169a.4 Review procedures. 1698.5 Inventory report.

AUTHORITY: The provisions of this Part 169a issued under Title 5 U.S.C. 301 and Title 5 U.S.C. 552.

SOURCE: The provisions of this Part 169a appear at 36 F.R. 15747, Aug. 18, 1971, unless otherwise noted.

§ 169a.1 Purpose and applicability.

This part implements the policies established in Part 169 of this subchapter and OMB Circular A-76 and establishes procedures and criteria for use by the Military Departments and Defense Agencies in making determinations whether to start, continue, curtail, or discontinue commercial or industrial activities which they operate and manage.

§ 169a.2 Scope.

The provisions of this part apply to all products or services listed in Enclosure 1' used by the DOD Components in the United States, its territories and possessions, the District of Columbia, or the Commonwealth of Puerto Rico, except:

(a) Products or services obtainable from other Federal agencies which are authorized or required by law to furnish them.

(b) Products or services procured in accordance with treaties or international agreements.

(c) Commissaries, post exchanges and nonappropriated fund activities.

(d) Managerial advisory services such as those normally provided by an office of general counsel, a management and organization staff, automatic data processing staff, or a systems analysis unit.

§ 169a.3 Definitions.

(a) DOD commercial or industrial activities. Activities (functional areas as listed in Enclosure 1) operated and managed by DOD components to provide products or services for Government use which are obtainable from private commercial sources. Government-owned contractor-operated manufacturing and production plants are excluded from the provisions of this part; however, see approval requirements of DOD Directive

1 Filed as part of original.

4275.5, "Industrial Facility Expansion and Replacement," November 14, 1966.'

(b) Private commercial sources. Private business concerns which provide products or services available to Government agencies, and which are located in the United States, its territories and possessions, the District of Columbia, or the Commonwealth of Puerto Rico.

(c) Contract support services. Services procured from private commercial sources in support of DOD functions, as specifically listed in Enclosure 1.1

(d) New start. (1) New start includes the following:

(i) A newly established DOD commercial or industrial activity involving additional capital investment of $25,000 or more or additional annual costs of production of $50,000 or more.

(ii) A reactivation, expansion, modernization or replacement of an activity involving additional capital investment of $50,000 or more or additional annual costs of production of $100,000 or more.

(iii) Construction, replacement or reactivation of bakery, laundry and dry cleaning facilities and scrap metal facilities are subject to provisions of DOD Directives 5126.8, "Delegation of Authority with Respect to Certification of Construction, Replacement or Reactivation of Bakery, Laundry or Dry Cleaning Facilities," March 13, 1970 and 5126.15, "Delegation of Authority with Respect to Facilities and Equipment for Metal Scrap Baling or Shearing or for Melting or Sweating Aluminum Scrap," March 13, 1970 (35 F.R. 7441). Attention is invited to the additional approval required by the Assistant Secretary of Defense in these cases.

NOTE: Telecommunications projects and services associated with subdivisions (1) and (ii) of this subparagraph are also subject to the provisions of DOD Directive 4630.1, "Programming of Major Telecommunications Requirements," April 24, 1968.

(2) Consolidation of two or more inhouse activities without increasing the over-all total amount of products or services provided is not a new start.

(3) In a new start, we are concerned with an entire activity. The modernization of such an activity wherein the productive machinery, or a major part of such machinery, is being replaced to up

2 Filed as part of original. Copies available from U.S. Naval Publications and Forms Center, 5801 Tabor Avenue, Philadelphia, PA 19120, Attn. Code 300.

date, modernize or expand the productive capacity would constitute a new start, and should be submitted to the appropriate Secretarial level for approval in accordance with the provisions of Part 169 of this subchapter. Normal repair of an existing approved activity, including replacement of individual parts or machinery even though this cost may exceed $50,000, are not to be considered as constituting new starts if the productive capacity is not increased. Likewise, structural changes in buildings which are not directly related to increasing productive capacity or usable space, such as the addition of air conditioning to a building or plumbing additions for sanitation, health or convenience, are not to be considered as new starts.

§ 169a.4 Review Procedures.

