POLICIES FOR ACQUIRING COMMERCIAL OR INDUSTRIAL PRODUCTS AND SERVICES NEEDED BY THE GOVERNMENT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00623R000100080026-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 42
• Document Creation Date: December 23, 2016
• Document Release Date: November 10, 2011
• Sequence Number: 26
• Publication Date: March 29, 1979
• Content Type: MISC

Declassified in Part -Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
;ECUTIVE OFFICE OF THE PRE. DENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON. D.C. 20503
.March 29, 1979
CIRCULAR NO. A-76
Revised
TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Policies for Acquiring Commercial or Industrial Products and
Services Needed by the Government
1. Purpose. -This Circular establishes the policies and procedures used to
determine whether needed commercial or industrial type work should be done by
contract with private sources or in-house using Government facilities and
personnel. This Circular replaces OMB Circular No. A-76, dated August 30,
1967, and all subsequent amendments.
2. Background. In a democratic free enterprise economic system, the
Government should not compete with its citizens. The private enterprise
system, characterized by individual freedom and initiative, is the primary source
of national economic strength. In recognition of this principle, it has been and
continues to be the general policy of the Government to rely on competitive
private enterprise to supply the products and services it needs.
This policy has been expressed in Burea? I of the Budget Bulletins issued in 1955,
1957, and 1960. In 1966, Circular No. A-76 was issued and, for the first time,
prescribed the policy and implementing guidelines in a permanent directive. The
Circular was revised in 1967, by Transmittal Memorandum No. 1, to clarify some-
provisions and to lessen the burden of work by the agencies in implementation.
Transmittal Memorandum No. 2 was issued in 1976, providing additional guidance 1
on cost comparisons and prescribing standard cost factors for Federal employee
retirement and insurance benefits.
In 1977, a comprehensive review of the Circular and its implementation was
initiated. Transmittal Memorandum No. 3 was issued on June 13, 1977,
announcing the review and temporarily reducing the Government retirement cost
factor. This revision is the result of that review and careful consideration of
comments from all interested parties.
3. Responsibility. ? Each agency head has the responsibility to ensure that the
provisions of this Circular are followed. This Circular provides administrative
direction to heads of agencies and does not establish, and shall not be construed
to create, any substantive or procedural basis for any person to challenge any
agency action or inaction on the basis that such action was not in accordance
with this Circular, except as specifically set forth in Section 11 below.
C,;
Declassified in Part- Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
4. Policy. This policy builds on three equally valid policy precepts:
a. Rely on the Private Sector. The Government's business is not to be in
business. Where private sources are available, they should be looked to first to
provide the commercial or industrial goods and services needed by the Govern-
ment to act on the public's behalf.
b. Retain Certain Governmental Functions In-House. Certain functions
are inherently governmental in nature, being so intimately related to the public
interest as to mandate performance by Federal employees.
c. Aim for Economy; Cost Comparisons. When private performance is
feasible and no overriding factors require in-house performance, the American
people deserve and expect the most economical performance and, therefore,
rigorous comparison of contract costs versus in-house costs should be used, when
appropriate, to, decide how the work will be done.
5. Definitions. For the purposes of this Circular:
a. A "Government commercial or industrial activity" is one which is
operated and managed by a Federal executive agency and which provides a
product or service that could be obtained from a private source. A representa-
tive, but not comprehensive, listing of such activities is provided in Attachment
A. An activity can be identified with an organization or a type of work, but
must be (1) separable from other functions so as to be suitable for performance
either in-house or by contract; and (2) a regularly needed activity of an
operational nature, not a one-time activity of short duration associated with
support of a particular project.
b. An "expansion" is the modernization, replacement, upgrade, or en-
largement of a Government commercial or industrial activity involving addition-
al capital investment of $100,000 or more, or increasing annual operating costs
by $200,000 or more; provided, the increase exceeds 20% of the total investment
or annual operating cost. A consolidation of two or more activities is not an
"expansion" unless the proposed total capital investment or operating cost
exceeds the total from the individual activities by the amount of the threshold.
An expansion which increases either capital investment or annual operating cost
by 100% or more is a "new start."
c. A "conversion" is the transfer of work from a Government commer-
cial or industrial activity to performance by a private commercial source under
contract.
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part -Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
C?
d. A "new start" is a newly-established Government commercial or
industrial activity, including a transfer of work from contract to in-house
performance. Also included is any expansion which would increase capital
investment or annual operating cost by 100% or more.
e. A "private commercial source" is a private business, university, or
other non-Federal activity, located in the United States, its territories and
possessions, the District of Columbia, or the` Commonwealth of Puerto Rico,
which provides a commercial or industrial product or service required by
Government agencies.
f. A "Governmental function" is a function which must be performed in-
house due to a special relationship in executing governmental responsibilities.
Such governmental functions can fall into several categories:
,(1) Discretionary application of Government authority, as in inves-
tigations, prosecutions and other judicial functions; in management of Govern-
ment programs requiring value judgments, as in directing the national defense;
management and direction of the Armed Services; conduct of foreign relations;
selection of program priorities; direction of Federal employees; regulation of the
use of space, oceans, navigable rivers and other natural resources; direction of
intelligence and counter-intelligence operations; and regulation of industry and
commerce, including food and drugs.
(2) Monetary transactions and entitlements, as in Government
benefit programs; tax collection and revenue disbursements by the Government;
control of the public treasury, accounts, and money supply; and the administra-
tion of public trusts.
(3) In-house core capabilities in the area of research, development,
and testing, needed for technical analysis and evaluation and technology base
management and maintenance. However, requirements for such services beyond
the core capability which has been established and justified by the agency are
not considered governmental functions.
6. Scope.
a. No executive agency will engage in or contract for commercial or
industrial activities except in accordance with the provisions of this Circular, or
as otherwise provided by law, including, for example, Title 44 of the U.S. Code.
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100084yy0026-1
b. The implementation provisions of this Circular do not apply to
governmental functions as defined in paragraph 5(f). These functions must be
performed in-house by Government personnel.
c. This Circular applies to the need for Government ownership in any
"new start" or "expansion" of a Government-owned, contractor-operated (GOCO)
facility.
d. Additional provisions are as follows:
(1) . This Circular does not provide authority to enter into contracts.
Guidelines governing contracts for goods and services are set forth in applicable
acquisition regulations.
(2) This Circular will not be used as authority to enter into
contracts which establish a situation tantamount to an employer-employee
relationship between the Government and individual contract personnel. Addi-
tional guidance on this subject is provided in the Federal Personnel Manual issued
by the Office of Personnel Management.
(3) This Circular will not be used to justify a conversion to
contract solely to meet personnel ceilings or to avoid salary limitations. When
in-house performance of a "new start" is justified under this Circular but cannot
be accommodated within agency personnel ceilings, an appeal for necessary
adjustment to implement this Circular agency-wide should be made to OMB in
connection with the annual budget review process.
(4) Major system acquisitions are governed by the provisions of
OMB Circular No. A-109, "Major System Acquisitions." Reliance on the private
sector is one of the general policies contained in Circular A-109 to ensure
competitive consideration of all alternatives before making a decision as to the
best method of satisfing an agency mission need.
(5) This Circular does not apply to consulting services of a purely
advisory nature relating to the governmental functions of agency administration
and management and program management. Assistance in the management area
may be provided either by Government staff organizations or from private
sources, as deemed appropriate by executive agencies, in accordance with
executive branch guidance on the use of consulting services.
(6) This Circular applies to printing and binding only in those
agencies or departments which are exempted by law from the provisions of Title
44 of the U. S. Code.
