GovernmentExecutive.com

At least one agency is preparing for the possibility that a program allowing private sector companies to bid on work performed by federal employees is on its last legs.

The Energy Department last month offered to consider terminating six contractual arrangements signed by representatives of federal employee teams that won public-private job competitions, according to an internal memorandum obtained by Government Executive. The arrangements -- called letters of obligation -- are similar to the contracts private sector companies would sign if they prevailed.

An Energy official familiar with the July 13 memo said no decision has been made on whether to terminate any letter of obligation. The source said a mid-level staffer issued the memo in response to questions about the state of public-private competitions, given a legislative moratorium on new contests and an ongoing Obama administration contracting review.

"We are just trying to be proactive and get the information out there to folks and make them knowledgeable of where we are currently and what the prospects are for the future," the official said. "I think it's prudent for folks involved in managing these programs that may be affected be kept up-to-date and educated about what potential decisions may have to be made in the future."

The memo gave federal employee teams -- known as most efficient organizations -- the choice of continuing to operate under the terms of the letters or providing by July 27, 2009, a justification for terminating the agreement. It is not clear how many teams sought to end their letters of obligation.

"This option will reduce the requirement for tracking and reporting," wrote Jeff Davis, who works in Energy's Office of Procurement and Assistance Management, in the memo. "Second, it will free up resources such as the residual organization to focus on other priorities." The residual organization manages work that cannot be performed by the contractor or federal employee team, including oversight.

The Office of Management and Budget's Circular A-76, which contains the rules for public-private competitions, allows agencies to cancel letters of obligation for reasons other than failure to perform, including the elimination of an agency requirement through divestiture, privatization, reorganization, restructuring, national defense or homeland security, according to the memo.

"If you want to terminate the LOO, we will need your justification," Davis wrote. "In many cases, reorganization may be the best reason, especially if you are considering adding, deleting or clarifying tasks, which then affects the staffing. If you have considered becoming a high-performing organization and it requires a different staffing mix, reorganization may again be the best approach."

The Energy official said many of the agreements at issue are five to six years old and could expire within the next several years. The source stressed agency employees are not in danger of losing their jobs if the letters of obligation are terminated.

Union officials representing Energy employees were not familiar with the memo.

Until a decision has been made to permanently cancel public-private job competitions, the program is alive and well, the Energy official noted.

The 2009 omnibus appropriations bill prohibited using funds to hold job competitions until the fiscal year ends Sept. 30. An amendment to the fiscal 2010 Financial Services spending bill, sponsored by Sen. Barbara Mikulski, D-Md., would continue that ban for another year. The bill, which also contains a provision that would require agencies to take an inventory of jobs being performed by contractors to determine if any work was improperly outsourced, passed the House but awaits a vote in the full Senate.

The language in Financial Services bill closely mirrors legislation Mikulski introduced in April. That bill, which has stalled in the Senate Homeland Security and Governmental Affairs Committee, would bar competitions indefinitely until the director of OMB and inspectors general of the five largest agencies determined that "substantial progress" had been made leveling the playing field for federal employees.

In addition to the legislative developments, President Obama in March ordered OMB to undertake an in-depth review of the government's contracting efforts, including the outsourcing of work historically performed by federal employees. The administration last month instructed agencies to begin building up their in-house capacitates, rather than relying excessively on contractors.

A Senate source familiar with the bills said the administration has been kept in the loop about the provisions and they "would not handcuff" OMB in conducting its contracting policy review. The administration is scheduled to release final outsourcing guidance in September.