(as

(a) General. (1) A wide range of services, as liisted in Enclosure 1,1 are provided by DOD commercial or industrial activities and by contract support services. Significant savings can be achieved by a systematic cost effectiveness review of these services to determine whether their best and most economical method of performance is by contract or by Government employees. In making this determination, strict limitations cited in paragraph (c) (6) of this section) are imposed on the type and scope of inhouse services that may be performed, and specific guidelines for cost comparisons are provided. Contract is the preferred method of performance, unless excess cost from commercial sources or other circumstances (as cited in paragraph (c) (6) of this section) in-house performance. A systematic review of service functions will be conducted on a time-phased basis and will cover the specific services listed in Enclosure 1.1

(2) Some DOD commercial or industrial activities are engaged in the output of products, as distinguished from services. A systematic cost-effectiveness review of these in-house DOD production activities will also be carried out covering the production items listed in Enclosure 1' under Codes X931 through X945.

(b) Criteria. Section 169.4 of this subchapter outlines the only circumstances under which commercial or industrial activities may be operated and managed by DOD components. In reaching determinations as to the applicability of these circumstances to individual activities, the following criteria will be used:

See footnotes 1 and 2 to § 169a.3.

(1) Procurement of a product or service from a commercial source would disrupt or materially delay an agency's program. (i) DOD components will continue to conduct those functions and operations which they must perform in order to retain essential control and responsibility for their programs and personnel. For example, DOD will not rely upon private commercial sources to assume managerial responsibility for selection, training and direction of Government personnel, assignment of organizational responsibilities, planning of programs, establishment of performance goals and priorities, and evaluation of performance. However, where required, commercial contract sources may be used to provide support services related to these internal functions, provided that the Government's fundamental responsibility for controlling and managing its programs is not compromised weakened.

or

(ii) Security requirements may be involved in determinations under this criterion. However, as many commercial contract operations are regularly performed under proper security safeguards, any justification for conducting a DOD commercial or industrial activity because of security requirements must clearly show that commercial performance would introduce unacceptable risks.

(2) It is necessary for the Government to conduct a commercial or industrial activity for purposes of combat support or for individual and unit retraining of military personnel or to maintain or strengthen mobilization readiness. This criterion includes the need for troop units to conduct training and retraining in order to achieve and maintain self-sufficient military capability for the operation and direct maintenance support of their mission-essential equipment, and the requirement for DOD components to retain an in-being depot level maintenance capability, as outlined in DOD Directive 4151.1, "Use of Contractor and Government Resources for Maintenance of Materiel," June 20, 1970, also see Part 170 of this subchapter, and an installation level capability to operate, maintain and accomplish emergency repair of combatessential facilities and utilities. Industrial facility requirements will conform to the policies of DOD Directive 4275.5, "Industrial Facility Expansion and Replacement," November 14, 1966. Con

tract Engineering Technical Services activities will conform to the policies of Part 168 of this subchapter.

(3) A satisfactory commercial source is not available and cannot be developed in time to provide a product or service when it is needed. Before making determinations under this criterion, all reasonable efforts will be made to induce private enterprise to provide the product or service. These efforts will be supplemented as appropriate by obtaining assistance from the General Services and Small Business Administrations or the Bureau of Domestic Commerce. Urgency of a requirement is not an adequate reason for starting or continuing a DOD commercial or industrial activity unless there is conclusive evidence that commercial sources are unable to meet the schedule need.

(4) The product or service is not available from another Federal agency nor from commercial sources. This criterion requires that, in addition to meeting the criterion in subparagraph (3) of this paragraph, DOD components actively seek, wherever feasible and economical, in conformity with DOD Directive 4000.19, "Basic Policies and Principles for Interservice and Interdepartmental Logistic Support," August 5, 1967, to obtain the required product or service through cross-servicing from an existing activity under Government control before reaching a decision to continue a DOD commercial or industrial activity, or requesting approval for a new start. This includes efforts to merge or consolidate, wherever practicable, similar in-house activities being operated separately within Military Departments or Defense Agencies. Activities being operated solely or primarily to provide products or services to another U.S. Government Department or Agency should be transferred to that Department or Agency, or discontinued if their operation does not meet the criteria specified in subparagraphs (1), (2), (3), and (5) of this paragraph.

