BNUMBER:  B-281281 
DATE:  January 21, 1999
TITLE: Fidelity and Casualty Company of New York, B-281281, January
21, 1999
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Matter of:Fidelity and Casualty Company of New York

File:     B-281281

Date:     January 21, 1999

Michael P. Coffey, Esq., for the protester.
Dennis J. Gallagher, Esq., Department of State, for the agency.
David A. Ashen, Esq., and John M. Melody, Esq., Office of the General 
Counsel, GAO, participated in the preparation of the decision.

DIGEST

With regard to solicitation to select insurance carrier to furnish 
contractors with Defense Base Act (DBA) workers' compensation 
insurance coverage required for contractor employees performing public 
work contracts and certain other contracts outside of the United 
States, protest that agency improperly deleted Federal Acquisition 
Regulation (FAR) affirmative action clauses from solicitation is 
denied where FAR is inapplicable because appropriated funds would not 
be obligated or expended under the DBA contract to be awarded under 
the solicitation; FAR applies only to acquisitions by the government 
of supplies or services with appropriated funds.

DECISION

Fidelity and Casualty Company of New York protests the terms of 
request for proposals (RFP) No. S-OPRAQ-98-R-0040, issued by the 
Department of State (DOS) for selection of an insurance carrier to 
offer workers' compensation coverage to DOS contractors whose 
employees are performing contracts outside of the United States.  
Fidelity and Casualty protests DOS's determination to delete several 
affirmative action clauses from the solicitation and to exclude 
coverage of aviation support services from the scope of the contract.       

We deny the protest.

Pursuant to the Defense Base Act (DBA), 42 U.S.C.  sec.  1651(a) (1994), 
workers' compensation insurance coverage is required for contractor 
employees performing public work contracts and certain other contracts 
outside of the United States.  By regulation, DOS has extended the 
required coverage to all service contracts (other than contracts for 
personal services) which require contractor employees to perform work 
outside of the United States.  48 C.F.R.  sec.  628.305 (1998).  DOS 
regulations provide for inserting in such solicitations standard 
clauses requiring the contractor to procure the required DBA insurance 
coverage pursuant to the terms of DOS's contract with its selected DBA 
insurance carrier unless the contractor has a DBA self-insurance 
program approved by the Department of Labor.  48 C.F.R.  sec.  652.228-71, 
652.228-72 (1998).

The RFP as issued required offerors to furnish rates per $100 of 
employee remuneration for each of four categories:  construction 
contracts financed by DOS, service contracts financed by DOS, aviation 
support services contracts financed by DOS, and additional emergency 
medical evacuation coverage.  In addition, the RFP as issued 
incorporated by reference the following standard affirmative action 
clauses:  (1) Federal Acquisition Regulation (FAR)  sec.  52.222-25, 
entitled Affirmative Action Compliance; (2) FAR  sec.  52.222-35, 
Affirmative Action for Special Disabled and  Vietnam Era Veterans (Apr 
1984) (Deviation); and (3) FAR  sec.  52.222-36, Affirmative Action for 
Workers with Disabilities.  DOS deleted the above FAR affirmative 
action clauses in RFP amendment No. 0003; based on a number of 
inquiries from potential offerors, DOS determined that deleting the 
clauses would increase competition.  Agency Report, Nov. 2, 1998, at 
3.  

Fidelity and Casualty argues that deletion of the FAR affirmative 
action clauses from the solicitation was improper because they were 
required by the FAR.  DOS responds that deletion of the clauses was 
proper because no funds, appropriated or nonappropriated, will be 
obligated or expended under the DBA insurance contract to be awarded 
under the solicitation, and the FAR therefore does not apply here.  
Id. at 21-22.  The agency notes in this regard that the "FAR applies 
to all acquisitions as defined in Part 2 of the FAR, except where 
expressly excluded," FAR  sec.  1.104, while "acquisition" is defined in 
Part 2 of the FAR to mean "the acquiring by contract with appropriated 
funds of supplies or services (including construction) by and for the 
use of the Federal Government through purchase or lease . . . ."  FAR  sec.  
2.101.  Fidelity and Casualty acknowledges that there will be no 
direct expenditure of appropriated funds by DOS under the DBA 
insurance contract, but argues that:

     there is a direct expenditure of appropriated funds to DOS 
     contractors that perform work overseas and employ eligible 
     employees.  Such direct expenditure by the DOS is comprised, in 
     part, of the cost of DBA insurance purchased from the DBA 
     insurer, for the cost of DBA insurance is one of the cost 
     elements the DOS contractor encounters. . . . Upon payment of the 
     premium to the DBA insurance contract carrier, the contractor, in 
     turn, submits a voucher to the DOS and receives reimbursement for 
     the cost of the premium paid.

Protest, Oct. 11, 1998, at 3, 5.         

