BNUMBER: B-275587.9; B-275587.10; B-275587.11; B-275587.12
DATE: June 29, 1998
TITLE: Pemco Aeroplex, Inc., Aero Corporation, B-275587.9; B-
275587.10; B-275587.11; B-275587.12, June 29, 1998
**********************************************************************
DOCUMENT FOR PUBLIC RELEASE
The decision issued on the date below was subject to a GAO Protective
Order. This redacted version has been approved for public release.
Matter of:Pemco Aeroplex, Inc., Aero Corporation
File: B-275587.9; B-275587.10; B-275587.11; B-275587.12
Date:June 29, 1998
Kevin P. Connelly, Esq., Seyfarth, Shaw, Fairweather & Geraldson, for
Pemco Aeroplex, Inc.; and Thomas G. Jeter, Esq., Suzanne L. Karbarz,
Esq., and Michael T. Janik, Esq., McKenna & Cuneo, for Aero
Corporation, the protesters.
John E. Lariccia, Esq., Gregory H. Petkoff, Esq., and Brad Adams,
Esq., Department of the Air Force, for the agency.
John Van Schaik, Esq., and Michael R. Golden, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. The Competition in Contracting Act of 1984 (CICA) provides that
the General Accounting Office (GAO) has protest jurisdiction to review
objections to cancellations of solicitations and that GAO shall decide
protests "concerning an alleged violation of a procurement statute or
regulation." Since 10 U.S.C. sec. 2462 (1994) mandates that the
Department of Defense (DOD) procure goods or services under specified
circumstances, rather than supply them from an in-house source, it is
a procurement statute. Under the circumstances, where a DOD agency
issues a solicitation, receives and evaluates bids or proposals, and
awards a contract, and then cancels the solicitation to take the work
in-house, CICA grants GAO the authority to consider a protest that the
agency did not comply with 10 U.S.C. sec. 2462.
2. In a negotiated procurement, the contracting officer is required
to have a reasonable basis to cancel a solicitation. There could be
no reasonable basis for cancelling a solicitation in order to bring
work in-house if doing so violates 10 U.S.C. sec. 2462, which is a
congressional mandate to allow private companies to provide goods and
services to DOD unless the government can provide those goods and
services at a lower cost. Thus, although DOD agencies historically
have had broad discretion to manage resources and make decisions as to
whether to contract out or perform work in-house, when 10 U.S.C. sec.
2462 applies, those decisions are required to be based on a
determination of which source can provide a supply or service at the
lower cost.
3. Although 10 U.S.C. sec. 2462 generally requires that decisions of DOD
agencies as to whether to perform work in-house or to contract out are
to be based upon a determination of which source can perform the work
at the lower cost, section 2462 is subject to the proviso: "Except as
otherwise provided by law." Where a DOD agency reasonably relies on
the need to meet the requirements of 10 U.S.C.A. sec. 2466(a) (West Supp.
1998)--which limits the funds which DOD agencies can use to contract
out for depot-level maintenance and repair work--as a basis for
cancelling a solicitation, this statutory direction means that the
requirements of section 2462 do not apply.
DECISION
Pemco Aeroplex, Inc. and Aero Corporation protest the cancellation of
request for proposals (RFP) No. F09603-95-R-13032 issued by the Air
Force for programmed depot-level maintenance (PDM) of the C-130
aircraft. Pemco and Aero also challenge the decision of the Air Force
to perform the work covered by the RFP in-house at Warner Robins Air
Logistics Center and Ogden Air Logistics Center.
We deny the protests.
BACKGROUND
The RFP was issued in July 1996 and included C-130 PDM work in Europe,
the continental United States, and the Pacific. After a contract for
the continental United States work was awarded to Aero on April 15,
1997, Pemco protested the evaluation of proposals and the award to
Aero. In response to that protest, the Air Force determined that the
evaluation of the offerors' past performance appeared to be
inadequate. As a result, the Air Force announced that it would revise
the solicitation, conduct discussions, solicit best and final offers,
reevaluate proposals, and make a new selection decision. On May 19,
1997, we dismissed Pemco's protest, since the Air Force's corrective
action rendered the protest academic.
