
OFPP will also be working to develop governmentwide ``best
practices'' models in contract administration which will be issued
as separate guidance.
c. Federal Acquisition Regulatory Council
Pursuant to sections 6(a) and 25(f) of the OFPP Act, as amended,
41 U.S.C. 401 et seq., the Federal Acquisition Regulatory Council
shall ensure that the policies established herein are incorporated
in the FAR within 210 days from the date this Policy Letter is
published in the Federal Register. The 210 day period is considered
a ``timely manner'' as prescribed in 41 U.S.C. 405(b).
d. Inspectors General
The Inspectors General are encouraged to conduct vulnerability
assessments of service contracting and, where warranted, include in
their annual plans a review of service contracts to ensure
compliance with this Policy Letter.
The guidance in section 7 which refers to the questions in
appendix A, or any resulting ``best practices'' models developed by
OFPP should not be viewed as mandatory regulatory guidance for audit
purposes.
9. Judicial Review
This Policy letter is not intended to provide a constitutional
or statutory interpretation of any kind and it is not intended, and
should 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 is intended only to
provide policy guidance to agencies in the exercise of their
discretion concerning Federal contracting. Thus, this Policy Letter
is not intended, and should not be construed, to create any
substantive or procedural basis on which to challenge any agency
action or inaction on the ground that such action or inaction was
not in accordance with this Policy Letter.
10. Information Contract
For information regarding this Policy Letter contact Linda G.
Williams, Deputy Associate Administrator, Office of Federal
Procurement Policy, 725 17th Street, NW., Washington, DC, 20503.
Telephone (202) 395-3302.
11. Effective Date
This Policy Letter is effective 30 days after the date of
issuance. While these policies must be implemented in the FAR, it is
expected that agencies will take all appropriate actions in the
interim to develop implementation strategies and initiate staff
training, consistent with section 8a(4), to ensure effective
implementation of these policies.
Steven Kelman,
Administrator.
Appendix A
The following is a series of questions to help agencies analyze
and review requirements for service contracts.
A. Inherently Governmental Functions
If the response to the first question is affirmative, the
contract requirement is for an inherently Governmental function that
must be performed by Government officials; if the response to the
second question is affirmative, the contract requirement may be for
an inherently governmental function:
(1) Is the requirement for a function that is listed in appendix
A of OFPP Policy Letter 92-1, Inherently Governmental Functions?
(2) If the function is not listed in appendix A, do any of the
factors in the ``totality of the circumstances'' analysis discussed
in section 7(b) of Policy Letter 92-1 indicate that the function may
be inherently governmental?
B. Cost Effectiveness
If the response to any of the following questions is
affirmative, the agency may not have a valid requirement or not be
obtaining the requirement in the most cost effective manner:
(1) Is the statement of work so broadly written that it does not
support the need for a specific service?
(2) Is the statement of work so broadly written that it does not
permit adequate evaluation of contractor versus in-house cost and
performance?
(3) Is the choice of contract type, quality assurance plan,
competition strategy, or other related acquisition strategies and
procedures in the acquisition plan inappropriate to ensure good
contractor performance to meet the user's needs?
(4) If a cost reimbursement contract is contemplated, is the
acquisition plan inadequate to address the proper type of cost
reimbursement to ensure that the contractor will have the incentive
to control costs under the contract?
(5) Is the acquisition plan inadequate to address the cost
effectiveness of using contractor support (either long-term or
short-term) versus in-house performance?
(6) Is the cost estimate, or other supporting cost information,
inadequate to enable the contracting office to effectively determine
whether costs are reasonable?
(7) Is the statement of work inadequate to describe the
requirement in terms of ``what'' is to be performed as opposed to
``how'' the work is to be accomplished?
(8) Is the acquisition plan inadequate to ensure that there is
proper consideration given to ``quality'' and ``best value''?
C. Control
If the response to any of the following questions is
affirmative, there may be a control problem:
(1) Are there insufficient resources to evaluate contractor
performance when the statement of work requires the contractor to
provide advice, analysis and evaluation, opinions, alternatives, or
recommendations that could significantly influence agency policy
development or decision-making?
(2) Is the quality assurance plan too general to monitor
adequately contractor performance?
(3) Is the statement of work so broadly written that it does not
specify a contract deliverable or require progress reporting on
contractor performance?
(4) Is there concern that the agency lacks the expertise to
evaluate independently the contractor's approach, methodology,
results, options, conclusions, or recommendations?
(5) Is the requirement for a function or service listed in
appendix B of OFPP Policy Letter 92-1, or similar to a function or
service on that list, such that greater management scrutiny is
required of the contract terms and the manner of its performance?
D. Conflicts of Interests
If the response to any of the following questions is
affirmative, there may be a conflict of interests:
(1) Can the potential offeror perform under the contract in such
a way as to devise solutions or make recommendations that would
influence the award of future contracts to that contractor?
(2) If the requirement is for support services (such as system
engineering or technical direction), were any of the potential
offerors involved in developing the system design specifications or
in the production of the system?
(3) Has the potential offeror participated in earlier work
involving the same program or activity that is the subject of the
present contract wherein the offeror had access to source selection
or proprietary information not available to other offerors competing
for the contract?
(4) Will the contractor be evaluating a competitor's work?
(5) Does the contract allow the contractor to accept its own
products or activities on behalf of the Government?
(6) Will the work, under this contract, put the contractor in a
position to influence Government decision-making, e.g., developing
regulations, that will affect the contractor's current or future
business?
(7) Will the work under this contract affect the interests of
the contractor's other clients?
(8) Are any of the potential offerors, or their personnel who
will perform the contract, former agency officials who--while
employed by the agency--personally ad substantially participated in
(a) the development of the requirement for, or (b) the procurement
of, these services within the past two years?
E. Competition
If the response to any of the following questions is
affirmative, completion may be unnecessarily limited:
(1) Is the statement of work narrowly defined with overly
restrictive specifications or performance standards?
(2) Is the contract formulated in such a way as to create a
continuous and dependent arrangement with the same contractor?
(3) Is the use of an indefinite quantity or term contract
arrangement inappropriate to obtain the required services?
(4) Will the requirement be obtained through the use of other
than full and open competition?
[FR Doc. 94-12593 Filed 5-23-94; 8:45 am]
BILLING CODE 3110-01-M