As noted by DOS, the FAR, by its terms, applies only to government 
acquisitions of supplies or services with appropriated funds.  FAR  sec.  
1.104, 2.101.  Since the record indicates that DOS will not obligate 
or expend appropriated funds under the DBA insurance contract itself, 
we agree with DOS that the provisions of the FAR do not apply to the 
DBA contract.  Simplix, B-274388, Dec. 6, 1996, 96-2 CPD  para.  216 at 5; 
Good Food Serv., Inc.--Recon., B-256526.3, July 11, 1994, 94-2 CPD  para.  
16 at 2; Good Food Serv., Inc, B-253161, Aug. 19, 1993, 93-2 CPD  para.  107 
at 4.  While DOS may obligate or expend appropriated funds under other 
contracts, the price or cost of which may be determined in part by the 
DBA insurance rates established under the DBA contract, this does not 
constitute the obligation or expenditure of appropriated funds under 
the DBA insurance contract; the payment to the DBA insurance 
contractor will be made by the DOS contractors and not by DOS.  The 
mere fact that a contract confers a benefit on the government, as does 
the DBA selection by securing the best DBA insurance rate for DOS 
contractors and thus reducing DOS's contracting costs, does not 
furnish a basis for finding that there was an obligation or 
expenditure of appropriated funds.  See generally Century 21--AAIM 
Realty, Inc., B-246760, Apr. 3, 1992, 92-1 CPD 345 at 4, recon. 
denied, B-246760.2, Aug. 6, 1992, 
92-2 CPD  para.  78 at 2-3 ("no-cost" contract for home-finding and/or 
relocation services for federal employees).[1]  We conclude that the 
FAR does not apply here and that the clauses in question therefore did 
not have to be included in the RFP.   

DOS also excluded coverage of aviation support services contracts from 
the scope of the DBA contract in RFP amendment No. 0003.  DOS reports 
that potential offerors had expressed concern about inclusion of 
coverage for such contracts in the absence of claims history data.  
According to DOS, the inquiries it received in this regard led to 
further consideration of the matter, which ultimately resulted in 
deletion of coverage of aviation support services contracts when the 
agency concluded that the agency's aviation support services 
contractor was able to obtain more favorable rates from its own 
insurer than under DOS's DBA contract.  Agency Report, Nov. 2, 1998, 
at 9; Supplemental Agency Report, Nov. 30, 1998, at 2.

Fidelity and Casualty alleges that "DOS may have tailored Amendment 
Three (deleting the aviation support services requirement) in order to 
eliminate the use of appropriated funds in the contract, and thereby 
eliminating the [affirmative action program] requirement."  Protest, 
Oct. 11, 1998, at 7.

In drafting solicitations, agencies may include restrictive provisions 
or conditions only to the extent necessary to satisfy the needs of the 
agency or as authorized by law.  10 U.S.C.  sec.  2305(a)(1)(B)(ii) (1994).  
We will question a solicitation provision only where the protester 
shows that it is not reasonably related to the agency's requirements 
and has the effect of restricting competition, since our role in 
reviewing bid protests is to ensure that the statutory requirement for 
full and open competition is met, not to protect the competitive 
interest a protester may have in solicitation terms that could make it 
more difficult for certain firms to compete.  Simplix, supra, at 5-6.

The protester's challenge to deletion of the requirement that the DBA 
insurance carrier offer coverage of aviation support services 
contracts is untenable.  The protester's position would require the 
solicitation to be modified to require more than the agency has 
determined it actually needs; this would tend to make the RFP more 
restrictive, which is inconsistent with the principle of full and open 
competition, and does not provide a valid basis for protest.  
Aerostructures, Inc., B-280284, Sept. 15, 1998, 98-2 CPD  para.  71 at 2.
 
The protest is denied.

Comptroller General 
of the United States

1. While Fidelity and Casualty cites the decision in G. L. Christian 
and Assocs. v. United States, 312 F.2d 418 (Ct. Cl. 1963), as support 
for its position, we find that the case does not support finding an 
expenditure of appropriated funds under the DBA insurance contract.  
In G. L. Christian and Assocs., the court read into a contract for a 
military housing project a standard termination clause, applicable to 
contracts for the procurement of supplies or services which obligate 
appropriated funds, where:  (1) it was anticipated that the 
construction loans would be paid off with the quarters allowances of 
military personnel; (2) the loans were insured by the government; (3) 
on completion of the project or termination of the contract, the 
government agreed to take over ownership of the mortgagor-corporations 
and to assume liability to the mortgagee for outstanding liabilities; 
(4) the contractor and subcontractors looked to the government for 
payment of their claims and had received appropriated funds in partial 
settlement; and (5) the congressional authorization for the contract 
affirmatively recognized that appropriated funds would be involved.  
Id. at 424-26.  Here, in contrast, neither the terms of the solicited 
DBA insurance contract nor the expectations of the parties included 
the direct payment of appropriated funds to the DBA insurance 
contractor.