Public Law Limitations on Privatization of Government Functions
Paul R. Verkuil∗
I. Introduction ................................................................................................................................. 2
II. The Public-Private Distinction: Its Historical and Constitutional Roots ................................... 4
A. Constitutional Connections to the Public-Private Distinction ............................................... 8
1. The Rise and Fall of “Affected with a Public Interest” .................................................... 10
2. Public Functions and Process Limits ................................................................................ 13
B. New Property and the Old Bureaucracy............................................................................... 15
C. The Present State of the Public Interest ............................................................................... 17
III. Privatization, Nondelegation and Due Process....................................................................... 20
A. Private Nondelegation.......................................................................................................... 20
B. Nondelegation, Subdelegation and Discretionary Acts........................................................ 24
1. Nondelegable Duties of Government................................................................................ 25
2. The Subdelegation Act...................................................................................................... 26
3. The Role of Discretion, Politics and Oaths....................................................................... 28
4. State Action and Inherent Functions................................................................................. 31
IV. Delegation of Public Power to the Private Sector .................................................................. 32
A. Standard Setting Organizations as Private Legislatures ...................................................... 33
B. Contracting Out and the Circular A-76 Process................................................................... 37
1. Contracting Out and the Military...................................................................................... 40
2. The Public-Private Distinction and Airport Security........................................................ 45
V. Administrative Challenges to Privatization Decisions Involving Inherently Governmental
Functions....................................................................................................................................... 48
A. Economic and Political Considerations Involving Inherent Government Functions........... 49
B. Challenging Outsourcing Determinations............................................................................ 51
The Lessons of the Seafood Inspector Challenge ................................................................. 53
C. The Crucial Role of GAO .................................................................................................... 55
D. Structuring a Viable Administrative Review Process.......................................................... 58
VI. Judicial Challenges to Improper Privatization of Government Agencies .............................. 60
VII. Connections and Conclusions ............................................................................................... 64
∗
Professor of Law, Cardozo Law School, Yeshiva University. I would like to thank the participants in the February
18, 2005 Cardozo/Michigan Conference on Contracting Out at the National Academy of Public Administration and
the Harvard Law School Conference on Government by Design on March 23-24, 2005 for their insightful
comments. In addition, Jody Freeman, Dan Guttman, Michael Herz, Gillian Metzger, Martha Minow, Sallyanne
Payton, Steven Schooner, and Kevin Stack offered valuable comments and encouragement. Daniel Austin Green,
Cardozo Law 2006, provided careful research assistance.
1
I. Introduction
The relationship of government to the private sector is very much in flux these days.
Pressures are building to privatize more and more government functions and the federal civilian
bureaucracy is shrinking in alarming proportions to its oversight responsibilities.1 Today there
are many more private contractors doing the work of government than federal employees to
supervise them.2 In a way this accountability imbalance reflects the triumph of two forces: the
deregulation movement that reduced the number of government regulatory programs; and the
privatization movement, which outsources government activities to the private sector. While
privatization has been part of government management since the post World War II period,3 its
acceleration to the limits of accountability is a relatively recent phenomenon.
Privatization is different from deregulation. The latter concept assumes that government
intervention in the economy is inefficient or counterproductive.4 Privatization, on the other
hand, accepts the need for the government activity, but sees advantages to shifting it to private
hands. Thus privatization, unlike deregulation, is less concerned with the amount of government
1
There are currently less than 1.9 million civilian employees of the federal government (excluding the post office).
In 1990 there were over 2.25 million. At the Department of Defense, civilian employment was virtually cut in half
during the 1990-2003 period. See OPM, Federal Civilian Workforce Statistics, The Fact Book (2004 ed.), at 8. Of
course not all employees are equal in importance, but this trend is also reflected in the size of the Senior Executive
Service. See note 261, infra.
2
See Paul C. Light, THE TRUE SIZE OF GOVERNMENT 1-3 (1999) (“shadow” government consists of 12.7 million full
time equivalent jobs). The ratio of private contractors to public employees is now over 6 to 1, but the more
significant deficit is in the reduction of top level government officials, such as contracting officers and the Senior
Executive Service, who have seen their numbers drop as their contracting oversight responsibilities have grown. See
note 261, infra.
3
See Dan Guttman, INHERENTLY GOVERNMENT FUNCTIONS: THE LEGACY OF 20TH CENTURY REFORM 1-8 (2004).
4
For example, airline regulation by the Civil Aeronautics Board. Of course, not all deregulatory actions are
permanent and “reregulation” often follows deregulation. See JEFFREY HARRISON, THOMAS D. MORGAN, & PAUL R.
VERKUIL, REGULATION AND DEREGULATION 16-19 (2d ed. 2004). See also Alfred C. Aman, Jr., THE DEMOCRACY
DEFICIT 93-97 (2004) (describing various kinds of legislative delegation to the market).
2
expenditures than with where responsibility for the activity is placed.5 In fact, the size of
government, viewed as a percentage of GDP, could well grow in a privatized environment, as it
has during the Bush Administration.6
Privatization is like deregulation in supporting a belief that the market will improve the
services provided by a monopolistic bureaucracy. The privatization movement flourished under
the reinventing government movement of the Clinton-Gore Administration.7 But it also
complements President Bush’s vision of an “ownership society” in that privatization enhances
the private sector’s role in the provision of many traditional government services, much like
private accounts are supposed to do for social security.8 The reality is that our government could
not function without contracting out some of its services; the questions are how many and how
far.
Moreover, stating a preference for private over public solutions has unintended
consequences. While privatization vindicates the long held view in our society that private
enterprise is a superior organizing principle it also challenges competing principles that emanate
from an equally robust belief in public sector values. Privatization’s persuasiveness over the last
decade has increasingly brought into question the reality of those values. Thus, at the heart of
the privatization (and to some extent the ownership society) movement is whether “public sector
values” continues to be an equally viable social concept. Stated alternatively, is the publicprivate distinction, which has been a part of law and constitutional theory since the beginning of
5
See discussion infra note 83.
6
See discussion infra note 223.
7
See discussion at notes 71-73.
8
See David E. Rosenbaum, Bush to Return to ‘Ownership Society’ Theme in Push for Social Security Changes, N.Y.
TIMES, Jan. 16, 2005, at 17.
3
the Republic, a principle still worth preserving in an era of enthusiastic if not rampant
privatization?
This article is directed at the relationship of public law to privatization. It defines the
public-private distinction and then asks whether it still matters in constitutional theory and, if so,
whether its presence poses limits to the privatization movement. Even accepting that
privatization is here to stay, however, does not mean that public law values should not be
incorporated into the contracting out process.
It is this process that then becomes the focus. Longstanding practice forbids the
contracting out of “inherent government functions.” But the current pro-privatization
environment makes it more difficult to achieve these limits. The article seeks to level the
playing field for the preservation of inherent government functions through application of both
constitutional and statutory techniques, in particular the Subdelegation Act. Finally, the article
explores OMB’s A-76 contracting out process in detail so as to understand and critique the
realities of current procurement policy.
The goal of this effort is to balance two positives—efficiency and accountability—in a
way that confirms rather than threatens our legal and political traditions. The suggestion is that
government has the power to achieve greater oversight from institutions already in place (like the
General Accountability Office (GAO)) as well as from Congressional formulations that embrace
a reinvigorated conception of public sector values.
II. The Public-Private Distinction: Its Historical and Constitutional Roots
American law and society has long divided along lines “public” and “private”. In
society, these words have been invoked to separate public discourse from private conversation,
4
in an effort to foster civic engagement.9 But the line between them remains ambiguous and
contested. Neil Smelzer has noted that “the private-public distinction constitutes a political
strategy in and of itself.”10 It is an effect a political choice on makes in defending or attacking
the public order. Alternatively, as Michael Taggart has stated, “the public/private divide…has its
roots in liberalism,”11 which means its force in our society ultimately derives from the
Constitution. This connection highlights the distinction’s legal dimension.
In law, calling an activity “public” justifies governmental action. The concept of “public
law” has existed since the time of Justinian.12 It helps demark the relationship of the individual
to the state. In the Anglo-American legal tradition,13 public law has been translated into
expressions of the “public interest,” which seek to justify the role of (and limitations upon)
government. But in the liberal democratic state any sustained expression of the public interest
draws skeptics because of its self-fulfilling characteristics. Many also believe that, per Adam
Smith, the exercise of self (private) interest may even be said to represent the public interest.14
9
See PUBLIC DISCOURSE IN AMERICA 7-10 (Judith Rodin & Stephen P. Steinberg eds., 2003).
10
Neil Smelzer, A Paradox of Public Discourse and Political Democracy, in PUBLIC DISCOURSE IN AMERICA, supra
note 9, at 178-179.
11
THE PROVINCE OF ADMINISTRATIVE LAW 4 (Michael Taggart ed., 1997).
12
Justinian’s Digests read as follows: “There are two branches of legal study: public and private law. Public law is
that which respects the establishment of the Roman commonwealth, private that which respects individual’s
interests, some matters being of public and others of private interest.” 1 THE DIGESTS OF JUSTINIAN § 1 (Theodor
Mommesen, et al. eds., Penn Press 1985).
13
Public law in common law America and England is far less well developed then in civil law Europe. However,
various public law doctrines have been incorporated in our system of administrative law. See RICHARD J. PIERCE,
JR., SIDNEY A. SHAPIRO & PAUL R. VERKUIL, ADMINISTRATIVE LAW AND PROCESS § 1.1 (4th ed., 2004). See also
ADAM TOMPKINS, PUBLIC LAW (Oxford 2003) (describing the development of English public law).
14
See, e.g., Charles Silver & Frank B. Cross, What’s Not to Like About Being a Lawyer? 109 YALE L.J. 1443, 1479
(2000) (arguing that private sector lawyers, by pursuing their self-interest, make an “enormous contribution to social
welfare”).
5
As a result, notions of private interest have always competed for legitimacy in our system. When
the public interest is defined in rule of law terms,15 its potential circularity is less problematic.
Since the New Deal, government has been the acknowledged trustee of the public
interest, however defined. New Deal agencies were empowered to protect the “public interest,
convenience, and necessity” with little attempt to cabin its scope. The post New Deal period,
culminating in the Reagan “revolution” sought to curtail broad public interest justifications and
that spirit emanates the current administration. Indeed, much of the Bush Administration’s focus
on the ownership society has been directed not only at Social Security reform, but at the
underlying values of the New Deal itself.16 Seen in this light, the privatization movement is
simply another technique for antiquing notions of the public interest.
Of course trying to define what in law is “private” is no less complicated. As the
definition in Justinian’s Digests implies,17 the line between public and private continually shifts.
Private law traditionally encompassed the common and statutory law of contract, torts and
property that regulates relations among individuals.18 But since the law itself is a public act, to
consider any legal regime truly private takes a leap of faith.
15
See Paul R. Verkuil, Understanding the ‘Public Interest’ Justification for Government Actions, 39 ACTA
JURIDICA HUNGARICA 141, 150 (1998) (seeking to define the public interest in rule of law terms). [hereinafter
Verkuil, Understanding Public Interest].
16
See, e.g., Paul Krugman, The Fighting Moderates, N.Y. TIMES, Feb. 15, 2005 (“it takes an act of willful blindness
not to see that the Bush plan for Social Security is intended, in essence, to dismantle the most important achievement
of the New Deal”).
17
See Justinian’s Digests, supra note 12, noting that some matters of private law can be of public interest and
dividing private law into a tripartite structure, including natural law, the law of nations and civil law.
18
For a good discussion of the public-private distinction as it relates to English common and public law, see
MARTIN LAUGHLIN, THE IDEA OF PUBLIC LAW 6, 77-80 (2003).
6
Additionally, in modern societies otherwise private relations are often umpired and
regulated by government.19 And the Constitution can expand the private category through
definitions of property or privacy, thereby inhibiting the role of government.20 Especially in a
civil society like ours, which is characterized by “deliberative democracy,”21 we can expect the
legal definition of private and public to ebb and flow based on the preferences of interest groups,
political parties and the views of the judiciary.
When government is delegating public powers to private hands, as when it “privatizes”
regulatory activity, the impact on the public interest is hard to measure.22 To some degree,
making public actions “private” through an act of delegation validates the close connection
between these two concepts. On the other hand, the inevitable transfer of power to private hands
raises the question whether the “public regarding” mechanisms for fair deliberation and
accountability come with the delegation. If the rule of law is what ultimately distinguishes
liberal society from its despotic alternatives,23 then process values have enduring political
19
See, for example, the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621-634 (1988 & Supp.
2000), which displaces “private” tort remedies with government regulatory programs.
20
For example, the First Amendment in separating church and state insures a “private sector” for religion. And the
Due Process Clause can also cover even larger notions of privacy. See Lawrence v. Texas 539 U.S. 558 (2003)
(holding that consensual and private sex acts may not be reached by sodomy laws); cf. Katherine M. Franke, The
Domesticated Liberty of Lawrence v. Texas, 104 COLUM. L. REV. 1399 (2004) (asserting that the case announces a
“privatized liberty right”).
21
See David M. Ryfe, Deliberative Democracy and Public Discourse, in PUBLIC DISCOURSE IN AMERICA, supra
note 9, at 40, 43 (comparing deliberative democracy to individual rights and social choice theories and noting that
many Americans prefer “political privatization”); see also RICHARD POSNER, LAW, PRAGMATISM AND DEMOCRACY
(2004) (expressing generally critical views of deliberative democracy).
22
The question of privatization becomes the political one of how far “the individualization of judgments about what
constitutes public value” can or should go in our society. Mark H. Moore, Introduction to Symposium, Public
Values an Era of Privatization, 116 HARV. L. REV. 1212, 1218 (2003) (discussing the left-right politics of the
privatization debate).
23
The dividing line between democracy and fascism consists of some limits upon the merger of the public and
private sectors. See ROBERT O. PAXTON, THE ANATOMY OF FASCISM 11 (2004) (in fascism, “an individual has no
rights outside the community interest”).
7
meaning. Fairness in procedures, indeed legalism itself, is a core philosophical tenet. As Stuart
Hampshire has argued, it may be a basic condition of human nature.24 Delegations to private
hands in our society come with strings attached that ensure fairness at the individual level and
accountability at the political level. No debate about public versus private values can ignore
these inherent conditions of the liberal state.
A. Constitutional Connections to the Public-Private Distinction
The Constitution employs the words “public” and “private” repeatedly.25 But their use in
the Just Compensation Clause of the Fifth Amendment26 makes the decisive point. It both
guarantees the existence of private property and limits the extent to which government may
commandeer (or “publicize”) such property.27 This clause characterizes the constitutional limits
implicit in the public-private distinction. By second guessing what may be made public and
what can be retained as private, the Clause becomes a mediating instrument.
24
Stuart Hampshire makes a powerful case for “adversarial thinking” as a constraint on human nature. See STUART
HAMPSHIRE, JUSTICE IN CONFLICT 4, 12 (2000). In the privatization setting the issue becomes whether procedures
will be transferred along with delegated duties. See discussion at notes 97-99, infra.
25
The Constitution uses the word “public” in several ways: “public money,” art. I, § 9; “public acts,” art. IV, § 1;
“public danger,” amend. V; “public debt,” amend. 14, § 4. While the word “private” is not attached to “property” in
the Due Process Clause of the Fifth and Fourteenth Amendments, its presence is to be assumed. It should be noted
that the word property may not mean the same thing in these different constitutional contexts. See Thomas W.
Merrill, The Landscape of Constitutional Property, 86 VA. L. REV. 885, 893, 954-56 (2000); see also E. Enters. v.
Apfel, 524 U.S. 498, 557 (1998) (Breyer J. dissenting) (“[Property] appears in the midst of different phrases with
somewhat different objectives, thereby permitting differences in the way in which the term is interpreted.”).
26
U.S. CONST. amend. V: “…nor shall private property be taken for public use, without just compensation.”
27
The Court has left it largely to Congress or state legislatures to decide what is a public use. See Hawaii Housing
Authority v. Midkiff, 467 U.S. 229 (1984) (state); Berman v. Parker, 348 U.S. 26 (1954) (federal). See generally,
Errol E. Meidinger, The “Public Uses” of Eminent Domain: History and Policy, 11 ENV. L. REP. 1 (1980).
8
Of course, the “public use” doctrine is not model of clarity. While the doctrine raises
both state and federal constitutional issues, it has been largely interpreted by state courts.28
When County of Wayne v. Hathcock held that there were public use limits upon the transfer of
private property to other private rather than public hands,29 the Michigan Supreme Court
renewed the classical definition. Hathcock’s limitations upon public use not only preserved the
public-private distinction but they lent support to a process-based limitation upon the privatizing
of public functions. 30 When the Connecticut Supreme Court, in Kelo v. City of New London, 31
permitted transfers of public property to private developers, it rejected the public private
distinction. But these cases only show how contentious the concept is. If the Supreme Court
upholds the Kelo decision, the public use debate will not end. Rather, as Stuart Sterk has
shown,32 it will simply confirm the underlying federalism values at stake. The public use debate,
like the public-private distinction it mirrors, will continue. For our purposes here, that is enough.
