OMB revises A-76 formula to include pay raise assumptions

Agencies should assume federal pay raises of 3.6 percent next year and 3.9 percent for the four years after that when calculating in-house cost estimates for public-private competitions, the Office of Management and Budget said in a memo last week. OMB has updated a key formula federal agencies use when comparing the cost of keeping jobs in-house versus outsourcing them. Before outsourcing jobs, agencies must estimate what it would cost to keep the jobs in-house. The agency then compares the in-house estimate with bids from contractors to decide whether to privatize operations. The amendment to OMB Circular A-76, which governs the process agencies must follow in outsourcing jobs, appeared in the March 14 Federal Register. The amendment took effect immediately for all current cost comparisons in which the government's in-house cost estimate has not been publicly revealed. The amendment updates the pay raise assumptions to reflect the raises provided for civilian employees in the President's fiscal 2002 budget blueprint. The blueprint estimates an average 3.6 percent federal employee raise, but a 4.6 percent pay raise next year for military personnel. The amendment also updates the inflation factors agencies use to determine the government's in-house supply and equipment costs. New figures for projected retirement costs for federal employees also were included. The Bush administration strongly supports outsourcing. Last month, OMB Director Mitch Daniels issued a memo to federal agency heads asking that they develop plans for expanding outsourcing at their agencies. Among federal agencies, the Defense Department stands out for conducting outsourcing studies on a massive scale. This year, Defense named more than 178,000 jobs that could be outsourced or eliminated as a result of A-76 competitions.