Government Business
Nonpersonal Services Rule in Federal Contracting
By Eric Aserud
May 19, 2005, 14:33

In Installment 46 we discussed federal outsourcing, more specifically the issues related to the FAIR Act and OMB Circular A-76. The Bush administration is pushing for even more aggressive outsourcing in the years to come. Recently, the administration proposed new rule changes in this area (which we'll talk about in an upcoming installment).

Yet as outsourcing expands -- with more and more contractor "behinds" filling government employee seats -- there's a fundamental rule that stands alone in the corner, rigid, refusing to loosen up and join the party. The rule, known as the nonpersonal services rule, says that government shall not directly supervise the work of contractor employees. A NASA Glenn Space Center directive explains it this way:

In compliance with the Federal Acquisition Regulation (FAR) and the NASA/FAR Supplement (NFS), Glenn will not enter into contracts for 'personal services'.... As defined in the FAR, a personal service contract exists when there is an 'employer-employee relationship.' This relationship occurs when contractor employees are subject to the supervision, control, or continuous direction of Government employees.

Factors indicating the existence of a personal services contract:

1. Performance on site.
2. Principal tools and equipment furnished by the Government.
3. Services are applied directly to the integral effort of agencies or an organizational subpart in furtherance of assigned function or mission.
4. Comparable services, meeting comparable needs, are performed in the same or similar agencies using civil service personnel.
5. The need for the type of service provided can reasonably be expected to last beyond 1 year.
6. The inherent nature of the service, or the manner in which it is provided, reasonably requires directly or indirectly, Government direction or supervision of contractor employees in order to--
   • Adequately protect the Government's interest;
   • Retain control of the function involved; or
   • Retain full personal responsibility for the function supported in a duly authorized Federal officer or employee.

The nonpersonal services rule, though fundamental, is one of the most widely violated rules in all of government contracting. Some say part of the problem is that the rule isn't realistic anymore (if it ever was). One commentator put it this way:

[W]hen you have contractor and direct hire personnel working side by side doing the same and similar work, lines of authority and responsibility will always get blurred. Due to expediency and the human factor of trying to get things done in the simplest and quickest fashion, providing direction seems to always trump evaluation against a generalized and vague statement of work.

Building Walls

Don't be surprised if we see FAR changes in the next year that loosen the nonpersonal services rule. But until that day arrives, the problems will likely get worse. Agencies are attempting to deal with the problem by (of course) establishing guidelines. In a recent report, the NASA Office of Inspector General stated:

NASA needs to properly balance the two seemingly conflicting goals of increased outsourcing and compliance with regulations. This balance is best achieved by establishing adequate separation of the functions performed by civil servants and contractors.

So what are the guidelines agencies adopt to TRY to achieve "adequate separation"? The following are examples recently issued at Glenn:

1. Ensure that direct secretarial support to individual civil servants (e.g., branch chiefs or division chiefs) is NOT provided by contractor employees, unless an unforeseen event prevents obtaining civil servant support for a secretarial position.
2. Broadly define the type of services required and expected output, rather than number of people required, when developing statements of work for service contracts. To the extent possible, activities shall be identified in such a manner that contractor personnel bear total responsibility for the process and the product. Work assignments shall express "what" is required rather than "how" the assignments are to be accomplished.
3. Ensure that contractor employees are managed by contractor management, and that contractor management has the autonomy to deal effectively with their employees and implement corporate practices.
4. Ensure that, to the maximum extent practicable, civil servants and contractor personnel are not located in the same offices or intermingled in open space environments.
5. Ensure that contractor personnel are not located in the outer offices of civil servant managers or supervisors.
6. Avoid placing undue influence on contractors.
7. Address task performance issues through Contractor Management and Government contract management personnel.
8. Ensure that office space occupied by their personnel is clearly labeled with the name of the company.
9. Ensure, to the extent practicable, that external correspondence signed by contractor employees is on company letterhead. Internal correspondence, including e-mail and memoranda, must include the name of the company in the signature line or in another clearly identifiable location.
10. Ensure that their onsite personnel, when receiving or placing telephone calls, identify their employer, in addition to whatever other appropriate greeting is used.
11. When participating in meetings with Government and/or other contractor employees, ensure that their personnel properly identify themselves as contractor employees so that their actions will not be construed as acts of Government officials.

In some offices, the attitude is "To heck with the rules; just do what works." In some instances, that's probably okay. When there are immediate needs, the walls of separation may have to come down for a short time. The FAR rules themselves acknowledge and allow for that.

But if the problem is widespread and constant (i.e., it's hard to tell the difference between government employees and contractor employees), you might have a problem on your hands, especially if the auditors decide to come knocking.

More Information

Matter of Encore Management, Inc., B-278903.2
http://www.contracts.ogc.doc.gov/cld/rd/gao/B-2789032.html

Personal vs. Nonpersonal Services, State Department
http://www.statebuy.gov/opehelp/brochpsc.htm

NASA, Glenn Research Center Policy Directive
http://www.grc.nasa.gov/WWW/Directives/5137_1.htm

NASA Procurement Information Circular, February 21, 2001
http://www.hq.nasa.gov/office/procurement/regs/pic01-03.html

"Agencywide Use of Support Service Contractors at NASA," December 2000
http://www.hq.nasa.gov/office/oig/hq/inspections/g-00-016.pdf

FAR 37.104 - Personal services contracts
http://www.arnet.gov/far/loadmainre.html