BNUMBER: B-277614
DATE: November 3, 1997
TITLE: Madison Services, Inc., B-277614, November 3, 1997
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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:Madison Services, Inc.
File: B-277614
Date:November 3, 1997
Christopher Solop, Esq., and Lynn Hawkins Patton, Esq., Ott & Purdy,
for the protester.
Gregory H. Petkoff, Esq., Capt. Steven J. Dunn, and Lt. Col. Gerald M.
Lawler, 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
1. Protest that Air Force personnel, acting in bad faith, improperly
"gamed" a cost comparison conducted pursuant to Office of Management
and Budget Circular
No. A-76, and that agency's review procedure was biased is denied
where protest allegations are not supported by the record, which shows
that agency personnel simply made a mistake in preparing agency's
in-house cost estimate and that the mistake was corrected during
agency's review process.
2. Protest challenging agency decision to retain base operating
services in-house, rather than contracting for the services, is denied
where agency's decision was reasonably based on the results of a cost
comparison conducted pursuant to Office of Management and Budget
Circular No. A-76, and the protester has not shown that the cost
comparison was faulty or misleading.
3. The General Accounting Office will not review allegations that
certain aspects of the contracting agency's cost comparison were
incorrect where the protester did not raise the issues in its
agency-level cost comparison appeals.
DECISION
Madison Services, Inc. protests the Air Force's decision to retain
in-house performance of base operating services at Columbus Air Force
Base, Mississippi. The decision, made in accordance with Office of
Management and Budget (OMB) Circular No. A-76 procedures, was based on
a comparison of Madison's offer submitted in response to request for
proposals (RFP) No. F41689-95-R-0025 with the Air Force's in-house
cost estimate. Madison contends that the cost comparison was flawed
for various reasons discussed below.
We deny the protest.
Issued on January 8, 1996, as a total small business set-aside, the
RFP solicited offers for performing base operating services at
Columbus Air Force Base for a basic contract period of 1 year with
options for 3 additional years. The RFP divided the base operating
services into three functional areas--civil engineering,
transportation, and supply (of which only the civil engineering and
transportation functions are at issue in this protest). The civil
engineering function included responsibility for operations, military
family housing maintenance, and lodging and linen exchange. The
transportation function included traffic management and vehicle
operations and maintenance. The RFP invited commercial offerors to
submit technical and price proposals for any one or all of the
functional areas.
The RFP stated that commercial offers would be evaluated on technical
factors and price to determine which offers, or combination of offers,
were most advantageous to the government. The RFP stated that an A-76
cost comparison, comparing the prices of the most advantageous
commercial offers with the government's estimate of the cost of
in-house performance, would then be conducted to determine whether it
was more efficient to have the services performed by commercial
entities or to continue to have the services performed in-house. If a
decision was made to contract out, the RFP generally contemplated
award of an indefinite quantity, fixed price contract for the
engineering portion of the requirement,[1] and indefinite quantity,
fixed-price with award fee contracts for the supply and transportation
portion of the requirement.
Six offerors submitted several proposals for one or more functional
areas (four proposals were submitted for the civil engineering
function, five for the transportation function, and five for the
supply function). Discussions were held, and best and final offers
(BAFO) were received in October 1996 and evaluated. A second round of
discussions was held and revised BAFOs were received in November. In
mid-December, after evaluation of revised offers, the source selection
authority determined that Madison's proposal was most advantageous for
the civil engineering and transportation functions and that Eagle
Aviation & Technology, Inc.'s proposal was most advantageous for the
supply function.
The agency performed a cost comparison study, determining that it
would cost less to perform base operating services in-house, and
notified Madison of its decision on March 21, 1997.[2] Madison was
debriefed and, after reviewing the agency's cost comparison study and
supporting data, Madison filed a base-level appeal, by letter of April
4, alleging that the cost comparison was flawed for a number of
reasons.[3] After making some upward adjustments to the agency's
in-house cost estimate in response to Madison's appeal, the Air Force
denied Madison's base-level appeal on May 6. By letter of May 12,
Madison requested a major command (MAJCOM) review of the denial of its
base-level appeal. After making some additional upward adjustments to
the in-house cost estimate, by letter of July 17, the MAJCOM cost
comparison administrative appeal review board upheld the original
decision to retain the base operating services in-house[4] and denied
Madison's MAJCOM appeal.[5] Madison filed this protest shortly
thereafter.
The protester contends that the cost comparison study and appeal
process were seriously flawed.[6] Madison alleges that the base
personnel who prepared the in-house cost estimate "gamed" the
procurement by not including some costs in the initial in-house
estimate so that they could review Madison's and other offerors'
proposed costs before adding the costs during the appeal process.
