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                                                       Calendar No. 502
105th Congress                                                   Report

 2d Session                                                     105-269



                              R E P O R T

                                 of the


                          UNITED STATES SENATE

                             together with

                            ADDITIONAL VIEWS

                              to accompany

                                 S. 314

                             OTHER PURPOSES

                 July 28, 1998.--Ordered to be printed


                   FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, JR., Delaware       JOHN GLENN, Ohio
TED STEVENS, Alaska                  CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine              JOSEPH I. LIEBERMAN, Connecticut
SAM BROWNBACK, Kansas                DANIEL K. AKAKA, Hawaii
PETE V. DOMENICI, New Mexico         RICHARD J. DURBIN, Illinois
THAD COCHRAN, Mississippi            ROBERT G. TORRICELLI, New Jersey
DON NICKLES, Oklahoma                MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania
             Hannah S. Sistare, Staff Director and Counsel
                        Ellen B. Brown, Counsel
                 Leonard Weiss, Minority Staff Director
                Deborah Cohen Lehrich, Minority Counsel
                       Behn Miller, GAO Detailee
                       Lynn L. Baker, Chief Clerk

                            C O N T E N T S

  I. Purpose..........................................................4
 II. Background.......................................................4
III. Legislative History..............................................4
 IV. Section-by-Section Analysis......................................8
  V. Regulatory Impact Statement......................................9
 VI. CBO Cost Estimate...............................................10
VII. Additional Views................................................11
VIII.Changes to Existing Law.........................................14

                                                       Calendar No. 502
105th Congress                                                   Report

 2d Session                                                     105-269



                 July 28, 1998.--Ordered to be printed


Mr. Thompson, from the Committee on Govermental Affairs, submitted the 

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                         [To accompany S. 314]

    The amendment is as follows:
    Strike out all after the enacting clause and insert in lieu 
thereof the following:


  This Act may be cited as the ``Federal Activities Inventory Reform 
Act of 1998''.

                    GOVERNMENTAL IN NATURE.

  (a) Lists Required.--Not later than the end of the third quarter of 
each fiscal year, the head of each executive agency shall submit to the 
Director of the Office of Management and Budget a list of activities 
performed by Federal Government sources for the executive agency that, 
in the judgment of the head of the executive agency, are not inherently 
governmental functions. The entry for an activity on the list shall 
include the following:
          (1) The fiscal year for which the activity first appeared on 
        a list prepared under this section.
          (2) The number of full-time employees (or its equivalent) 
        that are necessary for the performance of the activity by a 
        Federal Government source.
          (3) The name of a Federal Government employee responsible for 
        the activity from whom additional information about the 
        activity may be obtained.
  (b) OMB Review and Consultation.--The Director of the Office of 
Management and Budget shall review the executive agency's list for a 
fiscal year and consult with the head of the executive agency regarding 
the content of the final list for that fiscal year.
  (c) Public Availability of Lists.--
          (1) Publication.--Upon the completion of the review and 
        consultation regarding a list of an executive agency--
                  (A) the head of the executive agency shall promptly 
                transmit a copy of the list to Congress and make the 
                list available to the public; and
                  (B) the Director of the Office of Management and 
                Budget shall promptly publish in the Federal Register a 
                notice that the list is available to the public.
          (2) Changes.--If the list changes after the publication of 
        the notice as a result of the resolution of a challenge under 
        section 3, the head of the executive agency shall promptly--
                  (A) make each such change available to the public and 
                transmit a copy of the change to Congress; and
                  (B) publish in the Federal Register a notice that the 
                change is available to the public.
  (d) Competition Required.--Within a reasonable time after the date on 
which a notice of the public availability of a list is published under 
subsection (c), the head of the executive agency concerned shall review 
the activities on the list. Each time that the head of the executive 
agency considers contracting with a private sector source for the 
performance of such an activity, the head of the executive agency shall 
use a competitive process to select the source (except as may otherwise 
be provided in a law other than this Act, an Executive order, 
regulations, or any Executive branch circular setting forth 
requirements or guidance that is issued by competent executive 
authority). The Director of the Office of Management and Budget shall 
issue guidance for the administration of this subsection.
  (e) Realistic and Fair Cost Comparisons.--For the purpose of 
determining whether to contract with a source in the private sector for 
the performance of an executive agency activity on the list on the 
basis of a comparison of the costs of procuring services from such a 
source with the costs of performing that activity by the executive 
agency, the head of the executive agency shall ensure that all costs 
(including the costs of quality assurance, technical monitoring of the 
performance of such function, liability insurance, employee retirement 
and disability benefits, and all other overhead costs) are considered 
and that the costs considered are realistic and fair.


