TITLE:  EDPEnterprises, Inc., B-284533.6, May 19, 2003
BNUMBER:  B-284533.6
DATE:  May 19, 2003
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EDPEnterprises, Inc., B-284533.6, May 19, 2003

   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.        

   Decision
    
Matter of:   EDPEnterprises, Inc.
    
File:            B-284533.6
    
Date:              May 19, 2003
    
Keith L. Baker, Esq., and William T. Welch, Esq., Barton, Baker, McMahon &
Tolle, for the protester.
Raymond M. Saunders, Esq., Captain Anissa N. Parekh, and Kevin LaChance,
Esq., Department of the Army, and John W. Klein, Esq., and Kenneth Dodds,
Esq., U.S. Small Business Administration, for the agencies.
Linda S. Lebowitz, Esq., and Michael R. Golden, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
    
Protest that food services are improperly bundled with other logistics
support functions, thereby unduly restricting the private-sector portion
of the competition conducted pursuant to Office of Management and Budget
Circular A-76, is sustained where the agency has failed to provide a
reasonable justification that this bundling is necessary to meet its
needs.
DECISION
    
EDP Enterprises, Inc. protests the terms of request for proposals (RFP)
No. DAKF19‑99-R-0014, issued by the Department of the Army pursuant
to Office of Management and Budget (OMB) Circular A-76, to determine
whether it would be more economical to perform installation-level
logistics support functions in-house at Fort Riley, Kansas, or to contract
for these services under the referenced solicitation.[1]  EDP, the
incumbent small business food service provider at Fort Riley, argues that
the Army has improperly bundled food services and dining facility
attendant services (hereinafter, collectively referred to as *food
services*) with other logistics support functions, thereby unduly
restricting the private-sector portion of this A-76 competition.
    

   We sustain the protest.
    
BACKGROUND
    
Original Competition
    
The RFP was originally issued on December 1, 1999, as a total small
business set‑aside and contemplated the award of a contract for a
1-year base period and four 1-year option periods if a private-sector
offeror successfully competed against the government's *most efficient
organization* (MEO), the in-house staffing plan.  The RFP incorporated by
reference the clause at Federal Acquisition Regulation (FAR) S: 52.219-14,
captioned *Limitations on Subcontracting,* which provides that in
performing non-construction services, the offeror/contractor agrees that
at least 50 percent of the cost of contract performance incurred for
personnel will be expended for employees of the concern.  The following
requirements, which previously had been performed on a non-bundled basis
at Fort Riley by either government personnel or private contractors, were
bundled in this RFP:  central issue facility operations; oil analysis
laboratory operations; storage, warehouse, and distribution operations;
hazardous material control center operations; transportation motor pool
services; general and direct support maintenance services, including
aviation maintenance services; ammunition supply point operations; bulk
petroleum oil and lubricant operations; and food services.
    
EDP participated in the original private-sector portion of the A-76
competition as a subcontractor to the private-sector offeror whose
proposal ultimately was selected as representing the best value to the
government.  In March 2001, pursuant to OMB Circular A-76 and the
Circular's RSH, the agency performed a cost comparison between this best
value private-sector proposal and the government's MEO, and concluded that
it would be more economical to perform the bundled logistics support
functions in-house by implementing the MEO, rather than by awarding a
contract.
    
The best value private-sector offeror subsequently filed an administrative
appeal challenging the agency's cost comparison decision.  On May 14,
2001, the administrative appeals board (AAB) sustained in part and denied
in part the issues raised in the administrative appeal.  The AAB
concluded, among other things, that the private-sector offerors and the
MEO did not compete on an equal basis due to particular ambiguities and
deficiencies in the terms of the RFP.  The AAB directed Fort Riley to take
*corrective action by restarting the acquisition process and issuing a new
solicitation that corrects the identified deficiencies.*  Agency Report
(AR), Tab 25, AAB Decision, May 14, 2001, at 3.
    
Current Competition
    
On August 22, 2001, the agency implemented the decision of the AAB by
issuing amendment No. 22 to conduct a new competition.[2]  Under this
amendment, the RFP remained a total small business set-aside (and
continued to include the clause at FAR S: 52.219‑14, as described
above) and food services remained bundled with the other logistics support
functions, as previously listed.  By amendment No. 47, the agency
established February 14, 2003 as the closing date for receipt of initial
proposals.  Three firms timely submitted initial proposals as prime
contractors.  On February 11, 3 days prior to the closing date, EDP, which
participated in the current competition as a subcontractor to another
private‑sector offeror, but not as a prime contractor in its own
right, filed this protest of the terms of the solicitation.[3]
    
ISSUE AND ANALYSIS
    
EDP argues that the Army has violated the Competition in Contracting Act
of 1984 (CICA) by improperly bundling food services (which, according to
the agency, comprise approximately 15 percent of the total contract value,
Hearing Transcript (Tr.) at 63), with unrelated base, vehicle, and
aircraft maintenance services.  EDP maintains, and the agency does not
dispute, that the RFP, as currently structured, precludes the firm from
submitting a proposal as a small business prime contractor because its
employees would not be able to perform 50 percent of the cost of contract
performance since its expertise in the food services area does not
represent at least 50 percent of the total contract value.  Tr. at 73.
    