Madison also alleges that the base-level appeal process and review
team were biased in favor of the base activity and in-house
performance. Additionally, Madison asserts that the figures used in
the cost comparison understate the cost of in-house performance in
several respects and overstate Madison's proposed price.
OMB Circular No. A-76 describes the executive branch 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 companies or in-house using government facilities and
personnel. Generally, such decisions are matters of executive branch
policy that our Office declines to review. Crown Healthcare Laundry
Servs., Inc., B-270827, B-270827.2, Apr. 30, 1996, 96-1 CPD para. 207 at
3. 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.
Id. Here, we find that Madison's contentions that the agency's appeal
process was biased and that the cost comparison was flawed are without
merit.
The protester contends that base activity personnel "gamed" the
procurement process by omitting material and supply costs from the
original in-house cost estimate and then, after Madison's prices were
revealed during the appeals process, inserting an unrealistically low
figure for the agency's material and supply costs in order to ensure
that the cost comparison would be decided in favor of retaining
in-house performance. Madison states that the performance work
specifications (PWS) for both the civil engineering and the
transportation functions contained numerous references to the fact
that the contractor shall furnish everything needed to perform the
work, and states that its own proposal included more than $[deleted]
million for the cost of materials and supplies. In contrast, Madison
points out that the original in-house cost estimate included a "$0"
figure for material and supply costs (line 2 of the cost comparison
study). Madison asserts that the base personnel who calculated the
original in-house estimate intentionally inserted $0 for material and
supply costs so that they could insert a figure that was significantly
less than Madison's proposed price for materials and supplies during
the agency's appeals process. The protester further asserts that the
base-level appeal procedure was biased towards in-house performance
and against an award to Madison because the base-level review team
improperly discussed the omission of material and supply costs from
the original in-house cost proposal with the base activity employees
who had made the original cost estimate before making upward
adjustments to the in-house cost estimate.
Agency officials are presumed to act in good faith. Therefore, an
allegation that contracting officials were biased or acted in bad
faith to prevent an offeror from being awarded a contract must be
supported by convincing evidence that agency officials had a specific,
malicious intent to harm the protester. ASI Universal Corp.,
Inc.--Recon., B-239680.2, Nov. 13, 1990, 90-2 CPD para. 389 at 3. The Air
Force reports that the omission of material and supply costs from the
original in-house cost estimate was nothing more than a mistake made
by the base activity employee who calculated that portion of the
in-house cost estimate. After reviewing the entire record,[7] we
conclude, as discussed below, that the record does not support the
allegation that base activity officials somehow gamed the procurement
or that the base-level review procedures were biased against Madison.
It is clear from the record that base personnel were confused
regarding whether material and supply costs were required in the
in-house cost estimate. During the hearing conducted by our Office,
the base activity's independent review officer (IRO) testified that,
upon review of the initial draft of the cost comparison form and
related documents, she was concerned because the in-house cost
estimate included no material and supply costs. The record shows that
when the IRO asked the base employee who had completed the cost
comparison form why $0 was inserted for the base's material and supply
costs, the base employee responded that he understood from reading the
RFP's PWSs that, for the most part, materials and supplies were to be
government-furnished equipment (GFE) and that, since these items would
be GFE whether the base activity or a private contractor performed the
work, the costs were considered common costs that should not be
included. The IRO also testified that she had difficulty determining
from the various PWSs what, if any, material and supplies were
required to be priced and what were GFE. At one point, the IRO stated
in a memorandum for the record, "The wording for government furnished
items and contractor furnished items was very confusing and seemed
contradictory."[8] The IRO's concern was alleviated in part when she
discussed with the base employee the fact that the in-house cost
estimate included some material and supply costs in line 3 ("Other
Specifically Attributable Costs") and line 7 ("Additional Costs") of
the cost comparison form. Based upon this record, we think it is
clear that the base employees simply made a mistake and misinterpreted
the RFP's requirements, and that Madison's allegation of bad faith,
based solely on the entry of $0 for material and supply costs, is
insufficient to establish bad faith.
Concerning the allegation that the base-level review was biased
against Madison, the protester complains that the review team
discussed some of the issues raised in Madison's base-level appeal (in
particular, the lack of any material and supply costs in the in-house
cost estimate) with base activity personnel before making any upward
adjustments to the in-house cost estimate. Madison argues that the
base activity should not have been permitted to correct the omission
of material and supply costs once Madison filed its appeal and its
costs were revealed. We find no evidence of bias during the agency's
review process.