  (a) Challenge Authorized.--An interested party may submit to an 
executive agency a challenge of an omission of a particular activity 
from, or an inclusion of a particular activity on, a list for which a 
notice of public availability has been published under section 2.
  (b) Interested Party Defined.--For the purposes of this section, the 
term ``interested party'', with respect to an activity referred to in 
subsection (a), means the following:
          (1) A private sector source that--
                  (A) is an actual or prospective offeror for any 
                contract, or other form of agreement, to perform the 
                activity; and
                  (B) has a direct economic interest in performing the 
                activity that would be adversely affected by a 
                determination not to procure the performance of the 
                activity from a private sector source.
          (2) A representative of any business or professional 
        association that includes within its membership private sector 
        sources referred to in paragraph (1).
          (3) An officer or employee of an organization within an 
        executive agency that is an actual or prospective offeror to 
        perform the activity.
          (4) The head of any labor organization referred to in section 
        7103(a)(4) of title 5, United States Code, that includes within 
        its membership officers or employees of an organization 
        referred to in paragraph (3).
  (c) Time for Submission.--A challenge to a list shall be submitted to 
the executive agency concerned within 30 days after the publication of 
the notice of the public availability of the list under section 2.
  (d) Initial Decision.--Within 28 days after an executive agency 
receives a challenge, an official designated by the head of the 
executive agency shall--
          (1) decide the challenge; and
          (2) transmit to the party submitting the challenge a written 
        notification of the decision together with a discussion of the 
        rationale for the decision and an explanation of the party's 
        right to appeal under subsection (e).
  (e) Appeal.--
          (1) Authorization of appeal.--An interested party may appeal 
        an adverse decision of the official to the head of the 
        executive agency within 10 days after receiving a notification 
        of the decision under subsection (d).
          (2) Decision on appeal.--Within 10 days after the head of an 
        executive agency receives an appeal of a decision under 
        paragraph (1), the head of the executive agency shall decide 
        the appeal and transmit to the party submitting the appeal a 
        written notification of the decision together with a discussion 
        of the rationale for the decision.


  (a) Executive Agencies Covered.--Except as provided in subsection 
(b), this Act applies to the following executive agencies:
          (1) Executive department.--An executive department named in 
        section 101 of title 5, United States Code.
          (2) Military department.--A military department named in 
        section 102 of title 5, United States Code.
          (3) Independent establishment.--An independent establishment, 
        as defined in section 104 of title 5, United States Code.
  (b) Exceptions.--This Act does not apply to or with respect to the 
          (1) General accounting office.--The General Accounting 
          (2) Government corporation.--A Government corporation or a 
        Government controlled corporation, as those terms are defined 
        in section 103 of title 5, United States Code.
          (3) Nonappropriated funds instrumentality.--A part of a 
        department or agency if all of the employees of that part of 
        the department or agency are employees referred to in section 
        2105(c) of title 5, United States Code.
          (4) Certain depot-level maintenance and repair.--Depot-level 
        maintenance and repair of the Department of Defense (as defined 
        in section 2460 of title 10, United States Code).


  In this Act:
          (1) Federal government source.--The term ``Federal Government 
        source'', with respect to performance of an activity, means any 
        organization within an executive agency that uses Federal 
        Government employees to perform the activity.
          (2) Inherently governmental function.--
                  (A) Definition.--The term ``inherently governmental 
                function'' means a function that is so intimately 
                related to the public interest as to require 
                performance by Federal Government employees.
                  (B) Functions included.--The term includes activities 
                that require either the exercise of discretion in 
                applying Federal Government authority or the making of 
                value judgments in making decisions for the Federal 
                Government, including judgments relating to monetary 
                transactions and entitlements. An inherently 
                governmental function involves, among other things, the 
                interpretation and execution of the laws of the United 
                States so as--
                          (i) to bind the United States to take or not 
                        to take some action by contract, policy, 
                        regulation, authorization, order, or otherwise;
                          (ii) to determine, protect, and advance 
                        United States economic, political, territorial, 
                        property, or other interests by military or 
                        diplomatic action, civil or criminal judicial 
                        proceedings, contract management, or otherwise;
                          (iii) to significantly affect the life, 
                        liberty, or property of private persons;
                          (iv) to commission, appoint, direct, or 
                        control officers or employees of the United 
                        States; or
                          (v) to exert ultimate control over the 
                        acquisition, use, or disposition of the 
                        property, real or personal, tangible or 
                        intangible, of the United States, including the 
                        collection, control, or disbursement of 
                        appropriated and other Federal funds.
                  (C) Functions excluded.--The term does not normally 
                          (i) gathering information for or providing 
                        advice, opinions, recommendations, or ideas to 
                        Federal Government officials; or
                          (ii) any function that is primarily 
                        ministerial and internal in nature (such as 
                        building security, mail operations, operation 
                        of cafeterias, housekeeping, facilities 
                        operations and maintenance, warehouse 
                        operations, motor vehicle fleet management 
                        operations, or other routine electrical or 
                        mechanical services).