28
See County of Wayne v. Hathcock, 684 N.W.2d 765 (Mich. 2004) (holding condemnation for a business park fails
the public use test); Kelo v. City of New London, 843 A.2d 500 (Conn. 2004), cert. granted, 73 U.S.L.W. 3204
(U.S. Sept. 24, 2004) (No. 04-108) (holding economic development an acceptable public use under federal and state
constitutions).
29
See 684 N.W.2d at 786-87 (overruling earlier Poletown decision).
30
The Hathcock court limited the condemnation of private property for transfer to private hands under the public use
doctrine to situations where there was (1) public necessity; (2) public oversight; and (3) a public concern. See 684
N.W.2d at 781-83. Each of these limitations gives meaning to the concept of public use.
31
843 A.2d 500 (Conn. 2004), cert. grant’d., 125 S. Ct. 27; see discussion at note 28, supra.
32
See Stewart E. Sterk, The Federalist Dimension of Regulatory Takings Jurisprudence, 114 YALE L.J. 203, 222-26
(2004) (explaining the confused results in takings cases as an (overlooked) function of federalism).
9
The public-private distinction emerges from the natural rights liberalism of John Locke,33
the philosopher of the Glorious Revolution who influenced our Constitution drafters.34 The
emergence of separate realms of public and private was an essential condition of the Eighteenth
century liberal democratic state.35 The public use requirements of the just compensation clause
endorse this concept of limited government. At some level, liberal democracy becomes a theory
about what can be made public.36 When sovereignty is in the people, the political “sovereign” is
the source of delegated, not inherent, powers, and those not so granted remain private rights.37
1. The Rise and Fall of “Affected with a Public Interest”
The public-private distinction was tested in the 19th Century with the rise of capitalism.
For example, public charters which had been granted by government to provide protection for
33
Social contract theorists from Locke to Rawls have understood the role of government in civil society to be a
limited and consensual one. For Locke, the purpose of government (commonwealth) was the preservation of private
property and the civil society. But he talks about the need for the ruler to act for the “public good.” JOHN LOCKE,
TWO TREATISES OF GOVERNMENT 124, 164 (Thomas P. Peardon ed. 1952) (1690); see J. RAWLS, A THEORY OF
JUSTICE (1970). One difference between Locke and Rawls, however, is that Locke accepts that there is a “public
body” that has a right to preserve itself, whereas Rawls’s liberalism rejects the notion of political society as a
community. See PETER JOSEPHSON, THE GREAT ACT OF GOVERNMENT—LOCKE’S USE OF CONSENT 12 (Kansas
2002).
34
Locke’s influence on the Constitution and the Declaration of Independence is well established. See GORDON
WOOD, CREATION OF THE AMERICAN REPUBLIC 1776-1787 14 (1969) (showing how American colonist “borrowed
promiscuously” from John Locke, among others); see also Mistretta v. United States, 488 U.S. 361, 420-21 (1989)
(Scalia, J., dissenting) (quoting John Locke on nondelegation of legislative powers).
35
Behind Locke lay Benedict Spinoza, who perceived the need to create a public-private dichotomy from the
prospective of a religious minority. See STEPHEN NADLER, SPINOZA’S HERESY (Oxford 2002). The motivation for
his political philosophy was the “theologico-political problem,” the resolution of which required the separation of
church and state. STEVEN B. SMITH, SPINOZA, LIBERALISM, AND THE QUESTION OF JEWISH IDENTITY (1997); Steven
B. Smith, On Leo Strauss’s Critique of Spinoza, 25 CARDOZO L. REV. 741, 751 (2003).
36
See, e.g., WILHELM VON HUMBOLDT, THE LIMITS OF STATE ACTION (1852) (J.W. Burrow ed. 1969). Von
Humboldt’s classic work, which inspired John Stuart Mill’s On Liberty, focused on the need to restrain government
activity as a means of preserving individual freedom.
37
This analysis reflects the purpose of the Ninth and Tenth Amendments which speak of rights “retained by” or
“reserved to” to the people. See U.S. Const. amends. IX & X.
10
monopolies were challenged by new enterprises eager to enter these restricted markets.38 The
Supreme Court distinguished private corporations from public and guaranteed Contracts Clause
protection for new enterprises.39 The corporate identity itself—by expanding the concept of
limited liability—helped make capital formation easier and more accessible. As Professor
Epstein has noted, incorporation conferred “upon corporations and their shareholders a privilege
against the world that they could not obtain under the usual rules of property, contract and
tort.”40 In this way the government used public law to expand private enterprise.
At the same time, the concept of businesses “affected with a public interest” permitted
state governments to regulate private monopolies that had grown to dominate commerce without
the benefit of government charters. Chief Justice Waite’s decision in Munn v. Illinois41 traced
the public interest concept to English law,42 which permitted judicial control of monopoly power
in private hands from the earliest times. 43
38
See Charles River Bridge v. Warren Bridge, 36 U.S. 420 (1837) (holding Contract Clause cannot be used to
protect existing state chartered bridges from new competition); see also Henry N. Butler, Nineteenth Century
Jurisdictional Competition in the Granting of Corporate Privileges, 14 J. LEG. STUDIES 129, 138-40 (1985)
(discussing abuses of the special charter system).
39
See Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat) 518 (1819) (explaining that the state cannot
abrogate grant to a private corporation by public action of reincorporation); see RICHARD EPSTEIN, BARGAINING
WITH THE STATE 107 (1993) (emphasizing importance of limited liability to the growth of the economy).
40
Id.
41
Munn v. Illinois, 94 U.S. (4 Otto) 113 (1876) (maximum rate regulation of grain elevators).
42
See Munn, 94 U.S. at 124-25; see also MARTIN LOUGHLIN, THE IDEA OF PUBLIC LAW, 77-80 (2003) (describing
the emergence of the public-private distinction in English law and by historical roots of American law as well).
43
The common law had “from time immemorial” subjected “common carriers” to absolute to liability when they
exercised their economic powers in classical monopoly ways. Hackmen, Ferrymen, Wharfmen, Innkeepers and the
like had economic control over commerce that rendered them common rather than private carriers. See generally
SIR MATHEW HALE, THE HISTORY OF COMMON LAW OF ENGLAND (C.M. Grey ed 1971). The category of common
carriers was tied to the shifting sands of monopoly power. O.W. Holmes questioned whether there should be a
special liability rules for all common carriers but reserved some room for a special classes, such as railroads, which
then possessed monopoly power. See O.W. HOLMES, THE COMMON LAW 155-62 (1881) (Mark DeWolf Howe ed.
1963). The Civil Rights Cases, 103 U.S. 3, 37-38 (1883), focused on the public use aspects of Munn to justify
federal antidiscrimination legislation held unconstitutional in that case. See Paul R. Verkuil, Privatizing Due
Process, 57 ADMIN. L. REV. ___ (forthcoming, 2005) [hereinafter, Verkuil, Privatizing Due Process].
11
By the decade after Munn, public responsibilities for regulating private enterprise also
turned to the bureaucratic methods for doing so. The “spoils” system of government,
characterized by the administration of Presidents Jackson and Grant, had by 1883 yielded to a
legal regime which sought to bring competency, efficiency and integrity into the public service.44
This development gave rise to a concept of government oversight and accountability which
added a procedural dimension to the public interest concept.
The professionalization of the civil service,45 the affected with a public interest concept
of regulation and the rule of law are all related. To regulate in the public interest, professional
administration is required and procedures must be honored. Thus the definition of the public
interest is constrained by the rule of law.46 As noted earlier, Stuart Hampshire’s view of justice
as process helps both to constrain and to legitimate public over private activities.47
The private exercise of economic power abusively remains a continuing basis for
government intervention. Even during the era of Lochner v. New York,48 when regulation based
on the public interest was viewed skeptically, the monopoly based theory of public interest
regulation underlying Munn was not disturbed.49 In constitutionalizing the private interests
44
See Civil Service Act, 22 Stat 403 (1883). For a thorough analysis of the civil service reform period of the late
19th Century, see WILLIAM E. NELSON, THE ROOTS OF AMERICAN BUREAUCRACY 1830-1900, at 119-25 (1982).
45
Professor Nelson attributes the creation of the term “civil service” to British reformers. Id. at 119. The connection
of “civil service” to “civil society,” mentioned earlier, is apparent.
46
See Verkuil, Understanding Public Interest, supra note 15, at ___ (explaining the historical concept of public
interest in rule of law terms).
47
See discussion at note 24, supra.
48
198 U.S. 45 (1905).
49
Of course, the regulation of monopoly had been granted statutory status in the Sherman Act after the Munn
decision, which permitted direct regulation to support if not supplant “affected with a public interest” regulation.
Also, in 1887, the Interstate Commerce Commission established rate regulation as a bureaucratic goal. See Nelson,
supra note 44, at 130-133
12
protected by liberty of contract,50 Lochner achieved a “merger” of public with private interests.
When the premises of Lochner were ultimately rejected by a more skeptical Court, the
monopoly-based definition of affected with a public interest was oddly rejected.51 Maybe, as
Professor Horwitz has argued,52 the fault lies with the Legal Realists, who debunked the idea of a
truly private sector that the courts could protect from regulation. But once the public interest
concept was loosed from its historical moorings in Nebbia, it became just another legal fiction.53
As such it was fair game for critics of the public-private distinction.
2. Public Functions and Process Limits
The New Deal also bears responsibility in this regard. It used the public interest concept
“liberally” to subject all kinds of unregulated private enterprises to government control.54 An
invigorated bureaucracy virtually transformed government’s relationship to the private sector,
50
See David A. Strauss, Why Was Lochner Wrong? 70 U. CHI. L. REV. 373, 374-75 (2003) (Lochner’s error was in
exalting liberty of contract). But see Richard A. Epstein, The Perils of Posnerian Pragmatism, 71 U. CHI. L. REV.
639, 654-55 (2004) (challenging Strauss’ views on Lochner); Richard A. Posner, Pragmatic Liberalism Versus
Classical Liberalism, 71 U. CHI. L. REV. 659, 661 (2004) (assailing Epstein’s desire to make “freedom of contract
the supreme constitutional principle”).
51
See Nebbia v. New York, 291 U.S. 502 (1934) (permitting state regulation of retail milk prices and effectively
undermining the monopoly-based limitation upon the “affected with a public interest” concept).
52
See Morton Horwitz, The History of the Public-Private Distinction, 130 PENN. L. REV. 1423 (1982). But see Cass
R. Sunstein, Lochner’s Legacy, 87 COLUM. L. REV. 873, (1987) (reaffirming Lochner’s assumption about neutrality
of the common law in the state action context).
53
See generally, JEFFREY L. HARRISON, THOMAS D. MORGAN & PAUL R. VERKUIL, REGULATION AND
DEREGULATION, chaps. 2 & 4 (2nd ed. 2004). Verkuil, Understanding Public Interest, supra note 15, at 146-50
discussing ways in which the public interest is still evoked.
54
See Verkuil, Understanding Public Interest, supra note 15 at ____ (listing various New Deal agencies whose
mandate was to regulate in “the public interest, convenience and necessity”). See also JAMES M. LANDIS, THE
ADMINISTRATIVE PROCESS 41 (1938) (describing the virtues of regulatory agencies); MICHAEL J. SANDEL,
DEMOCRACY’S DISCONTENT 250-55 (1996) (comparing the NRA to other New Deal regulatory initiatives).
13
and government service became a creative enterprise .55 Regulation in the public interest, in
tautological fashion, transmuted into a statement of whatever a government agency defined it to
be. Also during this period, the extensive use of governmental corporations helped extend public
control over private enterprise.56 At the same time, the notion of “yardstick” competition57
(spawned by entities like the Tennessee Valley Authority)58 gave to government an
entrepreneurial role previously the province of the private sector.
These aggressive forays into public interest regulation led to greater calls for procedural
regularity. The fear was that the administrative state would overwhelm the rule of law and
jeopardize the underlying premises of the liberal democratic state.59 The 1946 enactment of the
Administrative Procedure Act is a testament to these concerns.60
The “public function” doctrine emerged under the Due Process clause during this period.
In cases like Smith v. Allright61 and Marsh v. Alabama62 the Supreme Court extended “state
55
The New Deal made the bureaucracy a challenging profession precisely because its powers could be exercised so
creatively. See P.H. IRONS, THE NEW DEAL LAWYERS (1982) (documenting the career paths in government of top
law school graduates). See also, THE JOURNAL OF DAVID E. LILIENTHAL – THE TVA YEARS 1939-1945, 10-12, 549
(1964) (discussing author’s years at Harvard Law School and his relationship to Felix Frankfuter).
56
See Lebron v. National Railroad Passengers Corp., 513 U.S. 374, 394 (1995) (Scalia, J.) (describing the New Deal
as the “heyday of those corporations”).
57
See Jeffery L. Harrison, Yardstick Competition: A Prematurely Discarded Form of Regulatory Relief, 53 TUL. L.
REV. 465 (1979).
58
See generally, David E. Lilienthal, supra note 55.
59
Roscoe Pound, as chair of the American Bar Association Committee to Create the Administrative Procedure Act,
was the most persuasive advocate of the New Deal’s penchant for “administrative absolutism.” See 63 A.B.A.
Report 339-46 (1938); See generally, Paul R. Verkuil, The Emerging Concept of Administrative Procedure, 78
COLUM. L. REV. 260, 268-70 (1978) (discussing the New Deal’s challenges to established notions of the rule of
law).
60
See Verkuil, id. at 270-72 (describing the battle between the procedural conservatives and the regulatory liberals
that led to the compromise of the APA).
61
321 U.S. 649 (1944) (conduct of elections is a public function); See also Terry v. Adams, 345 U.S. 461 (1953)
(same); see Gillian Metzger, Privatization as Delegation, 103 COLUM. L. REV. 1367, 1422-24 (2003) (describing
public functions) [hereinafter Metzger, Privatization].
14
action” status to private actors when they performed functions normally reserved to
governments. Echoing Munn, these cases essentially designated monopolistic private entities
like company towns as ones “affected with a public interest.” The exercise of monopoly power
by these private entities became, as the grain elevators in Munn, the justification for exercise of
public control. State action statues provided due process nexus to exercise of private power.
Procedures again became the means for achieving accountability and public oversight.
While the Court has continued to recognize that the public function test tracked the
monopoly concerns behind the public interest rationale for regulation,63 it ultimately gave up the
quest for an adequate definition.64 Since both the “public function” and “public interest” tests
suffer from definitional weaknesses, the Court remains hesitant to give them legal force. But
they still capture broad legal and social concerns and cannot be dispensed with altogether.
Moreover, even while the Court demurred on the merits of the public-private debate, it still
demanded process controls that reflect the rule of law values behind the distinctions in the first
place. This is the focus of the next section.
B. New Property and the Old Bureaucracy
62
326 U.S. 501 (1946) (“company” town performs public functions and is subject to First Amendment control).
63
The monopoly distinction was raised by the Court in Flagg Brothers v. Brooks, 436 U.S. 149, 162 (1978) when it
distinguished the private monopoly in Marsh from the wide number of choice debtors and creditors have pursuant to
the state self-help statute in Flagg. Professor Metzger has also connected the state action cases to the Court’s earlier
concerns with private delegations in cases like Carter Coal. See Gillian Metzger, supra note 61, at 1444 (noting this
as a link the Court has failed to make).
64
See, e.g., Jackson v. Metropolitan Edison Co., 419 U.S. 345 (1974) (regulation of private utility is not “state
action” under the due process clause of the 14th Amendment). See also Verkuil, Privatizing Due Process, supra note
43 (describing the state action pullback led by Jackson).
15
The emergence of the concept of “new property”65 in the 1960s placed the administration
of government programs under increased judicial scrutiny. The New Deal notion of government
as a neutral and benign dispenser of privileges, rather than as a potentially biased provider of
rights, was deconstructed.66 Ironically, it was the expansion of benefit programs begun in the
New Deal that ultimately tested the limits of due process based procedures. Once subjected to
judicial scrutiny, many actions of government were exposed as arbitrary or even irrational. Faith
in bureaucracy inevitably waned,67 along with the underlying public interest rationales for the
regulatory programs themselves.68 In a way, Goldberg v. Kelly69 did to government control of
public property what Lochner v. New York had done for government control of private property.
But Goldberg could no more sustain itself than Lochner could. The Supreme Court soon limited
the application of the due process clause and the state action doctrine.70
However, when bureaucratic decisionmaking became synonymous with inefficiency,
alternative decision models emerged. Spurred on by productivity goals that were sweeping the
65
Charles Reich, The New Property, 73 YALE L. J. 733 (1964). See William Van Alstyne, The Demise of the
Right—Privilege Distinction in Constitutional Law, 81 HARV. L. REV. 1439 (1968). As Professor Van Alstyne
showed, the demise of right-privilege meant an expansion of due process protection for certain kinds of property. In
effect the public-private distinction was expanded to include formerly discretionary actions of government.
