Personal Services and the Line a Contractor Cannot Cross

Published 2026 | TIKC NewsWire

Some compliance risks are about what you deliver. This one is about how the work actually gets done day to day, and it catches good contractors by surprise. There are two related lines you can cross without realizing it: letting the relationship turn into what looks like a government-employee setup, called a personal services situation, or taking on work that only government employees are allowed to do, called an inherently governmental function. Neither shows up on your invoice. Both can put you and the agency in a bad spot.

The personal services line

A normal services contract pays you for a result, and you manage your own people. A personal services relationship is different: the government ends up supervising your employees directly, like a boss, telling them what to do hour by hour. That blurs the line between a contractor and a federal employee, which the government is generally not allowed to create through a contract. It usually happens innocently, a government manager starts directing your staff day to day, but the setup itself becomes the problem, regardless of anyone’s intent.

The inherently governmental line

The second line is about the nature of the work. Some functions are so tied to the public interest that only government employees can perform them, things like making final decisions that bind the government, directing the conduct of other contracts, or exercising real discretion over how public money is committed. You can support those functions, but you cannot step into the government’s shoes and make the call yourself. When a contractor drifts into actually deciding rather than advising, the work has crossed into inherently governmental territory.

Why it is your problem too

You might think this is the government’s rule to worry about, but it lands on you. If the relationship looks like personal services, or if your people are making decisions reserved for federal employees, both sides can face scrutiny, and your contract can be questioned. It also tangles with conflict-of-interest risk when your staff sit close to government decisions. Keeping clear lines around who directs your people and who makes the final call protects you the same way sound conflict-of-interest discipline does.

What to do now

• Keep supervision in-house. Your managers direct your employees; the government should manage the contract and the results, not your people’s day.
• Define the deliverable. Structure the work around outcomes and tasks, not around bodies the government staffs and supervises.
• Stay in the advisor seat. Support and recommend, but let the government make the decisions that bind it or commit public funds.
• Watch the drift. Notice when a government manager starts running your staff directly, and raise it before it hardens.
• Flag gray areas early. If a task feels like deciding rather than supporting, confirm with the contracting officer where the line is.

These two lines are easy to cross precisely because crossing them feels like good service. But being helpful is not the same as being supervised like an employee or making the government’s decisions for it. Keep your people under your own management, stay in the advisor’s seat on the big calls, and raise gray areas early, and you deliver great work without putting your contract at risk. Brick by brick.

FAQ

What is a personal services contract?

It is an arrangement where the government directly supervises a contractor’s employees, making the relationship look like a government-employee one. The government generally cannot create that kind of relationship through a contract unless specifically authorized.

What counts as an inherently governmental function?

Work so tied to the public interest that only government employees may perform it, such as making binding decisions, committing public funds, or directing other contracts. Contractors can support these functions but cannot make the calls themselves.

How does this happen by accident?

Usually through drift. A government manager starts directing your staff day to day, or your team gradually moves from advising to deciding. No one intends to cross the line, but the resulting setup is what creates the risk.

Why should I care if it is the government’s rule?

Because the consequences reach your contract. A relationship that looks like personal services, or contractor staff making governmental decisions, can draw scrutiny to both sides and put your award in question. Clear lines protect you.

Sources

Federal Acquisition Regulation. (2026). Subpart 37.1, Service Contracts — Personal Services.

Office of Federal Procurement Policy. (2026). Policy Letter on Inherently Governmental Functions.

This article is general information, not legal advice.