BNUMBER:  B-270827; B-270827.2
DATE:  April 30, 1996
TITLE:  Crown Healthcare Laundry Services, Inc.

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Matter of:Crown Healthcare Laundry Services, Inc.

File:     B-270827; B-270827.2

Date:April 30, 1996

Jesse W. Rigby, Esq., Clark, Partington, Hart, Larry, Bond, Stackhouse 
& Stone, for the protester.
Gregory H. Petkoff, Esq., and Kirkland D. Foster, Esq., Department of 
the Air Force, for the agency.
Peter A. Iannicelli, Esq., and Michael R. Golden, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Protest that the Air Force improperly conducted a cost comparison 
between the Department of Veterans Affair's (VA) and the protester's 
offers to do laundry services to justify the Air Force's decision to 
convert laundry services contract to performance by the VA under 
interagency sharing agreement is denied where the protest fails to 
show that the Air Force's methodology was unreasonable or inconsistent 
with Office of Management and Budget Circular No. A-76.

DECISION

Crown Healthcare Laundry Services, Inc. (Crown) protests the Air 
Force's decision to have the Department of Veterans Affairs (VA) 
perform laundry services for Keesler Air Force Base (Keesler), as 
solicited under invitation for bids (IFB) 
No. F22600-95-B-0030, rather than to continue to contract with Crown 
for those services.  The Air Force decision to have the VA do the work 
was based upon an Office of Management and Budget (OMB) Circular No. 
A-76 comparison of the estimated cost of VA performance with Crown's 
bid price.  Crown contends that the cost comparison was flawed for 
various reasons discussed below.[1]

We deny the protest.

Issued on February 6, 1995, the IFB solicited bids for performing 
laundry services[2] for Keesler for a basic contract period of 1 year 
with options for 3 additional years.  The IFB indicated that an A-76 
cost comparison study would be conducted and included a performance 
work statement (PWS) to be used in formulating bids and the government 
cost estimate.  The VA provided its cost information to the Air Force 
along with an interagency sharing agreement[3] indicating its 
willingness to provide laundry services to Keesler; the Air Force used 
the VA's cost data to formulate the in-house cost estimate.  For 
purposes of this A-76 cost comparison, the VA was considered the 
in-house bid.  Two bids were received from commercial bidders.  The 
low-priced commercial bid was withdrawn based upon its containing a 
mistake, leaving only Crown's bid and the VA's estimate in contention.  
Based upon its cost comparison, the Air Force determined that it would 
be cheaper to have the work performed in-house by the VA than to 
continue to have Crown perform the work.[4]

After the agency provided the cost comparison study to Crown, Crown 
appealed the decision to have the VA perform the contract, alleging 
several errors in the way the VA's costs were calculated.  On August 
14, 1995, Keesler's administrative appeal review team denied Crown's 
appeal, finding that the cost comparison was accurate and complete.  
Crown filed a second administrative appeal which was denied by the Air 
Force on December 12.  Shortly thereafter, Crown filed the first of 
two protests in our Office.[5]

The protester contends that the Air Force's cost comparison was flawed 
because the Air Force relied upon VA cost estimates that 
underrepresented the actual costs of having the VA do the work.  The 
protester states that the VA's cost estimate was based upon doing less 
work than was described in the PWS upon which Crown based its bid.  
Crown also argues that the VA underestimated the weight of the laundry 
to be cleaned, thereby understating the actual costs of in-house 
performance.  Crown further contends that the Air Force erred because 
it added the agency's costs of administering a contract with Crown to 
Crown's bid but did not add the cost of administering its contract 
with the VA to the VA's cost estimate.

OMB Circular No. A-76 describes the executive branch's policy on the 
operation of commercial activities that are incidental to performance 
of government functions.  It outlines procedures for determining 
whether commercial activities should be operated under contract by 
private enterprise or in-house using government facilities and 
personnel.  Generally, such decisions are matters of executive branch 
policy that our Office declines to review. However, we will review 
A-76 decisions resulting from an agency's issuance of a competitive 
solicitation for the purpose of comparing the cost of private and 
governmental operation of the commercial activity to determine whether 
the comparison was faulty or misleading.  See United Media Corp., 
B-259425.2, June  22, 1995, 95-1 CPD  para.  289; Tecom, Inc., B-253740.3,  
July 7, 1994, 94-2 CPD  para.  11.  

