Definitions of “Inherently Governmental Functions” in Federal Procurement Law and Guidance

John R. Luckey
Legislative Attorney

Kate M. Manuel
Legislative Attorney

An “inherently governmental function” is one that, as a matter of federal law and policy, must be performed by government employees and cannot be contracted out. Two main definitions of inherently governmental functions currently exist within federal law and agency directives. One is a statutory definition, enacted as part of the Federal Activities Inventory Reform (FAIR) Act of 1998. This definition states that an inherently governmental function is “a function so intimately related to the public interest as to require performance by Federal Government employees.” The other is a policy-oriented definition contained in OMB Circular A-76. This definition states that an inherently governmental activity is “an activity that is so intimately related to the public interest as to mandate performance by government personnel.” Other statutes, regulations and guidance documents that define inherently governmental functions do so either by reproducing the language of the FAIR Act or OMB Circular A-76, or by incorporating their definitions by reference. For example, the Federal Acquisition Regulation (FAR) uses the definition of OMB Circular A-76, while Office of Federal Procurement Policy (OFPP) Policy Letter 11-01 adopts the FAIR Act’s definition.

In addition to these definitions, there are numerous statutory, regulatory, and agency provisions designating specific functions as inherently governmental or commercial. These provisions also help establish the meaning of “inherently governmental function” by specifying what is—and is not—included within that category. Similarly, while not offering their own definitions of inherently governmental functions, the Government Accountability Office (GAO) and the federal courts have developed tests that they use in identifying specific functions as inherently governmental or commercial. However, a judicial declaration that a particular function is inherently governmental under a constitutional test would not necessarily preclude the executive branch from contracting out this function.

The current debate over which functions are inherently governmental is part of a larger debate about the proper role of the federal government vis-à-vis the private sector. This debate is as old as the Constitution, which prohibits privatization of certain functions (e.g., Congress’s legislative function). Courts enforce this prohibition under various judicial tests (e.g., functions “affected with the public interest”). Since the 1920s, federal contracting has been a primary arena for the public/private debate, with the executive and legislative branches contesting (1) which functions the government must perform because they are inherently governmental; (2) which functions the government should perform because they are closely related to inherently governmental functions or for some policy reason; and (3) which functions should be left to the private sector.

Members of the 112th Congress have introduced legislation representing various sides of the public/private debate. Some would generally require agencies to rely on the private sector to perform functions that are not inherently governmental (H.R. 1474, S. 785), whereas others would prohibit agencies from contracting out functions that, while not inherently governmental, are mission essential or closely associated with inherently governmental functions (H.R. 1949, S. 991). Previously, the 110th Congress had required (P.L. 110-417) the Office of Management and Budget (OMB) to develop a “single consistent definition” of inherently governmental function. In response to this charge, OMB, through the OFPP, issued Policy Letter 11-01 on September 12, 2011. In addition to adopting the FAIR Act’s definition of “inherently governmental function,” Policy Letter 11-01 establishes two tests for identifying inherently governmental functions, as well as defines a “critical function” as one “that is necessary to the agency being able to effectively perform and maintain control of its mission and operations.”


Date of Report: January 24, 2012
Number of Pages: 35
Order Number: R42325
Price: $29.95

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