Rules for Insourcing, Outsourcing Are Clarified Federal agencies will insource work performed by large businesses before they considering insourcing jobs that are contracted out to small firms. The Office of Federal Procurement Policy announced that directive as part of its long-awaited guidance explaining what functions are inherently governmental. The policy letter by OFPP Administrator Dan Gordon says “agencies are instructed to generally place a lower priority on reviewing work performed by small businesses where the work is not inherently governmental and where continued contractor performance does not put the agency at risk of losing control of its mission and operations.” The final policy on inherently governmental functions—which are not supposed to be performed by contractors—follows the legal definition established under the FAIR Act. An inherently governmental function is “a function that is so intimately related to the public interest as to require performance by federal government employees.” The policy is intended to stop agencies from overrelying on contractors to perform work that is closely related to inherently governmental functions or that is critical to agency operations. The term “critical function” does not appear in the FAIR Act, and some industry groups have complained that it is too vague. Gordon sought to be more specific in his policy letter, explaining that critical functions normally do not include such jobs as building security, mail operations, operation of cafeterias, housekeeping, facilities operations and maintenance, warehouse operations, motor vehicle fleet management or other routine electrical or mechanical services. Agencies must “ensure that Federal employees perform and/or manage critical functions to the extent necessary for the agency to operate effectively and maintain control of its mission and operations,” the policy letter says. In areas relating to acquisition, for example, the decision to award a contract is an inherently governmental function. Helping to draw up a cost estimate is close to inherently governmental, but can be performed by a contractor as long as a government employee approves the estimate. Gordon cautioned that “insourcing is intended to be a management tool—not an end in itself—to address certain types of overreliance on contractors.” In some cases, the letter says, overreliance on contractors can be fixed without insourcing the work, such as by increasing management oversight of the contractor. “Reliance on contractors is not, by itself, a cause for concern, provided that the work that they perform is not work that should be reserved for federal employees and that federal officials are appropriately managing and overseeing contractor performance,” Gordon wrote. In a briefing for reporters, Gordon used the example of IT work. He said some federal executives have complained that “no one in-house understands the work and that they’re completely dependent on the contractor. It’s intolerable.” In such cases, he suggested the agency could add two or three knowledgeable employees to monitor the contractor.