  This Act shall take effect on October 1, 1998.
  Amend the title so as to read: ``A bill to provide a process for 
identifying the functions of the Federal Government that are not 
inherently governmental functions, and for other purposes.''.

                               i. purpose

    The purpose of S. 314, the Federal Activities Inventory 
Reform Act of 1998, is to provide a process for executive 
agencies to identify activities that are not inherently 
governmental functions.

                             ii. background

    The Office of Management and Budget Circular A-76 
establishes administrative policy regarding the performance of 
activities that are not inherently governmental functions and 
sets forth procedures for determining whether such activities 
should be performed under contract with private sector sources 
or in-house using government facilities and personnel. The 
policy embodied in OMB Circular A-76, that the Federal 
government will rely on the private sector for goods and 
services that are not inherently governmental, is more than 40-
years old. This policy first was promulgated through Bureau of 
the Budget Bulletins in 1955, 1957 and 1960. OMB Circular A-76 
was issued in 1966 and revised in 1967, 1979 and 1983. In 1996, 
the Supplemental handbook to the circular was revised.
    However, there continues to be activities which are not 
inherently governmental that the government performs for 
itself. The purpose of this legislation is to establish a 
process to evaluate those activities that remain in-house. This 
legislation does not affect the current Federal procurement 
system nor does it impair the ability of agencies to contract 
with the private sector for needed goods and services under 
that system.
    Further, S. 314 is the result of a long and contentious 
debate, and all facets of the debate were considered in the 
development of this legislation. However, enactment of S. 314 
represents only the first step. Its full implementation and 
vigorous congressional oversight are important next steps.

                        iii. legislative history

    S. 314, the Freedom From Government Competition Act of 
1997, was introduced on February 12, 1997 by Senator Craig 
Thomas (for himself and Senators Brownback, Hagel, Enzi and 
Kyl). Senators Burns, Shelby, Grams, Mack, Cochran, Hutchinson, 
Faircloth, Helms, Allard, Wyden and Abraham became additional 
co-sponsors. S. 314 was referred to the Committee on 
Governmental Affairs and subsequently was referred to the 
Subcommittee on Oversight of Government Management, 
Restructuring, and the District of Columbia.


