Matter of: Dan Duefrene; Kelley Dull; Brenda Neuerburg; Gabrielle
Martin
 
File: B-293590.2; B-293590.3; B-293883; B-293887; B-293908
 
Date: April 19, 2004
 
Susan Tsui Grundman, Esq., National Federation of Federal Employees,
for Dan Duefrene, and Martin R. Cohen, Esq., American Federal of
Government Employees, for Kelley Dull, Brenda Neuerburg, and Gabrielle
Martin, for the protesters.
Stephen M. Sorett, Esq., ReedSmith, for SERCO Management Services,
Inc., an intervenor.
Daniel N. Hylton, Esq., Forest Service, John F. Ruoff, Esq., Defense
Finance and Accounting Service, and Kathleen Oram, Esq., Equal
Employment Opportunity Commission, for the agencies.
Michael R. Golden, Esq., Office of the General Counsel, GAO,
participated in the preparation of the decision.

DIGEST
 
Notwithstanding May 29, 2003 revisions to Office of Management and
Budget Circular A-76, the in-house competitors in public/private
competitions conducted under the Circular are not offerors and,
therefore, under the current language of the Competition in
Contracting Act of 1984, 31 U.S.C.  3551-56 (2000), no
representative of an in-house competitor is an "interested party"
eligible to maintain a protest before the General Accounting Office.

DECISION

This decision addresses the standing of individuals and organizations
representing in-house competitors in public/private competitions
conducted under Office of Management and Budget (OMB) Circular A-76 to
protest agency decisions under the Circular to contract work out to
the private sector, rather than to perform the work in-house.
 
DUEFRENE PROTEST
 
Dan Duefrene, Regional Vice President for Region 5, Forest Service
Council, National Federation of Federal Employees (NFFE), protests the
United States Department of Agriculture's (USDA) decision, pursuant to
OMB Circular A-76, that it would be more economical to perform the
fleet maintenance services for the Forest Service in the Pacific
Southwest region by a contract awarded to SERCO Management Services,
Inc. (SERCO) under request for proposals (RFP) No. R5SCO603058, rather
than to have the services performed in-house.
 
The USDA conducted a standard competition under OMB Circular A-76, as
revised on May 29, 2003, for these fleet maintenance services. On
January 7, 2004, the USDA announced the standard competition
performance decision and the contract award to SERCO. On January 20,
NFFE, acting through Mr. Duefrene, filed an agency-level protest. On
February 10, the USDA advised Mr. Duefrene that NFFE did not have
standing as a "directly interested party"[1] to contest the standard
competition.  USDA Letter to Mr. Duefrene (Feb. 10, 2004). On February
17, NFFE protested the USDA's decision to our Office and challenged
the agency's decision to contract out the work. Subsequently, Mr.
Duefrene, as the elected representative of a majority of the affected
employees, filed a protest with the USDA. On March 24, the USDA
dismissed and denied the agency-level protest filed by Mr. Duefrene as
the elected representative of the majority of the affected employees.
On April 2, Mr. Duefrene filed a protest with our Office essentially
appealing the USDA's March 24 decision. Thus, Mr. Duefrene, acting
both as NFFE's representative and as the "directly interested party"
representing a majority of the directly affected employees, protests
the USDA's standard competition performance decision. 
 
Regarding Mr. Duefrene's protests, the USDA and SERCO argue that Mr.
Duefrene and NFFE lack standing to protest the agency's contract award
to SERCO because neither is an interested party under the bid protest
provisions of the Competition in Contracting Act of 1984 (CICA), 31
U.S.C.  3551-56 (2000). NFFE primarily argues that based on the
changes to the revised Circular, the employees affected by the
decision to contract out the work meet the CICA definition of an
interested party and that NFFE is the statutory representative
designated by the majority of these employees directly affected by the
agency's decision. In addition, NFFE argues that Mr. Duefrene is the
directly interested party as defined under the revised Circular
because he specifically was appointed by the majority of the affected
employees to be their representative. Protest, Apr. 1, 2004, at 3. As
discussed below, we conclude that there is no statutory basis for an
in-house entity to file a protest at the General Accounting Office
(GAO).
 
