The Defense Department has issued guidance to help its buying agencies that are conducting public-private competitions to compare costs of employee health benefits paid by the private sector offeror to those paid by DOD for civilian employees.  Such a comparison is mandated by statute to ensure private sector firms participating in public-private competitions do not receive an advantage over in-house bidders by contributing less toward health insurance than DOD does.  The new requirements mandate:

1.  DOD refrains from giving an advantage to a private sector provider that does not offer employee health benefits or pays less toward health benefits than DOD pays its civilian employees.

2.  Ensures that private sector proposals are adjusted to include an amount that is included in the agency’s cost estimates for its employees.

3.  Use OMB’s standard cost factors in effect on the performance decision date in the  comparison.  In May 2006, when the guidance was issued, the civilian full fringe benefit standard cost factor was 32.85 percent, which includes a 5.7 percent standard cost factor for health and insurance – 5.5 percent for health and 0.2 percent for life insurance.  The government must then determine if the ratio of the private sector offeror’s health insurance contribution to its direct labor costs is equal to or greater than the cost factor used by the government.  If the ratio is less, the policy directs DOD to make an “upward adjustment” so the ratio is equal to the standard health benefit factor.

4.  Exempt from the policy when 10 or fewer DOD civilian employees are involved.

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