66
This same discontent with the provision of public services occurred in England as well. See David Faulkner,
Public Services, Citizenship and the State – the British Experience 1967-97, in PUBLIC SERVICES AND CITIZENSHIP
IN EUROPEAN LAW (Mark Freedland & Silvana Sciarra, eds.) (2004), at 34-37.
67
But see JERRY L. MASHAW, BUREAUCRATIC JUSTICE: MANAGING SOCIAL SECURITY DISABILITY CLAIMS (1983)
(advocating alternatives to adversary decisionmaking); See also Paul R. Verkuil, The Self-Legitimating
Bureaucracy, 93 YALE L.J. 780 (1984) (endorsing Mashaw’s search for an “internal” administrative process).
68
Compare Daniel R. Ernst, Law and State, 1920-2000, in CAMBRIDGE HISTORY OF LAW IN AMERICA 33-34
(Michael Grossberg & Christopher L. Tomlins, eds., forthcoming 2004) (documenting through the work of James
Landis the later disaffection with New Deal versions of bureaucracy).
69
397 U.S. 254 (1970) (constitutionalizing adversary-type welfare procedures).
70
See Verkuil, Privatizing Due Process, supra note 43 (describing the judicial retrenching on due process and state
action after Goldberg).
16
private sector,71 government was increasingly viewed as inefficient and bloated.72 By the 1990s
President Clinton had announced that the “era of big government was over” and Vice President
Gore’s Reinventing Government initiative began downsizing government employment.73 The
public interest was soon equated with the efficiency standards of privately based market
mechanisms.
Not surprisingly, trust in government hit new lows in public opinion polls during this
period and “bureaucracy” became a pejorative term.74 The deregulation movement merged with
privatization and the concept of “deregulating the public service” was born.75 That the phrase
had been misconstrued (it was meant to “free” government employees to be more effective, not
to turn over all functions of government to the private sector76) hardly seemed to matter.
“Privatization” and “public and private partnerships” had joined “deregulation,” and “self
regulation” as terms used to explain and applaud the transfer of public powers to private actors.77
C. The Present State of the Public Interest
71
“TQM” and “reengineering” were favorite concepts. See DAVID OSBORNE & TED GABLER, REINVENTING
GOVERNMENT: HOW THE ENTREPRENEURIAL SPIRIT IS TRANSFORMING THE PUBLIC SECTOR (1992).
72
See Paul R. Verkuil, Reverse Yardstick Competition: A New Deal for the Nineties, 45 FLA. L. REV. 1 (1993)
(documenting government efforts to privatize during the Reagan, Bush I and Clinton administrations) [hereinafter
Verkuil, Reverse Yardstick].
73
Paul Verkuil, Is Government Efficiency an Oxymoron?, 1994 DUKE L. J. 1221 (1994).
74
See CHARLES T. GOODSELL, THE CASE FOR BUREAUCRACY, Ch. 1 (4th ed. 2004) (discussing the controversial
nature of bureaucracy).
75
See DEREGULATING THE PUBLIC SERVICE – CAN GOVERNMENT BE IMPROVED? (John J. DiIulio, ed 1994).
76
See Paul A. Volcker & William F. Winter, Introduction: Democracy and Public Service, in id. at xi – xvii. The
authors state: “Unfortunately, the phrase deregulating the public service invites possible confusion…we are talking
about pruning overgrown government personnel regulations that make it exceedingly difficult to attract talented
people into public service….” The authors conclude “…effective public service is essential to our democracy.”
77
See generally, HARRISON, MORGAN & VERKUIL, supra note 4, at ch. 5.
17
The success of these movements has created a new political reality. Today there are few
limits on the exercise of public functions by private contractors and less than two million federal
civilian employees do most of the work of the government.78 President Bush still hopes to
“privatize” 850,000 of the remaining civilian employees.79 Some view this development as
further demonstration of a bloated bureaucracy.80 But continued contraction of the civil service
does not bode well for the public interest. Oversight and accountability cannot be accomplished
without public officials to do the job. Soon it may not be entirely facetious to ask, when the last
government employee leaves, will she please turn out the lights.
In a way, our society has come full circle – from an early time when civil society
struggled to emerge, to a period when the liberal state established separate realms of public and
private, to the time when government became virtually indispensable, to the present, when most
things government does can be trumped by the private sector. For one who was enthusiastic
about the “reinvention” of government a decade ago,81 the success of the movement is stunning.
But it also poses a dilemma. Can one applaud the efficiency based achievements of privatization
while now questioning its long term consequences? Privatization’s very success raises new
questions much like those the Legal Realists asked concerning the merging of private and public
78
The number of civilian employees does not include the Post Office, which accounts for almost 900,000 positions.
See Volker & Winter, supra note 76 at 118 (charting government employees over the decades).
79
See Geoffrey F. Seagal, Realizing the President’s Management Agenda, TECH CENTRAL STATION, July 27, 2004
(extolling “public-private competitions where public employees complete with the private sector to determine the
best source of service delivery”). See discussion at notes 168-169, infra.
80
See Stephen Goldsmith and William D. Eggers, Government for Hire, N.Y.TIMES, Feb. 21, 2005, at A21;
GOVERNMENT BY NETWORK: THE NEW SHAPE OF THE PUBLIC SECTOR (2004) (arguing for improved government
management over increased contracting out of public sector jobs).
81
See Verkuil, Reverse Yardstick, supra note 72, at 10-12.
18
sectors.82 The concern now is that the delegation of government functions to private hands
threatens the independent role of government and its rule of law values. This is not an issue of
size of government, for government’s share of GDP has grown during the Bush
Administration.83 It is more an issue of quality of government – how to retain public values in
an increasingly privatized world. The alarming reality is that the number of key government
officials, those who are presidential appointees or members of the Senior Executive Service has
remained static, or even declined, even while their oversight responsibilities have grown
dramatically with the outsourcing (and downsizing) of government generally.84
But the public’s love-hate relationship with government may once again be flipping.85 In
the post 9/11 world,86 the public is increasingly recognizing that government is needed both to
define and oversee new responsibilities.87 Moreover, Social Security reform has alerted the
public to the downside of privatization. The Bush Administration now views the term itself as a
liability.88 As the government is achieving renewed credibility, a new balance may be emerging.
82
See notes 51-53, supra, and accompanying text. The Legal Realists were concerned about the public sector being
merged out of existence by substantive private norms (such as liberty of contract); the present “merger” involves the
private sector supplanting both public functions and public norms of administration.
83
What privatization does not involve is a shrinking in the size of government. See Floyd Norris, infra note 223
(describing how the government share of GDP has risen under the Bush administration).
84
There are only about 500 presidential appointees (excluding ambassadors) and another 1,000 Schedule C (policy
determining) officials. See US OPM, Office of Workforce Information, Political Appointments by Type and Work
Schedule (Sept. 2001). There are about 6,000 members of the SES. See note 261, infra.
85
Compare JAMES O. FREEDMAN, CRISIS AND LEGITIMACY—THE ADMINISTRATIVE PROCESS AND AMERICAN
GOVERNMENT (1978) (documenting the American love-hate relationship with bureaucracy).
86
THE 9/11 COMMISSION REPORT 395 (2004), available at http://www.9-11commission.gov/report/911Report.pdf.
87
See Symposium, Public Values in an Era of Privatization, 116 HARV. L. REV. 1211 (2003) (raising this question).
See generally JOHN A. ROHR, TO RUN A CONSTITUTION 180-184 (1986) (documenting the role “public
administration” plays in implementing the Founders’ Constitution).
88
See Mr. Bush’s Two Big Ideas, N.Y. TIMES, Feb. 3, 2005, at A26, noting that President Bush no longer uses the
term “privatized” in connection with Social Security because “polls showed that the American people reacted badly
to the concept.” See also Steven Kelman [cite].
19
Language that can rally political forces around the idea of public responsibility for public acts is
much to be desired.89
If privatization has reached its limits, a core question arises: are there “inherent
functions”90 of government that cannot be delegated? It is no easier to answer this question than
it was to determine what businesses are affected with a public interest, what private actions are
public functions, or what property transfers amount to public use.91 But some exercises of
public authority in the liberal state are maybe so fundamental as to be undelegable, or at least not
delegable without continuing governmental oversight. The public-private distinction won’t go
away – it continues to assume limits on the transfer of political power to private hands.
III. Privatization, Nondelegation and Due Process
Sometimes constitutional theories are held in reserve until needed. The threat of
privatization to standard assumptions about public control of decision authority is of recent
origin. It may be time to assert a basis for constitutional oversight of decisions to transfer public
power to private hands. This is the place to do so.
A. Private Nondelegation
Challenges to the transfer of public power to the private sector start with the
nondelegation doctrine. Nondelegation seeks to cure the unchecked transfer of legislative power
89
See Jody Freeman, Extending Public Law Norms Through Privatization, 116 HARV. L. REV. 1285 (2003)
[hereinafter Freeman, Public Law Norms] (using the term “publicization” as a counterpoint to “privatization”).
90
See discussion of OMB Circular A-76 infra Part IV.B.
91
See discussion infra Part IV.B.1 (discussing the interrogation of prisoners in Iraq).
20
to the Executive, one of the favorite “excesses” of the Lochner era.92 Professor Metzger has
shown that nondelegation remains connected to the evolution of the public-private distinction.93
Still, the doctrine in its traditional guise has few friends.94 However, the doctrine, adapted to the
needs of our time, has continuing vitality. For example, Professor Merrill proposes jettisoning
the nondelegation doctrine in favor of an “exclusive delegation doctrine” which focuses solely
on whether Congress has acted, not how carefully it has acted.95 This variation on the
nondelegation theme is a creative adjustment to political and constitutional realities.
The privatization question, as phrased by Professor Metzger, is not so much whether
Congress can delegate legislative power (or in Professor Merrill’s terms whether it has delegated
its power) to the Executive, but whether government (either Congress or the Executive branch)
can further delegate that power to the private sector, and, if so, under what conditions. In
addition to the exclusive delegation doctrine, this inquiry presents the two faces of the
nondelegation doctrine—its Article I and its due process dimensions, along with the exclusive
delegation doctrine.
92
The traditional nondelegation of Article I power cases are A.L.A. Schechter Poultry Corp. v. United States, 295
U.S. 495 (1935) and Panama Refining Co. v. Ryan, 293 U.S. 388 (1935). In Schechter, Justice Cardozo’s
concurrence about “delegation running riot” is the classic formulation of the non delegation of legislative power
position. 295 U.S. at 553. See DAVID SCHOENBRUM, POWER WITHOUT RESPONSIBILITY (1995) (praising the
nondelegation doctrine).
93
After extensively reviewing the cases, Professor Metzger concludes that the “private delegation doctrine” is a
casualty of the post-Lochner era. But she also views this as a possible road not taken by Congress or the courts. See
Metzger, Privatization, supra note 53, at 1441-43; see also Freeman, Public Law Norms, supra note 81.
94
See Eric Posner & Adrian Vermeule, Nondelegation: A Post-Mortem, 70 U. CHI. L. REV. 1331 (2003). But see
David Schoenbrod, Symposium, Delagation and Democracy: A Reply to my Critics, 20 CARDOZO L.REV. 731 (1999)
(on unreconstructed non delegation). Gary Lawson, Discretion as Delegation: The “Proper” Understanding of the
Nondelegation Doctrine, 73 GEO. WASH. L. REV. 235 (2005) (arguing for a middle road on nondelegation that
reconciles the competing camps).
95
See Thomas W. Merrill, Rethinking Article I, Section I: From Nondelegation to Exclusive Delegation, 104
COLUM. L. REV. 2097 (2004) [hereinafter Merrill, Exclusive Delegation].
21
The traditional nondelegation case of Carter v. Carter Coal96 is the place to start. The
Bituminous Coal Conservation Act97 established “districts” wherein a district board elected by
coal operators and unions would set wages binding upon all coal producers. For Justice
Sutherland and the Carter Coal majority “this is legislative delegation in its most obnoxious
form; for it is not even delegation to an official or an official body, presumptively
disinterested.…”98 The Court held the delegation arbitrary under Article I of the Constitution
and the due process clause of the Fifth Amendment.99 The delegation failed under Article I
because transferred the legislative power to set wages and it failed under due process because
there was no public oversight of the exercise of private power. But these two dimensions were
redundant. As Louis Jaffe suggested in his analysis of Carter,100 “we might drop the word
delegation completely, at least as indicating a constitutional category and regard the question
simply as one of reasonableness within the due process clause.”101
Professor Jaffe, as perceptive about administrative law as anyone, saw that due process
had the staying power to become the face of the delegation doctrine that would survive
federally.102 Indeed, much later, Professor Tribe noted that “the judicial hostility to private
96
298 U.S. 238 (1936); see also Michael Fromkin, Reinventing the Government Corporation, 1995 U. ILL. L. REV.
543 (1995) (discussing the Carter Coal doctrine).
97
49 Stat. 991 (1995), 15 U.S.C. §§801 et seq. (1936).
98
298 U.S. at 311.
99
Id .
100
See also Louis L. Jaffe, Lawmaking by Private Groups, 51 HARV. L. REV. 201-248, (1937) [hereinafter, Jaffe,
Private Lawmaking]. See also Metzger, Privatization, supra note 61, at 1443-44 (relating the private lawmaking
point to delegation issues).
101
As Jaffe noted, this is presumably what must be done when the Court is confronted with a state regulation. See
Jaffe, Private Lawmaking, id. at 204.
102
Indeed, it is possible to explain the Panama and Schechter cases in due process terms. If one uses Justice
Cardozo’s dissent in Panama and concurrence in Schechter as touchstones, the presence of express state regulatory
control over “hot oil” in Panama (through the Texas Commission) provides a due process rationale that was missing
22
lawmaking . . . represents a persistent theme in American constitutional law.”103 Though federal
nondelegation arguments based on separation of powers are rarely successful,104 the due process
dimensions of nondelegation still apply to federal and state regulatory schemes.105 Even under
the exclusive delegation theory propounded by Professor Merrill, which rejects the traditional
nondelegation doctrine, there is room for Professor Jaffe’s due process approach.106 Professor
Merrill argues that the nondelegation doctrine does not distinguish between private or public
delegatees despite Carter Coal; but he offers several alternative arguments, including due
process, that might constrain delegations to private parties.107 Thus both Merrill and Jaffe offer
an alternative to separation of powers nondelegation theory that can muster a judicial majority.
in the purely privately promulgated NIRA Code at stake in Schechter. The latter situation is much closer to that in
Carter Coal. Admittedly, Justice Cardozo focused less on due process than Interstate Commerce in his concurrence.
But it was the breathtaking scope of the NIRA, dealing as he said with the “welfare of the nation” that galvanized
him. See ANDREW KAUFMAN, CARDOZO 508-10 (1998) (noting that it was Cardozo’s Panama dissent he was most
proud of).
103
See LAWRENCE H. TRIBE, AMERICAN CONSTITUTIONAL LAW 993 (3d ed. 2000) [hereinafter TRIBE,
CONSTITUTION].
104
See American Petroleum Ass’n v. EPA, 531 U.S. 457 (2001) (rejecting a nondelegation challenge). See
generally Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984) (delegating legal questions to the agencies where
congress has not resolved the issue directly). See TRIBE, CONSTITUTION, supra note 103, at 993-96.
State constitutional analysis, by contrast, still emphasizes the separation of powers aspect of nondelegation. See,
e.g.,. Texas Boll Weevil Eradication Foundation, Inc. v. Lewellen, 952 S.W. 2d 454 (Texas 1997) (challenging
delegation to a private foundation, certified by commissioner of Agriculture, establishing eradication zones, assessed
growers and destroyed crops of non-paying growers). See also Jim Rossi, Overcoming Parochialism: State
Administrative Procedure and Institutional Design, 53 AD. L. REV. 551, 562 (2001) (twenty states endorse a
rigorous nondelegation doctrine).
105
Professor Tribe believes the due process aspect of nondelegation is stronger as a challenge to state legal regimes.
See TRIBE, CONSTITUTION, supra note 103, at 983. The procedural due process cases which led to the demise of the
right-privilege distinction apply to federal and state regulatory schemes. See note 55, supra.
106
See Merrill, Exclusive Delegation, supra note 95, at 2166 (reserving the due process aspects of delegation while
jettisoning the Article I (“intelligible principle”) dimension.
107
Professor Merrill offers a “three branch” constraint that would seem to limit private delegations. Id.
23
Of course, due process theory can only control private delegations through procedural
constraints on the exercise of private power.108 Certainly, as Professor Metzger argues, private
delegations with process attached facilitates public oversight and accountability.109 However,
the idea of inherent governmental functions implies something more powerful—constitutional
limits on government delegations or subdelegations that cannot be satisfied procedurally. The
constitutional limits on the delegation of public powers are not well articulated. The publicprivate distinction only introduces the question by dividing functions into separate realms that
neither the nondelegation doctrine nor the exclusive delegation doctrine can address directly.