In an OMB Circular A-76 cost comparison, bidders and the government 
should compete on the basis of the same scope of work.  See DynCorp, 
B-233727.2, 
June  9, 1989, 89-1 CPD  para.  543.  OMB Circular A-76 requires agencies to 
prepare in-house cost estimates on the basis of the most efficient and 
cost effective in-house operation needed to accomplish the 
requirements.  See  Tecom, Inc., supra.  We review agency decisions to 
perform services in-house instead of contracting for them solely to 
ascertain whether the agency followed the announced "ground rules" for 
the cost comparison.  Id.  Here, we find that Crown's contentions that 
the agency's cost comparison was flawed are without merit.

We first address Crown's contention that the VA's cost estimate was 
based upon doing less work than was called for in the PWS.  Basically, 
Crown contends that the PWS requires whoever performs the laundry 
services to count each laundry article at the time of pickup from and 
delivery to Keesler.  Crown states that its bid prices included the 
costs of two delivery trucks, two drivers, and four other employees 
who would assist in counting the laundry items, while the VA's 
estimated costs were based upon having only one delivery truck and 
driver provided by a private firm.  Crown asserts that on some days 
the workload volume will make it impossible for the VA to count the 
items and make timely pickups and deliveries using only one truck and 
driver.  Crown also asserts that the VA's inability to make timely 
pickups and deliveries will be exacerbated because the truck to be 
provided to the VA by the commercial firm is too small for the average 
daily workload. 

The Air Force reports that the same PWS was presented to both Crown 
and the VA for bidding purposes and that the PWS does not require 
counting of all laundry items at the time of pickup/delivery.  The 
agency states that it never intended for the launderer to count Lot I 
medical center items (i.e., patient laundry), which comprise about 35 
percent of the total workload, because of the possibility of 
contamination.  The agency states that the rest of the laundry will to 
be counted by government clerks at each pickup/delivery point and, 
therefore, it will not be necessary for the launderer to count the 
items again as the agency's count is considered accurate and may be 
accepted by the launderer.  The contracting officer also asserts that 
the weighing of patient linen being picked up and counting of other 
items (i.e., hospital uniforms) being delivered will not consume 
enough of the driver's time to interfere with the delivery schedule.  
Moreover, the contracting officer states that the VA is not committed 
to using a particular commercial firm for pickup/delivery and that the 
VA may use any contractor it chooses or may perform the task 
itself.[6]

We think that the Air Force reasonably interpreted the PWS as not 
requiring the launderer to count each article of linen at pickup and 
delivery.  The PWS requires the launderer to "receive, account for, 
launder and return" all items.  While the protester argues that 
"account for" means that the laundering entity must actually count 
each individual item at both pickup and delivery, Webster's New 
Collegiate Dictionary defines "account for" as the furnishing of a 
justifying analysis or explanation; the definition does not state that 
to account for the items means literally counting items.  The PWS does 
not require the contractor to count items, leaving to the discretion 
of each offeror to decide how to accomplish this task.  For example, 
the PWS specifies that Lot I medical center items (i.e., patient 
laundry)-- the largest category of laundry by far--will be picked up 
in a commingled state in laundry bags and weighed rather than counted.  
The PWS also specifically states that an Air Force representative will 
count all laundry items before turning them over to the laundry truck 
driver.  Even though the launderer might want to check the Air Force's 
count of items picked up, it appears that one reasonable approach 
would be for the launderer to accept the Air Force's count initially 
and then confirm its accuracy or inaccuracy during the cleaning 
process, at which time the launderer is required to mark-in and tag 
the items, examine and note their condition, and to count the items to 
ensure that all items turned in for cleaning are, in fact, returned to 
Keesler.  Of course, if the Air Force count were regularly found to be 
inaccurate, the launderer could always decide to count the items 
itself or initiate other remedial action.

Crown's contention that the VA's private contractor's truck is too 
small is not convincing.  The PWS does not specify any number or size 
of trucks that must be used; rather, the PWS simply states that 
delivery vehicles shall be of sufficient size and quantity to make 
timely pickup and delivery.  In this regard, we note that Crown's 
laundry facility is approximately 125 miles from the Keesler pickup 
points, while the VA's facility is only 12 miles distant.  Thus, as a 
practical matter, the VA could use one, smaller truck and make several 
trips a day as the contracting officer asserts.  Furthermore, the VA 
obtained a quotation from the commercial trucking firm for estimating 
purposes but is not obligated to use that particular firm or any 
particular size truck.

