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Wednesday, March 6, 2013

Insourcing Functions Performed by Federal Contractors: Legal Issues

Kate M. Manuel
Legislative Attorney

Jack Maskell
Legislative Attorney

Recent Congresses and the Obama Administration have taken numerous actions to promote “insourcing,” or the use of government personnel to perform functions that contractors have performed on behalf of federal agencies. Among other things, the 109th through the 111th Congresses enacted statutes requiring the development of policies and guidelines to ensure that agencies “consider” using government employees to perform functions previously performed by contractors, as well as any new functions. The Obama Administration has similarly promoted insourcing, with officials calling for consideration of insourcing in various workforce management initiatives.

Certain insourcing initiatives of the Department of Defense (DOD), in particular, prompted legal challenges alleging that DOD failed to comply with applicable guidelines when insourcing specific functions. The only court to reach the issue assumed, without deciding, that certain guidelines were legally binding. However, other courts have not addressed this issue because of questions about jurisdiction and standing. The parties initially conceded that such suits were cognizable under the Administrative Procedure Act (APA), which permits challenges to agency actions that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law,” although the government has recently asserted that insourcing determinations are committed to agency discretion by law and, thus, not reviewable by the courts.

At first, there was some uncertainty as to whether the U.S. Court of Federal Claims had jurisdiction over such suits under the Administrative Disputes Resolution Act of 1996, or whether the federal district courts had jurisdiction under the APA. However, most courts to address the issue have found that the Court of Federal Claims has exclusive jurisdiction over challenges to insourcing determinations because such determinations are made in connection with “proposed procurements” and at least some contractors are “interested parties.” Later, questions arose about whether contractors who meet the statutory standing requirements (i.e., are “interested parties”) must also meet prudential standing requirements. These judicially self-imposed limits on the exercise of jurisdiction ensure that plaintiffs are within the “zone of interests” to be protected by the statutes they seek to enforce. Initially, judges on the Court of Federal Claims reached differing conclusions as to whether prudential standing requirements applied, although later decisions may suggest that any prudential standing requirements that apply could potentially be easily met. Most recently, the court has had to determine whether vendors whose contracts have expired have standing to challenge insourcing determinations, or whether such challenges are moot.

Other provisions of law could also potentially constrain whether and how agencies may proceed with insourcing in specific circumstances, or limit the activities that former contractor employees may perform after being hired by the federal government. These include (1) contract law, under which agencies could be found to have constructively terminated certain requirements contracts by augmenting their in-house capacity to perform services provided for in the contract; (2) civil service law, which would generally limit “direct hires” of contractor employees; and (3) ethics law, which could limit the involvement of former contractor employees in certain agency actions.

Members of the 112
th Congress enacted legislation (P.L. 112-239) that calls for the Office of Management and Budget to establish “procedures and methodologies” for use by agencies in deciding whether to insource functions performed by small businesses, including procedures for identifying which contracts are considered for conversion and for comparing the costs of performance by contractor personnel with the costs of performance by government personnel.

Date of Report: February 22, 2013
Number of Pages: 26
Order Number: R41810
Price: $29.95

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