The Air Force, however, did not complete this corrective action. The
Air Force's Principal Deputy Assistant Secretary (Acquisition and
Management) directed the agency to take the announced corrective
action but also stated: "[I]n view of emerging changes in depot
workloads[,] re-evaluate the C-130 PDM requirement." May 19, 1997
Letter at 1. After determining that the corrective action could not
be completed until October 1997, the Air Force terminated Aero's
contract and decided that, as a temporary measure, Warner Robins would
"organically" perform the C-130 PDM workload. On June 24, the Air
Force notified offerors that it was "reevaluating the [continental
United States] and [European] C-130 PDM effort to determine the best
approach to ensure readiness and sustainability of the C-130 weapon
system." June 24, 1997 Memorandum.[1]
Finally, on March 3, 1998, the Air Force announced its plans for the
C-130 work. In a memorandum of that date, the contracting officer
informed the offerors that she was cancelling the RFP. That
memorandum stated:
As a result of a comprehensive business case analysis, using the
same terms, conditions and work statement in the C-130 PDM [RFP],
the Air Force has concluded that splitting the [continental
United States] and [European] C-130 PDM workload between the
Warner Robins Air Logistics Center and the Ogden Air Logistics
Center is the most cost effective means of satisfying this
requirement.
March 3, 1998 Memorandum.
PROTEST CONTENTIONS
In addition to arguing that the Air Force improperly failed to take
the corrective action that it had promised, and that the Air Force's
actions were calculated to punish Pemco for filing its earlier
protest, Pemco and Aero argue that there is no reasonable basis for
cancelling the RFP. According to the protesters, the initial reason
offered by the Air Force for cancelling the RFP--that it is more cost
effective to perform the work in-house--was based on a flawed business
case analysis. In addition, the protesters argue that, in conducting
its business case analysis and cancelling the RFP on the basis of that
analysis, the Air Force violated 10 U.S.C. sec. 2462 (1994) and its
implementing regulations, 32 C.F.R. sec. 169a (1997). Section 2462 of
title 10, which is titled "Contracting for certain supplies and
services required when cost is lower," states:
(a) In general.--Except as otherwise provided by law, the
Secretary of Defense shall procure each supply or service
necessary for or beneficial to the accomplishment of the
authorized functions of the Department of Defense (other than
functions which the Secretary of Defense determines must be
performed by military or Government personnel) from a source in
the private sector if such a source can provide such supply or
service to the Department at a cost that is lower (after
including any cost differential required by law, Executive order,
or regulation) than the cost at which the Department can provide
the same supply or service.
(b) Realistic and fair cost comparisons.--For the purpose of
determining whether to contract with a source in the private
sector for the performance of a Department of Defense function on
the basis of a comparison of the costs of procuring supplies or
services from such a source with the costs of providing the same
supplies or services by the Department of Defense, the Secretary
of Defense shall ensure that all costs considered (including the
costs of quality assurance, technical monitoring of the
performance of such function, liability insurance, employee
retirement and disability benefits, and all other overhead costs)
are realistic and fair.
The protesters argue that the cost of contracting for the C-130 PDM
work is lower than the cost of in-house performance and that the Air
Force has not performed the "realistic and fair" cost comparison
required by section 2462(b) in order for an agency to bring work
in-house and to justify a decision to cancel the solicitation. The
protesters argue that the business case analysis was a competition
between public entities--Warner Robins and Ogden--and private
contractors, including Aero and Pemco, and used the proposals
submitted by those firms to determine whether C-130 PDM work could be
performed more cost effectively in-house. The protesters argue that
this competition violated the basic structures and protections of the
procurement system and cannot form the basis for the agency's
cancellation of the C-130 procurement.
Among other flaws, the protesters argue that they were not permitted
to compete equally with the government since Warner Robins and Ogden
were not required to meet the same minimum requirements, submit the
same information, bid on the same level of work, and make the same
certifications. The protesters also argue that the contractors
proposed under a best value solicitation that emphasized technical
merit over price, while the decision to perform the work in-house was
based on low price. The protesters also argue that there was no
meaningful analysis of the agency's conclusion that the government's
estimate of the cost of in-house performance poses low technical and
cost risk.
The protesters also argue that, although no discussions were conducted
with Aero and Pemco while the agency was performing the business case
analysis, the agency discussed the in-house cost estimate with Warner
Robins and Ogden throughout the analysis. In addition, the protesters
argue that the Air Force violated proscriptions on disclosure and use
of a competitor's proprietary information and violated prohibitions
against assisting a competitor--in this case Warner Robins and
Ogden--in preparing its proposal. The protesters also argue that the
Air Force failed to comply with the Department of Defense (DOD) cost
comparison handbook, which requires, among other things, that audits
of public awards be conducted by the Defense Contract Audit
Administration or a public accounting firm and that the government's
proposals be based on generally accepted accounting principles.