(7) This Circular should not be applied when it would be contrary to
law or inconsistent with the terms of any treaty or international agreement.
c
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
5
7. Use of Products and Services from Other Federal Agencies.
a. Excess property and services available from- other Federal agencies
should be used in preference to new starts or contracts, unless the needed
product or service can be obtained more economically in the private sector. This
is consistent with the Federal Property and Administrative Services Act of 1949
and related regulations.
b. When a commercial or industrial activity operated by an agency
primarily to meet its own needs has excess capacity, that capacity can be used
to provide products or services to other agencies.
(1) If 'a formal program is established for managing excess capac-
ity, such as the ADP sharing program operated by GSA, capacity that has been
reported as excess can be used by other agencies with no further justification. In
the absence of a formal program and report of excess capacity, another agency's
use of a Government activity must be justified in accordance with paragraph 8 of
this Circular. When the cost justification- is used, the agency requiring the
product or service will solicit competitive bids or proposals to establish
commercial costs, and award a contract when more economical. The prospective
providing agency will prepare the Government cost estimate, in accordance with
this Circular, for comparison with the commercial cost.
(2) It is not intended that agencies create or expand capacity for
the purpose of providing commercially available products or services to other
agencies.. When the performing agency's own requirements increase, capacity
used to support other agencies is no longer excess and should be used in
preference to acquisition of additional capability. Consequently, agencies should
not expand a commercial or industrial activity which is providing products or
services to other agencies. The user agency (or agencies) should be informed,
with suffficient notice to arrange alternative sources, that the support will be
terminated unless exceptional circumstances prevent that agency from finding a
new source.
c. In some cases, acommercial or industrial activity is operated for the
primary purpose of providing a product or service to other agencies, such as the
Federal Data Processing Centers or the Office of Personnel Management
training centers. All such activities must be reviewed under this Circular to
determine whether continued Government operation is justified. The review
should be made at the earliest possible date, but under no circumstances later
than October 1, ,1981. Prior to that review, agencies may use the products and
services available without further justification. When continued Government
operation of the activity is approved, agencies may use the products or services
provided, up to the level of capability approved, with no further justification.
When expansion of such an activity is proposed, the justification for approval
under this Circular can be based on the entire workload, including work for other
agencies.
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10 : CIA-RDP87T00623R000100080026-1
 Declassified in Part -Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
8. Government Operation of a Commercial or Industrial Activity. Govern-
ment operation of a commercial or industrial activity may be authorized under
one of the following conditions.
a. No Satisfactory Commercial Source Available.
(1) A Government commercial or industrial activity can be author-
ized without a comparative cost analysis when it is demonstrated :hat:
(a) There is no private commercial source capable of provid-
ing the product or service that is needed; or
(b) Use of a private commercial source would cause an
unacceptable delay or disruption of an essential agency program.
(2) Before concluding that there is no private commercial. source
capable of providing the needed product or service, the agency must make all
reasonable efforts to identify available sources.
(a) As a minimum, the agency must place at least three
notices of the requirement in the Commerce Business Daily over a 90-day period.
In the case of urgent requirements, publication in the Commerce Business Daily
can be reduced to two notices over a 30-day period.
(b) Agencies' efforts to find satisfactory commercial sources,
especially small and minority-owned businesses, should include obtaining assist-
ance .from the General Services Administration, Small Business Administration,
and the Domestic and International Business Administration in the Department
of Commerce.
(3) A conclusion that use of a commercial source would not be
satisfactory because it would cause an unacceptable delay or disrupt an agency
program requires a specific documented explanation.
(a) Delay or disruption must be spelled out specifically in
terms of cost; time and performance measures.
(b) Disruption must be shown to be of a lasting or unaccept-
able nature. Transitory disruption caused by conversions are not sufficient
grounds.
(c) In all cases, specific explanations must be documented. If
it is known that the function has been performed by contract elsewhere or at
another time, the justification must specify why circumstances are substantially
different.
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
(d) The fact that an activity involves a classified program, or
is part of an agency's basic mission, or that there is a possibility of a strike by
contract employees is not an adequate justification for in-house performance of
that activity. Urgency by itself is not an adequate reason for starting or
continuing a Government commercial or industrial activity. It must be shown
that commercial sources are not able and the Government is able to provide the
product or service when needed.
b. National Defense.
(1) A Government commercial or industrial activity, operated by
military personnel, may be justified when:
(a) The activity or military personnel assigned are utilized in
or subject to deployment in a direct combat support role;
(b) The activity is essential for training in those skills which
are exclusively military in nature; or
(c) The activity is needed to provide appropriate work assign-
ments for career progression or a rotation base for overseas assignments.
(2) A Government commercial or industrial activity providing de-
pot or intermediate level maintenance may be justified in accordance with
criteria approved by the Secretary of Defense to ensure a ready. and controlled
source of technical competence and resources necessary to meet military
contingencies. These criteria will limit the extent of in-house capability and
capacity within the military departments for depot and intermediate mainte-
nance support of mission-essential equipment to the minimum necessary to
accomplish that objective. Justification under these criteria will require a
detailed explanation, on a case-by-case basis, why the needed capability cannot
be supplied by:
(a) A private commercial source; or
(b) Contract operation of Government-owned facilities.
Such justification must be approved at the military department assistant
secretary level or equivalent in the defense agencies.
c. Higher Cost. A Government commercial or industrial activity may
be authorized if a comparative cost analysis, prepared in accordance with
paragraph 9 of this Circular, indicates that the Government can provide or is
providing a product or service at a lower total cost than if it were obtained from
a private commercial source.
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
9. Cost Comparisons. A decision for in-house performance based on economy
must be supported by a comparative cost analysis prepared in accordance with
this Circular and the supplementing Cost Comparison Handbook.
a. Common Ground Rules.
(1) Both Government and commercial cost figures must be based on
the same scope of work and the same level of performance. This requires the
preparation of a sufficiently precise work statement with performance standards
that can be monitored for either mode of performance.
(2) ' Standard cost factors will be used as prescribed by the Cost
Comparison Handbook and as supplemented by agencies for particular operations.
It will be incumbent on each agency to defend any variations in costing from one
case to another.
(3) Cost comparisons are to be aimed at full cost, to the maximum
extent practical in all cases. All significant Government costs (including
allocation of overhead and indirect costs) must be considered, both for direct
Government performance and for administration of a contract.
(4) In the solicitation of bids or offers from contractors for
workloads that are of a continuing nature, unless otherwise inappropriate,
solicitations should provide for prepriced options or renewal options for the out-
years. These measures will guard against "buy-in" pricing on the part of
contractors., While recompetition also guards against "buy-ins," the use of
prepriced or renewal options provides certain advantages such as continuity of
operation, the possibility of lower contract prices when the contractor is
required to provide equipment or facilities, and reduced turbulence and disrup-
tion.
(5) Ordinarily, agencies should not incur the delay and expense of
conducting cost comparison studies to justify a Government commercial or
industrial activity for products or services estimated to be less than $100,000 in
annual operating costs. Activities below this threshold should be performed by
contract unless in-house performance is justified in accordance with paragraph
8.a. or b. However, if there is reason to believe that inadequate competition or
other factors are causing commercial prices to be unreasonable, a cost compari-
son study may be conducted. Reasonable efforts should first be made to obtain
satisfactory prices from existing commercial sources and to develop other
competitive commercial sources.
(6) The cost comparison will use a rate of 10% per annum as the
opportunity cost of capital investments and of the net proceeds from the
potential sale of capital assets, as prescribed in the Cost Comparison Handbook.