B. Nondelegation, Subdelegation and Discretionary Acts
Once an inherent government power is identified, can it be delegated at all?
Nondelegation, even in its Article I face, is about process. It requires that Congress create
“ascertainable standards” for the Executive branch to follow, but does not forbid the delegation
ab initio.110 Professor Merrill’s exclusive delegation theory simply asks the Court to find an
express grant of delegated or subdelegated power before permitting the delegation. And the
most Carter Coal’s due process constraint accomplishes is to provide procedural mechanisms for
government officials to use in overseeing the exercise of private power. But certain government
functions are so fundamental as to be nondelegable. These acts of government must be public in
that their exercise is bound to officials, like the President, who have taken an oath to uphold the
108
See Mathews v. Eldridge, 424 U.S. 319 (1976) (creating a balancing of interests test to evaluate procedures).
109
See discussion at notes 61-65, supra.
110
Of course, there is a nice question whether a rigorously enforced nondelegation doctrine would ever permit
Congress to delegate, since it may be unable politically to satisfy such a strict test. In this way, nondelegation
transmutes itself into a form of substantive due process. See PIERCE, SHAPIRO & VERKUIL, supra note 13, at ___.
24
Constitution.111 To this extent, the public-private distinction cannot be erased. But calling some
government acts nondelegable has a know it when you see it quality – it does not decide specific
cases. Just what are the functions of government that cannot be privatized?
1. Nondelegable Duties of Government
To conceptualize a theory of nondelegable duties does not operationalize it. Whatever
one thinks about the nondelegation doctrine, we can all agree with Justice Scalia that Congress
cannot hand the legislative power to the President and adjourn sine die.112 By a parity of
reasoning, the President cannot turn the executive power over to the Vice President and retire in
office.113 These are examples of clearly nondelegable duties of office under the Constitution.
But how far beyond them does the inherent limitation on delegation go? Presumably, important
powers exercised by Cabinet officials and other principal officers are “inherent” and must be
exercised by those who have taken an oath to uphold the Constitution.114 Thus the Secretary of
Defense cannot delegate the power to conduct the war in Iraq to the Rand Corporation any more
than the Attorney General can leave it to private (rather than “special”) counsel to decide when
111
See U.S. CONST. Art. VI § 3 (requiring Oaths or Affirmations to support the institution of all federal and state
legislative, executive and judicial officers. See also Webster v. Doe, 486 U.S. 592 (1988) (Scalia, J., dissenting)
(concluding that taking the oath to uphold the Constitution sometimes allows executive officials “to perform that
oath unreviewed”); discussion at notes 134-135, infra.
112
See Mistretta v. United States, 488, U.S. 361, 415 (1989) (Scalia, J. dissenting) (“Our members of Congress
could not, even if they wished, vote all power to the President and adjourn sine die.”) Justice Scalia’s Mistretta
dissent also noted that some duties of legislators, such as voting on bills can’t be delegated. Id. at 425. Justice
Scalia also calls the Sentencing Commission a “junior-varsity Congress” (id. at 427); one wonders whether he might
apply the same pejorative to private legislative delegatees such as standard setting organizations. See discussion at
notes 145-149, infra. See also TRIBE, CONSTITUTION, supra note 103, at 982 (the legislative power as a whole are
not transferable).
113
Cf. Peter L. Strauss & Cass Sunstein, The Role of the President and OMB in Informal Rulemaking, 38 ADMIN. L.
REV. 181 (1985) (questioning the Vice President’s role in overseeing the rulemaking process).
114
Duties by principal officers are nondelegable both because of the oath or affirmation requirement, see note 111,
supra, and because of the Senate’s Advice and Consent function in Article II. In effect, any officer confirmed by the
Senate owes a duty both to the President and to the Congress to perform her responsibilities directly.
25
to prosecute.115 In these situations, the core responsibility is both to exercise and to oversee the
exercise of government powers. Stated more broadly, the duty to be accountable for public
decisions is not a function delegable to those outside government.
2. The Subdelegation Act
Some power to delegate within government is necessary to make the system work, since
even though the President embodies the Executive power under Article I, he cannot carry out all
his duties directly. Realizing this, Congress long ago gave the President the power to delegate.
Under the Subdelegation Act,116 delegations can be made without further legislation. But these
delegations have limits: they can only be made to Officers of the United States. While the Act
delegates to the President the unrestricted power to further delegate without legislative authority,
it has never been challenged on nondelegation grounds.117 The Subdelegation Act also fits the
exclusive delegation theory posited by Professor Merrill.118 The idea that the President needs to
115
See Young v. United States, ex rel. Vuitton et Fils S.A., 481 U.S. 787, 802-09 (1987) (attorney general’s duty to
be disinterested disqualified a private attorney from presenting a violation of court order).
Of course the Attorney General’s constitutional control of litigation for the United States has to be reconciled
with qui tam suits that permit private parties to represent the government in certain circumstances. See, e.g., The
False Claims Act, 31 U.S.C. §§ 3729-33. These actions have been available since the beginning of our
constitutional period, but their anomalous nature still raises nondelegation questions under Article II’s Appointments
and “take care” clauses. See Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765,
778 n. 8 (2000) (Scalia, J.) (upholding the False Claims Act against an Article III challenge, but reserving the
question as to Article II). See also FEC v. Akins, 524 U.S. 11, 34-37 (1998) (Scalia, J., dissenting) (citizen attorney
general provisions of Act may violate the President’s Article II requirement of “faithful execution” of the laws).
116
3 U.S.C. §§301, 302 (permits delegation by the President to any official required to be appointed by and with the
advice and consent of the Senate, unless affirmatively prohibited by Congress).
117
See Eric Posner & Adrian Vermeule, Nondelegation: A Post-Mortem, 70 U. CHI. L. REV. 1331, 1335 (2003)
(“But to our knowledge no one has ever suggested that the subdelegation act violates the Constitution….”). And
since the subdelegations are limited to public officials, they would not involve the Carter Coal variations on the
nondelegation doctrine. See notes 99-102, supra.
118
The virtue of Professor Merrill’s exclusive delegation approach is that it removes any concerns about
standardless delegations under the Subdelegation Act. See Merrill, Exclusive Delegation, supra note 95, at 2179.
But on the exclusive delegation theory the existence of some statutory delegation, rather than implied executive
authority to subdelegate, is essential. See id. at 2175-76.
26
delegate to his cabinet officials or other officers of the United States recognizes the realities of
modern government. In other words, the reason Harry Truman had a “the buck stops here” sign
on his desk was that he had to pass the buck before it returned to him. The Subdelegation Act
understands this imperative and grants the Executive branch extensive authority to organize the
Administration.119
But the Act contains both a grant of and a limitation upon the Executive branch’s power
to subdelegate.120 By limiting such delegations to government officials, indeed to high
government officials, the Act denies the President authority to delegate to lesser public or to
private officials.121 This interpretation of the Act seems plain on its face and it questions
privatization programs that are not based on statutory grants.122 By this reading, one purpose of
the Subdelegation Act is to warn Congress when the Executive branch delegates its powers to
private parties. Under the Act, Congress can scrutinize these delegations in order to decide
whether they can be exercised. And if it approves, Congress can then approve subdelegations to
private hands through enabling legislation. This reading obviously gives the Act teeth, but it
does so in a manner consistent with the constitutional interests limiting delegations to private
hands earlier discussed.
119
The Subdelegation Act dates to the Reorganization Act of 1951, which in turn was based on the Hoover
Commission reorganization plan. See Comm. on the Org. of the Executive Branch of the Gov’t, The Hoover Comm.
Report on the Org. of the Executive Branch of the Gov’t 433-39 (1949).
120
Over the years the courts have limited subdelegations under this act. See Cudahy Packing Co. v. Holland, 315
U.S. 788 (1942); U.S. Telecom Ass’n v. FCC, 359 F.3d 554 (D.C. Cir. 2004) (limiting independent agency
delegation to state authority).
121
In U.S. Telecom, supra note 120, the court emphasized that “the cases recognize an important distinction between
subdelegation to a subordinate and subdelegation to an outside party.” 359 F.3d at 565.
122
See discussion at notes 244-46, infra, for an argument on the negative implications of the Subdelegation Act as it
applies to Executive Orders.
27
3. The Role of Discretion, Politics and Oaths
Ultimately, government officials exercise inherent and political powers that derive from
separation of powers principles. The well known formulation of Chief Justice Marshall in
Marbury v. Madison123 bears repeating in this regard:
By the constitution of the United States, the President is invested with certain
important political powers, in the exercise of which he is to use his own
discretion, and is accountable only to his country in his political character, and to
his own conscience. To aid him in the performance of these duties, he is
authorized to appoint certain officers, who act by his authority and in conformity
with his orders.124
The touchstone is the politically sensitive and discretionary nature of decisionmaking
about core decisions of government. As to these decisions, even Congress, which has the power
to assign most substantive delegations to Executive officials, is constitutionally limited in the
manner in which it can control the exercise of that power.125 But the genius of Marbury is that at
the same time it insolated political acts from judicial scrutiny, it also established the principles of
judicial review over government actions that affect individuals.126
A further implication of Marbury relates to the delegation (or privatization) issue. It
would follow that Marbury’s discretionary acts are also nondelegable ones. The President is
protected in his political powers personally (or as to designated appointed officers). But this
123
5 U.S. 137 (1803).
124
5 U.S. at 165-66.
125
The appointment and removal cases to plumb the depths of what is both inherent and not subject to congressional
control. See Myers v. United States, 272 U.S. 52 (1976) (holding even inferior officers –i.e. postmasters—free from
congressional removal); Humphrey’s Executor v. United States, 295 U.S. 602 (1935) (permitting congressional
removal restrictions for quasi-judicial officials). See also United States v. Perkins, 116 U.S. 483 (1886) (civil
service restrictions are constitutional). But the President cannot ignore congressional decisions to place political
power in the hands of specific cabinet officers. See Peter L. Strauss, Presidential Rulemaking, 72 CHI.-KENT L.
REV. 965 (1997) (president wields executive power within congressional constraints).
126
See Henry Monaghan, Marbury and the Administrative State, 83 COLUM. L. REV. 1 (1983) (describing the
judicial review imperatives of Marbury).
28
category must be limited to public officials. They cannot discharge those protected duties unless
they are, like him or her, oath takers. It is in this sense that executive privilege exists largely to
protect “the President against judicial intrusion into official acts.”127
The political discretion debate parallels the “discretionary function” exception in the
Federal Tort Claims Act.128 This provision is, in effect, a statutory expression of the limitations
upon judicial review of political functions that the executive branch performs.129 Discretionary
functions are sovereign functions that, under Marbury, the President cannot be held accountable
for at law.130 Government conduct driven by judgment or choice is immune from tort law if it
involves a policy making official.131 The higher the level, the broader the range of judgment and
the greater the need for discretion. By a parity of reasoning, if the executive official cannot be
held accountable, she cannot delegate that discretion to others who are not officials of
government. The higher the level of decision maker, the greater the need for that decider to be a
127
In Cheney v. U.S. Dist. Court for Dist. of Columbia, 124 S. Ct. 2576 (June 24, 2004), Vice President Cheney
claimed that receiving advice from the private sector for energy policy is protected by Executive privilege. And this
position was upheld. See In re Cheney, 406 F.3d 723 (D.C. Cir. 2005) (en banc), ironically even when the challenge
involved delegation of decision authority to the private sector on energy policy.
128
See 28 USC§ 2680(h) (limiting waiver of the sovereign immunity of the United States).
129
See 28 U.S.C. §§ 2674 et seq.
130
See Dalehite v. United States, 346 U.S. 15, 34 (1953) (cabinet level decision to initiate a fertilizer program that
led to a disastrous explosion). See also, e.g., Gager v. U.S. 149 F.3d 918, 921 (9th Cir. 1998) (holding the Postal
Service's decision not to provide universal training and supervision in mail bomb detection fell within discretionary
function exception because it involved judgment or choice on the part of postal officials); First Nat. Bank in
Albuquerque v. United States, 552 F.2d 370, 376 (10th Cir. 1977) (holding actions of government employees in
registering mercury fungicide for interstate sale and approving labeling of fungicide pursuant to Federal Insecticide,
Fungicide and Rodenticide Act fell within discretionary function exception).
131
See United States v. Gaubert, 499 U.S. 315, 319 (1991) (holding supervisory decision of the Home Loan Bank
Board to be within the discretionary function). Justice Scalia’s concurrence elaborates on the connection between
the level of decisionmaker and the scope of judgment or choice. Id. at 335.
29
government official. Candidates for this category would include not only cabinet officers but
perhaps all “Officers of the United States.”132
There is also a connection between the nondelegation of certain functions of executive
officers and judicial review under the APA. Under Section 701(a)(2), judicial review is not
available when actions are “committed to agency discretion by law.”133 The Court in Webster v.
Doe134 held that this provision denies review when statutory violations are asserted, but leaves
open the question whether review can also be denied when constitutional violations are asserted.
Justice Scalia’s dissent in Webster argues for the latter interpretation as well, but in so doing
assumes that these decisions, especially if unreviewable, must be made by federal officials who
have taken an oath to uphold the Constitution.135 Thus some government actors and therefore
some government actions must be taken by public not private officials for the “committed to
discretion” provision to apply. In this way, the public-private distinction has been maintained at
the highest levels of government.
Of course, conceptualizing a category of mandatory government actors is not the same
thing as identifying them on a personnel table.136 It is unclear how far this category should
132
See U.S. Const. Art. II, §§ 2,4. To the extent that officers of the Unites States are subject to the Advise and
Consent function, privatization of their duties would be offensive to the constitutional powers of two branches. See
note 114, supra.
133
5 U.S.C. § 701(a)(2).
134
See, e.g., Webster v. Doe, 486 U.S. 592 (1988) (section 102(C) of the National Security Act held unreviewable
under section 701(a)(2)). See generally Ronald M. Levin, Understanding Unreviewability in Administrative Law,
74 MINN. L. REV. 689 (1990).
135
Justice Scalia states:
In sum, it is simply untenable that there must be a judicial remedy for every constitutional violation.
Members of Congress and the supervising officers of the Executive Branch take the same oath to uphold
the Constitution that we do, and sometimes they are left to perform that oath unreviewed, as we always are.
Id. at 613.
136
It is possible, for example, for Congress to identify by list the “independent” regulatory agencies. 5 U.S.C. §
104. An example of one of these lists is contained in 44 U.S.C. § 3502 (5). Such a list of inherent government
officials does not exist unless one took the entire green book as text.
30
extend. The Subdelegation Act limits the delegatees it approves of in advance to Officers of the
United States. And Congress can extend that classification by specific legislation. While the
Supreme Court may be reluctant to define a category of officials with discretionary duties may
not be delegated to private hands beyond Officers of the United States,137 within that category
there should be no doubt about the restrictions on delegations to private parties. At this point
what might be called the real nondelegation doctrine nonetheless kicks in.138 The highly
judgmental task of exercising discretion remains largely in the hands of the political branches. It
surely does not rest with the private sector under even the most expansive notions of
privatization.
4. State Action and Inherent Functions
The question of nondelegable duties can also be viewed after the fact. When the
government permits some of its public duties to fall into private hands, the courts will second
guess the decision under constitutional standards. The public function test for state action139
labels some actions of private parties “governmental,” even while criticizing the idea that a
category of inherent government functions could be created.140 Moreover, even when it is
invoked, the state action concept does not limit the functions that government can delegate.
137
The total number of full time political appointees including presidential appointees with or without Senate
confirmation, non-career Senior Executives and Schedule C appointees is 1,847. See US OPM, Central Personnel
Data File (Sept. 2001).
138
I use the term nondelegation here to postulate a doctrine that forbids delegation to private hands, not the
traditional one that permits it if certain ascertainable standards or procedures are supplied.
139
See notes 61-63, supra, and accompanying text. Cf. 3 U.S.C. §§301, 302 (subdelegation act limits President’s
presumed power to delegate to Officers of the United States).
140
Justice O’Connor has stated “cases deciding when private action might be deemed that of the state have not been
a model of consistency.” See Edmonson v. Leeville Concrete Co. 500 U.S. 614, 632 (1991) (O’Connor J.,
dissenting).
31
Instead it “constitutionalizes” delegations that amount to the exercise of public authority.141 The
Court’s role is to prevent government from avoiding its constitutional responsibilities by the
private delegation device.
For example, in Lebron v. National Rail Passenger Corp,142 the Court held that Amtrak, a
government corporation, was for First Amendment purposes still the government and therefore it
could not impose content restrictions on advertising. Justice Scalia’s majority opinion made it
clear that government could not avoid its constitutional responsibilities by the delegation device
of a corporate charter.143 Lebron sets important limits upon the government’s ability to privatize.
It suggests that the Court will remain vigilant against legislative attempts to avoid public
responsibilities by the use of delegation techniques like corporate charters.
While the Court has not indicated it will entertain a restraint upon the delegation itself,
cases like Lebron introduce the possibility that judicial oversight will become available if
needed. Such a theory is nascent in Marbury, Webster v. Doe and the Subdelegation Act.