Pemco and Aero also argue that the business case analysis performed by
the agency was not realistic and fair, as required by section 2462(b),
since it did not state the reasonable costs the agency could expect to
incur to perform the PDM work. For example, according to the
protesters, the Air Force double counted overhead cost "savings"
associated with the increased volume of work and decreased excess
capacity at the depots. They also argue that the agency unfairly
added $9,556,958 to the contractor's proposal used in the cost
comparison. In addition, the protesters argue that the Air Force
cannot substantiate or support its cost estimate and that the analysis
did not consider depreciation costs, income tax deductions, or cost of
money, and also did not adequately consider the cost of a C-130 flight
test hangar which the Air Force is constructing at Ogden.
ANALYSIS
As we explain in detail below, this Office has jurisdiction to
consider whether the Air Force has a reasonable basis to cancel the
RFP. We also have authority to consider whether the Air Force acted
contrary to 10 U.S.C. sec. 2462 by deciding to cancel the procurement and
perform the C-130 PDM work in-house, instead of contracting for it.
Finally, on the merits of the protests, we conclude that the Air Force
has a reasonable basis for cancelling the solicitation and that the
agency's actions did not violate section 2462 or other applicable
laws.
Jurisdiction
The Air Force's primary response to the protests is to argue that our
Office has only limited jurisdiction over the issues raised.
Specifically, the Air Force argues that our Office does not have
jurisdiction to consider objections to the Air Force's management
decision to perform the C-130 workload in-house, including the
contention that the Air Force's action have violated 10 U.S.C. sec. 2462.
We conclude that our Office has jurisdiction to consider these
protests.
The Competition in Contracting Act of 1984 (CICA), 31 U.S.C.A. sec.
3551-56 (West Supp. 1998), which establishes the procurement protest
system under which we review the contracting actions of federal
agencies, limits our review to consideration of objections to
solicitations, cancellations of solicitations, proposed awards, and
awards of contracts for the procurement of property or services, and
to terminations of such awards under limited circumstances. 31 U.S.C. sec.
3551(1) (1994). Thus, as the Air Force acknowledges, this Office has
jurisdiction under CICA to review and decide objections to the
cancellation of a solicitation.
CICA provides further that the Comptroller General shall decide
protests "concerning an alleged violation of a procurement statute or
regulation." 31 U.S.C.A. sec. 3552. Section 2462 of title 10 mandates
that DOD agencies procure goods or services from a source in the
private sector under specified circumstances, rather than from an
agency source; therefore it is a procurement statute. Thus, where, as
here, a DOD agency issues a solicitation, receives and evaluates bids
or proposals, and awards a contract, and then cancels the solicitation
to take the work in-house, CICA grants us the authority to consider a
protest that the agency did not comply with the requirements of 10
U.S.C. sec. 2462.[2] In this case, therefore, we have jurisdiction to
consider the propriety of the Air Force's decision to cancel the
solicitation, including whether the effect of that decision--taking
the C-130 PDM work in-house--is consistent with 10 U.S.C. sec. 2462.