(5) Procurement of the product or service from a commercial source will result in higher total cost to the Government. (i) Utilization of this criterion as justification for continuing, or initiating a new start, of a DOD commercial or industrial activity is authorized only if a comparative cost analysis, in conformity with Enclosure 3,1 indicates that

See footnotes 1 and 2 to § 169a.3.

the product or service can be provided from in-house services at an over-all total cost to the Government which is less than from a private commercial source. In conducting these cost comparisons, all reasonable efforts will be made to obtain satisfactory prices from existing commercial sources and to develop other competitive commercial sources.

1

(ii) In reaching determinations under this criterion, the disadvantages, risks and uncertainties of starting or continuing a DOD commercial or industrial activity (as detailed in section II. A. of Enclosure 3) must be carefully considered and the amount of the cost savings to be achieved by in-house operation must be sufficient to justify those disadvantages, risks and uncertainties. The exact amount of these savings will vary based on individual circumstances, as detailed in section II.C. of Enclosure 3.'1

(c) Compliance. In order to effectively implement the policy issued in Part 169 of this subchapter and OMB Circular A-76, the operating management and direction and the DOD management policy implementation and administration of this program will be exercised through the existing management and organizational structures of the Military Departments and Defense Agencies. The Secretaries of the Military Departments and the Directors of Defense Agencies, or their designees, shall:

(1) Conduct a continuing program for improving management and cost effectiveness in the performance of DOD commercial or industrial activities and contract support service functions.

(2) Develop and carry out a systematic and continuing review program covering (i) all commercial or industrial activities which they operate and manage, and (ii) all contract support services being procured. This review program will be impartial and thorough, and its objectives will be to assure that the full requirements of paragraphs (a) and (b) of this section and this paragraph (c) are met with regard to reaching decisions to continue, discontinue or curtail DOD commercial or industrial activities and contract support services.

(3) Document each review so as to clearly show the rationale and the data upon which the decision was reached to continue, discontinue or curtail each activity. (See also Enclosure 3, II.E.1.)1

(4) Require that requests for authority to establish proposed new starts will be approved by the Secretaries of Mill

tary Departments and Directors of Defense Agencies, or by an Assistant Secretary (or an official of equivalent rank) to whom such decision-making authority has been delegated.

(5) Conduct the internal review program so that the respective functional areas listed in Enclosure 11 (unless specifically exempted by ASD(I&L)) are reviewed in conformity with the threephase cycle cited in Enclosure 1.1

(6) Organize internal reviews so that in addition to meeting the needs of subparagraphs (2), (3), and (4) of this paragraph, the reviews will provide the following information:

(1) Availability from private business sources of the products and services being obtained from a DOD commercial or industrial activity.

(ii) Feasibility of using private business sources in lieu of DOD commercial or industrial activities (see Part 22 of this chapter).

(iii) A comparative cost analysis, prepared in conformity with Enclosure 3,1 in the event the review discloses that a DOD commercial or industrial activity involving an annual cost of production of $50,000 or more is being continued because procurement of the products or services from the private commercial sources would result in a higher total cost to the Government. (Discontinuance of a DOD commercial or industrial activity having an annual cost of less than $50,000 is generally required when the reason for its operation is that procurement from private commercial sources would result in a higher total cost to the Government; see section III.B.2. of Enclosure 3.)1

(iv) Reviews of Contract Engineering Technical Service activities will be conducted annually in accordance with the provisions of Part 168 of this subchapter. (Functional category T813.)

(7) Approve or disapprove new start requests under provision of paragraph (b) (1) through (5) of this section. This approval authority does not include industrial facility modernization and expansion projects which require ASD (I&L) approval in accordance with DOD Directive 4275.5, "Industrial Facility Expansion and Replacement," November 14, 1966.' Where authority for funds for construction are required before a new start

1 Filed as part of original.

Filed as part of original. Copies available from U.S. Naval Publications and Forms Center, 5801 Tabor Avenue, Philadelphia, PA 19120, Attn. Code 800.

can be initiated, approval of the new start will be obtained prior to inclusion of the project in an annual authorization request or the annual budget estimates submitted to the Office of Management and Budget.