    On June 18, 1997, the Subcommittee on Oversight of 
Government Management, Restructuring, and the District of 
Columbia held a hearing on S. 314 to investigate the 
opportunities for greater competitive contracting within the 
Federal government as well as other privatization projects at 
the national level. The following witnesses presented testimony 
on S. 314: The Honorable Craig Thomas, U.S. Senator from 
Wyoming; the Honorable John J. Duncan, Jr. U.S. Representative 
from Tennessee; the Honorable John A. Koskinen, Deputy Director 
of the Office of Management and Budget; Mr. Samuel D. Kleinman, 
Director of the Center for Naval Analysis; Captain Burton 
Streicher, CEC, U.S. Navy, Director of Navy Outsourcing Support 
Office; Mr. Charles S. Davis III, of Chamberlain, Davis, Rutan 
and Volk, and former Associate Administrator for Operations, 
General Services Administration; Mr. L. Nye Stevens, Director 
of Federal Management and Workforce Issues, General Government 
Division, U.S. General Account Office; Mr. John Sturdivant, 
National President of the American Federation of Government 
Employees, AFL-CIO.
    Senator Thomas emphasized that government ought to be as 
small and lean and efficient as possible. He stated that it 
ought to take advantage of private sector expertise whenever 
that is appropriate. He summarized that S. 314 would require 
agencies to identify those areas that are commercial in nature 
as options for contracting; and then, through a fair process, 
the best provider, either government or private industry, would 
beselected. Senator Thomas stated that the process currently is 
delineated in OMB Circular A-76, but unfortunately the circular is 
routinely ignored by the executive agencies.
    Representative John Duncan of Tennessee, who introduced 
companion legislation (H.R. 716) in the House, testified CBO 
currently estimates that 1.4 million Federal employees perform 
activities that are commercial in nature. Congressman Duncan 
stated that, under the bill, if it is established that these 
commercial services can be provided in a more efficient and 
cost effective manner from private industry, the agency would 
be required to compete the activity.
    Mr. Koskinen testified that any legislation needs to be 
viewed against the ongoing reinvention efforts. He stated that 
his concern with S. 314 was that it mandates a particular 
approach rather than letting agencies examine their contract 
mix to make the best management decision. He also expressed the 
concern that S. 314 will result in a significant level of 
    Mr. Kleinman testified that, between 1979 and 1990, the 
Navy competed 25,000 positions--80 percent civilian and 20 
percent military. He stated that, overall, the savings were 30 
percent, and the public sector won half of the competitions. He 
said when the in-house team won, there were 20 percent savings, 
and when the private firm won, savings were 40 percent. Mr. 
Kleinman pointed out that the in-house savings seemed low 
because when no bidder produced savings, the competition was 
decided in favor of the in-house team, and these ``no-saving 
competitions'' are included in the in-house average. He 
stressed that competitions produce the best value for the 
government. Captain Streicher also shared his experience in 
conducting OMB Circular A-76 competition studies within the 
    Mr. Davis testified that the private sector is utilizing 
outsourcing more and more and cited the automobile industry as 
an example. He said the reason for private sector outsourcing 
is not only for cost savings but a result of becoming more 
mission oriented. He recommended that, for government, 
outsourcing and competition should not be undertaken only 
because of cost effectiveness, but because it allows government 
executives to focus their attention on the mission and not be 
distracted with trying to manage all parts of the process. Mr. 
Davis noted that GSA achieved great savings and efficiencies 
utilizing OMB's A-76 process.
    Mr. Stevens testified that incorporating best value 
criteria substantially had improved the bill. He stated that 
the governments visited by GAO indicated that there was a need 
to establish a dedicated organizational and analytical 
structure to carry the privatization initiative, and S. 314 
addressed this. He expressed that greater monitoring and 
oversight of the contracting process will be necessary as a 
result of contracting out.
    Mr. John Sturdivant expressed his strong support of OMB 
Circular A-76 and contended that the revisions made to A-76 
make it a fair process. He also testified that the unions must 
be part of any competition process. Mr. Sturdivant emphasized 
that S. 314 is not needed because it is based on the notion 
that work currently performed by government personnel can be 
provided more cheaply through outsourcing. He stated that this 
is false. Mr. Sturdivant said he is committed to work with the 
Subcommittee to address his concerns.
    On March 24, 1998, the Subcommittee held a joint hearing 
with the House Government Reform and Oversight Subcommittee on 
Government Management, Information, and Technology to focus on 