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
b. Calculating Contract Costs.
(1) The contract cost figure must be based on a binding firm bid or
proposal, solicited in accordance with pertinent acquisition regulations. Bidders
or offerors must be told that an in-house cost estimate is being developed and
that a contract may or may not result, depending on the comparative cost of the
alternatives.
(2) The factor to be used for the Government's cost of administer-
ing contracts, in addition to other costs of using contract performance as
specified in the Handbook, is 4% of the contract price or expected cost.
c. Calculating Costs of Government Operation.
(1) Each agency should assure that Government operations are
organized - and staffed for the most efficient performance. To the extent
practicable and in accordance with agency manpower and personnel regulations,
agencies should precede reviews under this Circular with internal management
reviews and reorganizations for accomplishing the work more efficiently, when
feasible.
(2) The Government cost factor to be used for Federal employee
retirement benefits, based on a dynamic normal cost projection for the Civil
Service Retirement Fund, is 20.4%.
(3) The Government cost factor to be used for Federal employee
insurance (life and health) benefits, based on actual cost, is 3.7%.
(4) The Government cost factor to be used for Federal employee
workmen's compensation, bonuses and awards, and unemployment programs is
1.9%.
d. An existing in-house activity will not be converted to contract
performance on the basis of economy unless it will result in savings of at least
10% of the estimated Government personnel costs for the period of the
comparative analysis.
e. A "new start" will not be approved on the basis of economy unless it
will result in savings compared to contract performance at least equal to 10% of
Government personnel costs, plus 25% of the cost of ownership of equipment and
facilities, for the period of the comparative analysis.
f. All cost comparisons must be reviewed by an activity independent of
the cost analysis preparation to ensure conformance to the instructions in the
Cost Comparison Handbook.
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
10. Administering the Policy.
a. Implementation.
(1) Each agency will designate an official at the assistant secretary
or equivalent level, and officials at subordinate contact points for major
components, to have overall responsibility for implementation of this Circular
within the agency.
(2) Each agency will establish one or more offices as central points
of contact to maintain cognizance of specific implementation actions. These
offices will have access to all decision documents and data pertinent to actions
taken under the Circular and will respond, in a timely manner, to all requests
concerning inventories, schedules, reviews, and results of reviews. In considering
requests which. include information supplied by contractors or prospective
contractors, agencies will be guided by OFPP Policy Letter No. 78-3, "Requests
for Disclosure of Contractor-Supplied Information Obtained in the Course of a
Procurement."
(3) Within 90 days after the date of issuance, each agency will
promulgate this Circular, with the minimum necessary internal instructions,
identifying the designated official and the central and subordinate contact
points. When issued, copies of the internal instructions will be forwarded to
OMB's Office of Federal Procurement Policy for review. Copies of subsequent
changes will also be forwarded for review.
(4) Each agency will recognize that work for the Federal Govern-
ment may be performed by use of military personnel, civilian employees, and
contract services, and that past experience demonstrates that all three methods
have been responsive and dependable in performing sensitive and important work.
(5) Each agency will ensure that contracts awarded as a result of
reviews under Circular A-76:
(a) Contain all applicable clauses and provisions related to
equal employment opportunities, veterans' preference, and minimum wages and
fringe benefits, including implementation of OFPP Policy Letter No. 78-2, dated
March 29, 1978, relating to "wage busting;"
(b) Include a provision, consistent with Government post
employment conflict of interest standards, that the contractor will give Federal
employees, displaced as a result of the conversion to contract performance, the
right of first refusal for employment openings on the contract in positions for
which they are qualified;
(c) Are awarded to a responsible and responsive bidder or
offeror, as required by applicable acquisition regulations; and
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
1T
(d) Are administered and monitored to achieve proper per-
formance, using appropriate contractual remedies any time performance is less
than satisfactory.
(6) Each agency will exert maximum effort to find suitable em-
ployment for any displaced Federal employees, including:
(a) Giving them priority consideration for suitable positions
with the Government;
(b) Paying reasonable costs for training and relocation when
these will contribute directly to placement;
(c) Arranging for gradual transition when conversions are
made to provide greater opportunity for attrition and placement; and
(d) Coordinating with the Department of Labor and other
agencies to obtain private sector employment for separated workers.
(7) Each agency will provide for alterations to the mode of
performance to be timed in consonance with, and adjusted for, the budget
process to the extent required and consistent with the firm bid cost study
approach.
C
b. Inventories. Each agency will immediately compile a complete
inventory of all commercial and industrial activities subject to this Circular.
(1) Agencies will prepare and maintain a complete inventory of all
individual commercial or industrial activities (as defined in paragraph 5.a.),
which they operate. In addition to general descriptive information, the inventory
should include for each activity: the amount of the Government's capital
investment, the annual cost of operation, the date the activity was last
reviewed, and the basis on which- the activity is being continued under this
Circular. The inventory will be updated at least annually to reflect the results
of reviews as conducted.
(2) Agencies will also prepare and maintain an inventory of all
contracts in excess of $100,000 annually, except those awarded under a duly
authorized set aside program, for services which the agency determines could
reasonably be performed in-house, including any activities that have been
converted from in-house to contract performance. In addition to general
descriptive information, the inventory will include: the contract number, name
of the contractor,. contract period, period of any options, and the total contract
price or estimated cost. Inventory updates will reflect exercise of options and
the termination and award of contracts.
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10 CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
c. Reviews. Agencies will prepare a detailed schedule for the review
of each commercial or industrial activity and contract in the inventory to
determine if the existing performance, in-house or contract, continues to be in
accordance with the policy and guidelines of this Circular. The flow chart
provided as Aftaclrtnentt 8 demonstrates the sequence of actions required for
proper implerrientation of the Circular.
(1) The schedule for review of in-house commercial and industrial
activities will ptcr ide fat review of all activities during the three-year period
following issuanc@ of this revised Circular. Consideration should be given first
to criteria that dtt not concern cost: Unless continuation is justified under
paragraphs 9,6, Of bq at cost comparison must be conducted to determine the
relative cost of Gddetnrtrettt and private performance.
(2) The schedule for review of contracts will show the date that
each conttact (including opflotis) will expire, and the date that the requirement
will be reviewed tt detetrriine if contract performance is to be continued. The
agency will revie* the contract cost and determine whether it is likely that the
work can be petfdrrried in-house at a cost that is less than contract performance
by 10% of Govetrrtrierit personnel costs plus 25% of the cost of ownership of
equipment and facilities. When this is determined to be likely, a cost comparison
will be conducted.
(3) both schedules will be completed and provided to the Office of
Federal Procurement Policy, OMB; within 120 days of the date of issuance of
this Circular. These schedules will be made available by the agency to all
potentially affected employees and their representatives, and published for the
information of contratctors.
(4) Reviews Will be conducted in accordance with the schedules,
unless it is determined that a change in the schedule will be in the best interest
of the Govertlment. lt- such cases, after approval by the agency head or his
designee, the schedule can be revised with 60 days notice to all affected parties.
(5) After the' initial review, activities approved for continuation
will be reviewed again at least once every five years: When it is determined by
the agency head or his designee that the circumstances which supported the
initial approval ate not subject to change, subsequent reviews may be waived.
These activities will be retained in the inventory, however, and to identified. A
copy of the justification and the waiver will be made available to all interested
parties upon request,to the agency contact point.
