Overview
FAR Subpart 7.3 establishes the policies and procedures for determining whether a commercial activity should be performed by government personnel or by a private contractor. It serves as the regulatory bridge to OMB Circular A-76, ensuring that "inherently governmental" tasks remain with federal employees while commercial activities are subjected to the forces of competition to achieve cost efficiency.
Key Rules
- Prohibition on Outsourcing: Agencies are strictly prohibited from using contractors to perform "inherently governmental activities."
- Public-Private Competition: Commercial activities must be subjected to public-private competitions in accordance with OMB Circular A-76 before being shifted to the private sector.
- Cost Considerations: Cost is a mandatory factor when deciding between agency performance and contractor performance.
- Sealed Bidding Constraints: During public-private competitions using sealed bidding, Contracting Officers are prohibited from holding discussions to correct deficiencies in tenders.
- Right of First Refusal: When a function is converted from in-house performance to contract performance, the contractor is required to give displaced government employees the "right of first refusal" for job openings under the contract for which they are qualified.
- GAO Protest Standing: The Agency Tender Official (ATO) is legally recognized as an "interested party" and has the right to file protests with the Government Accountability Office (GAO).
Responsibilities
- Agencies: Must identify which activities are inherently governmental and ensure they are performed by federal employees. They must also manage the contest process for competition results.
- Contracting Officers (COs):
- Responsible for inserting specific provisions (52.207-1 for standard competitions or 52.207-2 for streamlined competitions) into solicitations.
- Must include clause 52.207-3 regarding the Right of First Refusal in any solicitation involving a potential conversion to contract performance.
- Authorized to adjust the Right of First Refusal period from the standard 10 days up to 90 days.
- Agency Tender Official (ATO): Responsible for representing the government’s "bid" (the Most Efficient Organization or MEO) and has the authority to protest the award if the competition process is flawed.
- Contractors: Must offer qualified displaced government employees the first opportunity to fill vacancies created by the conversion of work from the government to the private sector.
Practical Implications
- Boundary Management: In real-world contracting, the most common friction point is determining if a requirement has "crept" into inherently governmental territory (e.g., a contractor making final decisions on budget allocations rather than just providing data).
- Workforce Transition: When a "Blue-to-Green" (Government-to-Contractor) shift occurs, the Right of First Refusal (FAR 52.207-3) is a critical compliance item. Contractors must carefully document their hiring process to prove they offered positions to qualified displaced federal workers before hiring from the open market.
- Strategic Dormancy: It is important to note that while this subpart remains in the FAR, Congress has frequently imposed moratoriums on new A-76 public-private competitions. However, the underlying principle—that contractors cannot perform inherently governmental functions—remains a foundational rule for every federal contract.
- Limited Negotiation: Because COs cannot hold discussions to fix deficiencies in sealed bidding for these competitions, the government's internal "tender" and the private sector's "offer" must be technically perfect upon submission to be successful.