CICA generally requires that solicitations permit full and open
competition and contain restrictive provisions and conditions only to the
extent necessary to satisfy the needs of the agency. 10 U.S.C. S:
2305(a)(1) (2000).  Since *bundled* (or *consolidated*) procurements
combine separate, multiple requirements into one contract, they have the
potential for restricting competition by excluding firms that can furnish
only a portion of the requirement.  Phoenix Scientific Corp., B-286817,
Feb. 22, 2001, 2001 CPD P: 24 at 5.  Because of the restrictive impact of
bundling, we will sustain a protest challenging a bundled solicitation,
unless the agency has a reasonable basis for its contention that bundling
is necessary.  Id. at 10; National Customer Eng'g, B‑251135, Mar.
11, 1993, 93-1 CPD P: 225 at 5.[4]  CICA and its implementing regulations
require that the scales be tipped in favor of ensuring full and open
competition, whenever concerns of economy or efficiency are being weighed
against ensuring full and open competition.  Vantex Serv. Corp.,
B‑290415, Aug. 8, 2002, 2002 CPD P: 131 at 4; National Customer
Eng'g, supra, at 6.  This is true even in the context of a competition,
like the one here, conducted pursuant to OMB Circular A-76.  Thus, when an
agency conducts an A-76 competition, that competition is subject to CICA's
requirements that solicitations permit full and open competition and
contain restrictions only to the extent necessary to satisfy the agency's
needs.
    
We agree with EDP that the bundling here restricts competition, so the
question becomes whether the restriction reflects the agency's needs.  The
restrictive effect of the bundling is most severe on firms, such as EDP,
whose work is limited to providing food services.  While there may be
small business prime contractors that could provide more than 50 percent
of the cost of contract performance themselves (potentially subcontracting
out the 15 percent related to food services), the bundled nature of this
RFP, particularly where coupled with the clause requiring performance of
at least 50 percent of the cost of contract performance by the prime
contractor, precludes a food services firm, such as EDP, from competing. 
    
The agency states that in conducting the private-sector portion of this
A-76 competition, it has not violated CICA because *a key reason for
including the food service[s] and dining facility attendant services with
other DOL [Directorate of Logistics] functions is because Army doctrine
and operational organization is predicated upon these services being
integrated within its overall logistical functions.*  Agency's
Post‑Hearing Comments at 2.  Explaining that logistics support
functions are administered by the Office of the Deputy Chief of Staff,
Logistics, the agency states that:
    
food services are doctrinally grouped into the logistical functions in all
Army organizations, to include Fort Riley.  The reason for this is not
arbitrary.  The Army is organized in the manner in which it goes to war. 
Feeding the troops, as well as clothing and equipping them, is a key war
fighting competency.  To accomplish this requirement, food services are
imbedded in the logistics functions of all Army organizations.
Id. at 3.  The agency concludes by stating that *the achievement of its
mission requires that food services be grouped into the other logistic
functions where they are required to be by doctrine and regulation.  This
therefore is a statement of the Agency's minimum needs.*  Id. at 6.
    
We do not question the agency's decision to classify food services as
logistics support functions to be administered by the DOL.  Rather, our
concern is whether the agency has provided a reasonable justification of
its needs in terms of including food services in the same RFP with base,
vehicle, and aircraft maintenance services.  In our view, the fact that
the agency is organized in a manner which results in the administration of
the performance of all of these functions by one particular office (which
may itself be reasonable) does not provide a basis for insisting that all
of these varied services be procured from one source.  In other words,
Fort Riley could, consistent with its view that food services are just as
integral to the work of its DOL as the other functions, continue to have
the contract for food services, as well as the contract for the other
services, administered by the DOL.  Beyond the question of whether all of
the services are part of logistics and relate to supporting the troops,
the agency's reason for bundling them all in a solicitation seems to
merely reflect the belief that it is administratively more convenient to
manage one entity performing all of the requirements--either the MEO or a
private-sector offeror--as opposed to two entities--either the MEO or a
private-sector offeror for the food services, and either another MEO or
another private-sector offeror for the other base, vehicle, and aircraft
maintenance requirements.  Administrative convenience is not a legal basis
to justify bundling of requirements, if the bundling of requirements
restricts competition, as we believe it does here.  Vantex Serv. Corp.,
supra, at 4; National Customer Eng'g, supra, at 6.
    