Since the procurement included an A-76 cost comparison study, the
in-house cost estimate was delivered to the contracting officer and
remained sealed until after the selection of the most advantageous
contractor proposals was completed. Therefore, while the agency held
two rounds of discussions with the private offerors and twice allowed
them to revise their proposals in an effort to eliminate any
deficiencies, no discussions were held with the in-house team that
developed the "most efficient organization" and the in-house cost
estimate. When Madison alleged mistakes or unreasonably low costs in
the in-house estimate, the agency was empowered and obligated to
review the cost estimate and to correct any errors found in the cost
comparison as well as in the in-house cost estimate upon which it was
based. See EPD Enters., Inc., 69 Comp. Gen. 46, 47-48 (1989), 89-2
CPD para. 393 at 3; OMB Circ. No. A-76--Revised Supplemental Handbook, Ch.
3, Sec. K.5. In our opinion, since discussions had not been held with
base personnel concerning cost deficiencies, and because the base
personnel, having originally calculated the in-house cost estimate as
well as the most efficient organization upon which it was based, were
the people who were most knowledgeable about the agency's support for
its proposed costs, the review team logically and reasonably turned to
the base activity personnel for justification of the cost estimates
and for additional information that would allow the review team to
make appropriate adjustments. There is no evidence that the review
team's actions were motivated by bias and, in fact, the review team's
actions were consistent with the agency's internal guidance on
conducting cost comparisons. See Air Force Pamphlet 26-12, "Guidance
For Implementing The Air Force Commercial Activities Program," sec. 6-3
and 14-3.g(2) (Sept. 25, 1992). We note that, after discussing some
of Madison's allegations with base personnel, the base-level review
team made upward adjustments of more than $1.7 million to the in-house
costs estimate--action by the review team that, in our opinion, was
inconsistent with the protester's assertion of bias against it.
The protester contends that the cost comparison used unrealistically
low estimates of the base activity's in-house costs for materials and
supplies, labor for maintenance of military family housing, and
quality control. Madison argues that material and supply costs will
amount to "over $[deleted] million," the amount Madison alleges it
included for this item in its proposal.
The IRO testified that, while the original in-house estimate contained
$0 for the material and supply costs on line 2 of the cost comparison,
some material and supply costs were included in line 3 ("Other
Specifically Attributable Costs") and line 7 ("Additional Costs") of
the original cost comparison. The record shows that the base-level
review team made some fairly large upward adjustments to the in-house
estimate. Ms. Ginger Bright, an Air Force cost analyst, testified
(and her testimony is confirmed by the written record) that, when
Madison appealed the base-level appeal decision, the MAJCOM appeal
board appointed a review team to conduct a line-by-line review of the
PWS to identify all materials and supplies that would be needed to
perform the work and a separate team of cost analysts to determine,
using various pricing tools (e.g., commercial catalogues), the cost of
each of the material and supply items. The MAJCOM board then made
additional upward adjustments to the in-house cost estimate. Thus,
after considering all appeals, the Air Force added to the material and
supply costs that were included in the original cost estimate
approximately $550,000 for material and supplies on line 2 and
approximately $1.1 million for material and supplies on lines 3 and 7
(for items such as tool kits, portable radios, a base station, badge
equipment, miscellaneous equipment for housekeeping, tools, landscape
materials, ground fuels, and replacement items). In sum, the record
shows that when all of the material and supply costs that were
eventually included in lines 2, 3, and 7 are tallied, the final
in-house cost estimate included a total of approximately $1.8 million
for materials and supplies.
While the protester asserts that a more accurate estimate of material
and supply costs is the more than $[deleted] million that it included
in its proposal, the record, including the hearing testimony of
Madison's president, shows that, in fact, Madison's proposal did not
break out its material and supply costs and that Madison is referring
to approximately $[deleted] million in other direct costs (ODC) that
were included in its proposal. As explained by Ms. Bright during her
testimony, Madison's ODC figure was not made up exclusively of
material and supply costs, but also included other significant cost
elements, such as payroll insurance (approximately $[deleted] over the
contract period) and certain "not-to-exceed" items (approximately
$[deleted] over the contract period). Additionally, Madison's
president recognized that the firm's dollar figure for each individual
item of material and supply (even, it was conceded, each roll of
toilet paper) included an undisclosed amount of profit. In view of
the apparently overbroad definition of material and supply costs used
by the protester, on the one hand, and the very detailed cost analysis
performed by the Air Force during the appeals process, on the other,
we find no basis to conclude that the agency's in-house cost estimate
was unreasonable.