the re-draft of S. 314, also known as the Fair Competition Act. 
The bill was re-drafted as a result of the testimony provided 
at the previous hearing. The following witnesses appeared to 
present testimony on the re-draft of S. 314: The Honorable 
Craig Thomas, U.S. Senator from Wyoming; the Honorable John 
Duncan, U.S. Representative from Tennessee; the Honorable G. 
Edward Deseve, Acting Deputy Director for Management of the 
U.S. Office of Management and Budget; Mr. Skip Stitt, former 
Deputy Mayor of the City of Indianapolis; Mr. Bryan Logan, 
Chief Executive Officer of EarthData International on behalf of 
the Management Association for Private Photogrammetric 
Surveyors; Mr. Lawrence Trammell, Corporate Vice president and 
General Manager of Science Applications International 
Corporation on behalf of the Coalition for Taxpayer Value; Mr. 
Douglas K. Stevens, Jr., partner of Information Technology 
Services Group, Grant Thornton, LLP, representing the U.S. 
Chamber of Commerce; Dr. Steve Kelman, Weatherhead Professor of 
Public Management of Harvard University; Mr. Robert Tobias, 
National President of the National Treasury Employees Union; 
Mr. Bobby Harnage, President of the American Federation of 
Government Employees; and Mr. Michael Styles, National 
President of the Federal Managers Association.
    Senator Thomas testified about the need for legislation 
because current policy, also known as OMB Circular A-76, 
routinely is ignored. He stressed that the legislation was re-
drafted significantly based on input from OMB, GAO, private 
industry and labor unions to establish a simple and fair 
competitive process. Finally, Senator Thomas expressed his 
commitment to working with all interested parties on the 
    Congressman Duncan reiterated the need for a statutory 
requirement for an inventory of noninherently governmental 
functions in the Federal government and a level playing field 
for competition. He also expressed his concern that agencies 
are ignoring the current OMB A-76 guidelines.
    Mr. DeSeve outlined OMB's fundamental principles that he 
hoped would be included in the final product of S. 314 and 
testified that the re-draft did not address these principles. 
In his testimony, Mr. DeSeve listed OMB's principles as 
          1. The Administration's policy is to promote 
        competition to achieve the best deal for the taxpayer -
        not simply to outsource.
          2. Legislation must not increase the level of 
        judicial involvement in the government's management 
        decision as to whether or not to outsource.
          3. Current guidance to promote competition is in 
          4. The complexities of public-public and public-
        private competitions must be reflected in any 
          5. Legislation needs to be fair and equitable to all 
        interested parties.
          6. Outsourcing must be viewed in the context of the 
        larger reinvention effort.
          7. Legislation must not require the head of each 
        agency to undertake competition in accordance with a 
        schedule mandated in law.
    Mr. Stitt expressed the support of the City of Indianapolis 
for the focus of the S. 314 re-draft. He emphasized that, in 
Indianapolis, competition is the most powerful and productive 
tool in improving government services for citizens. Mr. Stitt 
also stressed the significant role strong leadership and 
employee participation plays in pursuing opportunities to 
improve government services.
    Dr. Kelman testified about the importance of looking at 
outsourcing as an issue of good management and not as an 
ideological issue. In addition, he suggested that good 
management practice in a government agency or private business 
is to focus on the core competency as an organization. The non-
core responsibilities in an agency should be done by other 
organizations which have a core responsibility in that area. He 
added his support for allowing Federal workers to compete under 
the re-draft of S. 314, but expressed the need to include 
proper accounting for indirect costs, as well as past 
performance. Finally, he testified that every effort should be 
made to hold Federal employees harmless in the transportation 
to outsource.
    Industry representatives, including Mr. Logan, Mr. Trammel, 
and Mr. Stevens, testified that the current competition policy 
of OMB Circular A-76 does not work and that the re-draft of S. 
314 addresses this issue. Specifically, they added their 
support for a list of non-inherently governmental activities 
performed by the Federal government. They expressed, however, 
some concern about the public-private competition provisions in 
the re-draft.
    Federal employee representatives, including Mr. Tobias, Mr. 
Harnage, and Mr. Styles, objected to the re-draft of S. 314 and 
expressed their specific concerns regarding the bill. A 
suggestion was made to require agencies to use a competitive 
process when a function is reviewed for outsourcing. They also 
expressed concern with prohibiting the conversion of contracted 
functions to in-house performance. Finally, they recommended 
that cost comparisons should be done for all service 

