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TITLE III — OPERATION AND MAINTENANCE

P. L. 108-375

House Conference Report 108-767

SEC. 327. LIMITATIONS ON CONVERSION OF WORK PERFORMED BY DEPARTMENT OF DEFENSE CIVILIAN EMPLOYEES TO CONTRACTOR PERFORMANCE.

(a) REQUIRED COST-SAVINGS THRESHOLD FOR CON- VERSION. — If a public-private competition conducted under the Office of Management and Budget Circular A– 76 dated May 29, 2003 (68 Fed. Reg. 32134), regarding an activity or function performed by civilian employees of the Department of Defense is required to include a formal comparison of the cost of civilian employee performance of the activity or function with the cost of contractor performance, the Secretary of Defense shall maintain the continued performance of the activity or function by civilian employees unless the competitive sourcing official determines that, over all performance periods stated in the solicitation of offers for performance of the activity or function, the cost of performance of the activity or function by a contractor would be less costly to the Department of Defense by an amount that equals or exceeds the lesser of the following:

(1) $10,000,000.

(2) 10 percent of the most efficient organiza- tion’s personnel-related costs for performance of the activity or function by civilian employees.

(b) PROHIBITION ON MODIFICATION OF FUNCTIONS TO PERMIT STREAMLINED A–76 STUDY. — The Secretary of Defense shall ensure that no organization, function, or activity of the Department of Defense is consolidated, restructured, reengineered, or otherwise modified in any way for the purpose of exempting any public-private competition conducted under the Office of Management and Budget Circular A–76 dated May 29, 2003 (68 Fed. Reg. 32134), regarding a commercial or industrial type function of the Department of Defense from the requirement to formally compare, in accordance with such Circular, the cost of civilian employee performance of the function with the cost of contractor performance.

(c) EXCEPTION. — Subsection (a) does not apply in the case of a public-private competition conducted as part of the best-value source selection pilot program authorized by section 336 of the National Defense Authorization Act for Fiscal Year 2004 (Public Law 108–136; 10 U.S.C. 2461 note).

The House bill contained a provision (sec. 323) that would:  (1) codify the prohibition on converting an activity or function to private sector performance unless the conversion would result in savings of at least 10 percent or $10 million; (2) prohibit the Department from breaking up a function to avoid applicable thresholds for conducting a public competition; (3) ensure that a public competitor is not disadvantaged by the offer of a private competitor to reduce costs by reducing health care benefits for its employees; and (4) require the Department to conduct a competition, including an agency tender, a most efficient organization plan, and a formal cost comparison for any function performed by 10 or more civilian employees.

The Senate amendment contained a similar provision (sec. 851)

The Senate recedes with an amendment that would:  (1) codify the prohibition on converting an activity or function to private sector performance unless the conversion would result in savings of at least 10 percent or $10 million when conducting a public-private competition under OMB Circular A-76 dated May 29, 2003; and (2) prohibit the Department of Defense from breaking up a function to avoid applicable thresholds for conducting a public-private competition under A-76 Circular A-76, May 29, 2003.

The conferees agree to exclude the pilot program for best-value source selection authorized by section 336 of the National Defense Authorization Act for Fiscal Year 2004 (Public Law 108-136) from the requirement to apply a price differential of 10 percent or $10 million.  The conferees expect the Secretary of Defense to utilize the price differential in the cost or price component of an evaluation under the pilot program, but understand that cost or price alone is not determinative in a best value competition. 

The conferees note that the Department of Defense Appropriations Act for Fiscal Year 2005 (Public Law 108-257) [Wifcon Note:  The citation of this public law appears to be in error] includes a provision that would require the Department to ensure, in fiscal year 2005, that a public competitor is not disadvantaged by the offer of a private competitor to reduce costs by reducing health care benefits for its employees and that the Department must conduct a competition, including an agency tender, a most efficient organization plan, and a formal cost comparison for any function performed by 10 or more civilian employees.

The conferees direct the Comptroller general to review the implementation and impact of the Appropriations provision with regard to health care costs and competition of small agency functions.  The Comptroller General's review should also address the full range of benefits provided by public and private sector employers, the manner in which these benefits are considered in a public-private competition, the impact of any benefit changes on employees who transition to private sector employment as a result of a public-private competition, and steps that could be taken to ameliorate any adverse impact of such a transition.

The conferees direct the Comptroller General to provide a preliminary report on this review to the congressional defense committees by no later than May 1, 2005, and a final report by no later than three months after the end on fiscal year 2005.