Concerning the labor costs for maintaining military family housing,
the PWS required the contractor or the base activity to provide all
personnel to perform maintenance on the base's military family
housing, and the RFP included estimates of the amount of work that
would be required during the performance period. In its base-level
appeal, Madison stated no reason for questioning the in-house
estimate, but asserted only that the base activity "failed to address
the labor costs associated with the requirement." Contrary to
Madison's assertion, the in-house proposal included 15 full-time
employees (and the costs associated with them) to perform the
maintenance work. Notwithstanding the fact that Madison did not
articulate why it believed that the in-house proposal was somehow
inadequate on maintenance staff, the base-level review team examined
the in-house proposal and PWS and adjusted the number of maintenance
personnel upward to 18 full-time positions, which both it and the
MAJCOM review board deemed adequate to do the work. In its protest
before our Office, Madison does not explain why it thinks that the
base-level review team and the MAJCOM appeal board are wrong; instead,
Madison simply asserts again that the base activity's estimate does
not include enough personnel. Because Madison provided no evidence
nor any detailed statement of facts to support this allegation, the
unsupported allegation is not an adequate protest basis. Bid Protest
Regulations, 4 C.F.R. sec. 21.1(c)(4), 21.5(f) (1997); Science
Applications Int'l Corp., supra.
Madison contends that the RFP's requirements were relaxed in favor of
the base activity because the agency's technical performance plan did
not designate an employee to work full-time as the chief of quality
control and, therefore, Madison asserts that the in-house cost
estimate for quality control was too low. The RFP required the
contractor to include a quality control plan, described a number of
tasks that the quality control organization would have to perform, and
required that an on-site employee act as chief of quality control and
be responsible for all quality control matters. Contrary to the
protester's contention, the RFP does not require that an employee be
designated to work full-time as the chief of quality control and
therefore the RFP requirements under quality control were not relaxed.
The agency's technical performance plan stated that the facility
manager would perform on a part-time basis as the chief of quality
control and would be the focal point for the agency's quality control
program. The agency's technical performance plan also describes five
supervisory positions, each in a different area of expertise (e.g.,
maintenance mechanic supervisor) and each of which the plan states
will be delegated some of quality control functions. We have no basis
to question the conclusion of the base-level appeal team and the
MAJCOM review team that the quality control tasks can be performed
adequately by the agency's team comprised of the facility manager and
five other supervisors.
The protester also contends that the cost comparison overstated
Madison's labor costs. Madison states that the labor rates in its
BAFO were based upon a $2.56 per-hour fringe benefit rate, which was
the minimum rate specified in the Department of Labor (DOL) wage
determination included in the RFP. Madison states that, on December
30, 1996, the DOL published in the Federal Register a new rule,
effective June 1, 1997, that would have allowed Madison to lower its
hourly fringe benefit rate to $1.16 per hour, since the contract would
not be awarded before June 1. Madison contends that, because the
DOL's new fringe benefit rule was published in the Federal Register
before the agency completed the cost comparison, the new rule had the
force and effect of law, and the Air Force should have reduced
Madison's labor rates by $1.40 per hour for a total reduction of
approximately $[deleted] million.
Madison does not state when it first became aware of the DOL's new
minimum fringe benefits rule, but, as the rule was published in the
Federal Register, Madison was on constructive notice of it as of
December 30, 1996. Inter-Con Sec. Sys., Inc.; Washington Patrol
Serv., Inc., B-192188, Feb. 9, 1979, 79-1 CPD para. 86 at 9; see Keci
Corp.--Recon., B-255193.2, May 25, 1994, 94-1 CPD para. 323 at 4. The Air
Force's March 20, 1997, notice to Madison that the cost comparison
resulted in a determination to retain performance in-house
specifically stated that the cost comparison was based on the prices
Madison had proposed in its BAFO. Thus, Madison knew everything it
needed to know concerning this issue on or about March 20. However,
Madison did not raise the issue in its April 4 base-level appeal or
even in its May 12 request for MAJCOM review. As Madison did not
raise the issue in its appeal to the Air Force, Madison did not
exhaust the agency's cost comparison appeals procedure and we will not
consider the issue.[9] Trans-Regional Mfg., Inc., B-245399, Nov. 25,
1991, 91-2 CPD para. 492 at 3; Dyneteria, Inc., B-222581.3, Jan. 8, 1987,
87-1 CPD para. 30 at 3. We note, however, that the new DOL rule merely
sets forth a formula for determining the minimum fringe benefit rates
that must be used in service contracts, and Madison was free to
propose on the basis of higher than minimum fringe benefit rates.