Our Office's statutory authority to hear bid protests is found in
CICA, which establishes the standard for standing to file a protest by
allowing a protest to be filed only by an "interested party" with
respect to a contract or a solicitation or other request for offers,
and then defines an "interested party" as "an actual or prospective
bidder or offeror whose direct economic interest would be affected by
the award of the contract or by failure to award the contract." 31
U.S.C.  3551(2). See also Bid Protest Regulations, 4 C.F.R.  21.0(a)
(2004). Under this definition of "interested party," we have heard bid
protests filed by private-sector firms that participated in cost
comparisons under the Circular that preceded the May 29, 2003
revision, since a private firm participating in an A-76 competition is
"an actual . . . offeror whose direct economic interest would be
affected by the award of the contract or by failure to award the
contract."

In contrast, we have consistently found that federal employees and
their unions could not protest any aspect of an A-76 cost comparison
under the prior Circular. We concluded that they did not meet CICA's
definition of an "interested party" and, therefore, as a matter of
law, we lacked authority to consider their protests. In American Fed'n
of Gov't Employees et al., B-282904.2, June 7, 2000, 2000 CPD  87 at
3-4, we identified a number of reasons for this conclusion. We pointed
out that neither individual federal employees, nor the in-house plan
(the "Most Efficient Organization" or MEO), nor the employees' union
representatives was an offeror. In addition, we found that the MEO
plan submitted in an A-76 cost comparison under the prior Circular was
not an offer as defined under the Federal Acquisition Regulation (FAR)
because the MEO was not responding to a solicitation (under the prior
Circular, the solicitation applied only to private-sector
competitors), nor would the MEO, if adopted, lead to the formation of
a contract, which is a mutually binding legal relationship to perform
the services. Indeed, as we pointed out, no contract is awarded where
the MEO prevails in the cost comparison. See also American Fed'n of
Gov't Employees, B-223323, June 18, 1986, 86-1 CPD  572; American
Fed'n of Gov't Employees--Recon., B-219590.3, May 6, 1986, 86-1 CPD 
436 (affirming an earlier dismissal). Consistent with our view, the
Court of Appeals for the Federal Circuit has also found that federal
employees and their unions do not qualify as interested parties to
protest a decision made under the prior Circular. American Fed'n of
Gov't Employees v. United States, 258 F.3d 1294, 1302 (Fed. Cir.
2001).
 
On May 29, 2003, OMB issued a revised Circular A-76, which changes
A-76 competitions to reflect a FAR-based process and which applies to
the competitions at issue here. The new Circular is more than a mere
revision to the earlier one; it is essentially a new document that
establishes new FAR-based ground rules for conducting A-76
competitions, and a number of features of the new Circular reflect
significant departures from its predecessor. For example, the in-house
government entity submits, in response to the solicitation, an "agency
tender" developed by an Agency Tender Official (ATO), which must
satisfy the proposal preparation requirements of section L of the
solicitation. Revised Circular, attach. B,  D.4.a(1). The agency
tender will be evaluated against the same award criteria that apply to
the private-sector proposals (with a few exceptions to take into
account the unique posture of the agency tenders); the agency tender
may be the subject of discussions and negotiations with the ATO (on
behalf of the MEO); and the agency tender can be rejected as
unacceptable. Revised Circular, attach. B,  D.5.c(3). If the agency
tender prevails in the competition, the contracting officer will
incorporate appropriate portions of the solicitation and tender in an
"MEO letter of obligation" issued to an official responsible for
performance of the MEO. Revised Circular, attach. B,  D.6.f(3).
Finally, the public-sector source's failure to perform in accordance
with its obligations, as reflected in the letter of obligation, can
result in a termination action. Revised Circular, attach. B, 
E.6.a(2).
 
These significant changes caused us to consider the question of
whether we should now reach a different conclusion regarding the
in-house entity's standing to file a protest at GAO regarding the
conduct or outcome of a public/private competition under the revised
Circular. Accordingly, on June 13, 2003, we published a notice in the
Federal Register soliciting comments on the revised Circular's impact,
if any, on the standing of an in-house entity to file a bid protest at
GAO. 68 Fed. Reg. 35,411.

In response to the Federal Register notice, we received a total of 71
sets of comments: from members of Congress, agencies, unions,
associations, and individuals (federal employees and private-sector
lawyers). Some of the commenters supported the position that GAO
should hear protests filed by an in-house entity where the competition
was conducted under the revised Circular; others contended that, even
under the revised Circular, there still is no statutory basis for
standing of an in-house entity to file a protest at GAO.