(7) When the number of commercial and industrial activities and
the number of coveted cdhtracts is so great that reviews cannot be completed in
the prescribed time period; the agency may request approval from the Office of
Federal Procurement Policy, ONIB, to schedule the reviews over a longer period.
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
13
d. New Starts.
(1) A new start should not be initiated by an executive agency
unless the justification for establishing the activity under the provisions of this
Circular has been reviewed and approved by a senior official of the agency. A
new start which involves a capital investment or annual costs of $500,000 or
more must be approved by the agency head or by an official at the assistant
secretary or equivalent level.
(2) The actions to be taken under this Circular should normally be
completed before the agency's budget request is submitted to OMB. Data in
support of such budget requests will be submitted in accordance with OMB
Circular No. A-11. In the case of a proposed new start involving a major capital
investment where the item to be acquired requires a long lead time (e.g., ADP
system, building), approval of budget resources will not constitute OMB approval
of that method of meeting the agency need. A final determination to initiate
the new start or to rely on a private commercial source, within the resources
approved, will be made in accordance with this Circular and other applicable
policies, prior to any commitment to a particular acquisition strategy.
(3) When Government ownership of facilities is necessary, the
possibility of contract operation must be considered before in-house performance
is approved as a new start. If justification for Government operation is
dependent-on relative cost, the comparative cost analysis may be delayed to
accommodate the lead time necessary for acquiring the facilities.
(4) When in-house performance to meet a new requirement is not
feasible, or when contract performance would be under an authorized set-aside
program, a contract can be awarded without conducting a comparative cost
analysis.
e. Set-Aside Programs
(1) It is the general policy of the Government, as expressed in the
Small Business Act, to ensure that small businesses, including those owned and
managed by disadvantaged persons, receive a fair share of Government contract
awards.
(2) Consequently, contracts awarded under authorized set-aside
programs will not be reviewed for possible in-house performance. Additionally,
new requirements which would be suitable for award under a set-aside program
should be satisfied by such a contract without a comparative cost analysis.
(3) On the other hand, in-house activities (in excess of $100,000
annually) will not be considered for performance under a set-aside contract
except when the conversion is justified by a comparative cost analysis.
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1 ,
14
11. Appeals.
a. Each agency will establish a procedure for an informal administrative
review of determinations made under this Circular. This procedure will only be
used to resolve questions of the determination between contract and in-house
performance, and will not apply to questions concerning award to one contractor
in preference to another contractor. Upon written request from a directly
affected party raising a specific objection, the appeals procedure will provide
for:
(1) An independent, objective review of the initial determination
and the rationale upon which the decision was based.
(2) An expeditious determination, within 30 days, made by an
official at the same or higher level than the official who approved the original
decision.
b. The appeals procedure is to provide an administrative safeguard to
assure that agency decisions are fair, equitable, and in accordance with
established policy. This procedure does. not authorize an appeal outside the
agency or a judicial review.
c. Since the appeal procedure is intended to protect the rights of all
affected parties -- Federal employees and their representative organizations,
contractors and potential contractors, and contract employees and their repre-
sentatives -- the procedure and agency determinations may not be subject to
negotiation, arbitration, or agreements with any one of those parties. Agency
decisions are final.
d. Agency appeal procedures, when issued, will be submitted to OFPP
for review pursuant to paragraph 10.a.(3).
12. Effective Date.
This Circular is effective May 1, 1979, but need not be applied to studies in
process where a solicitation for contract bids or proposals was issued prior to the
effective date.
Questions or inquiries about this Circular or its implementation should be
addressed to the Office of Federal Procurement Policy, OMB, telephone number
(202) 395
Lester A. Fetti /James T. Mclntyre,'J
Administrator F deral Director
Procurement Pol y
C
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
ATTACHMENT A
Audiovisual Products and Services
Photography (still, movie, aerial, etc.)
Photographic processing (developing, printing, enlarging, etc.)
Film and videotape production (script writing, direction, animation,
editing, acting, etc.)
Microfilming and other microforms
Art and graphics services
Distribution of audiovisual materials
Reproduction and duplication of audiovisual products
Automatic Data Processing
ADP services -- batch processing, time-sharing, etc.
Programming and systems analysis, design, development, and
simulation
Key punching and data entry services
Systems engineering and installation
Equipment installation, operation, and maintenance
Maintenance, Overhaul, and Repair
Aircraft and aircraft components
Ships, boats, and components
Motor vehicles
Combat vehicles
Railway systems
Electronic equipment and systems
Weapons and weapon systems
Medical and dental equipment
Office furniture and equipment
Industrial plant equipment
Photographic equipment
Space systems
Systems Engineering, Installation, Operation, and Maintenance
Communications systems -- voice, message, data; radio, wire,
microwave, and satellite
Missile ranges
Satellite tracking and data acquisition
Radar detection and tracking
Television systems -- studio and transmission equipment,
distribution systems, receivers, antennas, etc.
Recreational areas
Bulk storage facilities
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
rt,
Manufacturing, Fabrication, Processing, and Packaging
Ordnance equipment
Clothing and fabric products
Liquid, gaseous, and chemical products
Logging and lumber products
Communications and electronics equipment
Rubber and plastic products
Optical and related products
Sheet metal and foundry products
Machined products
Construction materials
Test and instrumentation equipment
Real Property
Design, engineering, construction, modification, repair, and maintenance
of buildings and structures
Construction, alteration, repair, and maintenance of roads and other
surfaced areas
Landscaping, drainage, mowing and care of grounds
Industrial Shops and Services
Machine, carpentry, electrical and other shops
Industrial gas production and recharging
Equipment and instrument fabrication, repair and calibration
Plumbing, heating, electrical, and air conditioning services,
including repair
Fire protection and prevention services
Custodial and janitorial services
Refuse collection and processing
Health Services
Surgical, medical, dental, and psychiatric care
Hospitalization, outpatient, and nursing care
Physical examinations
Eye and hearing examinations -- manufacturing and fitting glasses-
and hearing aids
Medical ahd dental laboratories
Dispensaries
Preventive medicine
Dietary services
Veterinary services
C
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
i
Transportation
Operation of motor pools
Bus service
Vehicle operation
Air transportation
Water transportation
Trucking and hauling
Printing and Reproduction
Printing and binding -- where the agency or
department is exempted from the provisions
of Title 44 of the U.S. Code
Reproduction, copying, and duplication
Blue-printing
Research and Development
Basic research
Applied research
Development
Concept formulation and demonstration
R&D studies
R&D testing
R&D support services
Office Services
Stenographic recording and transcribing
Word processing/data entry
Mail/messenger
Translation
Information systems and distribution
Financial auditing and services
Management auditing
Security
Guard and protective services
Systems engineering, installation, and maintenance of security systems
and individual privacy systems
Forensic laboratories
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
Food Services
Operation of cafeterias, mess halls, kitchens, bakeries, dairies,
and commissaries
Vending machines
Ice and water
Other Services
Laundry and dry cleaning
Library operation
Mapping and charting
Architect and engineer services
Geological surveys
Cataloging
Training -- academic, technical, vocational, and specialized (within the
limitations of P.L. 85-507, unless waived by the Office of Personnel
Management)
Operation of utility systems (power, gas, water, steam, and sewage)
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
- .'Y Attachment P
21NMPLEMENTATION OF OMB CIRCULAR A-76
IN-HOUSE =
A
GOVERNMENTAL
FUNCTION?
ANNUAL COST
LESS THAN.
9MAM
"a))
V
YESI
.-ROUSE ,...
INVENTORY-
SCHEDULE FOR
REVIEW
IN-HOUSE
PERFORMANCE
REQWRED FOR
MILITARY
READINESS?