Moreover, a theory of nondelegation can provide a framework around which Congress can
structure limits on privatization. These limits emerge from the Subdelegation Act as a way of
preserving the public-private distinction. The next step is to explore some accepted as well as
controversial privatization decisions in order to probe the limits of this emerging concept of
exclusive delegation.
IV. Delegation of Public Power to the Private Sector
141
The state action cases determine when some private functions become public or sovereign acts. See, e.g.,
Richardson v. McKnight, 521 U.S. 399 (1997) (private prison guards subject to section 1983 liability).
142
513 U.S. 374 (1995).
143
“It surely cannot be that government, state or federal, is able to evade the most solemn obligations imposed in the
Constitution by simply resorting to the corporate form.” Lebron, 513 U.S. at 397.
32
Public powers have long been delegated to private hands in ways both traditional and
innovative. While many could have been chosen,144 two diverse examples should establish the
broad contours of the phenomenon; these are the use of standard setting organizations to produce
off the shelf legislative enactments and the practice of “contracting out” by the federal
government (including certain military functions and the “publicized” status of airport
screeners). These were chosen to show that both the legislative and executive branches have
experience with privatization and have approached the resulting oversight and accountability
problems from different perspectives.
A. Standard Setting Organizations as Private Legislatures
Privatization is not just the result of executive action, it is common to the legislative
process as well. Standard Setting Organizations (SSOs) provide standards of performance on
highly technical matters that stretch the deliberative limits and expertise of the legislative branch.
Both state legislatures and Congress have long delegated authority to these groups to initiate and
then incorporate these privately produced standards into law.
This practice is so accepted that its nondelegation aspects seem never to have been raised
constitutionally.145 In fact, the opposite often occurs – SSOs are given the equivalent of public
144
Other examples of privatization, such as welfare reform, health care provision and prison services have been well
explored elsewhere and that analysis will not be repeated here. See Metzger, Privatization, supra note 61; Freeman,
Public Law Norms, supra note 89. See generally Michael P. Vanderbergh, The Private Life of Public Law, 105
COLUM. L. REV. ___ (forthcoming 2005) (documenting the extensive interaction between private and public actions
especially in the area of environmental regulation).
145
The nondelegation doctrine has been concerned with the transfer of legislative power to the executive branch, see
notes 87-94, supra, not with the transfer of legislative power to private hands. Moreover, since the legislature enacts
the privately created standards, the delegation is in a sense cured by subsequent actions. The situation is different if
the legislation incorporates future changes to standards set by SROs without subsequent legislation. See Christopher
L. Sagers, Antitrust Immunity and Standard Setting Organizations: A Case Study in the Public-Private Distinction,
25 CARD. L. REV. 1393, 1411-12 (2004) (discussing state legislatures’ prospective adoption of ABA rules)
[hereinafter Sagers, Antitrust Immunity].
33
status by judicial immunities when their work is challenged under the antitrust laws.146 SSOs set
standards of performance for industries and professions through thousands of model codes that
are adopted (often in verbatim fashion) into federal, state and local law.147 This delegation of
legislative authority is done with the approval of the Supreme Court148 or under explicit
mandates of Congress149 and many state legislatures.150
To the extent the public interest in overseeing these private delegations is achieved, it is
done procedurally. Courts and legislatures seek to ensure that SSOs create standards through a
process that is open and inclusive. For example, the National Technology Transfer and
Advancement Act151 requires Executive branch agencies to use “voluntary standards” unless to
do so would be “inconsistent with law or otherwise impractical.” But the OMB circular
accompanying the Act seeks to ensure that “due process” standards are observed by SSOs.152
The requirement of procedures echoes the message of Carter Coal that delegation to private
146
See Sagers, Antitrust Immunity, supra note 145 (criticizing the expansive nature of antitrust and First Amendment
exemptions for SSOs). See also David Snyder, Private Lawmaking, 64 OHIO ST. L.J. 361 (2003).
147
See Sagers, id. at 1398-1401.
148
The opposition to SSOs in the Court has largely been due to antitrust, not delegation, concerns. See Allied Tube
& Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1998) (denying Noerr doctrine immunity to an SSO); see also
American Society of Mechanical Engineers v. Hydrolevel Corp., 456 U.S. 556 (1982) (SSOs not liable for antitrust
violation); Radiant Burners, Inc. v. Peoples Gas Light & Coke Co., 364 U.S. 656 (1961) (same). Compare Jody
Freeman, Privatization: Private Parties, Public Functions and the New Administrative Law, 52 ADMIN. L. REV. 813,
819-20 (2000) (confirming the judicial acceptance of SSOs).
149
For example, the Joint Commission on Accreditation of Health Organizations, composed of nongovernmental
representatives of private industry and professional associates, determines which healthcare providers may treat
Medicaid recipients. See Jody Freeman, The Private Role in Public Governance, 75 N.Y.U. L. REV. 543, 617-18
(2000).
150
See Sagers, supra note 145, at 1398 (collecting state laws incorporating private codes).
151
Pub. L. 104-113, 110 Stat. 775 (1995) (codified in various sections of 15 U.S.C.).
152
See Circular A-76 and the reports are available at http://www.whitehouse.gov/omb/index.html. See discussion at
notes 166-168, infra.
34
bodies can be accepted, indeed even encouraged, so long as there is some public check on their
exercise.153
Procedural control also comes from the application of the antitrust laws, as was indicated
above. SSOs that set standards for industry behavior could be engaging in anticompetitive
conduct—perhaps a group boycott or price fixing under the antitrust laws. To protect them from
those threats, the courts provide a safe haven from antitrust scrutiny in two ways: through
application of the Noerr-Pennington immunity154 at the federal level or the Midcal immunity155
at the state level. Midcal “state supervision” is really a procedural requirement—it is designed to
ensure that the resulting standard, otherwise a restraint on trade, is both intended by the state and
then kept within bounds established by the state.156 These limitations require SROs to foster
openness by including non-industry or public members and to consider views of outsiders. The
Noerr case is less concerned with process, but it does protect SROs from antitrust liability if they
are considered petitioners under the First Amendment.
At the federal level, the recently enacted Standard Development Organization
Advancement Act of 2004157 provides an explicit protection against antitrust damages for entities
153
See discussion at notes 96-101, supra. Whether the procedures outlined by OMB would qualify as due process if
they are challenged by those affected is another matter altogether. See discussion at notes 58-60, infra, raising
questions about the judicial review of decisions under the Technology Transfer Act.
154
See Eastern R.R. Presidents’ Conf. v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961); United Mine Workers v.
Pennington, 381 U.S. 657 (1965) (applying First Amendment to anticompetitive actions seeking legislation).
155
The immunity test is whether the SSO sets standards pursuant to (1) clearly articulated state policy and (2)
whether that policy is actively supervised by the state. Cal. Retail Liquor Dealers Assn v. Midcal Aluminum Inc,
445 U.S. 97, 105 (1980).
156
See Mass. School of Law v. ABA, 107 F 3d 1026 (3d Cir. 1997) (holding restraints on limiting access to the state
bar exam to ABA accredited law schools protected by the First Amendment petitioning immunity).
157
Pub. L. 108-237, 108th Cong; 2d Sess, 118 Stat. 661 (2004) to be codified as amendments to the National
Cooperative Research and Production Act, 15 U.S.C.§§ 4301-05. See also the National Cooperative Research and
Development Act; OMB Circular A-119 (supplementing the act).
35
under its regime. R&D efforts and joint ventures are entitled to rule of reason and single
damages protection if they register with the Department of Justice or the Federal Trade
Commission. The mere fact of registration certainly implies transparency and offers the further
opportunity for government oversight. Both of these conditions would appear to foster
government accountability over private entities.158 Immunity from antitrust for private
regulatory bodies has been explicitly connected to the presence of due process procedures. In
Silver v. New York Stock Exchange159 the Court introduced the idea that antitrust immunity for
stock exchanges could depend upon whether the self-regulatory body disciplined members
consistent with due process. The Silver case reflects the same concept at the federal level that
Midcal’s state supervision requirement requires at the state level.160 Both are inspired by Carter
Coal’s admonition that the exercise of delegated public power by private bodies must be done
fairly and with some degree of public oversight.
The due process principles contained in the Technology Transfer Act and the antitrust
immunity cases show that government is unwilling to abdicate its public role without some
assurances of transparency and accountability. In today’s devolutionary world, however, the
158
In a related context, OMB has implemented the Information Quality Act, Pub. L. No. 106, § 515 (2001), by
providing for peer review of information produced by agencies for public consumption. See Proposed Bulletin on
Per Review and Information Quality, 68 Fed. Reg. 54023 (Sept. 15, 2003). While peer review fosters government
accountability, the OMB procedures have been criticized for not going far enough. See Sidney A. Shapiro, OMB’s
Dubious Peer Review Procedures, 34 ENVTL. L. REP. 10064 (2004) (OMB criticized for exemption peer review
procedures from the Federal Advisory Committee Act).
159
373 U.S. 341 (1963). But see Northwest Wholesale Stationers, Inc. v. Pacific Stationary & Printing Co., 472
U.S. 284 (1985) (“the absence of procedural safeguards can in no sense determine antitrust analysis”). The latter
case reflects a hesitation by the Supreme Court against turning the antitrust laws into a surrogate procedural law for
private organizations.
160
The FTC has issued a report that brings “due process” requirements to the “active supervision” requirement of
Midcal. See FTC Office of Policy Planning, Report of the State Action Task Force, at
http://www.ftc.gov/os/2003/09/stateactionreport.pdf, at 52-54. See also In re Indiana Household Movers Ass’n,
FTC File No. 021-0115 (2003) (applying Report). Compare FTC v. Ticor Title Ins. Co., 504 U.S. 621 (1992)
(seeking procedural supervision requirements).
36
proper controls over the private exercise of public powers remains the central issue of
government management. When the focus shifts from the legislative to the executive realm,
oversight issues become even more significant. The contracting out process, while long
established in many respects, has expanded to the point that oversight and controls are stretched
to the breaking point.
B. Contracting Out and the Circular A-76 Process
Under its Circular A-76 policy, OMB has long monitored the contracting out of
administrative services.161 The Bush Administration has expanded the conditions under which
contracting out may be employed. In May 2003, OMB’s Circular A-76 was amended to
encourage contracting out (or “competitive sourcing”)162 and in September 2003 OMB issued a
report: “Competitive Sourcing and Responsible Public-Private Competition” that documented
the government’s success at contracting out.163
Circular A-76 also recognizes limits on contracting out. It describes certain nondelegable
functions as “inherently governmental” activities. These activities involve:
161
See Verkuil, Reverse Yardstick, supra note 72, at 8-12 (describing OMB’s Circular A-76 policy). See also, Dan
Guttman, The Future of Competitive Sourcing, 33 PUB. CONT. L.J. 321, 326-29 (2004) (documenting earlier efforts
to contract out during the Eisenhower and Kennedy Administrations). [hereinafter Guttman, Competitive Sourcing].
162
See OMB Circular A-76, Attachment A Part B § 1(a), narrowing nondelegable functions by changing “requiring
the exercise of discretion” to requiring the exercise of substantial discretion.” See Rebecca Rafferty Vernon,
Battlefield Contractors: Facing the Tough Issues, 33 PUB. CONT. L.J. 365, 369 n. 35. Circular A-76 Attachment A
Part B § 2 defines commercial functions as:
Commercial Activities. A commercial activity is a recurring service that could be performed by the private
sector and is resourced, performed, and controlled by the agency through performance by government
personnel, a contract, or a fee-for-service agreement. A commercial activity is not so intimately related to
the public interest as to mandate performance by government personnel. Commercial activities may be
found within, or throughout, organizations that perform inherently governmental activities or classified
work.
163
Circular A-76 and the reports are available at http://www.whitehouse.gov/omb/index.html. In May 2004, OMB
issued a report on competitive sourcing for the prior year which indicated that agencies had completed 662
“competitive assessments” with a net estimated savings of $1.1 billion (over 3 to 5 years) or about $12,000 per FTE
competed with a total cost avoidance of about 15 percent.
37
(1) Binding the United States to take or not to take some action by contract, policy,
regulation, authorization, order, or otherwise;
(2) Determining, protecting, and advancing economic, political, territorial, property,
or other interests by military or diplomatic action, civil or criminal judicial
proceedings, contract management, or otherwise;
(3) Significantly affecting the life, liberty, or property of private persons; or
(4) Exerting ultimate control over the acquisition, use, or disposition of United States
property (real or personal, intangible), including establishing policies or procedures
for the collection, control, or disbursement of appropriated and other federal
funds.164
The Circular incorporates the Federal Activities Reform Act (FAIR Act)165 which
requires agencies to submit annual inventories of agency-performed commercial activities. The
Circular also requires agencies (including independents) to identify all of their activities as either
commercial or inherently governmental.166 Agencies must appoint a “competitive sourcing
official” (CSO) to centralize agency oversight and to publish annual inventories that categorize
agency activities as either commercial or inherently governmental.167 As noted earlier, the Bush
Administration’s goal is to contract out the jobs of more federal civilian employees.168
This
effort to push competitive sourcing has produced tensions with Congress over the effectiveness
of private sourcing.169 And some believe it is inviting questions about the relationship of
164
Attachment A of Circular A-76, Part B, Section 1(a).
165
Pub. L. No. 105-270, 112 Stat, 2382, § 2 (a) (1998).
166
Circular A-76 Attachment A Part A § 1 (“An agency shall prepare two annual inventories that categorize all
activities performed by government personnel as either commercial or inherently governmental”).
167
The agency lists appear in the Federal Register, e.g., 69 Federal Register 30341-01, 2004 WL 1168945 (May 27,
2004); 69 Federal Register 3401-01, 2004 WL 101573 (Jan. 23, 2004). In its 2004 Report to the GAO lists only
some agency contracting out data and it is from 2002. GAO, Competitive Sourcing: Greater Emphasis Needed on
Increasing Efficiency and Improving Performance, GAO-04-367 (February 2004).
168
In November 2002 President Bush announced that the White House intended to let the private sector compete for
850,000 out of 2 million civil service jobs. Guttman, supra note 161, at 330 (citing Richard Stevenson, Government
May Make Private Nearly Half of Its Civilian Jobs, N.Y. TIMES, Nov. 15, 2002, at A1); see generally OMB, The
President’s Management Agenda 17-18 (2002), available at
http://www.whitehouse.gov/omb/budget/fy2002/mgmt.pdf.
169
Guttman, supra note 161, at 332 n.33 (citing DOE's Fixed Price Cleanup Contracts: Why Are Costs Still Out of
Control?: Hearing Before the Subcomm. on Oversight & Investigations of the House Comm. on Commerce, 106th
38
government to the private sector, which implicates the “constitutional premises of our
Government.”170
As a practical matter, inherently governmental functions, which were once thought to be
over-articulated,171 are now increasingly at risk.172 The concern is both with the number of jobs
being contracted out and with their nature. Outsourcing has a cumulative effect on the capacity
of government to oversee even properly contracted out jobs. The lack of government employees
to oversee those functions pushes government further in the direction of contracting out. Indeed,
we are now seeing the phenomenon that private contractors are evaluating the performance of
government programs that they may ultimately bid on if the programs become subject to the
contracting out process.173 As a legal matter, of course, government officials retain the
responsibility to protect the expenditure of public funds.174 But when less than 2 million federal
officials are responsible for overseeing over 12 million private contractors,175 the accountability
and oversight functions are bound to suffer. While the legal responsibility remains, the
challenges to effective management increase dramatically. It is really a quality control issue –
there is a difference between supervision and effective supervision. By analogy to the Midcal
Cong. 27-28 (2000) (prepared statement of Gary Jones (GAO)) (explaining that “[i]n the mid-1990s, promised
reforms led to congressional inquiries regarding hundreds of millions, even billions, in actual or projected cost
overruns on various M&O contracts”).
170
See Guttman, Competitive Sourcing, supra note 161, at 327.
171
See Verkuil, Reverse Yardstick, supra note 72 at ____.
172
See discussion at note 161, supra.
173
See Chris Strohm, TSA Examines Conflict of Interest Charges Against Contractor, GOVEXEC.com, May 23,
2005 (describing Lockheed Martin’s contract with the Transportation Security Administration to evaluate airport
screening operations, some of which may be contracted out at a later date). See also notes 200-202, infra
(discussing Rand Report on the use of private contractors on the battlefield).
174
See Guttman, Competitive Sourcing, supra note 161, at 332-34.
175
See Paul Light, THE TRUE SIZE OF GOVERNMENT (1999).
39
immunity doctrine, it is difficult to have “active state supervision”176 when public officials are
stretched so thin.177
The Circular defines inherent government functions,178 but does little to protect against
delegation of those functions. This is true at least partially because the agency’s designation of
what is “inherent”, unlike its competitive sourcing decisions, is not subject to administrative
review.179 The procedural constraints under Circular A-76 as well as the FAIR Act are directed
at the outsourcing process; once an agency designates a function as competitive, even if it
involves policymaking and decision control, that decision is less likely to be challenged. The
procedures for internal review, and the obstacles to judicial review, will be addressed later,180
after a closer look at contracting out military functions and the airport security debate.