Cancellation of the RFP
In a negotiated procurement, the contracting officer has broad
authority to decide whether to cancel the solicitation; there need be
only a reasonable basis for the cancellation. Cantu Servs., Inc.,
B-219998.9, B-233697, Mar. 27, 1989, 89-1 CPD para. 306 at 2. So long as
there is a reasonable basis for doing so, an agency may cancel a
solicitation no matter when the information precipitating the
cancellation first surfaces or should have been known, even if the
solicitation is not canceled until after proposals have been submitted
and evaluated, Peterson-Nunez Joint Venture, B-258788, Feb. 13, 1995,
95-1 CPD para. 73 at 4; Nomura Enter. Inc., B-251889.2, May 6, 1993, 93-1
CPD para. 490 at 3-4; after contract award, see Atlantic Scientific &
Tech. Corp., B-276334.2, Oct. 27, 1997, 97-2 CPD para. 116 at 2; or after
the announcement of a different course of action in response to a GAO
protest. Id. at 1-2. In addition, although we will consider a
protester's contention that an agency's actual motivation in
cancelling a solicitation is to avoid awarding a contract or is in
response to the filing of a protest, see Griffin Servs. Inc.,
B-237268.2 et al., June 14, 1990, 90-1 CPD para. 558 at 3, recon. denied,
B-237268.3 et al., Nov. 7, 1990, 90-2 CPD para. 369, if there is a
reasonable basis for the cancellation, notwithstanding some element of
personal animus, we will not object to the cancellation. Dr. Robert
J. Telepak, B-247681, June 29, 1992, 92-2 CPD para. 4 at 4.
In a declaration prepared after the protests were filed, the Air
Force's Principal Deputy Assistant Secretary (Acquisition and
Management) explained that cancellation of the solicitation was in the
best interests of the government for three reasons. First, as Pemco
and Aero were informed on March 3, the Air Force maintains that
performance of the work in-house will reduce the cost of depot-level
maintenance. According to the Air Force, its business case analysis
showed that the cost of performing the C-130 PDM work in-house would
result in savings in excess of $14 million over 3 years.
Second, the Air Force's Principal Deputy Assistant Secretary asserts
that cancelling the RFP is justified because the Air Force no longer
requires an overflow contractor to perform C-130 PDM work in the
United States and Europe. According to her declaration, as a result
of increased efficiency and dwindling workload, the Air Force's air
logistics centers now have excess capacity that can be used to perform
C-130 PDM work in-house.
Third, the Principal Deputy Assistant Secretary states that cancelling
the solicitation and performing the C-130 PDM work in-house will
facilitate the Air Force's compliance with limitations on contracting
for depot-level maintenance and the best use of Air Force capacities
and resources. The Air Force notes that Congress has enacted a
complex statutory regime to govern DOD's utilization of its depot
facilities. In particular, the Air Force notes that 10 U.S.C.A. sec.
2466(a) (West Supp. 1998) prohibits the Air Force from contracting out
more than 50 percent of its depot-level maintenance and repair work.
According to the Air Force, in-house performance of the C-130 PDM work
will facilitate the Air Force's ability to operate within that
statutory limit.
The Air Force argues that any one of these reasons is sufficient to
justify cancellation of the solicitation. According to the Air Force,
absent a demonstration that each of the three reasons lacks a
reasonable basis, the cancellation must stand.
Pemco and Aero, on the other hand, argue that the Air Force could not
have acted reasonably in cancelling the solicitation and bringing the
work in-house if doing so violated 10 U.S.C. sec. 2462. Thus, according
to the protesters, since 10 U.S.C. sec. 2462 requires that the decision
as to whether to contract or to obtain a particular supply or service
in-house is to be based on low cost, regardless of the merits of any
other grounds for cancellation, if in-house performance of the C-130
PDM work is not the lower cost alternative, then section 2462 requires
that the PDM work be contracted out.
Although the Air Force correctly points out that section 2462 does not
address the cancellation of a solicitation, we agree with Pemco and
Aero that there could be no reasonable basis for cancelling the
solicitation in order to bring work in-house if doing so violates 10
U.S.C. sec. 2462, which on its face governs decisions concerning whether
to contract or perform work in-house. As the protesters argue,
section 2462(a) is a congressional mandate to allow private companies
to provide goods and services to DOD unless the government can do so
at a lower cost. Thus, although DOD agencies historically have had
broad discretion to manage resources and make decisions as to whether
to contract out or perform work in-house, when 10 U.S.C. sec. 2462
applies, those decisions are required to be based on a determination
of which source can provide a supply or service at the lower cost. In
other words, when it applies, section 2462(a) does not permit an
agency to base such a decision on noncost factors. See CC
Distributors v. United States, 883 F.2d 146, 149, 154-156 (D.C. Cir.
1989) (holding that under 10 U.S.C. sec. 2462 and its implementing
regulations, the decision about whether particular work should be
performed in-house is not totally discretionary to agency officials);
see also Diebold v. United States, 947 F.2d 787, 797 (6th Cir.
1991).[3]
Nonetheless, although we conclude that 10 U.S.C. sec. 2462 generally
applies to DOD agency decisions as to whether to perform work in-house
or to contract out, section 2462 is subject to the proviso: "Except
as otherwise provided by law." We conclude that the proviso applies
here--thereby negating the requirements of section 2462--since the Air
Force determined--and the record supports that determination--that
cancellation and performance of the work in-house were justified by
the Air Force's need to comply with the limitation contained in 10
U.S.C.A. sec. 2466(a). That provision states:
Percentage limitation.--Not more than 50 percent of the funds
made available in a fiscal year to a military department or a
Defense Agency for depot-level maintenance and repair workload
may be used to contract for the performance by non-Federal
Government personnel of such workload for the military department
or the Defense Agency. Any such funds that are not used for such
a contract shall be used for the performance of depot-level
maintenance and repair workload by employees of the Department of
Defense.