IN-HOUSE
PERFORMANCE
REQUIRED FDA
MILITARY
READINESS?
ILN1
IN-HOUSE
PERFORMANCE
FEASIBLE?
11B.bdt)1
YES
ANNUAL COST
LESS THAN
S1otoIB
I1w.Ctl)
MO
WOULD CONTRACT
BEA
SET.ASIDE?
IIDJ,.12)I
S CONTRACT
k0
INVENTORY.
SCHEDULE FOR
REVIEW
SATISFACTORY
PRIVATE
SOURCE
AVAILABLE?
NO No
1N-HOUSE -'1
NI-NOOSE NO
SATISFACTORY;
PRIVATE
SOURCE
AVAILABLE?
YES
WOULD
CONTRACT COST
BE UN-
REASONABLE?
ILLMI
NO CONTRACT
IN-HOUSE
PERFORMANCE
LIKELY TO BE
JUSTIFIED ON
BASIS OF COST?
11Ds(2))
IN-HOUSE YES
b A
GOVERNMENTAL
FUNCTION?
(s.t1
IN-HOUSE
PERFORMANCE
FEASIBLE?
(154.(4)3
IN-HOUSE YES
IN-HOUSE
PERFORMANCE
REQUIRED FOR
MILITARY
READINESS?
SATISFACTORY
PRIVATE
SOURCE
AVAILABLE?
ANNUAL COST
LESS THAN
S10D,00s?
IILLW1
F+ CONTRACT
WOULD
CONTRACT COST
EE UN.
REASONABLE?
(liOi))
WOULD CONTRACT
BE A
SET-AS10E?
115/J4))
CONTRACT COST
LESS THAN
IN-HOUSE BY YES CONTRACT
SPECIFIED
MAR GIN?
ILL)
II(-HOUSE COPT
LESS THAN
CONTRACT 11Y
SPECIFIED
MARGIN?
1111
Rrlrrwa+ i Msirts L L W r ' PI I i. Cs+b A-70
COMPARATIVE
COST
ANALYSIS
M CONTRACT
COMPARATIVE
COST
ANALYSIS
IN-HOUSE COST
LESS THAN NO
CONTRACT IV CONTRACT
SPECIFIED
MARGIN?
a-CONTRACT
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
:ECUTIVE OFFICI= OF rHE PRI DENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
March 29, 1979 CIRCULAR NO. A-76
Revised
Transmittal Memorandum No. 4
TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Policies for Acquiring Commercial or Industrial Products and
Services Needed by the Government
Transmitted herewith is a revision of Office of Management and Budget Circular
A-76, which replaces Transmittal Memorandum No. 1, dated August 30, 1967,
Transmittal Memorandum No, 2, dated October 18, 1976, and Transmittal
Memorandum No. 3, dated June 13, 1977.
The revised Circular (1) reaffirms the Government's general policy of reliance on
the private sector for goods and services; while recognizing that (2) certain
functions are inherently governmental in nature and must be performed by
Government personnel, and (3) relative cost must be given appropriate considera-
tion in decisions between in-house performance and reliance on private com-
mercial sources. The balanced approach in this revised Circular is designed to
achieve consistent policy implementation in all agencies, equitable treatment of
all parties, and improved economy and efficiency in providing goods and
performing services needed by the Gov "rnment.
To support the increased emphasis on relative economy of Government and
contract performance, a comprehensive Cost Comparison Handbook is provided
as a supplement to the Circular. This Handbook is to be used by all agencies in
conducting comparative cost analyses. The Handbook provides instructions for
determining the total cost to Government for each alternative and will provide a
more accurate basis for cost-based decisions.
This revision of Circular A-76 is the result of an extensive review of the Circular
and its implementation by executive agencies, and careful consideration of all
comments submitted on the draft revision that was published in August 1978.
Many of those comments were accommodated through clarification and refine-
ment of the draft. Supplementary guidance on special subjects will be developed
as needed.
Application to R&D Activities
Some concern was expressed over the potential impact of the application of this
Circular to Government R&D activities. While agencies with a need for in-house
R&D capability can consider a "core capability" in this area as a "governmental
function," additional guidance is needed to ensure some consistency in determin-
ing and justifying the size of that core capability and applying the Circular to
R&D requirements, in excess of that level of capacity.
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part -Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
2
An interagency committee jointly sponsored by the Office of Federal Procure-
ment Policy and the Office of Science and Technology Policy, has been
est,ablished under the Federal Coordinating Council for Science, Engineering, and
Technology, to study these issues and recommend guidelines for appropriate and
uniform agency implementation. Supplemental guidance addressing R&D activi-
ties will then be developed and, after public review and comment, be issued as an
amendment to the Circular. In the interim, compliance with this Circular and
the periodic review of inventoried R&D activities are to be deferred for one year
pending completion of the study, except for new starts and expansions, as
defined in the Circular. Additional guidance will be provided on determining
justified "core capability" and applying the policy to other R&D requirements to
assure that essential in-house capability is maintained, and that the Government
and taxpayers' interests are properly considered in contract versus in-house
decisions.
Government-owned, contractor-operated (GOCO) activities were excluded from
prior issuances of the Circular. A comprehensive review of all GOCO activities
is necessary to determine whether they can be completely treated under the
terms of this Circular. In the interim, this Circular is to be applied only to new
starts and expansions of Government-owned equipment and facilities.
Government-Owned Contractor-Operated Activities
achieve the poj ,cy obilctj
Personnel Ceilings
The relationship between Circular A-76 and agency personnel ceilings was
reviewed in some detail and clarified in the Circular. While it is clearly
specified that agencies will not use the Circular to contract out solely to meet
personnel ceilings, it is equally clear that agencies will contract out when
justified under the Circular regardless of the relationship between personnel
levels and authorized ceilings. Conversely, contracts for activities that are
shown to be justified for in-house performance will be terminated as quickly as
in-house capability can be established; when the additional spaces required
cannot be accommodated within the agency's personnel ceiling, a request for
adjustment will be submitted to OMB in conjunction with the annual budget
review process.
The Office of Management and Budget will monitor agency implementation of
this revised Circular, providing guidance and interpretations as required.
Further revisions and supplements will be issued as necessary in. the future to
Procurement Policy
Administrator for Feder,
ester A. Fettig
t
C
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON. D.G. 20503
SEP 2 5 1980
CIRCULAR NO. A-76
Revised
Transmittal Memorandum No. 5
TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Policies for Acquiring Commercial or Industrial Products and Services
Needed by the Government
1. This revision amends Transmittal Memo No. 4 to OMB Circular A-76
(revised), dated March 29, 1979. The following revisions are made to the Circular
and Cost Comparison Handbook as set forth in paragraphs a through c below.
a. Calculating Contract Costs: Paragraph 9(b) of Circular A-76 is
clarified by adding the following sentences: "All cost comparisons under a new
start will be based on the solicitation of firm bids or offers. Prepriced option
prices in existing contracts will not be used in lieu of the issuance of a new
solicitation when conducting a cost comparison under a new start."
b. Utilization of Government Capacity: To ensure that all significant
costs are included in the cost comparison, subparagraph F-5(g) of paragraph F-5,
entitled "Utilization of Government Capacity," in Chapter V of the Cost
Comparison Handbook--Supplement 1 to OMB Circular A-76 is modified as follows.
