After the activities are identified, all government work (or activities) is categorized as "commercial" or "inherent governmental." The distinction being that commercial activities could be performed by contract employees while inherently governmental activities must be done by government employees. Examples of inherently governmental activities include binding the U.S. in contract, interpreting regulations, and writing governmental policies.

Once an activity is identified as being commercial, it must be classified according to OMB's nine reason codes, "A" through "I." Reason codes "A", "B", and "C," described below, are most important.

ReasonCode	Description
A	Indicates a commercial activity that "must" be retained in-house due to policy issues. The two most common examples for reason code "A" are: 1) Core Capabilities - core specialized employees that are needed to ensure mission responsibilities and emergency requirements; and 2) Personal Services Contracts - contracts that establish a close employer-employee relationship such as a manager and his or her assistant.
B	Indicates commercial activities that have 11 or more FTEs at each location that a contractor could perform. However, before a contractor may be permitted to do any specific reason code "B" activity, a formal A-76 study is required. This study compares the cost of government's most efficient organization (MEO) to the cost of the best contractor's bid. If the contractor's costs save the government over 10 percent over cost of the MEO, the activity is contracted out; otherwise, the activity is retained-in-house. Therefore, having an activity classified as a reason code "B" does not necessarily mean it will be contracted out.
C	Indicates a commercial activity where a decision as to who should perform the work is not primarily a cost-based decision. Thus, a cost comparison or be directly converted to contractors. Reason code "C" is also used for commercial activities that have 10 or fewer FTEs at a specific location.

Fiscal Year 2001 Inventory

Commercial Activities: Reason Code "A" FTEs 3.8 %   Reason Code "B" 370 FTEs 2.1 %   Reason Code "C" 500 FTEs 2.9 %   Subtotal 1,539 FTEs 8.8 % Inherently Governmental   15,940 FTEs 91.2 %   TOTAL 17,479 FTEs 100.0% As shown, only 8.8 percent of Customs activities are considered commercial. The other 91.2 percent of Customs activities are inherently governmental.

How does the FAIR Act affect me?
Per OMB instructions for fiscal year (FY) 2002 performance, agencies are required to "compete or convert" 5 percent of all their commercial activities (reason codes A, B, and C). For FY 2003, OMB has increased this to 10 percent. Therefore, considering the requirements for FY 2003, Customs must "compete or convert" 10 percent of commercial activities or 154 FTEs (10% of the 1,539 FTEs shown in the above table). Customs is actively involved in developing plans to accomplish these goals and determining which of our commercial activities should be reviewed. Since it is only possible to contract for commercial activities in reason codes B and C (no reason code A's can be included), only approximately 5 percent of Customs 17,574 FTEs are subject to this review and possible conversion.

The ultimate goal of the FAIR Act is to achieve a leaner and more efficient government by having both government employees and the contractors do what they do best.

If you need more information, the commercial part of Customs fiscal year 2001 inventory is published in the Federal Register and on Treasury's Web site. You may also check out OMB's Web site for the A-76 circular and other associated information. Finally, if you want to get the full picture of the FAIR Act, you can find the full text by searching Title 31 USC Section 501.