The protester next contends that the cost comparison was flawed 
because it used VA cost estimates that were based in part on the VA's 
estimate of the total weight of the laundry to be cleaned.  Crown 
contends that the VA's weight estimate was too low.  Since the VA used 
its weight estimate to calculate variable costs (such as personnel, 
supplies, utility usage, and equipment maintenance), Crown believes 
that the VA's cost figures greatly understate the actual cost of doing 
the work.  

In calculating its costs, the VA converted the IFB's estimates[7] of 
the number of items of each type into pounds and then used the total 
estimated pounds to calculate its variable costs.  The VA estimated 
the total weight of the workload to be 2,400,211 pounds per year.[8]  
However, by weighing several of each type of linen and computing the 
average weight, Crown calculated that the actual weight of laundry is 
2,615,616 pounds per year.  Thus, Crown contends that all of the VA's 
variable costs would have to be adjusted upward to account for the 
additional poundage.  Crown's argument is not persuasive.  

The record shows that the VA weighed 100 linen items of each type and 
used the average weight of each type article to compute the overall 
weight of the laundry.  During the course of the two administrative 
appeals, both Crown and the Air Force weighed various linens to see if 
the VA's methodology for calculating the total pounds was reasonable.  
In fact, the sampling of items and their weights contained in the 
record shows that the weight of any particular type of item can vary 
considerably.  For example, the VA weighed three double sheets and 
found their weights to be 1.72, 1.79 and 1.75 pounds; the Air Force 
weighed 20 double sheets and found their average weight to be just 1.5 
pounds; and Crown weighed two double sheets and found their weights to 
be 1.92 and 1.76 pounds.  The unrefuted explanation for these 
significant variations is that the weight of  linen items routinely 
varies due to variations in size, style, thread count, fabric blend, 
manufacturer, number of times washed, and amount of humidity in the 
air.
From this and other examples in the record, it is clear that 
independently computed  total weight estimates, representing hundreds 
of thousands of linen items of many different types, could easily vary 
by a significant amount. 

We have no reason to dispute the validity of the VA's weight estimate.  
The figures in the IFB, whether expressed in pounds or number of 
items, were merely estimates.  Moreover, the IFB did not require 
offerors to convert the estimates from numbers of items to pounds, 
and, consequently, the IFB did not prescribe a conversion factor or 
particular methodology for making such a conversion.  Thus, it was up 
to each offeror to best determine how to compute its bid price or 
costs.  As shown above, we think the VA, which is experienced in 
providing large-scale laundry services, devised a rational method for 
calculating the weight of the laundry, which it then used to compute 
its cost estimates.  

In addition, the Air Force points out that the VA facility currently 
has seven machines operated by four employees, that each machine 
currently cleans only two-thirds of its potential capacity, and that 
the unused capacity is more than enough to clean all of Keesler's 
laundry.  Therefore, the Air Force states, and it is unrefuted by 
Crown, that the VA has a large amount of unused capacity and will be 
able to clean significantly more laundry than it has estimated without 
purchasing new cleaning machines or adding operators.  Moreover, the 
VA points out that not all of its utility costs would increase by its 
performing work for Keesler.  For example, the VA's plant is fully air 
conditioned (air conditioning represents about 25 percent of the VA's 
total utility costs) and the level of air conditioning is not 
dependent on the amount of laundry cleaned for Keesler.   (The VA 
nonetheless included a proportionate share of the cost of air 
conditioning and other utilities in its overall cost estimate.)

As discussed above, we think the Air Force reasonably determined that 
the VA could do the laundry services as described in the PWS at the 
cost it estimated and properly used the VA's cost estimates in its 
A-76 comparison.  While the PWS fully described what was required of 
the laundering facility, Crown and the VA have very different ideas of 
how many workers will be needed to perform pickup/delivery tasks.  In 
keeping with the requirement for using the most efficient in-house 
operation, the VA decided that it could accomplish pickup and delivery 
tasks using a minimal crew, while Crown believed it needed a much 
larger crew.  These two experienced offerors also used similar 
methodologies to estimate the weight of the total workload with very 
different results.  In our opinion, Crown and the VA simply exercised 
their independent business judgments and skills and arrived at 
different logical conclusions regarding the cost of doing the work.  
Thus, Crown has not shown that the VA's cost estimates or the Air 
Force's use of them in the cost comparison were unreasonable.