1. Contracting Out and the Military
The Department of Defense (DOD) is by far the largest government contracting agency.
While the procurement of equipment (weapons systems, supplies, etc.) are classic competitive
sourcing situations, DOD also performs many inherently governmental functions. The military
is charged with the kind of discretionary functions that would seem to be inherently
176
See discussion at notes155, 160, supra.
177
See discussion at notes 78-79, supra.
178
See generally, Ralph C. Nader & John Cibinic, Contracting Out Procurement Functions: “The Inherently
Government Function” Exception, Nash & Cibinic Report (Sept. 2000).
179
The Fair Act codified the pre-existing definition of “inherently governmental” contained in Circular A-76 and the
OFPP Policy Letter. OMB Transmittal Memorandum #20, available at
http://www.whitehouse.gov/omb/circulars/a076/a076tm20.html (explaining that “the FAIR Act codified the preexisting requirement for agencies to inventory their commercial activities, as well as the pre-existing definition of
"inherently governmental function"). 10 U.S.C. §2462 (b) dictates that the “performance of workload needed to
maintain a logistics capability [by DOD] may not be contracted for performance by non-governmental personnel and
requirements of Circular A-76.
180
See discussion infra Part V.
40
governmental by Circular A-76 standards. The war in Iraq has raised the issue whether the
military has contracted out functions that government should have performed directly.
The abuse of detainees at Abu Ghraib prison outside Baghdad presented a serious
challenge to military discipline and command and control.181 But it also raised the inherent
function issue because private contractors were employed as interrogators.182 Large contracts
were issued to civilian organizations like CACl, Inc. and Premier Technology Group, Inc. for
“intelligence and technical support.”183 In addition, military translation services were provided
by contractors like Titan Corp.184 Translation services might well be “commercial” in the
Circular A-76 sense,185 but, by any measure, interrogation of prisoners should qualify as
inherently governmental since it involves “military action and matters significantly affecting life,
liberty and property.”186 Prisoner abuse at Abu Ghraib has been an embarrassment for the
military and its civilian leadership187 and it surely can’t be blamed on private contractors;
181
See Final Report of the Independent Panel to Review Department of Defense Detention Operations, summarized
in N.Y. TIMES, Aug. 25, 2004, at A1, A10. See also Steven Schooner, Contractor Activities at Abu Ghraib:
Compromised Accountability in a Streamlined, Outsourced Government, 16 STAN. L. & POL. REV. ____
(forthcoming 2005).
182
The military has been investigating 10 homicides at Iraqi detention centers including at least one by a private
contractor. See Bradley Green, Cases Include Deaths, Assaults Outside Prisons, WASHINGTON POST, June 10, 2004.
At Abu Ghraib, 6 of the 44 challenged interrogators were private contractors. Id. at note 1250.
183
See Shane Harris, Technology Contract Used to Purchase Interrogation Work, available at
http://www.govexec.com/dailyfed/0504/052004h1.htm, (May 20, 2004) (documenting CACI and Premiere
Technology Group Contracts for “intelligence advisors” and “intelligence and technical support”).
184
See Titan Competing With Northrup, L-3 To Keep Its Largest Contract, BLOOMBERG NEWS (June 2, 2004).
185
See note162, supra.
186
See note 162, supra, quoting Part B of Circular A-76.
187
Secretary of Defense Donald Rumsfeld, in hearings before the Armed Services Committees of the House and
Senate on May 7, 2004, said: "These events occurred on my watch as secretary of defense. I am accountable for
them. I take full responsibility," also alerting committee members that "[t]here are a lot more photographs and
videos that exist. If these are released to the public, obviously it's going to make matters worse." Bradley Graham,
Rumsfeld Warns Not All Images Are Out; Secretary Regrets Detainees Abused, WASH. POST, May 9, 2004 at A1.
41
however it is also a warning that civilian contractors have infiltrated the military in roles that are
inappropriate.
But few objections to these contracts were raised either under general DOD contracting
rules or the A-76 process.188 As a practical matter, military privatization seems to have created
regulatory gaps in oversight and control. Private contractors on the battlefield highlight the
dangers of rampant privatization. These contractors are not subject to the Uniform Code of
Military Justice for any crimes they may have committed.189 And they are made subject to other
criminal statutes,190 such as the Military Extraterritorial Jurisdiction Reform Act,191 only on an
incomplete basis.192 Thus statutory liability for the commission of criminal acts by private
contractors remains inadequate. While this accountability gap exists whether contractors are
performing commercial or inherently governmental functions, the stakes are necessarily higher in
the latter situation since the tasks are more sensitive. Clearly, the Iraq invasion put enormous
188
There were a few challenges to the contracting out of military functions when the Army tried to bypass A-76
altogether and deny federal employees any opportunity to retain their jobs (even if they could do it more costeffectively) but this ultimately turned into a debate about whether or not agencies could waive the requirements of
A-76. One of those cases dealt with a challenge to outsource army logistics jobs, and the challenge was brought
under A-76 for contracting out “inherently governmental” functions. See 41 No. 25 Gov’t Contractor P 275 (June
23, 1999).
189
The UCMJ does not apply to civilians. See Grisham v. Hagan, 361 U.S. 278 (1960); United States v. Gatlin, 216
F. 3d 207 (2d Cir. 2000).
190
The Department of Justice has indicated a private contractor, employed by the CIA, for beating a detainee in Iraq
who later died. See Contractor Indicted in Detainee’s Beating, N.Y. TIMES, June 18, 2004, at 1. Other statutes that
may apply are the War Crimes Act of 1996, 18 U.S.C.§ 2441 (2000), The Torture Act of 2000, U.S.C.§§ 2340 A
and 2340 B (2000); and the Alien Tort Claims Act, 28 U.S.C.§1350 (2000).
191
See Joseph R. Perlak, The Military Extraterritorial Jurisdiction Act of 2000: Implications for Contractor
Personnel, 169 MILITARY L. REV. 92, 95 (Sept. 2001) (discussing the unclarity of the act as it relates to contractors
oversees).
192
The MEJA for example only applies to civilians working for DOD, not other federal agencies such as U.C.A.
See P.W. Singler, War Profits and the Vacuum of Law: Privatized Military Forms and International Law, 42
COLUM. J. TRANSNATL. L. 521 (2004).
42
pressure on the military resources of the United States,193 but contracting out has not alleviated
the oversight problems the military faces.
The role of private military contractors has expanded in recent years, but the law
on private delegations has not changed. Under the FAIR Act, private contractors can provide
“non-inherently governmental” goods and services, but they cannot fill military positions, such
as those involving essential military skills or skills necessary for career progression.194 When
under Circular A-76 the inherently governmental function requirement was expanded in 2003,195
the expanded use of military contractors in sensitive roles seems to have increased. It also
blurred the line between military and private contracting in a way that the laws have not yet
responded to.196 It can only be seen as a failure of public responsibility when private contractors
are accused of participating in acts of torture.197 Indeed, so stating the problem posits a situation
that demands government control, since it can be assumed that torture is one governmental
“function” that cannot be privatized.198
Many military contracting out decisions are single sourced, without the benefit of the A76 competitive sourcing process, and this further exacerbates the oversight and financial control
193
Iraq presents many challenges to the military, not least of which is its failure to meet recruiting targets, thereby
increasing the pressure to contract out. See Thom Shantra & Eric Schmidt, Rumsfeld Seeks Leaner Army, and a Full
Term, N.Y. TIMES, May 11, 2005, at A1, A17.
194
See Rebecca Rafferty Vernon, Battlefield Contractors: Facing the Tough Issues, 33 PUB. CONT. L.J. 369 (2004).
195
See notes 162-163, supra and accompanying text.
196
This gap is potentially widened in Iraq by a June 2003 order that protects civilian contractors from local
prosecution. See Joanne Mariner, Private Contractors Who Torture, available at
http://writ.news.findlaw.com/mariner/20040510.html (May 10, 2004). Coalition Provisional Authority Order
Number 17, Status of the Coalition, Foreign Liaison Missions, Their Personnel and Missions (June 27, 2003),
available at http://www.casi.org.uk/info/cpaold.html (“Gives legal immunity to coalition forces, CPA officials,
foreign CPA contractors, and foreign liaison mission personnel. Crimes committed by them will be tried by their
parent states, although the CPA may request a trial under Iraqi law.”).
197
See notes 182-183, supra.
198
See The Torture Act of 2000, 18 U.S.C. §§ 2340 (2000) (citing those covered by the Act).
43
issues. But when Circular A-76 applies, it at least defines as “inherently governmental” an
activity that “significantly affects life, liberty or property of private persons.”199 When the A-76
process is not employed, its potential check on military contracting is unavailable. This leaves
the military to create its own internal control rules.
The Department of the Army recently reviewed its use of military contractors on the
battlefield by contracting out a report from the Rand Corporation.200 The Rand Report assessed
risk by analyzing the Army Field Manual (#3-100), which instructed military officers how to hire
private contractors. The Report sharpened the Army’s risk assessment procedures.201 But what
the Report did not do is address the larger question of whether the type of job being outsourced
on the battlefield was really the inherent government kind that the military should not contract
out under any circumstances. When DOD issued final rules on the use of contractor personnel, it
also ignored this overriding issue.202
Undoubtedly, the military faces difficult personnel decisions in providing adequate
staffing for its Iraq mission. But the solution seems to be limited to better accountability over an
assumed civilian contracting out process rather than (or in addition to) a hard look at the
importance of the inherent government function principle. As this article explored at the outset,
the hardest questions are whether some government jobs – especially military ones – are not
delegable at all. And, indeed, the irony of the Rand Report should not be lost. When the
199
Circular A-76 Attachment A Part B § 1(a)(3).
200
Rand, How Should the Army Use Contractors on the Battlefield?: Assessing Comparative Risk in Sourcing
Decisions (2005), available at http://www.rand.org/pubs/monographs/2005/RAND_MG296.sum.pdf [hereinafter
Rand Report].
201
See id. at 125-28 (summarizing relevant risks in choosing between military or private personnel).
202
Defense Federal Acquisition Regulation Supplement; Contractor Personnel Supporting a Force Deployed Outside
the United States, 70 Fed. Reg. 23790 (May 5, 2005).
44
government has to contract out the plan to deal with contracting out on the battlefield, it is
demonstrating quite clearly how limited its internal resources are.203
2. The Public-Private Distinction and Airport Security
The experience with contracting out by the military makes it appear that the momentum
is flowing all in one direction – toward the private sector. But there is a counter example that is
needed to balance the record – airport security by the Transportation Security Administration
(TSA). This example is made all the more significant by the fact that TSA replaced a private
regime. The public-private distinction continues to be of relevance even in a privatizing world.
The Aviation and Transportation Security Act became law on November 19, 2001.204 Its
passage was preceded by a contentious debate over whether the airport security personnel (newly
reorganized in the TSA) should be public employees. The Senate initially passed a bill
unanimously that made these officials public employees. Then the White House dropped its
support. And the House began to peel away Senate support. After much debate, Senators
McCain and Hollings managed to shepherd through a revised bill that the White House
ultimately supported.205 The final resolution was to make the 28,000 airport screeners public
employees, subject to an opt out by airport operators who could after November 19, 2004 show
that employing private screeners would be just as effective as public ones.206
203
There is no question in this context of Rand having a conflict of interest, even though it is an intellectual resource
for the military. See note 173, supra (discussing Lockheed Martin’s TSA contract).
204
Publ. L. No. 107-71§ 110 (2) (a), 115 Stat 597 (2001).
205
See 147 Cong. Rec. S11974-75 (remarks of Sen. Hollings).
206
See Aviation and Transportation Security Act, Pub. L. No. 107-71§ 110 (2) (a), 115 Stat. 597, 614 (2001).
45
The political battle was waged over the need for public employees.207 The prior
screeners—the ones who were on duty on 9/11—had been private contractors for the airlines.208
Since these screeners were already privatized, they had to be brought back into government. In
Professor Freeman’s words, the issue became whether after 9/11 screeners should be
“publicized.”209 But the Republican distaste for increasing government employment stymied the
legislation until the opt out compromise was accepted.210 The White House also objected to
providing airport screeners with civil service protections and demanded the right to hire and fire
personnel.211 The arguments in favor of federal employees turned on the issue of what functions
should be inherently governmental. Proponents emphasized that since government was
responsible for security functions (e.g., FBI, CIA, Border Patrol and INS), Congress should not
privatize airport security because “law enforcement is a proper function of the federal
government.”212 While that proposition may state matters too broadly (private security guards
are sometimes employed by government), it does highlight the essential role of government
207
See, e.g., 147 Cong. Rec. at § 11981 (“we can no longer allow the lives of our citizens to be placed in the hands
of private companies”) (remarks of Sen. Rockefeller).
208
House Aviation Subcommittee Chairman John Mica “and other Republicans, who were never entirely
comfortable with creating a new bureaucracy, want to return all airport security screener jobs to the private sector,
where they were before Sept. 11, 2001.” Some in GOP want private airport screeners, USA Today (June 1, 2004),
available at http://www.usatoday.com/travel/news/2004-06-01-screeners_x.htm. The airlines had sought to conduct
the screening function at the least possible cost, which meant minimum wages for screeners. See 147 Cong. Rec. at
§11978 (“Security is not something you can contract out to the lowest bidder.”) (remarks of Sen. Kerry).
209
See Freeman, Public Law Norms, supra note 89 at 1286. The responsibilities of airport screeners changed
dramatically after 9/11 and they are now responsible for performing law enforcement functions which make them
much more of the public sector than they were previously.
210
See e.g., Press Release, Ari Fleisher, White House Office of Communications—Congressional Debate on
federalizing Airport Security Personnel (Nov. 6, 2001). The privatizing opt out is managed through regulations
established by the Department of Transportation. At this juncture there are five airports participating in the opt out
program. They are San Francisco, Kansas City, Greater Rochester, Jackson Hole and Tupelo airports. See
http://www.tsa.gov/public/display?content=09000519800dd3fa.
211
NPR: Talk of the Nation: Federalizing airport security personnel, 2001 WL4190170. 147 Cong. Rec. H 8300-02
(2001).
212
147 Cong. Rec. S 11975 (Nov. 16, 2001) (Remarks of Sen. McCain).
46
when coercive force may be used. The presence of a badge, much like the requirement of an
oath,213 is a reliable indicator of government control, constitutional or otherwise.
Of course the badge requirement was not absolute, since some airports were exempted
from it and others might be able to contract out of it. The TSA opt out program had to be
specifically exempted from OMB Circular A-76 since airport security would clearly have been
an inherently governmental function.214 The decision to opt out, however, will not be lightly
made. It requires continuing TSA supervision and must be made against the requirement that the
“security of the aviation system is and will always be an overriding concern.”215 This
congressional concern with oversight and control of privatized security screener contracts
reflects the accountability theme raised here and offers some promise of continuing government
213
See discussion at notes 135-137, supra.
214
See note 164, supra, and accompanying (defining inherent government function).
215
It is also subject to criteria established by DOT. See 49 USCA § 44920:
(a) In general. [A]n operator of an airport may submit to the Under Secretary an application to have the
screening of passengers and property at the airport under section 44901 to be carried out by the screening
personnel of a qualified private screening company under a contract entered into with the Under Secretary.
c) Qualified private screening company.--A private screening company is qualified to provide screening
services at an airport under this section if the company will only employ individuals to provide such
services who meet all the requirements of this chapter applicable to Federal Government personnel who
perform screening services at airports under this chapter….
(d) Standards for private screening companies.--The Under Secretary may enter into a contract with a
private screening company to provide screening at an airport under this section only if the Under Secretary
determines and certifies to Congress that-(1) the level of screening services and protection provided at the airport under the contract will be equal to
or greater than the level that would be provided at the airport by Federal Government personnel under this
chapter; and
2) the private screening company is owned and controlled by a citizen of the United States, to the extent
that the Under Secretary determines that there are private screening companies owned and controlled by
such citizens.
(e) Supervision of screened personnel.--The Under Secretary shall provide Federal Government supervisors
to oversee all screening at each airport at which screening services are provided under this section and
provide Federal Government law enforcement officers at the airport pursuant to this chapter.
47
involvement. In fact, increased privatization of screeners has not progressed beyond the five
originally exempted airports.216
Whether the private opt out will truly demand security equivalency or will be done
summarily by an Administration eager to divest itself of government employees in an effort to
“evade headcount pressures”217 cannot be assured. But at least the standard has been set for the
TSA to administer and it appears to be taking its responsibilities to evaluate the efficacy of
public control seriously.218 The point here is that TSA accountability missing in the military
contractor situation has been provided by Congress to a degree. Since both the TSA and DOD
deal in matters of life and death, an equal if not greater emphasis in the accountability of private
contractors in the military context might be expected.