Because the Air Force could not simply reduce the labor rates that
Madison had proposed in its BAFO, we think that it was incumbent upon
Madison to tell the Air Force (at some time before, or even during,
the base level-appeal) if it truly intended to lower its proposed
labor rates because of the new rule. Madison did not.
Madison also contends that the RFP's historical overtime data were
inaccurate and misleading. Madison asserts that in denying Eagle's
base-level appeal (which alleged, among other things, that the
in-house estimate of overtime costs was too low) the base-level review
team revealed that it used historical data that were different from
the historical overtime data set forth in the RFP. However, Madison
received a copy of the base-level denial of its own and Eagle's
appeals (the appeals were denied in a consolidated decision on May 6,
1997), but did not raise the issue in its MAJCOM appeal. Again,
because Madison did not raise the issue in its appeal to the Air
Force, Madison did not exhaust its administrative appeals and we will
not consider the issue. Id. In any event, the RFP did not include
any historical overtime estimates, and, in denying Eagle's appeal, the
base-level appeal team discussed only the method used by one of its
members to estimate--using financial data for several different Air
Force work centers, including but not limited to Columbus Air Force
Base--how much overtime could reasonably be expected to accrue at
Columbus. Thus, the methodology discussed in the denial of Eagle's
base-level appeal was used to check the accuracy of the in-house
overtime cost estimate but was not used by the base activity to
prepare the in-house estimate. According to the hearing testimony of
the Chief of the Columbus Wing Manpower and Quality Office, the base
activity's supervisors calculated the in-house overtime cost estimate
using their own experience and the description of the work contained
in the RFP's various PWSs.
In sum, the protester has provided no basis for our Office to conclude
that either the agency's cost comparison or its appeals procedures
were improper or otherwise flawed.
The protest is denied.
Comptroller General
of the United States
1. Materials, parts, and supplies for maintenance of military family
housing was to be provided by the contractor, which would then be
reimbursed on the basis of cost plus a material handling fee.
2. The initial cost comparison showed that it would cost approximately
$[deleted] million less to have agency personnel perform the work. We
have rounded off cost figures in this decision.
3. Eagle also filed a base-level appeal alleging a number of different
flaws in the cost comparison. By letter of April 10, Madison
incorporated by reference all of the issues raised by Eagle into
Madison's appeal.
4. The final cost comparison showed that it would cost approximately
$[deleted] million less to have agency personnel perform the work.
5. Eagle's base-level appeal was also denied, and Eagle requested a
MAJCOM review of the denial of its base-level appeal. Eagle's MAJCOM
review also was denied.
6. In its initial protest letter, Madison stated that it was
incorporating by reference all of the issues that it previously had
raised with the Air Force in its base and MAJCOM appeals (which, in
turn, had incorporated all of the issues raised by Eagle in its
base-level appeal); Madison stated that it would not actually address
most of those issues. Because Madison provided no explanation of what
it believes was wrong with the base and MAJCOM responses to its two
agency-level appeals, the unsupported allegations that Madison
protested solely through incorporation by reference do not provide
adequate bases for protest. Bid Protest Regulations, 4 C.F.R. sec.
21.1(c)(4), 21.5(f) (1997); Science Applications Int'l Corp.,
B-265607, Sept. 1, 1995, 95-2 CPD para. 99 at 2.
7. We reviewed, among other things, the protester's and the Air
Force's briefs, the RFP, the cost comparison study (including
revisions and supporting documentation), and all documentation
associated with the base and MAJCOM-level appeals. We also considered
the testimony of witnesses (representing both parties) who testified
during a hearing convened on October 3 in connection with this
protest.
8. After reviewing the RFP, we can understand the base personnel's
confusion. The RFP is voluminous and requires close scrutiny in order
to understand what materials and supplies are contractor-provided.
For example, the RFP requires the contractor to provide materials and
supplies for most of the work, but also includes a lengthy list of
GFE; similarly, while the RFP indicates that the contractor will be
paid on a fixed-price basis for most materials and supplies, it also
indicates that the contractor will be paid on a cost-reimbursement
basis for other materials and supplies. The RFP also states that the
government will provide automated data processing equipment "to the
minimum extent necessary for mission accomplishment," without listing
the exact equipment that will be provided as GFE or defining the term
"minimum extent necessary."
9. By letter of May 16, 1997, Madison attempted to add this issue to
its MAJCOM appeal. While the appeal board commented on the issue in
dicta in its July 17 denial of the appeal, the board specifically
stated that it was not ruling on the fringe benefits issue because
Madison had not raised it in its base-level appeal.