(8) Perform a comparative cost analysis before procuring products or services from private commercial sources when the procurement will cause the Government to finance directly or indirectly more than $50,000 for costs of facilities and equipment to be constructed to Government specifications. Cost comparison reviews are also required prior to procurement from private commercial sources under certain other circumstances to assure that commercial procurement is economically justified; see section III.A.3. of Enclosure 3.1

(9) Compile and maintain, as required by section 7a of OMB Circular A-76, an inventory report (see § 169a.5) of commercial or industrial activities which they operate and manage and the contract support services which they procure.

(10) Assure, in instances where existing DOD commercial or industrial activities are to be discontinued or curtailed, that:

(i) Reasonable scheduling in the timing of such actions is planned in order to minimize economic dislocations and personal hardships of affected personnel.

(ii) Proper employee and community advance notification is provided and full assistance is given to carcer employees in obtaining other positions, in accordance with DOD Directives 1400.20, "Program for Stability of Civilian Employment in the DOD," January 27, 1969: 5410.10, "Coordination and Clearance of Announcements of Personnel Reductions, Closures of Installations, and Reduction of Contract Operations Within the United States." February 2, 1960; and 5410.12, "Policies and Procedures for Minimizing Economic Impact on Communities Resulting from Adjustments in Defense Programs," October 20, 1961.'

(iii) Satisfactory and reliable contract or other arrangements are made in advance so that the continuity of essential functions is not impaired. § 169a.5 Inventory report.

The inventory report specified in § 169a.4(c) (9) will be prepared using punched cards or magnetic tape according to instructions in Attachment 1 to

Enclosure 2.1 Also, a separate list of commercial or industrial activities and contract support services which have been discontinued, curtailed (15 percent or more), or converted to another method of performance during the Fiscal Year will be provided. The list will include:

(a) DOD functional area number.
(b) Description of the function.
(c) Name of installation.

(d) Reason(s) for discontinuance, curtailment or conversion.

(e) Degree to which function has been curtailed expressed in a percentage of total annual cost.

(f) Number of military and civilian personnel transferred or separated as a result of the discontinuance, curtailment or conversion of an in-house activity. (g) Effective date of change. (h) Total annual cost.

Department of Defense. Such costs will include all Government-furnished materials and suitable charges for Government-furnished tooling, equipment and/ or facilities. (See DoD Directive 3232.1, "Department of Defense Maintenance Engineering Program," Nov. 3, 1955;' DoD Directive 4151.1, "Policies Governing the Use/Commercial and Military Resources for Maintenance of Military Materiel," July 28, 1960;1 DoD Directive 4100.15, "Commercial or Industrial Activities," July 9, 1966; 1 and DoD Instruction 4100.33, "Commercial or Industrial Activities-Operation of,” July 22, 1966.)1

(b) Cost forecasts will be developed and included with all equipment maintenance work requirements submitted for procurement action. These forecasts will be based on past actual costs for accomplishment of like or similar work either by organic or contract sources. They will include total labor and total material costs including all Governmentfurnished materials consumed in the previous contract programs. Costs associated with organic sources will include all appropriate general overhead and administrative expenses as well as centrally procured material costs. (See DoD Instruction 7220.14, "Uniform Cost Accounting for Depot Maintenance," Aug. 14, 1963.)1

(c) All revisions of changes to equipment maintenance contracts that affect production schedules or costs will be coordinated with the DoD component who generated the requirement for procurement action prior to effecting formal revision or change to the contract.

(d) Work specifications governing maintenance workloads to be accomplished by contract will be developed in a manner that will provide maximum latitude to prospective contractors in determining the mix of labor and materials including Government-furnished materials that they will require to produce a quality product at the least cost to the Department of Defense.

(e) Maintenance workloads accomplished by contract sources will be given the same emphasis and level of management attention as workloads performed by DoD component organic activities. Production and accrued cost information will be used by DoD component maintenance workload and distribution activities to measure the progress of contrac