V. Administrative Challenges to Privatization Decisions Involving Inherently Governmental
Functions
Much of this article has been devoted to developing legal theories to constrain the
delegation by government to private hands of functions that have been designated inherently
governmental. These theories will be discussed next; but the most effective approaches may
well be political or administrative and they will be explored in this section.
216
See note 210, supra.
217
See Sen. Comm. On Gov. Affairs, Subcomm. on Oversight of Gov. Mgmt. 2003 WL 21710941 (July 24, 2003)
(Stmt of Dr. Paul C. Light) at 11.
218
The Lockheed Martin report to TSA discussed at note 173, supra, notes that 99.5 percent of federal screeners
passed its recertification process. The quality control checks of airport security have not been all that reassuring.
Eric Lipton, U.S. to Spend Billions More To Alter Security Systems, N.Y. TIMES, May 8, 2005 (among the items to
be replaced: “Passenger-screening equipment at airports that auditors have found is no more likely than before
federal screeners took over to detect whether someone is trying to carry a weapon or a bomb aboard a plane”).
48
In general, the resort to the courts in these sensitive areas of government management,
control, and oversight might be a last resort. It is the agencies themselves,219 with congressional
support, that have the best chance of effecting change in this contentious area.
A. Economic and Political Considerations Involving Inherent Government Functions
Circular A-76, the FAIR Act and the Aviation and Transportation Security Act have one
thing in common – they all ask the crucial question whether to privatize functions that are
arguably inherently governmental. This is a political question in the highest sense. It implicates
inherent questions of separation of powers that arise from the public-private distinction. But it is
also economic in a practical sense. At one level, government entities are really no different from
private corporations when they decide whether to contract out functions formerly performed in
house. The decision to contract out is a “make or buy” decision. It can be analyzed in terms of
transaction cost economics, as Professor Oliver Williamson has done.220 If the efficiency
standard is satisfied, both private and government resources are best utilized. But as Professor
Shapiro suggests, contracting out (the “buy” rather than “make” decision) is not always an easy
decision. It is more costly with incomplete contracts that invite opportunistic behavior and holdup problems.221 This is surely the case with government contracts that are often open ended,
incomplete and single sourced. Of course, the question of contracting out inherent government
functions is more complicated and cannot be viewed solely as a function of transaction cost
219
See generally Matthew C. Stephenson, Public Regulation of Private Enforcement: The Case for Expanding the
Role of Administrative Agencies, 91 VA. L. REV. 93 (2005) (arguing for a greater role of the executive rather than the
courts in controlling private enforcement).
220
See Oliver E. Williamson, Public and Private Bureaucracies: A Transaction-Cost Economic Perspective, 15 J. L.
ECON. & ORG. 306, 308-26 (1998).
221
Professor Shapiro has expanded the transaction cost analysis to contracting out in important ways. See Sidney A.
Shapiro, Outsourcing Government Regulation, 53 DUKE L. J. 389 (2003).
49
analysis. In the debate over airport security a fundamental question about the appropriate roles
of the public and private sector is intertwined with the economic considerations of what is the
most efficient method. What is the social value of the badge, for example, and what difference
does its presence make in achieving acceptance of security goals? The resolution of these issues
must be made by government officials sensitive to the constitutional and political interests at
stake.
The tension between competitive sourcing and inherent government functions is more a
political than economic one, as the Airport Security debate demonstrates.222 It has little to do
with the fiscal size of government, even though privatized activities are supposed to save the
government money. These services are also paid for with taxpayer funds and the size of the
government has grown under the Bush Administration, even as the number of government
employees has been reduced.223 Republicans favor contracting out for political reasons, so as to
constrain what is seen as the largely Democratic, unionized base of government employees.224
The politics of contracting out should involve more than the assumed voting preferences of
government employees. These arguments by their nature can never be won. After all,
Democrats have an equal right to complain that private firms who benefit from contracting out
may be Republican campaign contributors. 225 Politics at this level ultimately cancels itself out.
222
See Stmt. of Bobby L. Harrage before whose House Services Comm. 2002 WL 137585L (June 26, 2002)
(lamenting the cronyism and political aspects of contracting out).
223
See Floyd Norris, In the Bush Years, Government Grows as the Private Sector Struggles, N.Y. TIMES, Sept. 3,
2004, at C1 (under President Bush 17.4 percent of all wage and salary payments came directly from the government
versus 16 percent under President Clinton). See also David Brooks, How to Reinvent the G.O.P., N.Y. TIMES
MAGAZINE, Aug. 29, 2004, at 32 (explaining how Republicans abandoned the ideal of small government).
224
But contracting out also has bi-partisan roots which go back to the reinventing government movement sponsored
by the Clinton-Gore Administration. To some extent, those earlier successes have led to the present crisis over
adequate numbers of government acquisitions personnel. See discussion at notes 77-76, supra.
225
The “pork barrel” aspects of competitive sourcing are bipartisan. Steven Schooner explained in his article,
Competitive Sourcing Policy: More Sail than Rudder?, 33 PUB. CONT. L.J. 263, 284-86 (2004), that “both executive
50
What is called for is a higher political analysis. Both sides should accept the notion that public
functions are part of a necessary public administration, if not public law. The political role, like
the economic one, is to assess the value of government involvement independently. Under the
present system the government has the ability to protect inherent government functions. The
task is to analyze the administrative process to ensure that this calculation is made fairly and
accurately.
B. Challenging Outsourcing Determinations
The identification of inherent government functions (IGFs) is first determined by agency
actions initiating the process and then by administrative proceedings evaluating the
recommendations. Challenges to agency IGF decisions are then subjected to administrative
review, but they are limited in several ways, including administrative standing rules. Under the
A-76 process agencies, which are required to post competitive positions on a biannual basis,
make the initial determination whether a function is an IGF or whether it is eligible for
competitive sourcing. That first cut is for most purposes final and rarely subject to
administrative review.226 The competitive source decision is challengeable within the agency.
and legislative branch pressure prompted the reduction in the size of the federal bureaucracy” and that “[b]oth
political parties reveled in, and claim[ed] credit for having contributed to, the reduction in size of the Federal
Government.” Schooner concludes:
During the government downsizing frenzy of the 1990s…agencies routinely deemed their acquisition
professionals nonessential to their core missions. Accordingly, buyers, auditors, contract specialists, and
quality assurance personnel were jettisoned in waves at [severe] rates. Only after the fact did senior
leadership concede the stark ramifications of the acquisition workforce purge.
Id. at 284-85.
226
Oversight agencies start with the Government Accountability Office (GAO). OMB also plays a role in the A-76
process while they can be potential allies in defining and perhaps protecting IGFs from ill-considered elimination.
But it is doubtful that these agencies see their role as independently determining the public interest in public
employment. So far judicial review has not been a serious factor in any of these decisions. GAO’s name was
changed from the Government Accounting Office on July 7, 2004. See 31 U.S.C.A. § 702. See discussion at notes
231-232, infra.
51
Eligible objectors are either private contractors seeking to expand the competitive sourcing side
of the equation or government employees (often represented by their union, the American
Federation of Government Employees (AFGE)) who are trying to protect jobs that are allegedly
inherent government functions.
In general, this is how the two step IGF-competitive sourcing process works. Agencies
(such as DOD) are required to post two annual inventories categorizing functions as commercial
or inherently governmental. This is done by publishing lists of qualifying jobs. 227 OMB
reviews these lists and, after translating the personnel codes into job descriptions, makes the
judgments about their adequacy. But OMB doesn’t mount effective challenges to agency IGF
decisions; it has neither the personnel nor incentive to do so.228 Thus, as has been observed, the
initial agency IGF/competitive sourcing decision goes largely unreviewed.
The initial decision to designate jobs for competitive sourcing sets up what at the agency
amounts to a public-private competition. The agency and the private firms make presentations to
establish which one is more efficient. This process is open and fair and government agencies do
quite well in these contests.229 Their success is based on a public-private cost comparison that
requires private challenges to achieve at least a 10 percent cost differential over in-house costs to
prevail.230
227
Unfortunately, these lists are produced in the form of personnel codes, which are incomprehensive to the general
reader. With 700 functional codes and 23 major categories, “[a]gencies [have] reported difficulty in classifying
positions as inherently governmental or commercial and in applying guidance to categorize activities.” GAO-04367.
228
After all, it is OMB that is pushing the contracting out question on the agencies in the first place.
229
It is estimated that government agencies prevail in 50 percent of the competitive sourcing challenges. See GAO,
Final Report of the Commercial Activities Panel, Improving the Sourcing Decisions of the Government (2002) 1920 [hereinafter GAO Comm. Activities Panel] (documenting 22 A-76 comparison protests reviewed by GAO since
1999, 11 of which were “sustained” – i.e. sent back to the agency for failure to follow statutes or regulations).
230
Id. at 19.
52
Revised Circular A-76 provides for a GAO-conducted administrative panel appeal
process within the affected agency that gives a “directly interested party” the right to contest
aspects of the process. This administrative standing requirement includes both private sector
offerors who contest a failure to designate a job or function as private (or to select them as more
competitive) and a representative of those federal employees directly affected by the decision to
designate a public job as private.231 But the rights to appeal beyond the agency stage to GAO is
presently limited to private sector challengers.232 The FAIR Act has a broader standing
provision. It provides an administrative appeals process that allows any “interested party” to
challenge DOD’s decision to classify a list of activities as commercial or inherently
governmental.233 The initial privatization lists are also required to be made available for public
inspection and can be subject to challenge during the initial decision period. Judicial review,
however, is not provided for in the statute and is not contemplated in the relevant legislative
history.234
The Lessons of the Seafood Inspector Challenge
231
The revised Circular limits the public objector to a single individual rather than multiple objectors “federal
employees (or their representatives).” Circular A-76 Attachment D defines a “directly interested party” as an
“agency tender official who submitted the agency tender; a single individual appointed by a majority of directly
affected employees as their agent; a private sector offeror; or the official who certifies the public reimbursable
tender.” See discussion at note 248, infra, on definition of agency tender official.
232
The challenge must be first to an agency appeal board and then, if it is a private challenge, either to GAO or the
Court of Claims. See GAO Comm. Activities Panel, supra note 229, at 22. See GAO, Comm. Activities Panel,
supra note 229, at 19-22 (documenting that since 1999, of 22 A-76 protests GAO sustained 11 and denied 11).
233
Section 3 (a) (b) The FAIR Act added to 31 U.S.C. §501 as a Note 28.
234
While the Senate report suggests that challenges are too limited at the administrative stage, it does not
contemplate judicial review. In Senate Report No. 269, the Committee on Governmental Affairs stated that
Congress “intend[ed] for any challenges to the inventory list to be resolved solely at the agency level by the
agency.” S. Rep. 269, 105th Cong. 2d Sess. At 9 (1998). See discussion on judicial review at notes 276-277, infra.
53
While both Circular A-76 and the FAIR Act invite administrative challenges to the
agencies’ IGF designations, so far few challenges have been successful.235 One that has,
however, provides important lessons. The National Oceanic and Atmospheric Administration
(NOAA) made an initial decision to list as a function as commercial rather than an IGF and
thereby to privatize the jobs of Seafood Inspectors. This decision was challenged before the
agency by the program inspectors themselves.236 The challenge was premised on symbolic as
well as competitive grounds: the inspectors argued in essence that their role as public employees
could not be played by private contractors. The argument was that government employment
provided a credibility dimension that had an independent value, especially in the international
market. But this value was not just symbolic – it also had an economic effect. If the inspectors
were not viewed as authoritative by foreign governments—especially by China and the European
Union—shipments of United States fish to those countries would be in jeopardy.
The program officials gained the assistance of members of Congress237 and successfully
had the designation reversed by the Department of Commerce on appeal.238 In this instance, the
government won. The private sector saw the value of continued “publicization” of the inspector
program, even though the program was entirely paid for by fees from the fishing industry.239
This made the Department’s support for public control painless, since no appropriated funds
235
See GAO Comm. Activities Panel, supra note 229 (of 101 DOD appeals during FY 1997-2001, 6 successfully
challenged cost comparison decisions).
236
See James McCullough, et al. Feature Comment, Year 2003, OMB Circular A-76 Decisions and Developments,
Gov. Contractor, at 259 (Jan. 21, 2004).
237
In the seafood inspector situation discussed in note 150, 39 members of Congress expressed their strong
opposition to the Commercial designation. Id.
238
See appeal letter of Richard V. Cano, acting director of Seafood Inspection Program to U.S. Department of
Commerce, June 3, 2003.
239
Id.
54
were at issue. But the lesson of the “publicized” Seafood Inspectors program is much broader—
symbolism can have tangible value.
A similar argument applies to other federal jobs, where the badge or oath matters, such as
airport inspectors and certainly military personnel. It may seem odd to equate seafood inspectors
with security personnel, but the analogy holds because the interests at stake are comparable.
Moreover, the willingness of Congress to intervene in what may be a minor matter demonstrates
how crucial its role is to a proper resolution.240 Surely the politics may vary when the inquiry
shifts to the security or military sector, but the concerns can still be expressed in comparable
terms.
C. The Crucial Role of GAO
A potential administrative ally in defending public functions of government is the
General Accountability Office (GAO). The GAO’s reputation for neutrality and commitment to
getting decisions right remains the primary bulwark against arbitrary administrative
decisionmaking. GAO is reliable because it responds to Congress – it is mandated to investigate
matters brought to its attention by members of Congress whether on the majority or minority
side.241 This mandate allows GAO to consider the government-wide implications of the
contracting out process.
240
The pressures on Congress when major military contractors like Lockheed Martin are on the other side must be
acknowledge. But even military contractors have a stake in adequate government oversight and controls if only to
avoid contracting scandals that companies like Halliburton have faced in Iraq.
241
See generally 31 U.S.C. § 719 (explaining the requirements of Comptroller General reports) and surrounding
sections in Ch. 7 (Subchapter II) of 31 U.S.C. (describing the “General Duties and Powers” of GAO).
55
GAO has bid protest authority under the Competition in Contracting Act (CICA).242 But
GAO’s scope of review is limited—it will not review the merits of the public/private decision
(which it views as a matter of executive branch policy).243 GAO’s chosen role is to determine
whether an agency properly followed the procedural requirements of Circular A-76.244 Under
CICA, protests may be brought by actual or prospective bidders, who are invariably private
contractors.245 This restriction has led GAO to dismiss protests by federal employees and their
unions for lack of administrative standing because they were not “offerors” under CICA.246
By so restricting administrative standing, GAO has in the past unnecessarily imbalanced
the administrative appeals process. If only those challenging the agencies failure to contract out
can object, the GAO decision creates a one way ratchet in favor of privatization.247 Recently,
however, GAO appears to be relaxing its position on public entity standing in Circular A-76
challenges.248 Its interest in the question appears to have been heightened by congressional
pressures;249 still, the outcome appears better to serve the public purposes of the privatization
process.
242
31 U.S.C. § 3551 (2004).
243
See GAO Comm. Activities Panel, supra note 201, for a description of GAO’s role in the contracting out process.
244
See Jayna Richardson, Comment, Outsourcing and OMB Circular A-76, 29 PUB. CONT. L.J. 203 (1999).
245
33 USC § 355 1 (2). In the last 3 years, more than 50 private protests have been filed challenging A-76
competitions. 68 Fed. Reg. 35411 (July 13, 2003).
246
See, e.g., American Federation of Government Employees, B-282904.2, 2000 CPC # 87 (June 7, 2000).
247
This means that erroneous agency decisions to contract out IGFs (i.e. false positives) cannot be detected through
an appeals process.
248
GAO has sought comments on changes in “interested party” status in connection with A-76 protests. See 45 GC
#244 (May 2003). It has recently proposed a rule to provide an “agency tender official” with the status to appeal on
behalf of public employees. See 69 Fed. Reg. 75878 (Dec. 20, 2004). It still denies unions the right to appeal.
249
The Senate introduced a bill that would amend the CICA that would provide federal employees with bid protest
rights. S. 2438, amendments to Section 3551 (2) of talk 31 (May 19, 2004) (“public-private competition” to include
agency officials and unions.”
56
Since GAO is now an “accountability”250 office in name as well as in mission, its role in
the privatization process couldn’t be more appropriate. The Comptroller General has committed
GAO to providing “Congress with professional, objective, fact-based, non-partisan and nonideological information.”251 In this context, GAO helps assure careful and balanced decisions
when it encourages competitive debate on outsourcing through its latest proposal.252
As a practical matter, GAO is the agency most likely to represent the public interest in
applying the public-private distinction. The only other candidate for this role is OMB, but it has
an interest in seeing privatizations succeed. In the words of Paul Light, GAO can view
competitive sourcing issues as not only meant to “protect the private sector from government”
but also to “protect the civil society from the private sector.”253 An example of GAO’s efforts in
this regard is its recent work on identifying organizational conflicts of interest.254 In this era of
increased contracting out, many organizations have been playing a role in defining eligibility
requirements for deciding who gets contracts. This problem has been exacerbated in the Iraq
situation especially when very general “umbrella” contracts are involved.255 But the problem
also exists in the A-76 competition process and it potentially involves both private and public
250
GAO’s name was changed from the Government Accounting Office on July 7, 2004. See 31 U.S.C.A.§ 702.