Committee action

    On July 15, 1998, the Subcommittee on Government 
Management, Restructuring, and the District of Columbia 
returned S. 314 to the full Committee on Governmental Affairs 
for further action. The Committee considered a substitute 
amendment to S. 314 offered by Chairman Thompson at a business 
meeting on July 15, 1998. Chairman Thompson's substitute 
amendment represented an agreement reached among members of the 
Committee. The amendment requires Federal agencies to prepare a 
list of activities that are not inherently governmental 
functions that are being performed by Federal employees, submit 
that list to OMB for review, and make the list publicly 
available. It also establishes an ``appeals'' process within 
each agency to challenge what is on the list or what is not 
included on the list. It also creates a statutory definition--
identical to current regulation--for what is an ``inherently 
governmental function'' that must be preformed by the 
government and not the private sector.
    The Committee passed the Chairman's substitute amendment by 
voice vote and voted to report it to the full Senate. Senators 
voting and present were: Thompson, Stevens, Collins, Domenici, 
Nickles, Levin, Lieberman, Akaka, and Cleland. Senators Roth, 
Brownback, and Cochran indicated their ``yea'' by proxy.

                    iv. section-by-section analysis

Section 1. Short title

    This section states the short title of the bill.

Section 2. Annual publication of lists of Government activities not 
        inherently governmental in nature

    Lists Required.--This section would require, on an annual 
basis, an agency to submit to OMB a list of activities that, in 
the judgment of the agency head, are not inherently 
governmental and are performed by Federal employees. After 
consultation with the review by OMB, OMB would make the list 
publicly available andpublish a notice of that availability in 
the Federal Register. The section also would require the list to be 
transmitted to Congress and updated whenever there are changes.
    Competition Required.--Further, the section would require 
an agency, within a reasonable time, to review each activity on 
the list and, when competing activities, to use a competitive 
process to select the source to perform the activity. It is the 
Committee's expectation that OMB will work with Federal 
agencies to ensure that they proceed in a reasonable time frame 
with a competitive process for activities that are appropriate 
for competition. The Committee believes that there are many 
opportunities for competition and expects agencies to 
prioritize functions that are most likely to have a high 
payback from such competition. The Committee anticipates that 
OMB will review agency plans and schedules for competition 
under this section to ensure that such plans and schedules are 
reasonable and conform with Administration policy and with the 
requirements of this Act.

Section 3. Challenges to the list

    Subsection (a) of this section would provide authority for 
an interested party to challenge a particular activity omitted 
from or included on the list of activities which are not 
inherently governmental. Subsection (b) would define an 
interested party. Subsection (c) would provide that a challenge 
must be submitted to the agency within 30 days after the list 
has been published.
    Subsection (d) would require an agency to act within 28 
days after receiving such a challenge and to inform the 
challenger of its decision and its rationale for the decision. 
Subsection (e) would authorize an appeal to the head of the 
agency for an interested party receiving an adverse decision.
    The Committee intends for any challenges to the inventory 
list to be resolved solely at the agency level by the agency.

Section 4. Applicability

    This section would provide the applicability of this Act to 
executive departments, military departments and independent 
agencies. Further, the section would specify that this Act not 
apply to government corporations, the General Accounting 
Office, and nonappropriated funds instrumentalities and would 
make explicit that depot-level activities of the Department of 
Defense are not affected in any respect by this Act.

Section 5. Definitions

    This section would define:
    (1) ``Federal Government source'' as an organization within 
an agency using Federal government employees. It is the 
Committee's intent to encompass Federal employees who are 
responsible for the technical execution of an activity or the 
preparation and delivery of the required goods or services. It 
is not the intent of the Committee to encompass in this 
definition Federal employees who are responsible for 
administrative, financial or program management oversight of a 
particular activity.
    (2) ``depot-level maintenance and repair'' as it is defined 
in 10 U.S.C. 2460.
    (3) ``inherently Governmental function'' as it currently is 
defined in FAR Part 7. The FAR currently includes a 
nonexclusive list of examples of functions considered to be 
inherently governmental or which are treated as such and a 
nonexclusive list of examples of functions generally not 
considered to be inherently governmental functions. It is the 
Committee's intent that both these lists be included as part of 
the definition of inherently governmental function in the 
implementing regulations for this Act.

Section 6. Effective date

    This section would provide for an effective date of October 
1, 1998.

                     v. regulatory impact statement

    Paragraph 11(b)(1) of rule XXVI of the Standing Rules of 
the Senate requires that each report accompanying a bill 
evaluate ``the regulatory impact which would be incurred in 
carrying out the bill.''
    The enactment of this legislation would not have a 
significant regulatory impact on the public, nor would it 
constitute an undue regulatory burden on any government agency.

                         vi. cbo cost estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 23, 1998.
Hon. Fred D. Thompson,
Chaiman, Committee on Governmental Affairs,
U.S. Senate, Washington, DC
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 314, the Federal 
Activities Inventory Reform Act of 1998.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is John R. 
                                         June E. O'Neill, Director.