Crown also contends that the Air Force should not have added $201,934 
in contract administration/quality assurance costs to its bid price, 
because it will cost the Air Force a comparable amount in contract 
administration/quality assurance costs if the VA performs the work and 
the Air Force did not add such costs to the in-house cost estimate.  
However, in view of our finding that the Air Force otherwise 
reasonably estimated the costs of VA performance, we do not believe 
that Crown suffered any competitive prejudice, because the estimated 
cost of having the VA perform the work was $424,740 less than 
contracting with Crown.  Therefore, even if the extra amount 
representing contract administration/quality assurance costs were 
deducted from Crown's cost estimate, Crown would still represent a 
higher cost to the government.  See Orbital Sciences Corp., B-254698, 
Jan. 5, 1994, 94-1 CPD  para.  2.  In any event, the record shows that the 
Air Force will be utilizing the VA's excess laundry capacity and 
intends generally to rely upon the VA's management for quality 
assurance.  Moreover, the VA cost estimate included the salary of a VA 
linen coordinator and the Air Force included in the VA estimate the 
cost for an Air Force  housing manager; these two employees will 
perform quality assurance, liaison, and some administrative tasks.  
Thus, the actual costs of quality assurance and contract 
administration are essentially included in the cost comparison.

The protest is denied.

Comptroller General
of the United States

1. The protester raised numerous arguments and provided details in its 
two appeals to the Air Force and in its protests before our Office.  
We reviewed the entire record, considered all of the arguments, and 
found no basis for sustaining the protests.  We will discuss only the 
dispositive arguments in this decision.

2. The IFB segregated the laundry into six lots, generally 
representing various organizations at Keesler, as follows:  Lot I - 
medical center (further divided into patient laundry and medical staff 
uniforms); Lot II - billeting; Lot III - linen exchange; Lot IV - 
Keesler organizations; Lot V - commissary; Lot VI - child development 
center.

3. In its February 15, 1996, letter commenting on the agency's report 
on its initial protest, Crown filed a supplemental protest alleging 
that the interagency agreement which allows the VA to compete is 
illegal.  This later-raised issue is untimely under our Bid Protest 
Regulations,  4 C.F.R.  sec.  21.2(a)(2) (1996).  The record shows that 
Crown raised this issue with the Air Force in letters dated May 9 and 
October 10, 1995, but did not raise them in its initial protest with 
our Office.  Therefore, because these supplemental issues are untimely 
and were raised in a piecemeal fashion, they will not be considered.  
See GEC Avionics, Inc., B-250957; B-250957.2, Feb. 25, 1993, 93-2 CPD  para.  
24.

4. The agency calculated that the actual cost of contracting with 
Crown would be $3,911,490 for the base plus option years while the 
actual cost of having the VA perform the work in-house would be 
$3,282,451.  After adding $204,299 (representing the costs of 
converting from contracting to in-house performance) to the VA cost 
estimate, the Air Force concluded that having the VA perform the work, 
instead of contracting out to Crown, would save the government 
$424,740.

5. Crown continues to perform the laundry services for Keesler pending 
our decision on its protest.

6. The VA did not submit to our Office any comments on the protests or 
on the Air Force's reports.  However, in response to Crown's 
administrative appeals, the VA stated that Crown's manpower estimates 
for laundry distribution and related tasks are "quite extravagant."  
The VA stated that its cost estimate was based in part upon a price 
quote received from a commercial trucking company after a 
representative from that company was shown the PWS and given a tour of 
the pickup and delivery sites involved.

7. The IFB included estimates of the amount of laundry in each lot for 
use in preparing bids and cost calculations.  The estimates were 
stated either in terms of the number of pounds or the number of 
articles to be cleaned.  For example, medical center patient laundry 
was estimated to consist of 835,500 pounds, while  medical staff 
uniforms were listed by type and number of items (e.g. 4,025 dental 
smocks).  

8. In considering Crown's administrative appeals, the Air Force 
increased the VA's estimate to 2,450,558 pounds for the purpose of 
comparing Crown's bid price with the VA's costs.