10 U.S.C.A. sec. 2466(a).
Pemco argues that the "[e]xcept as otherwise provided by law" proviso
does not apply here. Pemco notes that 10 U.S.C. sec. 2462 was originally
set forth in the National Defense Authorization Act for Fiscal Year
1987, Pub. L. No. 99-661, sec. 1223(a), 100 Stat. 3816, 3977 (1986).[4]
Pemco also notes that a Senate report concerning 10 U.S.C. sec. 2462
states as follows:
This provision will enable private industry to compete with the
government sector wherever possible with the following
exceptions: Firefighters (see applicable bill language) . . . and
Core Logistics functions as determined by last year's
authorization bill.
S. Rep. No. 99-331, at 277-278 (1986).
According to Pemco, this legislative history indicates that the
"[e]xcept as otherwise provided by law" proviso of 10 U.S.C. sec. 2462
exempts only firefighters and core logistics functions. As Pemco
notes, the solicited C-130 PDM work does not involve firefighters and
is not a core logistics function. Thus, Pemco argues, since there is
nothing in the legislative history that suggests the drafters of 10
U.S.C. sec. 2462 or 10 U.S.C.A. sec. 2466 believed that 10 U.S.C.A. sec. 2466
would fall within the "[e]xcept as otherwise provided by law"
exception, this Office should not interpret section 2466 as an
exception to section 2462.
We do not agree with Pemco's interpretation. When determining
legislative intent, "the beginning point must be the language of the
statute, and when a statute speaks with clarity to an issue judicial
inquiry into the statute's meaning, in all but the most extraordinary
circumstances, is finished." Estate of Cowart v. Nicklos Drilling
Co., 505 U.S. 469, 475 (1992). While the Senate report contains
language suggesting that the "[e]xcept as otherwise provided by law"
proviso should be limited to two specific circumstances--firefighters
and core logistics functions--those specific circumstances were not
included in the enacted version of section 2462. Therefore, based on
a plain reading of the statute, the exception is not limited to those
circumstances. Chicago City-Wide College, B-228593, Feb. 29, 1988,
88-1 CPD para. 208 at 5. Under the circumstances, we conclude that the
requirements of section 2466 can form the basis for an exception to
the requirements of section 2462.
We now turn to the merits of the Air Force's determination that
cancelling the solicitation is necessary to ensure compliance with 10
U.S.C.A. sec. 2466(a). The Air Force argues that the agency's Principal
Deputy Assistant Secretary (Acquisition and Management) is cognizant
of the overall depot environment and the statutory constraints imposed
on the Air Force's management of its depots and that in managing the
contracting activity ongoing at any one depot, she must consider
current as well as future contract activity. According to the Air
Force, the Principal Deputy Assistant Secretary determined that
performance of the C-130 PDM workload in-house reflected an
appropriate allocation of in-house and contractor resources and would
facilitate the Air Force's ability to operate within the 50-percent
limit set by Congress in section 2466(a).
In response to this contention, the protesters argue that the decision
of the Principal Deputy Assistant Secretary--that performance of the
C-130 workload in-house would facilitate the Air Force's ability to
operate within the limit of 10 U.S.C.A. sec. 2466(a)--has not been
documented and there is no evidence in the record that the agency did
any analysis to support that conclusion. In addition, the protesters
argue that the Air Force's own documents show that the conversion of
this work to in-house performance will not seriously affect the
ability to meet the workload ratio requirement. The protesters argue
that the C-130 PDM workload is worth approximately $27 million in
fiscal year 1998 and note that the Air Force's documents show that
bringing the C-130 PDM work in-house will effect a change of less than
1 percent in the proportion of the Air Force's depot-level work that
is performed in-house.
In response to our request, the Air Force provided the following
further explanation of its need to cancel in order to ensure
compliance with 10 U.S.C.A. sec. 2466(a). According to the Air Force,
due to section 2466(a), the agency's management of its depot system is
tightly proscribed by law and, as a result, the agency must vigilantly
manage its depot-level maintenance and repair workloads, carefully
balancing the funds used for contracting and in-house performance.
