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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

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Congressional Research service (CRS)

 

Insourcing Functions Performed by Federal Contractors: Legal Issues

Kate M. Manuel, Legislative Attorney

Jack Maskell, Legislative Attorney

February 22, 2013

http://www.fas.org/sgp/crs/misc/R41810.pdf

[full-text, 26 pages]

 

Summary

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 112th 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.

 

Contents

Introduction ...................................................................................................................................... 1

Background ...................................................................................................................................... 1

Legal Issues ..................................................................................................................................... 4

Administrative Procedure Act and Insourcing Guidelines ........................................................ 5

Jurisdiction of the Federal District Courts or the Court of Federal Claims ......................... 6

Prudential Standing ........................................................................................................... 10

Expired Contracts and Mootness ....................................................................................... 12

Whether Particular Guidelines Are Binding ...................................................................... 14

Constructive Termination or Breach of Requirements Contracts ............................................ 15

Civil Service Laws and Limitations on “Direct Hires” ........................................................... 17

Ethics Laws and the Activities of Former Contractor Employees ........................................... 18

Small Business Law ................................................................................................................ 20

Congressional Actions ................................................................................................................... 21

 

Contacts

Author Contact Information........................................................................................................... 23

 

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