Those who contend that the changes in the revised Circular justify our
Office's finding that the in-house entity qualifies as an interested
party for purposes of challenging the conduct of public/private
competitions conducted under the new Circular correctly point out that
the language of the Circular has been recast in ways responding to
specific points relied on by our Office for the conclusion that
federal employees and their unions lacked standing to file protests at
GAO. For example, as noted above, the agency tender in some ways is
treated as an offer; if successful, the agency tender will lead to a
formal letter of obligation; and the agency tender can be terminated
if the public sector source fails to perform as required. The MEO and
its agency tender thus are an integral part of the FAR-based
competition, not separate from it as under the prior Circular.

Nevertheless, the distinctions between the two versions of the
Circular cannot properly make a difference in our position that, under
the current statutory language in CICA--which is the language we must
look to in determining whether a party has standing to protest to our
Office--the in-house entity lacks standing to protest. First and
foremost, the MEO is still not competing for a contract: if the MEO
wins the competition, the work will be performed in-house and,
notwithstanding the new Circular's use of the term "letter of
obligation" and the reference to termination, there will be no
contract. The letter of obligation is not a mutually binding legal
relationship between two signatory parties--there is no contractual
legal relationship between the MEO and the agency. Importantly, the
agency cannot seek legal redress against the MEO, for example, by
seeking reimbursement of excess reprocurement costs if the MEO is
"terminated" for failure to meet its commitments. Cf. FAR 
49.402-2(e) (contractors are liable to the government for excess
reprocurement costs when a contract has been terminated for default).
Because the letter of obligation is not a contract, the MEO's "tender"
cannot properly be viewed as an offer (since an offer is something
that, if accepted, would create a contract, FAR  2.101; Restatement
(Second) of Contracts  24, 35 (1981)). Hence, under the new
Circular, as under the prior one, no in-house entity can qualify as an
"actual or potential offeror" and thus as an interested party for
purposes of filing a protest at GAO.

In addition, since the MEO is not an actual entity, it cannot have
a "direct economic interest [that] would be affected by the award of
the contract or by failure to award the contract," as CICA requires
for a would-be protester to be an interested party. While individual
employees certainly may have an interest in who wins the competition,
the MEO, as a mere management plan, has no such interest. Even the
employees' interest is problematic for at least two reasons. First,
which employees would ultimately be affected, and how they would be
affected, is not clear until long after a protest would need to be
filed, since the government's "bump-and-retreat" rules, 5 C.F.R. 
351.701-351.705, make it hard to predict which employees would
actually be affected by a decision to contract out. Second, individual
employees' interests have never been viewed as establishing
interested-party status, since to do so would allow any private
competitor's employees to claim that status, a position that we have
always rejected.

In sum, we find that, under the current language of CICA, our Office
cannot consider a protest filed on behalf of an MEO, and we therefore
dismiss Mr. Duefrene's protest.
 
DULL, NEUERBURG, AND MARTIN PROTESTS
 
On March 24, 2004, Kelley Dull, "in her capacity as President of
American Federation of Government Employees, AFL-CIO, Council 171, the
union, and in her capacity as the individual selected by a majority
vote of affected employees to represent them on an OMB Circular A-76,
the circular, competitive sourcing matter," protested "a sourcing
decision by the Defense Finance and Accounting Service" to contract
for desktop services. Protest, Mar. 24, 2004, at 1-2.

On March 26, 2004, Brenda Neuerburg, "in her capacity as President of
American Federation of Government Employees, AFL-CIO, Council 117, the
union, and in her capacity as the individual selected by a majority
vote of affected employees to represent them on an OMB Circular A-76,
the circular, competitive sourcing matter," protested a sourcing
decision by the Department of Homeland Security to contract for
background checks.  Protest, Mar. 25, 2004, at 1-2.

On March 29, 2004, Gabrielle Martin, "in her capacity as President of
the AFGE Council 216 . . . the union, and in her capacity as the
individual selected by a majority vote of affected employees to
represent them on an OMB Circular A-76, the circular, competitive
sourcing matter and/or on a . . . procurement system matter,"
protested the United States Equal Employment Opportunity Commission's
decision to contract for call-center services. Protest, Mar. 29, 2004,
at 1-2.

In these protest filings, the protesters argue that these "sourcing
decisions" violate the competition requirements of the revised
Circular.  Even assuming the protesters are correct and the agencies
were required, under the revised Circular, to conduct a standard
competition between the public and private sectors, the reasoning set
out above applies equally to the standing of these protesters: under
the current language of CICA, our Office is precluded from considering
protests on behalf of in-house entities in A-76 competitions.