S. 314--Fedeal Activities Inventory Reform Act of 1998

    S. 314 would require federal agencies to identify and list 
agency activities that could be performed by the private 
sector. The bill would require that the lists be made available 
to the public for inspection, and it would allow private-sector 
entities, agency employees and certain labor organizations to 
challenge the lists. CBO estimates that the enacting S. 314 
would result in no significant annual cost to the federal 
government. Under OMB Circular No. A-76, agenceis are already 
required to maintain and annually update a baseline inventory 
of all in-house activities that could be performed by the 
private sector. In addition the circular requires them to make 
the lists available to the public upon request. This S. 314 
would largely codify current administrative policy.
    Because the bill would not affect direct spending or 
receipts, pay- as-you-go procedures would not apply. In 
addition, S. 314 contains no intergovernmental or private-
sector mandates as defined in the Unfunded Mandates Reform Act 
and would not affect the budgets of state, local, and tribal 
    The CBO contact for this estimate is John R. Righter. The 
estimate was approved by Paul N. Van de Water, Assistant 
Director for Budget Analysis.

                         VII. ADDITIONAL VIEWS

    S. 314, now known as the Federal Activities Inventory Act 
of 1998, is legislation that both the Federal government and 
private industry in America have needed for a long time. Put 
simply, this bill would require agencies to assemble a list of 
noninherently governmental--or commercial--functions performed 
in-house and subject some of them to competition.
    There is a systems failure within the Federal agencies 
using the current competition process, also known as Office of 
Management and Budget (OMB) Circular A-76. When the Senate 
Oversight Subcommittee on Government Management, Restructuring, 
and the District of Columbia held two hearings on S. 314, 
witnesses from all sides of the issue testified about how 
Federal agencies ignore the competition process set forth by 
OMB A-76. The Subcommittee also held a third hearing focusing 
on this issue and why the OMB A-76 is not working.
    When J. Christopher Mihm, Associate Director of Federal 
Management and Workforce Issues, General Government Division 
for the General Accounting Office testified before the 
Subcommittee on June 4, 1998, he explained that OMB A-76, when 
followed, has had a proven success record in increasing 
efficiency and producing savings. However, its use does not 
appear to be a high priority within OMB or Federal agencies as 
illustrated in the attached chart. As a result, agencies such 
as the Departments of Education, Housing and Urban Development, 
and Justice have ignored the requirements under OMB A-76 for 
the last 11 years. These agencies have not studied any 
potential commercial activity in their agency in that time. In 
addition, Mr. Mihm testified that OMB has not provided the 
leadership needed for a successful competition policy.
    At the same hearing, Mr. G. Edward DeSeve, Acting Deputy 
Director for Management of the U.S. Office of Management and 
Budget expressed OMB's commitment to work with Federal agencies 
and explained OMB's recent call to agencies for an updated 
commercial inventory. He also acknowledged the inaccuracies in 
the agencies' most recent A-76 inventories of commercial 
    S. 314, as passed by the Senate Governmental Affairs 
Committee, addresses some of the flaws that both Mr. Mihm and 
Mr. DeSeve included in their testimony. First, Federal agencies 
will be required to make available to the public a list of 
noninherently governmental activities performed by the in-
house. Second, the bill includes a process within each agency 
that would allow all interested parties to challenge items 
which are included or not included on the list. Third, under 
this legislation, OMB must take an active leadership role in 
implementing the requirements of this bill.
    I am concerned, however, that S. 314 as reported by the 
Senate Governmental Affairs Committee does not fully address 
whether the activities on the list should be subject to 
competition. Throughout the hearings on this bill, witnesses 
from all sides on this issue repeated the need for a level 
playing field in any competition policy of commercial 
activities performed by the Federal government. S. 314, 
however, requires a competition on commercial activities only 
when an agency considers contracting with the private sector. 
In other words, like OMB A-76, an agency has the option to 
ignore the competition policy under S. 314 by simply refusing 
to consider outsourcing a commercial function. I consider this 
bill a first step toward ensuring that commercial activities 
performed by the government will be competed in a timely 
manner. The original intent of this legislation was to create a 
fair competition process but this provision maintains one of 
the fundamental flaws of OMB A-76. It is my hope that agencies, 
in consultation with OMB, will consider contracting with the 
private sector with any commercial activity which meets the 
criteria set forth in the bill.
    As chairman of the Senate Oversight Subcommittee on 
Government Management, Restructuring, and the District of 
Columbia, I am committed to having thorough Congressional 
oversight on the implementation of this bill. I congratulate 
the sponsor of this legislation, Senator Craig Thomas, for 
bringing everyone together to reach an agreement with all 
parties involved. I look forward to continue working with him 
and my colleagues on the Committee and Subcommittee in our 
oversight efforts.

                                                     Sam Brownback.

                     VIII. CHANGES TO EXISTING LAW

    There are no modifications of existing law.