The Air Force notes that it must manage numerous contracting and
organic actions that have or may have an effect on its ability to
comply with the law. The Air Force notes that information provided to
GAO in connection with a statutorily required GAO audit of DOD
compliance with section 2466 shows that, for fiscal year 1998, the
difference between the funds provided to public depots (approximately
$3.112 billion) and private contractors (approximately $2.503 billion)
is approximately $600 million. Thus, the Air Force points out that a
shift of $300 million from the public depots to the private sector
will result in the Air Force violating 10 U.S.C.A. sec. 2466(a).
In addition, the Air Force notes that each one of these decisions to
contract out performance of depot-level maintenance and repair has an
impact on and possibly precludes future decisions, because
"headroom"--the amount of appropriated funds that the Air Force can
use for contracting with the private sector for depot-level
maintenance and repair without violating 10 U.S.C.A. sec. 2466--is a
scarce resource. The Air Force explains that, when it makes a
decision to contract out, the agency loses its ability to use that
"spent" headroom to contract for future depot-level maintenance and
repair, which may, in retrospect, be more suitable for contractor
performance because the depots do not have required capabilities.
As an additional factor complicating these decisions, the Air Force
notes that, while in 1997 Congress amended section 2466 to
increase--from 40 percent to 50 percent--the percentage of depot-level
maintenance and repair workload that could be contracted out, at the
same time, Congress also statutorily defined "depot-level maintenance
and repair." In this respect, "depot-level maintenance and repair" is
now statutorily defined to include, among other things, "interim
contractor support or contractor logistics support." 10 U.S.C.A. sec.
2460 (West Supp. 1998). According to the Air Force, "interim
contractor support or contractor logistics support" efforts have
historically been performed by the private sector and the Air Force
previously did not consider these efforts to be depot level
maintenance and repair workload. As a result, the Air Force argues
that these revisions significantly altered the agency's balance of
workload for purposes of section 2466 and greatly increased the need
for close scrutiny of all depot-level source of repair assignments and
the difficulty of complying with the limitation on contracting
depot-level workload.
Information provided to this Office in connection with the required
audit of DOD compliance with section 2466(a) supports the Air Force's
contention that it is close to the 50-percent limit for fiscal year
1998 and later years. In fact, that information shows that 45 percent
of the funds available for depot-level maintenance and repair for
fiscal year 1998 are to be spent on private sector contracts--placing
the Air Force within 5 percent of the 50-percent limit of section
2466. While this situation could change, the agency is constrained
by, among other factors, the fact that funds committed to contracts
with the private sector are lost for the duration of those
contracts.[5] In any event, since the Air Force is projected to be
close to the statutory limit, we think the agency must be allowed a
reasonable exercise of discretion in determining what steps to take to
remain within that limit. Thus, in this case, since the Air Force is
projected to be close to the 50-percent limit for fiscal year 1998, we
conclude that it was a reasonable exercise of the agency's discretion
to cancel the RFP in order to bring the C-130 PDM workload in-house.
Other Issues
The protesters, nonetheless, argue that cancelling the RFP cannot be
justified by the need to comply with section 2466(a) since the Air
Force is left violating the requirement of 10 U.S.C. sec. 2462 that the
Air Force perform a realistic and fair cost comparison in making its
decision whether to contract out. We do not agree. Although the
protesters argue that nothing in section 2466(a) specifically negates
section 2462's mandatory cost comparison requirement, as explained
above, the cost comparison provision of section 2462 is negated in
this case by the "[e]xcept as otherwise provided by law," language of
section 2462 itself and by section 2466(a), which, in fact, otherwise
provides.
In this respect, an agency needs only one reasonable basis to cancel a
solicitation and there is no reason to consider the other grounds
offered by the Air Force to justify the cancellation--that
cancellation and performance of the work in-house will reduce the cost
of depot-level maintenance and that the Air Force no longer requires
an overflow contractor to perform C-130 PDM work. Thus, since the Air
Force's reliance on section 2466 means that the section 2462(a)
provision requiring the decision to be based on low cost does not
apply here, even if in-house performance, in fact, will cost more, the
cancellation is still reasonable. Accordingly, there is no reason to
consider allegations by Pemco and Aero that the Air Force's cost
comparison, or business case analysis, amounted to an unfair
competition between the private firms and the Air Force depots or that
the business case analysis was flawed. Since, as we explained above,
cancelling the solicitation was reasonable--based on the need to
ensure compliance with 10 U.S.C.A. sec. 2466(a)--there is no reason to
consider the other grounds offered by the Air Force to justify the
cancellation or the protesters' allegations concerning those other
grounds.
