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Washington, D.C.—The National Treasury Employees Union (NTEU) today filed a lawsuit in federal court alleging that major revisions in the rules covering the contracting of government work to the private sector set forth by the Office of Management and Budget (OMB) are illegal. The revisions make it easier for the president to carry out his agenda of shifting vast amounts of work from federal employees to the private sector. More than 850,000 federal jobs are at stake.

NTEU President Colleen M. Kelley said that OMB “has illegally trumped Congress” on the sensitive issue of determining whether a function is “so intimately related to the public interest as to require performance by federal government employees.”

The union is asking the U.S. District Court for the District of Columbia to declare illegal recent OMB revisions to a document known as Circular A-76. The revisions became effective May 29. The document sets out mandatory instructions to federal agencies for determining whether particular activities should be performed by federal workers or contracted to the private sector.

The suit says the A-76 revisions require federal agencies to apply “a substantially narrower definition” of inherently governmental functions than is now contained in federal law. Under the

Federal Activities Inventory Reform (FAIR) Act of 1998, activities that are “inherently governmental” may only be performed by federal employees, while those activities designated as “commercial” may be contracted to the private sector.

The FAIR Act, the suit says, requires the exercise of “discretion” for a function to be deemed inherently governmental. The revised Circular A-76, on the other hand, rules out as inherently governmental all functions that do not require the exercise of “substantial” discretion—a significant difference in language.

Moreover, functions involving the collection, control or disbursement of federal funds, which have routinely been deemed inherently governmental under the FAIR Act, may obtain that designation under the new circular only if they include the authority “to establish policies and procedures.”

This, President Kelley said, would have a substantial adverse impact on large numbers of federal employees, including thousands of NTEU-represented employees at the Internal Revenue Service who are engaged in the collection, control or disbursement of appropriated or other federal funds, even though they may not be responsible for “establishing policies or procedures.”

In conjunction with narrowing the inherently government functions definition, OMB also has restricted a union’s ability to challenge improper agency designations of functions as “commercial.” This, too, runs afoul of the FAIR Act.

“Ensuring that inherently governmental functions are performed by federal employees only,” President Kelley said, “is firmly rooted in sound government policies, such as ensuring that confidential taxpayer information is safeguarded and that the government maintains needed expertise at all times.”

The suit seeks OMB’s withdrawal of the revised A-76 provisions, a court declaration that any executive branch reliance on it is improper and illegal, and an order that the language of Circular A-76 in effect prior to May 29 remain in effect.

As the largest independent federal union, NTEU represents more than 150,000 employees in 29 agencies and departments, including more than 97,000 in the IRS.

June 2003

Contact: (202) 572-5500

Sheila McCormick, Ext. 7034

Mike Drapkin, Ext. 7011

NTEU Is Leading The Charge Against Contracting Out

From the White House’s first announcement, NTEU has used every available venue to fight the administration’s efforts to contract out hundreds of thousands of federal jobs. The union’s lawsuit against the Office of Management and Budget (OMB) is the latest in a series of actions NTEU has taken to stop these inappropriate and unnecessary actions to move work from federal employees to contractors.

In The Legal Arena...

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NTEU’s lawsuit to challenge revisions to OMB Circular A-76 alleges that the revised circular conflicts with the Federal Activities Inventory Reform (FAIR) Act of 1998. By narrowing the statutory definition of “inherently governmental functions,” the circular opens the door to private sector performance of functions previously reserved for federal employees. It does this by (1) adding the requirement that such functions involve the exercise of “substantial” discretion, and (2) imposing a new condition that functions involving the collection, control, or disbursement of federal funds also involve “establishing policies and procedures.” The new circular also restricts the rights of unions and other interested parties to argue that an agency has failed to classify a particular function as inherently governmental. The circular replaces the FAIR Act’s broad right to pursue such “challenges” with a one-shot opportunity to file a challenge only if and when an agency changes the function’s classification.

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In response to OMB’s proposed revisions to Circular A-76, NTEU submitted detailed comments describing how the new provisions were unfair to federal employees and would deprive taxpayers of the benefits of true public-private competition. OMB heeded NTEU’s comments in some respects:

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It eliminated its proposed presumption that all functions performed by federal employees are commercial and therefore subject to conversion to private sector performance.

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It removed provisions that would have allowed agencies to shift large amounts of work to the private sector without even allowing federal employees an opportunity to compete to save their jobs.

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It struck a punitive measure that would have automatically shifted work to the private sector if agency management failed to complete the public-private competition within one year.

Despite these changes, the circular remains heavily slanted in favor of private contractors over federal employees, depriving taxpayers of the benefits of fair competition:

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If the work at issue involves fewer than 65 federal employees, the agency may use a streamlined competition that prohibits employees from making any adjustments to staffing or their current work practices in order to be more competitive against a private sector bidder.

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In competitions for new work, or expansions of existing work, the federal employee bid must show a savings of 10 percent of personnel costs or $10 million relative to the private sector bid.

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While OMB has gone to great pains to include every potential cost of federal employee performance of the work, it arbitrarily excludes from the private sector bid legitimate costs of doing business with non-governmental entities (such as the costs of obtaining a performance bond). At the same time, it provides for a reduction of the bottom-line cost of private sector bids based on speculation about potential increased tax revenue obtained from the private sector bidder and possible gains from the sale of federal government assets if the work is converted to the private sector.

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NTEU has successfully asserted its rights under the FAIR Act to keep inherently governmental functions off of agencies’ commercial activities inventories, ensuring that this work is performed by federal employees.

On Capitol Hill...

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NTEU President Colleen M. Kelley has been an ardent advocate for federal employees on Capitol Hill, testifying numerous times on contracting out issues.

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NTEU has led the charge in shaping legislation on contracting out issues. It has been a leading supporter of the TRAC Act, which would require federal agencies to keep better tabs on the true costs of using contractors—rather than federal employees—to perform work and on the performance of this enormous “shadow” workforce. NTEU also played a critical role in defeating earlier versions of the FAIR Act, which would have required agencies to open up all of their commercial functions to competition with the private sector in a very short time period, without affording federal employees a fair opportunity to compete for the work.

At The Bargaining Table...

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As a result of agreements negotiated by NTEU with federal agencies, NTEU members are participating on the committees that shape how individual public-private competitions will be conducted. Through this means, NTEU members help develop the performance work statement, which describes the work to be competed and the requirements for bidders. They also help to shape the agency’s bid to keep the work in-house.

On Prominent Panels...

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NTEU President Kelley was a member of the Commercial Activities Panel (CAP), convened by the U.S. General Accounting Office at the behest of Congress to recommend improvements to the federal contracting process. President Kelley was one of a small minority of CAP members looking out for the interests of federal employees. She dissented from the panel’s pro-contractor final recommendations.

On The Front Lines...

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NTEU’s leadership and its members are working every day to protect federal employee jobs from being recklessly contracted out to the private sector. From keeping employees informed to representing them in competitions, from the bargaining table to lobbying Congress, from the workplace to the federal courthouse, NTEU is there fighting for federal employees.