Federal Personnel:

Status of the Federal Employee Direct Corporate Ownership Opportunity Plan

GGD-89-49: Published: Apr 3, 1989. Publicly Released: May 8, 1989.

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In response to a congressional request, GAO provided information on the proposed Federal Employee Direct Corporate Ownership Opportunity Plan (FED CO-OP) that would increase government contracting efforts, focusing on: (1) how FED CO-OP evolved; (2) FED CO-OP status; (3) the Office of Management and Budget's (OMB) future plans for FED CO-OP; and (4) the beneficiaries of any remaining employee stock-ownership plan (ESOP) benefits after former federal employees are terminated.

GAO found that: (1) the Office of Personnel Management (OPM) developed FED CO-OP to increase government commercial contracts to the private sector; (2) OMB was responsible for administering FED CO-OP, and planned to include only those commercial activities that could survive even if their government contract expired; (3) under FED CO-OP, affected employees are provided stock incentives to join government contractors; and (4) OMB has received queries from other federal agencies concerning FED CO-OP, and has identified potential commercial activities for contracting. GAO also found that: (1) the Department of Agriculture contracted with an accounting firm to determine its operating costs under FED CO-OP, but believes that it could not implement FED CO-OP until 1990; (2) OMB is currently looking for potential participants in FED CO-OP, but will have no implementation plan until the new administration has established its policy direction; and (3) it was uncertain whether former government employees working for government contractors should be excluded from ESOP bonuses or that FED CO-OP participants would qualify for certain tax benefits. GAO believes that ESOP stock bonuses should benefit only former government employees working for FED CO-OP contractors.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: OMB has taken action on one recommendation to consult IRS, but does not plan to take action on the recommendation to explore ways to limit ESOP to former federal employees until FED CO-OP candidates are identified. The review has been delayed until a live case exists, however, OMB has agreed to take action at that time. Accordingly, the recommendation should be closed.

    Recommendation: The Director, OMB, should require the Office of Privatization to explore ways to ensure that: (1) the federally funded portion of ESOP stock bonuses are paid only to the former federal employees who were initially with the subsidiary, even if all of the former federal employees have been terminated; and (2) ESOP meet the Internal Revenue Service's (IRS) requirements. To accomplish these objectives, the Office of Privatization may need to restructure FED CO-OP or seek changes in legislation or regulations.

    Agency Affected: Executive Office of the President: Office of Management and Budget


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