We recognize the concerns of fairness that weigh in favor of
correcting the current situation, where an unsuccessful private-sector
offeror has the right to protest to our Office, while an unsuccessful
public-sector competitor does not. As a result, consistent with the
principles adopted unanimously by the Commercial Activities Panel in
its April 2002 report, we are recommending that Congress consider
amending CICA to allow protests to be brought on behalf of MEOs.
Accordingly, by letter of today to the Chairman and Ranking Minority
Member of the House Committee on Government Reform, the Senate
Committee on Governmental Affairs, and the Senate and House Committees
on Armed Services, we are transmitting a copy of this decision, with
the suggestion that Congress may wish to consider amending CICA to
provide for MEO standing. The letter also suggests that any amendment
to CICA specify who would be authorized to protest on the MEO's
behalf: the ATO, affected employees (either individually or in a
representative capacity), and/or employees' union representatives.

Because the protesters are not interested parties for purposes of
filing a protest, we dismiss the protests.
 
Anthony H. Gamboa
General Counsel
 

 
 
April 19, 2004
 
The Honorable Susan M. Collins
Chairman, Committee on Governmental Affairs
United States Senate

Dear Madam Chairman:
 
As you know, since the Office of Management and Budget (OMB) issued
its revised Circular A-76 in May 2003, there has been controversy
about whether in-house competitors should have standing to file bid
protests at the General Accounting Office (GAO) to challenge the
conduct of public/private competitions under the revised Circular. I
am writing today to report to you GAO's legal conclusions regarding
this matter. As explained in the enclosed bid protest decision, which
we are issuing today, we conclude that, as the law stands now, no one
has standing to file a bid protest at GAO on behalf of an in-house
competitor (the "most efficient organization" or MEO). However, we
believe that a number of policy considerations, including the
principles unanimously agreed to by the Commercial Activities Panel,
weigh in favor of allowing certain MEO protests with respect to
public/private competitions conducted in accordance with OMB's revised
Circular A-76. As a result, Congress may want to consider amending the
law to allow such protests, and we set out in this letter some points
that may be helpful in that consideration. We stand ready to help in
drafting legislation or in other ways that you request.
 
GAO's statutory authority to hear bid protests is found in the
Competition in Contracting Act of 1984 (CICA), 31 U.S.C.  3551-56
(2000). CICA establishes the standard for standing to file a protest
by allowing a protest to be filed only by an "interested party," with
respect to a contract or a solicitation or other request for offers,
and then defines an "interested party" as "an actual or prospective
bidder or offeror whose direct economic interest would be affected by
the award of the contract or by failure to award the contract." 31
U.S.C.  3551(2); see also GAO's Bid Protest Regulations, 4 C.F.R. 
21.0(a) (2004).

Under this definition of "interested party," we currently hear bid
protests filed by private-sector firms that have participated in cost
comparisons conducted pursuant to the Circular, since a private firm
that participated in an A-76 cost comparison submits a proposal in
response to a solicitation in the hope of obtaining a contract. Thus,
a private firm participating in an A-76 competition is "an actual. . .
offeror whose direct economic interest would be affected by the award
of the contract or by failure to award the contract." In fact, during
the past several years, GAO has considered dozens of protests from
private firms challenging the conduct of A-76 cost comparisons.

In contrast, we have consistently found that federal employees and
their unions lack standing to protest an A-76 cost comparison under
the prior Circular.  We concluded that they do not meet CICA's
definition of an "interested party" and, therefore, as a matter of
law, we lack authority to consider their protests. In American Fed'n
of Gov't Employees et al., B-282904.2, June 7, 2000, 2000 CPD  87 at
3-4, we identified a number of reasons for this conclusion. We pointed
out that neither individual federal employees, nor the in-house plan
(the MEO), nor the employees' union representatives is an offeror. In
addition, we found that the MEO plan submitted in an A-76 cost
comparison under the prior Circular was not an offer as defined under
the Federal Acquisition Regulation (FAR) because the MEO was not
responding to a solicitation (under the prior Circular, the
solicitation applied only to private-sector competitors), nor would
the MEO, if adopted, lead to the formation of a contract, which is a
mutually binding legal relationship to perform the services. Indeed,
as we pointed out, no contract is awarded where the MEO prevails in
the cost comparison. See also American Fed'n of Gov't Employees,
B-223323, June 18, 1986, 86-1 CPD  572; American Fed'n of Gov't
Employees--Recon., B-219590.3, May 6, 1986, 86-1 CPD  436 (affirming
an earlier dismissal). Consistent with our review, the Court of
Appeals for the Federal Circuit has also found that federal employees
and their unions do not qualify as interested parties to protest a
decision made under the prior Circular. American Fed'n of Gov't
Employees v. United States, 258 F.3d 1294, 1302 (Fed. Cir. 2001).