251
See David M. Walker, GAO Answers the Question: What’s in a Name?, ROLL CALL (July 19, 2004).
252
See discussion at note 231, supra, concerning standing for agency tender officials to represent government
employees whose jobs are proposed to be outsourced. The proposal also talks about employees being entitled to
representation by someone selected by a majority of them, which seems more difficult to administer.
253
Sen. Comm. On Gov. Affairs, Subcomm. on Oversight of Government Management, 2003 WL 21710941 (July
24, 2003) (testimony of Dr. Paul C. Light, Senior Fellow, The Brookings Institution).
254
See Daniel I. Gordon, Organizational Conflict of Interest: A Growing Integrity Challenge (forthcoming 2005)
(Mr. Gordon is managing associate general counsel of GAO).
255
One example involves a contract awarded to CACI, Inc. for interrogation where one of is officials was involved
in writing the statement of work. See id. at 3.
57
sector competitors.256 GAO is in the best position to conduct these conflict reviews since its
work is nonpolitical and highly respected.
To discharge its oversight role most effectively, GAO should look more carefully at
agency inherent governmental function decisions, which precede and frame the A-76
competitions. To date, GAO has not been willing to do so. One way to begin would be to
review what has become an agency “common law” of IGF decisions. Agency data points have
been collected, including those identified as “grey area” IGF decisions.257 GAO could take this
information, evaluate it, and then share it with other agencies. This will produce a better picture
of how agencies decide to delegate functions of government to private parties, which is a crucial
but so far unilluminated aspect of the contracting out process.
D. Structuring a Viable Administrative Review Process
Assume that public employees (if not their unions) will ultimately gain administrative
standing as interested persons under Circular A-76 and the FAIR Act. The quality of the review
then becomes the focus of attention. GAO’s role is to ensure decisional regularity in a world
where procedures are in short supply. However, it does remand decisions to agencies for further
review where the initial decision was deficient.258 Since GAO is not in the policymaking
business, its role is limited. Congress will have to become involved if the substantive standards
are to change. The pendulum is beginning to swing behind the public values side of the debate.
256
See generally id. at 7-8.
257
The U.S. Army’s FAIR Act website allows for the review of its decisions in this regard. Under “grey areas” is
how to classify the intelligence function. See http://web.lmi.org/fairnet/select.cfm. (The author is indebted to Dan
Guttman for locating this cite.)
258
GAO has sustained challenges on cost comparison decisions in 50 percent of cases between 1999 and 2002. See
GAO, Comm. Activities Panel, supra note 229, at 19-20.
58
Professor Minow has pointed towards a “dilution of public values”259 as an unintended
consequence of privatization that should increasingly worry Congress. GAO’s role in
illuminating these choices—while still not choosing to make them itself—could help accelerate
congressional interest. Indeed, a harbinger of future activity can be glimpsed in the
congressional role in reversing the Seafood Inspector status from private to public.260
Federal employees, their unions and private contractors represent the “public interest”
under the present structure. Affected employees have the most knowledge about the nature of
their jobs and how competitive or inherently governmental they might be. But they and their
unions are primarily concerned about job protection, which undermines their credibility. At the
administrative level, therefore, the public interest (if not taken up by GAO) is left out of the
equation. Groups who speak for accountable government, such as the National Academy of
Public Administration, the Brookings Institution or the American Enterprise Institute, might be
called upon to play a role. They would not have administrative standing to ensure that IGF
decisions are made properly in the first instance, but they could have after the fact power to
comment on the propriety of those decisions. The relevant agencies involved could benefit from
more objective views on what it is about government functions that makes them worth
preserving.
Another issue that needs to be addressed is the capacity of government to oversee private
contractors. As privatization proceeds, the number of government officials at or near the Senior
259
Martha Minow, Public and Private Partnerships: Accounting for the New Religion, 116 HARV. L. REV. 1229,
1246 (2003).
260
See discussion at notes 235-240, supra.
59
Executive Service level are thinning out or retiring.261 These cutbacks threaten residual capacity
of government to insure that its contracts are properly enforced, a subject that is emphasized in
the use of private contractors in Iraq. More articulated views about what is an inherent
governmental function and how to protect it might emerge. The process for commenting on
agency IGF decisions could employ procedures associated with notice and comment rulemaking,
which could make the review process more open and effective without bogging it down
unnecessarily.262 These ideas require no statutory changes.263 They require only the will to hear
all sides of the debate and to recognize the significance of the inherent government function
decision.
VI. Judicial Challenges to Improper Privatization of Government Agencies
Constitutional challenges to contracting out of inherent government functions face numerous
challenges. An action based on the Carter Coal nondelegation doctrine could lie if the privatized
powers are granted without sufficient government oversight or accountability. But this approach
is hindered by the fact that nondelegation generally is out of favor with the Court and further by
the difficulty of designing an effective constitutional standard of accountability.264
261
The Senior Executive Service has about 6,000 career positions; 46 percent of which are eligible for retirement
(including early out). See OPM, Federal Civilian Workforce Statistics, THE FACT BOOK 74 (2004 ed.) (in 1990 there
were 6,800 career SES positions).
262
See 5 U.S.C. § 553(c). The notice periods could be shortened and comments could be submitted in written form.
Since these are personnel matters not subject to section 553 requirements in the first place. The use of expedited
procedures would be entirely proper.
263
If statutory change were contemplated, it should revise the A-76 process to ensure agency consideration of
inherent government functions and OMB consideration of the “accountability gap” that is emerging governmentside when top officials (i.e. SES level) are replaced or stretched too thin.
264
Even under Carter Coal, delegations to private hands seem to require only a formal set of oversight mechanisms
which would likely be satisfied by the government process that awards the contract.
60
The larger Marbury question of whether some discretionary functions are nondelegable at all
is also difficult to frame. If the situation involved delegation of the functions of officers of the
United States there would be clear constitutional support under both Article I and II for
preventing it.265 But the choice will rarely be so clear. Rather than delegate positions per se, the
situations involve delegation of functions that constitutional officers perform. Here the context
will put the judiciary in the awkward position of second guessing agency decisions concerning
budget and policy matters.266 This would be especially true in the privatizing of military
functions which involve foreign policy considerations.
But this does not mean that there are no statutory theories that might be justiciable.267 So far
the contracting out process has so far received little attention in the courts. Circular A-76 states
that “noncompliance with the Circular shall not be interpreted to create a substantive or
procedural basis to challenge agency action or inaction.” The Circular has been held not to
provide a basis for judicial review.268 The FAIR Act has not been construed by the courts and
some have said it does not to permit judicial review.269 However, Section 3 (b) of the Act
specifically provides for “interested party” standing at the administrative level and the statute
265
See discussion at notes 134-136, supra (discussing the oath requirement of Webster v. Doe).
266
See Heckler v. Cheney, 470 U.S. 821 (1985) (agency failure to act held not reviewable).
267
After all, even under Heckler, the Court reserved reviewability for “abdication of statutory responsibilities”. Id.
at 853. In our situation, the failure to act would amount to an agency refusing to enforce the inherent government
function requirement.
268
See Courtney v. Smith, 297 F.3d 455 (6th Cir. 2002) (holding Circular A-76 does not provide standing because it
is not a law). (“This limitation suggests that the internal administrative appeals process… is intended to be the sole
basis for challenging agency action that allegedly violates the Circular.”)
269
See Robert H. Schiver, III, No Seat at the Table: Flawed Contracting Out Process Unfairly Limits Front Line
Federal Employee Participation, 30 PUB. CONT. L. J. 613, 621 (2001).
61
does not expressly bar judicial review.270 In addition, generalized judicial review provisions of
the Administrative Procedure Act (APA)271 would likely be available,272 and the prudential
standing requirements would normally support public employees and the unions (as well as
private contractors) as within the “zone of interests” that the FAIR Act seeks to protect.273
As of yet, however, judicial review has not been granted under the FAIR Act for federal
employees,274 even though disappointed private contractors have been able to challenge
government procurement actions. The Federal Circuit has effectively closed the door to
employee challenges in court by holding that the GAO’s interpretation of interested person
should control.275 It would take congressional action to provide statutory standing for employees
before the Court of Claims, which would be difficult to achieve.276
Of course, even if standing were achieved, review might be of limited value. The scope of
review will be of the arbitrary and capricious variety.277 As with constitutional challenges,
discussed above, courts will be reluctant to debate the substance of government delegations of
270
The Senate report No. 269 accompanying the FAIR Act indicates, however, “any challenges to the inventory, list
[are] to be resolved solely at the agency level by the agency”.
271
5 U.S.C. § 702; See generally PIERCE, SHAPIRO & VERKUIL, supra note 13, at § 54.
272
See, e.g., National Credit Union Adm. v. First Natl. Bank & Trust, Co., 522 U.S. 479, 488 (1998).
273
See National Air Traffic Controllers Ass’n v. Pena, 78 F. 3d 585 (6th Cir. 1996) (standing to challenge related
actions under DFPPA).
274
Federal employees performing non-inherent government functions have not been able to challenge procurement
actions. See AFGE v. Babbitt, 46 Fed. Appx 254, 2002 WL 2027228 (6th Cir.).
275
See American Fed. of Gov’t Employees, AFL-CIO v. United States, 258 F.3d 1294 (Fed.Cir. 2001), cert. denied,
122 S.Ct. 920 (2002) (affirming a Court of Claims denial of employee standing under relevant statutes). Since the
Court of Claims has exclusive jurisdiction over bid protests, the Federal Circuit’s word is final.
276
The GAO would likely oppose such an amendment since it sees judicial review of the A-76 process as potentially
dilatory and expensive (attorney fees, etc.). GAO Comm. Activities Panel, supra note 201, at 88-89 (describing
costs of litigation).
277
See PIERCE, SHAPIRO & VERKUIL, supra note 13, at §7.3.2 (arbitrary and capricious is the default standard of
administrative review and is the most narrow).
62
certain functions to the private sector. The most that could be expected is a review of the
procedures employed at the administrative level.278 As to the competitive sourcing process, the
courts have no metric by which to perform this task. One is reminded of the difficulties the
courts have had in deciding what a public function is for state action purposes.279 The question
of what is an inherent government function might draw closer scrutiny, at least if the agency
procedures to define it were deficient. That question is at the heart of the public-private
distinction and raises in statutory guise the underlying constitutional issue of nondelegable
functions.
Moreover, the relationship between the Circular A-76 contracting out process and the
Subdelegation Act could receive closer study judicially. The Subdelegation Act, which permits
delegations only to federal officials unless Congress specifies otherwise,280 stands as a barrier to
delegation to private parties.281 In the contracting out situation there are two controlling
standards – the FAIR Act which requires agencies to designate IGFs and competitive sourcing
and the Circular A-76 process which drives the public-private competition over competitive
sourcing. The FAIR Act might well satisfy the Subdelegation Act’s requirement for statutory
delegation, but the A-76 process clearly would not (indeed as a Circular, it does not even have
the status of an Executive Order).
But the key issue is the choice agencies make under the FAIR Act to declare certain
government functions eligible for contracting out. Since this choice is legislatively determined,
278
For this reason, the need for evenhanded consideration of agency challenges to contracting out decisions may be
important. See discussion at notes 166-71, supra.
279
See discussion notes at 52-53, supra.
280
See discussion at notes 119-121, supra.
281
Cf. U.S. Telecom Ass’n v. FCC, 359 F.3d 554 (D.C. Cir. 2004) (preventing delegation to state officials under the
Subdelegation Act).
63
it might satisfy the Subdelegation Act’s requirement that Congress specifically grant exceptions
to delegations otherwise limited to Officers of the United States.282 Any legal argument would
have to demonstrate that Congress was aware of this effect of the FAIR Act. In this way, the
relationship of the FAIR Act to the Subdelegation Act and to privatization of government
functions generally could be framed judicially. One could argue that the pro-government bias of
the Subdelegation Act meant that Congress intended to act more carefully in this area.283 The
Subdelegation Act is perhaps the best of judicial tools for restraining the privatization of inherent
government functions.
VII. Connections and Conclusions
This article has sought to connect the public-private distinction to the essential question
of who runs government and for what reasons. There is a long historical, political and legal
tradition that supports this distinction and its role in our society. It is at the core of those
functions of government that are labeled “inherent”. These functions are performed by officials
who exercise discretion and are accountable for the actions of government. The privatization
movement’s success has come to mean that these functions and the actors who perform them
need protection from devolution. Protecting the public sector means identifying some functions
as beyond the reach of privatization.
Giving the public sector an independent value does not undermine the private sector.
This is not a zero sum game. Indeed, in terms of democratic theory this is a positive sum game,
282
See discussion at note 125, supra.
283
The obvious pro-government delegatee bias of the Subdelegation Act reflects a time before wholesale privatizing
was contemplated or endorsed. The Act seems anachronistic now in that regard, but still carries a powerful message
about the role of public officials in the delegation process.
64
where both sides can win. If the public sector is given independent value, the private sector
benefits from clearer rules and better oversight. Our tradition of political liberalism will always
constrain the public sector from usurping the essential role of private enterprise. But our notions
of civil society make it imperative that the public enterprise operate effectively as well.
It is difficult for the courts to implement the public-private distinction under the
Constitution. Carter Coal’s concern with due process and private delegations is one method;
some limitations on delegations by high government officials under Marbury could be another.
As a statutory matter, the Subdelegation Act is an intriguing proposition. It has the potential to
limit government delegations and to make Congress think twice about transferring control of
important government activities to private hands. Judicial intervention can provide the prod,
even if it will not provide the solution.
The various statutory and administrative alternatives under the FAIR Act and Circular A76 have not realized their public law potential. The FAIR Act honors the public-private
distinction by defining inherent government functions; Circular A-76 sets up a competitive
process that allows government employees to challenge rampant privatization. If Congress
replaces the A-76 circular with a better defined statute that guarantees objective consideration of
the larger issues, many still open issues can be resolved.
An expanded administrative process should be led by GAO. GAO must first ensure that
the government remains in charge of those functions that are crucial to our functioning as a civil
society. Its role as an objective decider and honest broker gives it enormous credibility. There is
also no substitute for the public’s voice on these matters, as expressed both through publicprivate competitors and a broad range of interest groups. Should this occur, congressional
interest will be heightened. Congress can record what we are losing in society when the private-
65
public distinction is submerged by the privatization movement. At stake, of course, is the degree
of accountability and credibility necessary to make our government and society work effectively.
Privatization need not be the enemy here. Many functions of government can be
performed better and more effectively with competitive sourcing. But the higher up the policy
ladder the process goes, the closer one gets to inappropriate outcomes. What is lost is not just
the job but the credentials of the official involved. As Justice Scalia noted in his Webster v. Doe
dissent,284 government officials take oaths of office to uphold the Constitution; they also
subscribe to stringent conflict of interest and ethics rules,285 and work for more than money.286
Oaths and badges are not symbols; they are not mere formalities. They often translate into
authority and credibility. The credibility of a public sector employee is not easily transferred to
the private sector. We have learned that in our post 9/11 world government officials have earned
renewed respect from the public.287
The public’s perceptions matter. The Seafood Inspector program288 and the airport
security situation are set out here as two examples that make a large point: the private sector
often wants to have government officials in charge. Admittedly, credibility is something hard to
measure and we are entitled to be skeptical about it. But it does exist outside the confines of
284
See discussion at note 111, supra.
285
See JOHN A. ROHR, ETHICS FOR BUREAUCRATS (2d ed. 1989) (connecting the political challenges of
administration to ethical principles).
286
The view of government officials as purely “budget maximizers” has been challenged. See CHARLES GOODSELL,
THE CASE FOR BUREAUCRACY (4th ed. 2004), at 100-05 (finding non-economic motivations of government officials
in addition to budget maximizing cases).
287
One need only consider the respect that flows to firefighters and police in New York City after 9/11; these are
now prestige jobs and the public respects those who hold them. To see this confirmed, one needs only to count the
number of “FDNY” or “NYPD” caps on private heads.
288
See notes 235-239, supra.
66
Public Choice theory which illuminates the self-interested calculations of political markets.289
Credibility is another way of animating the public-private distinction. Private persons, even if
more efficient and effective than their public counterparts, are inherently deficient in this core
respect.
The goal of this article has been to grant privatization its due, while at the same time
seeking to preserve an arena for the public sector that cannot be displaced by delegations outside
government. These boundaries are admittedly hard to define, but they exist nonetheless. As the
trend toward privatizing government functions accelerates, locating them becomes an
increasingly necessary exercise in public law and management.
289
See Michael J. Trebilcock & Edward M. Iacobucci, Privatization and Accountability, 116 HARV. L. REV. 1422,
1440-41 (2003) (describing the relevance of public choice theory to public decisionmaking).
67