Delete all references to the 5% exception so that the paragraph reads:
"Computations similar to those above should also be made for the general and
administrative expense rate. Similarly, the impact of contracting-out a product or
service on material overhead should be determined."
c. Application of the Circular to Research and Development: The
paragraph of Transmittal Memorandum No. 4, entitled "Application to R&D
Activities," is amended as follows. Compliance with this Circular and the periodic
review of inventoried research and development activities, except for new starts
and expansions, are deferred for one additional year pending the development of
appropriate criteria on determining justified "core capability." The Department of
Defense (DOD), however, shall follow the statutory provison of Section 802 of the
Defense Appropriation Authorization Act of FY 1980 (Public Law 96-107).
2. This revision is effective immediately and shall apply to all studies in process
where no contract award has resulted.
mes T. McIntyre, Jr.
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10 : CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
(ECUTIVE OFFICE OF THE PR. ,IDENT'
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 2U5G3
JAN 2 6 1982 CIRCULAR NO. A-76
Revised
Transmittal Memorandum No. 6
TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Policies for Acquiring Commercial or
Industrial Type Products and Services Needed
by the Government
This revision amends OMB Circular No. A-76 (revised), dated
March 29, 1979; the Cost Comparison Handbook; and Transmittal
Memorandums 4 and 5, dated March 29, 1979, and September 26,
1980, respectively.
1. Amendment to Transmittal Memorandum No. 5. Paragraph
l.c. o Transmittal Memoran um.No. 5, entitle Application to
Research and Development," is replaced as follows:
"c. Application of the Circular to Research and
Development. compliance with this Circular and the
periodic review of inventoried research and development
activities, except for new starts and expansions, are
deferred indefinitely pending the development of appro-
priate criteria for determining "core capability." The
Department of Defense, however, shall follow the statu-
tory provision of Section 802 of the Defense Appropria-
tion Authorization Act of 1980 (Public Law 96-107)."
C
2. Amendments to OMB Circular No. A-76.
a. Paragraph 9.a.(l). Add the following sentences at
the end of paragraph 9.a.(1):
"Office of Federal Procurement Policy Pamphlet No. 4, "A
Guide for Writing and Administering Performance State-
ments of Work for Service Contracts," is designated as
Supplement No. 2 to this Circular. Work statements for
services and quality assurance plans used in cost compar-
isons will be written using Supplement No. 2. All work
statements and quality assurance plans for existing
service contracts subject to the provisions of this
Circular will be rewritten using Supplement No. 2 before
reprocurement, even though a cost comparison will not be
performed. This requirement is not applicable to con-
tracts obtained under small purchase procedures or in
those cases where the agency determines that application
of Supplement No. 2 would not be in the best interests of
mission accomplishment."
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
b. Paragraph 9.a.(3). This paragraph is replaced as
follows:
"(3) Cost comparisons are to be aimed at full
cost, to the maximum extent practical, in all cases. All
significant Government costs (including allocation of
overhead and other indirect costs) must be considered,
both for direct Government performance and contract
performance, including the cost to the Government for
administration of the contract. Costs that would be the
same for either in-house or contract operation need not
be included in the cost comparison. An example of such a
situation is where a contractor would use the same
facilities as an in-house operation."
c. Paragraph 9.b.(2). This paragraph is replaced as
follows:
"(2) The factor to be used for the Government's
cost of administering contracts, in addition to other
costs of contract performance as specified in the Hand-
book, is 4 percent of the contract price or expected
costs, unless a larger (up to 6 percent) or smaller
amount can be fully justified, using the procedures in
the Handbook."
3. Amendments to the Cost Comparison Handbook. Changes to
the Cost Comparison Handbook are contained in Attachment A to
this transmittal memorandum.
4. This revision is effective immediately and shall apply to
all studies in process where no cost comparison has been made,
provided there is sufficient time to make changes prior to
submission of the Cost Comparison Form to the contracting
officer by the date specified for contractor proposals or
bids.
5. Inquiries should be directed to Ms. Darleen Druyun,
Deputy Associate Administrator for Systems and Technology,
Office of Federal Procurement Policy, 726 Jackson Place, NW.,
Room 9013, Washington, D.C. 20503. Telephone: [phone].
David A. Stockman
Director
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
Attachment A
CHANGES TO THE COST COMPARISON HANDBOOK
SUPPLEMENT NO. 1, OMB CIRCULAR NO. A-76 (REVISED)
A. Chapter III. Paragraph H. Inflation of Out-Year
Costs -- Line 8. Add paragraphs 4 and 5 as follows:
"4. In cases where a contract for the needed product
or services would include some form of economic adjustment
clause for subsequent years, no allowance for inflation of
those costs protected by the adjustment clause is included
in out-year contract pricing, and corresponding costs of
Government performance should not be inflated. For
example, contracts subject to the Service Contract Act
include a clause that provides for adjustments to
accommodate labor cost increases necessitated by future
minimum wage determinations. Accordingly, when contract
performance would be under a contract subject to the
Service Contract Act, labor costs for Government employees
in occupations that would be included in the Act should be
deducted from the base for inflation calculations."
"5. Depreciation costs for equipment or facilities,
included in overhead or G&A expenses, must also be deducted
before inflation is computed."
B. Chapter IV. Paragraph D. Contract Administration --
Line 12. Add paragraph 3.
"3. The standard 4-percent contract administration
rate shall be used unless there is precise and supportable
evidence that expected contract administration costs will
be less or more than 4 percent. In no case, however, will
the rate exceed 6 percent.
"a. The following conditions must be met in
order to exceed the 4-percent contract administration
costs:
"(1) The estimate of contract administration
cost is based on a formal Government
quality assurance surveillance plan;
"(2) The solicitation must contain clearly
defined contractor quality control
requirements;
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part -Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
"(3) The Government quality assurance
surveillance plan shall be based on
the quality assurance technique
described in Supplement 2;
"(4) The supporting data for line 12 must
contain a detailed breakdown of
inspection costs based on an analysis
of the Government quality assurance
surveillance plan;
"(5) The statement. of work - must be
performance oriented, as described in
Supplement 2."
C. Chapter V. Paragraph. E.4.c. Labor-Related Costs.
Add the. fallowing. to the end of paragraph E.. .c.: "In devel-
oping.thft-labor related costs the following model shall be used:
"(1) Estimate the number of personnel who
will voluntarily resign or retire from
Government employment. Then, estimate
those who will be separated but will be
employed by the contractor. No costs
are chargeable. Severance pay is not
allowed for those Government employees
who are hired by the contractor within
90 days after separation.
"(2) Estimate those who will be separated,
but will not be employed by the
contractor. Calculate severance pay.
"(3) Estimate those who will remain in
Government employment but will be
relocated. Calculate the costs
associated with relocation.
"(4) Estimate those who will remain in
Government employment, but will be
retrained. Calculate the costs assoc-
iated with retraining.
"(5) Add the costs determined in steps (2)
through (4). Include these costs in
line 25.
Declassified in Part -Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
"(6) Estimate the retained pay costs
associated with those persons who
would be downgraded as a result of a
conversion. These incremental costs
(the difference between current pay
and downgraded pay) are continuing and
not considered a one time conversion
cost. This cost should be shown on
line 26."
D. Chapter V. Paragraph F. Utilization of Government
Capacity Line 24. Add the following sentences to the end of
paragraph F.
"In charging underutilized capacity do not
include any underutilized personnel-related
costs on line 24. Prudent management will ensure
that personnel are assigned to other tasks or
"reductions made in the size of the overhead
organization. Therefore, these costs are not
properly chargeable to the cost of contracting-
out."