The protesters argue that the Air Force has unreasonably failed to
take the corrective action which it promised and that the real reason
for cancelling the solicitation was not section 2466(a). For example,
Pemco argues, as it did in its reconsideration request, that the
agency's actions were calculated to deny Pemco a contract in order to
punish Pemco for filing its earlier protest. According to Pemco, this
contention is supported by an article in an Air Force publication,
"The Inspector General Brief," which, according to Pemco,
misrepresents the facts of pending litigation between Pemco and the
Air Force.
As explained above, so long as there is a reasonable basis for doing
so, an agency may cancel a solicitation after the announcement of a
different course of action in response to a GAO protest. See Atlantic
Scientific & Technology Corp., supra, at 1-2. In addition, if there
is a reasonable basis for cancelling a solicitation, notwithstanding
some element of personal animus, we will not object to the
cancellation. Dr. Robert J. Telepak, supra, at 4. Here, the
protesters have offered no credible evidence showing that the
cancellation was based upon animus toward either firm. In any event,
since the Air Force has provided a reasonable basis for cancelling the
solicitation, neither the timing of the announcement of that basis nor
the possibility of personal animus provides grounds for sustaining
this protest.
Finally, Pemco argues that it is entitled to be reimbursed for the
costs of preparing its proposal. The sole basis for this assertion is
Pemco's argument that the solicitation was improperly canceled. CICA,
31 U.S.C. sec. 3554(c)(1) (1994), and our implementing regulations, 4
C.F.R. sec. 21.8(d) (1998), provide for the recommended reimbursement of
proposal preparation costs only where our Office determines that "a
solicitation for a contract or a proposed award or the award of a
contract does not comply with a statute or regulation." In this case,
since the challenged cancellation was proper, and since there has been
no showing that the agency has acted contrary to statute or
regulation, there is no basis to recommend the recovery of these
costs. See Bahan Dennis Inc., B-249496.3, Mar. 3, 1994, 94-1 CPD para.
184 at 6.
The protests are denied.
Comptroller General
of the United States
1. Pemco requested reconsideration of our dismissal of its earlier
protest. Among other allegations, Pemco argued that we should
reconsider its protest as a result of the Air Force's failure to
promptly take the promised corrective action. Pemco also protested
that the Air Force had improperly canceled the solicitation. In Pemco
Aeroplex, Inc.--Recon. and Costs, B-275587.5, B-275587.6, Oct. 14,
1997, 97-2 CPD para. 102, we denied Pemco's reconsideration request and
protest.
2. We do not decide here whether we would have jurisdiction if the Air
Force had simply issued the solicitation and canceled it without
receiving and evaluating proposals and making award.
3. In the past we have declined to review DOD agency decisions
concerning whether to perform work in-house or to contract out because
we considered such decisions to be a matter of executive branch
policy, Nomura Enter. Inc., supra, at 4; Daniels Mfg. Corp., B-253637,
June 7, 1993, 93-1 CPD para. 439, except where the challenged agency had
used the procurement system by issuing a solicitation for the purpose
of conducting a cost comparison under Office of Management and Budget
Circular A-76. Daniels Mfg. Corp., supra., W. B. & A., Inc.,
B-229926.3, May 19, 1988, 88-1 CPD para. 475 at 2. We are unaware of any
previous instance in which a protester has raised 10 U.S.C. sec. 2462 as
the basis for challenging an agency's decision to cancel a
solicitation to bring work in-house.
4. This section was originally set forth at 10 U.S.C. sec. 2304.
5. The Air Force is preparing to conduct public-private competitions
for extensive workloads at the Sacramento Air Logistics Center and the
San Antonio Air Logistics Center. See Public-Private Competitions:
Review of Sacramento Air Force Depot Solicitation, GAO/OGC-98-48, and
Public-Private Competitions: Review of San Antonio Air Force Depot
Solicitation, GAO/OGC-98-49. These competitions each have a potential
value of more than $2 billion over a number of years. These workloads
could have a substantial impact upon the Air Force's ability to comply
with the 50-percent limit.