The asymmetry between the protest rights of private-sector and
public-sector participants in A-76 competitions has been widely
criticized as unfair. As stated previously, the
congressionally-chartered Commercial Activities Panel, which I
chaired, recognized in its April 2002 report that the principle of
fair treatment meant that both sides in these competitions should have
rights as nearly equal as possible to challenge the way the
competitions have been conducted. I believe that providing a level
playing field in A-76 competitions, with regard to protest standing as
well as other areas, is key to addressing the widespread lack of trust
in the A-76 process. Important public policy concerns thus weigh in
favor of allowing someone to file a GAO bid protest on behalf of the
MEO. Our outreach efforts to both parties and to both Houses of
Congress have led us to understand that there may be bipartisan
interest in addressing these concerns.

On May 29, 2003, OMB issued a revised Circular A-76, which changes
A-76 competitions to reflect a FAR-based process. Those favoring MEO
standing argue that these changes to the Circular affect the standing
of an in-house entity to file a bid protest at GAO. Accordingly, on
June 13, 2003, GAO published a notice in the Federal Register
soliciting comments on the revised Circular's impact, if any, on the
standing of an in-house entity to file a bid protest at GAO. In
response to the Federal Register notice, GAO received a total of 71
sets of comments that break down as follows: 1 letter from three
members of Congress; 9 letters from agencies; 5 from unions; 7 from
associations; 47 from individuals (including federal employees); and 2
from private lawyers. The comments ranged from those who argued that
no one has standing to protest on behalf of an MEO unless CICA is
amended (among others, the Office of the General Counsel of the
Department of the Air Force took this position) to those, such as
federal employees and their unions, who contended that the changes in
the revised Circular justified GAO finding that the unions and
individual employees now have standing to file protests, without the
need to amend CICA.
 
We have carefully considered all of the comments received, as well as
the deliberations in Congress last fall regarding this issue. As
explained in the enclosed decision, the law requires us to find that,
even under the revised Circular, the MEO is not an "actual or
prospective offeror" and we, therefore, do not have legal authority to
hear protests filed on behalf of MEOs. Accordingly, if MEOs are to be
granted standing, that will be a decision for Congress to make, if
it so decides, by amending CICA.
 
The question of representational capacity--who speaks for the MEO and
could therefore file a protest on its behalf--is a separate question,
and it is an important and difficult one. Importantly, there was no
consensus on this point even among those responding to GAO's June 2003
Federal Register notice who contended that the MEO had standing at
GAO. Some believed that only the official who will develop and submit
the agency tender, the Agency Tender Official (ATO), could file a
protest; others thought, consistent with the revised Circular's
"directly interested party" definition, that either the ATO or an
employee representative should be allowed to file; still others
thought the unions should be allowed to file along with the ATO and
the employee representative. In our view, choosing among those
options, if MEO standing is permitted, is an important policy decision
appropriately left to Congress.

In sum, we have reached the following conclusions. First, MEOs do not
meet the current CICA definition of "interested parties," so that GAO
must dismiss protests filed by MEOs. Second, in light of the public
policy concerns weighing in favor of allowing MEOs to file bid
protests, Congress may wish to amend CICA. Finally, any amendment to
CICA to allow MEO protest standing should specify whether standing
extends to ATOs, individual federal employees (either as individuals
or with one or more individuals acting on behalf of all affected
employees), and/or federal employees' union representatives.

We are available to discuss this matter, if you would like. In
addition, if there is congressional interest in amending CICA to
address these concerns, we would be happy to provide assistance in
drafting appropriate legislation or to help in other ways that you
request. We are sending similar letters to the Ranking Minority Member
of your Committee as well as the Chairman and Ranking Minority Member,
House Committee on Government Reform as well as the Chairman and
Ranking Minority Member of the Senate and House Committees on Armed
Services. We will provide copies to other interested parties.
 
Sincerely yours,

David M. Walker
Comptroller General
of the United States
 
Enclosure
 
[1] The revised Circular (May 29, 2003) provides that "a directly
interested party" may contest certain enumerated agency actions "taken
in connection with the standard competition." Revised Circular,
attach. B,  F.1. The revised Circular further provides that "the
pursuit of a contest by a directly interested party and the resolution
of such contest by the agency shall be governed by the procedures of
FAR [Federal Acquisition Regulation] Subpart 33.103."  Id. FAR 
33.103 provides the procedures for filing and resolving agency-level
protests.