E. Chapter V. Paragraph F. Substitute subparagraphs
5.a. through 5.g. with subparagraphs 5.a. through 5.i. as
follows:
"a. Determine Government overhead costs
chargeable to the in-house activity.
"b. Determine Government overhead costs
chargeable to the cost of contracting-out.
"c. Subtract step b from step a.
"d. Determine any changes to Government
overhead costs that should result if the service is
contracted out (for example, can a position or part of
a function be eliminated?).
"e. Subtract step d from step c.
"f. Go to lines 25 and 26 and identify
those personnel who would continue to be employed in
the G & A base if the in-house activity under review
were to be contracted out. Multiply the combined
salary and fringe benefits of these employees by the G
& A rate.
C
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
"g. Subtract step f'from step e.
"h. If the result of step g would be an
addition to the cost of contracting out, delete any
personnel-related costs from the result of step g.
"i. Enter the result of step h on line 24."
F. Chapter VI. Paragraph C.1.' New Start -- Line 31.
Add the following sentence to the end of the paragrap :
"Government-owned facilities or equipment that would be used by
either the contractor or the Government shall not be included in
facility/equipment ownership costs for computing a new start
differential."
C
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 25X1
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
Next 3 Page(s) In Document Denied
Iq
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
the follow-up procedure, and/or the expressed view of the ISAO favoring the auditor's
recommendation, NSIA claims a strong argument could be made that undue command influence
was brought to bear on the contracting officer.
Taking all this into consideration, NSIA urges that Directive 5000.42 be withdrawn and that
any further attempts at contract audit follow-up recognize the necessity for independent
decision-making authority in responsible contracting officers.
?a III. CONTRACT POLICY: NSIA Comments On Legislative Initiatives Limiting Federal Policy Of
Reliance On Private Sector
The National Security Industrial Association (NSIA) recently commented on two pending
pieces of legislation which would impact Office of Management and Budget (OMB) Circular A-76,
"Policies for Acquiring Commercial or Industrial Products and Services Needed by the Govern-
ment."
It'said Bill H.R. 6030, the 1983 DOD Authorization Bill, has budget limitations imposed on it
which prohibit the Department of Defense's ability to conduct cost comparison studies, thereby
preventing conversion of in house commercial and industrial activities to performance by the private
sector. It said the House Armed Services Committee recommended that: (1) a one-year moratorium
be imposed on contracting out within DOD during 1983; (2) that there be an increase of civil
service manpower ceilings by 17,000 for the purpose of preventing conversion of in-house
Government performance of commercial activities to performance by private sector contractors; (3)
all funding for Fiscal Year 1983 for the performance of cost comparison studies be deleted; and (4)
that 440 spaces within the Army and Navy for new administrators for the contracting out programs
be deleted.
NSIA says the directive repudiates the existing national policy of Government reliance on the
private sector for needed goods and services as directed by OMB Circular A-76. It also commented
that production of audio-visual materials, engineering and software is not an inherently
governmental function which the Government must or should provide its citizens. Also increasing
the number of civil servants is an inappropriate expansion of the role and size of Government.
According to a June 1981 GAO report, there were 40,000 civil servants operating over 11,000
commercial activities in-house.
NSIA also said that in reporting a bill to make adjustments in military personnel and
compensation programs, the House Armed Services Committee amended Bill H.R. 6317 to include
restrictions on "contracting out." Title IV contains a permanent change to Section 502 of the 1980
DOD authorizing statute to restrict the Department of Defense from contracting for the
performance of commercial and industrial services if the Secretary of Defense determines that
military or civilian personnel must perform those functions to meet national defense needs.
The Secretary is required to determine that activities must be performed by DOD personnel to
meet national defense needs if: (1) the activity performs depot or intermediate level maintenance
and is necessary to ensure (a) a ready source of technical competence and resources to meet
C.,n..rinht 1QR9 PROCIIRFMFNT ASSOCIATES. INC_ Cnvina. Califnrnia 91724
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10 : CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
July 31, 19$2
peacetime requirements as well as mobilization and combat equipment readiness requirements, and
(b) that combat and combat support activities be self sufficient in providing maintenance support
for assigned weapon systems and equipment; (2) performance of a function by other than military
or civilian DOD personnel would adversely affect national defense capabilities; (3) in the case of an
activity performed on a military installation, performance of the function is so critical to safety in
the installation or the well-being of the personnel assigned to duty that interruption in performance
would be potentially hazardous or deleterious to the safety or security of personnel at the
installation; and (4) H.R. 6317 directs that the cost of a cost comparison conducted by the
Government, preparation of a statement of work, and any other costs associated with the
contracting process must be added to the contractor's bid or proposal in calculating the cost of
performance by a private sector firm.
NSIA says this action, in effect, will undermine DOD's reliance on the private sector for
needed goods and services. The services community believes that these initiatives disregard the cost
savings offered the Government by the private sector and will increasingly place the Government in
competition with the industrial base serving the DOD.
L
l
IV. SPACE PROGRAMS: AIAA Endorses Reagan Administration's Space Policy
The White House recently issued the Reagan Administration's new space policy. It seeks a
more operational defense/civil space program management relationship, and strongly endorses the
Space Shuttle. Some of the major points made aie that: (1) the United States rejects any claims to
sovereignty by any nation over space or over celestrial bodies; (2) purposeful interference with
space systems shall be viewed as an infringement upon sovereign rights; (3) the U.S. space program
will comprise two separate, distinct and strongly interacting defense and civil programs; (4) the U.S.
will pursue activities in space in support of its right to self-defense; (5) as space transportation
systems operations mature, the flexibility to transistion to a different institutional structure will be
maintained; and (6) the U.S. Government will provide a climate conducive to expanded private
sector investment and involvement in space activities. The only specific program endorsed by the
Administration was the development of anti-satellite capability. There was no mention of projects
NASA would like to get started on such as a fifth Space Shuttle orbiter or a space station.
In the meantime, Dr. Stanley Rosen, chairman of the American Institute of Aeronautics and
Astronautics' (AIAA) National Committee on Space Systems, said the new national space policy
issued by the Reagan Administration is "excellent" and should be implemented more vigorously
than previous policies. AIAA is instrumental in planning both military and civil space activities.
Rosen's committee recently completed an AIAA space policy study which outlines policies
and goals that AIAA would like to be achieved in the next two decades. Rosen called the Reagan
policy a "broad charter" which endorses no specific projects except an anti-satellite capability.
AIAA did not recommend endorsement of specific projects. Rosen said, "Of course, in the civil
section, the policy did not endorse the space station or anything like that. The AIAA did not ask
for that. One of the goals that was recommended was to extend man's capability to live and work in
space by developing the orbital facility and support systems necessary for uninterrupted operations
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 STAT
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
DIRECTOR OF CENTRAL INTELLIGENCE
Lza
Security Committee
SECOM-D-286
17 August 1982
MEMORANDUM FOR: Acting Director of Central Intelligence
VIA: Director, Intelligence Community Staff
FROM:
SUBJECT: OMB Circular A-76
1. Action Requested: That you sign the attached letter to the Director,
Office of Management and Budget requesting he clarify contracting guidelines
for communication, data automation and other security services relating to
sensitive intelligence.
2. Background: In order to complete action on the generic issue posed
by the Department of Energy's attempt to contract out communications services
for its all-source center, the attached letter to the Director, OMB has been
prepared. It describes DCI concerns about unnecessarily broad contractor
access to sensitive intelligence and asks Mr. Stockman to instruct Department
and Agency Heads not to contract for services which could diminish security.
3. Recommendation: That you sign the attached letter.
Attachment
tip 11 11C it W.
STAT
STAT
STAT
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
SUBJECT: OMB Circular A-76
Distribution:
Orig - Addressee
1 - EXDIR
1 - D/OEA
1 - ER
1 - D/ICS
1 - D/OCC/ICS
1 - IC Registry
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
The Director of Central Intelligence
Wash QC20505
19AUG07.
The Honorable David A. Stockman
Director, Office of Management
and Budget
Washington, D. C. 20503
Dear. Mr. Stockman:
I am concerned about the possible erosion of security that may result
from contracting with private industry for certain intelligence-related
tasks under the provisions of Office of Management and Budget Circular A-76.
Senators Goldwater, Nunn and Warner expressed their concern to me on one
particular case.
Intelligence Community security policy has always been to maintain
government control over sensitive intelligence and to release to contractors
only that information required to perform tasks beyond the capability of
the government. I believe there are significant risks to national security
in contracting out security services such as the operation of government'
communications centers and automated data services when this permits broad
contractor access to all-source and other sensitive intelligence information.
My statutory responsibilities include the protection of intelligence
sources and methods. Interpretation of Circular A-76 by departments and
a'^enc.ces to require contracting out security services as mentioned above
could severely impede fulfillment of this responsibility. Therefore, I
request that you caution Department and Agency Heads against contracting
for services in cases where the government's control of sensitive intel-
ligence will be substantially diminished..or where contractor access to
such data will be unnecessarily expanded.
Sincerely,
!S/ John N. M Mal on
John N. McMahon
Acting Director
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
SUBJECT: Letter to Mr. David A. Stockman
Distribution:
Orig - Addressee
1 - DCI
1 - DDCI
1 - EXDIR
1 - D/OEA
1 - ER
1 - D/ICS
1 - D/OCC/ICS
1 - C/SEC0M
1 - IC Registry
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
The Director of Central Intelligence
Washington, D C 20505
12 AUG 1932
The Honorable. James B. Edwards
The Secretary of Energy
Washington, D.C. 20545
Dear Mr. Secretary: -
It has come to my attention that the Department of Energy
intends to have the Forrestal Message Center, which handles
classified and compartmented messages from several intelligence
agencies, operated by a private sector contracting firm,
CALCLTLON , INC.
This has raised concerns within the Intelligence Community
about retaining the necessary security protection for the wide
range of sensitive intelligence provided to your Department. We
have even received several Congressional inquiries on this
subject.
We accordingly plan to take a look at other appropriate
channels for getting intelligence information to you. Using
couriers would be one possibility. I regret the time delays this
may cause, but security requirements dictate that we not expose
this wide a range of intelligence information to contractor
personnel.
Sincerely,
Jn N. McMahon
Acting Director
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 STAT
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 PAIIJR-6 rLbWAftw. Alit. CHAIRMAN
Declassified in Part -Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
JOHN H. CHAPEL. R.1. JOSEPH N.??1D[N. JR., M.. n..
RICHARD O. LUGAR. IND. DANIEL K. 1NOUTE. HA
MALCJLM WALLOP. WYO. HENRY M. JACKSON. WA-..
DAVID DUREN\EROER. MINN. PATRICK J. LEANY. VT.
W*WAM V. ROTH. in., OCI_ LLOYD BENTSEN, TEX.
HARRISON H. SCHMITT. N. HEX.
HOWARD N. BAKER. JR.. TENN.. IX OFFiCl0
ROSENT C. SYRD. W. VA, LX OFFICIO
'?J Cnif eb Ziof es . encaf a, .
SELECT COMMITTEE ON INTELLIGENCE
(PURSUANT TO S. Res. IDS. MTH CONGRESS)
ROSE" R. SIMMONS. STAPP DIRECTOR
ASRAM N. SNULSKY. MINORITY STAPP DIRECTOR
WASHINGTON, D.C. 20310
#82- 17d
August 2, 1982
The Honorable William J. Casey
Director of Central Intelligence
Central Intelligence Agency
Washington, D. C. 20505
Earlier
this week, several employees of the Forrestal Message
Center
of the Department of Energy contacted our Committee
to
express
their concern over a. potential security problem at
the
Center.
The attached package of information details their
com-
plaint,
and it is enclosed for your information and review.
Bill, we don't have any way of evaluating the complaint of these
individuals. My purpose in bringing this to your attention is
simply to make sure it receives proper consideration by the
intelligence community. I don't want to prejudice the outcome of
this activity one way or the other. At the same time, I feel t
have a responsibility to bring it to your attention.
Thank you for your consideration of this matter.
cerely,
~~f-tiLL
Barry Jldwater
Chairm n
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part -Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
~~r,v ,a aW.rcw. AW12. HENRY M. JACKSON. WO
..W W. WAwwiW, V .. MOWAAO W. CANNON, P
~:^wocrl J. MUrrNNEY. N.M. "Aft "T /. SYRO. JR., VA.
WILLIAM S. C'J..EM. MAIMS MM NUNN.
WOG[W W. JErsEN. low& GARY HART. COLA. I`, ~r~/ ! ~~J.~] ~/~ Amy }/ I~ ! ?.
DAN CUATLE. INO. J. JAMES EJIOM. NESR.
JOtlM1AM DEMON. A. CARL LEVIN, MICH.
COMMITTEE ON ARMED SERVICES
? IWETT R ISAWMC M. VrAA DIwELT ft AND CHI V COIIN"L
WASHINGTON. D.C. 20510 I =r~?
July 23, 1982
Mr. John McMann
Central Intelligence Agency
Washington, D.C. 20505
Dear John:
It has come to my attention that the Department of Energy
is considering contracting-out the classified activities at
Forrestal Message Center within that department.
While I cannot judge the economic merits and considerations
of the decision to contract this function, I am concerned
about the issues this proposed action raises regarding the
handling of highly classified material by contract personnel.
It is my understanding that this center currently handles
classified material from your agency that is restricted from
contract personnel.
Because of the nature of the material received by the
Forrestal Message Center, I would like to be assured that this
matter has received more than a routine review by the Intelligence
Community. Thank you for giving this matter your consideration,
and I look forward to your report.
Sincerely,
Sam Nunn
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
DIRECTOR OF CENTRAL INTELLIGENCE
SECURITY COMMITTEE
COMPARTMENTATION SUBCOMMITTEE
1 3 AUG 1982
MEMORANDUM FOR: Chairman
DCI Security Committee
SUBJECT: Access to Intelligence Information by Contractor
Personnel Performing Service Functions
1. Your 23 July 1982 memorandum (SECOM-D-252) asked that the
Compartmentation Subcommittee review extant security policy rela-
tive to the use of contractor personnel performing service func-
tions as mandated in OMB Circular No. A-76. While the planned
DOE application of this policy was resolved at the 11 August
1982 meeting of the SECOM, you directed that we prepare a draft'
DCI memorandum to OMB expressing concern about the provisions of
the OMB Circular as it pertains to the DCI's responsibilities to
protect intelligence sources and methods.
2. A draft DCI memorandum is attached for your consideration.
Subsequent to the DCI's review of this matter, I suggest that
the Compartmentation Subcommittee be tasked to revise appropriate
nortiong of DCID 1/7.
Chairma C partmentation
1 Atch
Draft DCI Memorandum
Subco ittee
DCI Sedurity Committee
STAT
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1
Iq
Next 5 Page(s) In Document Denied
STAT
Declassified in Part - Sanitized Copy Approved for Release 2011/11/10: CIA-RDP87T00623R000100080026-1