The agency argues that to separately procure (i.e., *de-couple*) food
services, or for that matter, any of the other logistics support
functions, *would lead inevitably to the dismemberment of the Agency's DOL
function into independent islands of activity.  The Agency would be
deprived of any meaningful efficiencies derived from management techniques
such as cross-utilization and cross-training of personnel.*  Agency's
Post-Hearing Comments at 12.  We recognize that management efficiencies
could reasonably justify an agency's needs, particularly where
cross-utilization and cross-training are planned.  Here, however, the
agency has not provided a reasonable basis for any efficiencies associated
with including food services in the RFP with other base, vehicle, and
aircraft maintenance requirements.  For example, at the hearing conducted
by our Office in connection with this protest, we asked the agency to
address how cross-utilization of personnel would work in terms of food
services and the other requirements included in the RFP.  The following
exchange took place:
    
AGENCY:  . . . How the efficiencies are to be achieved, that's up to the
contractors and [the] government's [MEO] to figure that out.  I can't tell
you that, because I don't make the offers.
GAO:  . . . What did the agency consider in making the determination back
in the late '90s to consolidate food service[s] with everything else as
opposed to separately contracting [for food services]? . . . I'm having a
hard time seeing . . . how food services--other than saying these are
services that need to be performed on the base, I'm having a hard time
trying to figure out how those [services] fit in with [the] other
functions.
AGENCY:  They may have been thinking of . . . cross utilization of
personnel.
GAO:  So, someone who works on maintaining an airplane can also [be tasked
with performing food services or vice versa].
AGENCY:  Not necessarily in that area, perhaps someone out of the supply
or warehousing area could be cross utilized at times if they needed them,
because the food service, not all of those jobs are full time positions,
they are on call positions.
GAO:  Is there anything to support that position?
AGENCY:  Ma'am, I don't have that information.
. . . .
GAO:  So, you don't think it's really an improper bundling?  You don't
think it's improper bundling as alleged by [the] protester, putting food
services in with everything else?
AGENCY:  No, I don't.  I think it fit[s] right in.  It is part of services
that is included as part of the logistical [tree] that the Army considers
as logistics, and therefore it ties together with food services, your
maintenance, you feed the troops, you maintain the vehicles, you provide
beans and bullets as supply function[s].
Tr. at 50-53.
    
In our view, neither in this exchange nor elsewhere in the record has the
agency provided a reasonable basis to conclude that the bundling of food
services with the other logistics support functions at Fort Riley will
lead to any meaningful efficiencies. 
    
In addition to the claimed efficiencies, the agency argues that
*significant cost savings* will accrue as a result of bundling the
logistics support functions at Fort Riley, including food services.  In
making this argument, the agency points to the results of the 2001 A-76
cost comparison, where performance by either the MEO or the private-sector
offeror would have been less costly than the prior situation.  Agency's
Post‑Hearing Comments at 8.  However, the results of the A-76 cost
comparison are not relevant to, and do not provide a justification for,
the agency's decision in the first instance to bundle the services as
protested here.  It is well documented that A-76 competitions lead to
savings.  See, e.g., Commercial Activities Panel, Improving the Sourcing
Decisions of the Government (Washington, D.C.: Apr. 30, 2002), at 8. 
There is no evidence that the savings pointed to by the agency here
reflect savings associated with the decision to bundle food services with
the other requirements.  Simply stated, savings arising from the A-76
process are not relevant for purposes of reviewing the reasonableness of
the agency's claim that bundling reflects its needs.
    
Finally, to the extent the agency argues that the consolidation of
functions will attract *robust competition from suitably-sized small
businesses,* Agency's Post‑Hearing Comments at 10, we point out that
this is not a legitimate basis upon which to justify the bundling of
requirements to meet the agency's needs.  The issue is not whether there
are any potential offerors which can surmount barriers to competition by,
for example, entering into teaming or partnering arrangements as argued by
the agency, Tr. at 73, but rather whether the barriers themselves--here,
bundling--are required to meet the government's needs.  Vantex Serv.
Corp., supra, at 5; National Customer Eng'g, supra, at 5.  As discussed
above, the agency here has not provided a reasonable justification for its
decision to bundle food services with other logistics support functions at
Fort Riley.
    
RECOMMENDATION   
    
On this record, where the agency has not reasonably justified its decision
to bundle food services with the other logistics support functions at Fort
Riley, we sustain the protest and recommend that the agency separately
procure its requirements for food services.  We also recommend that EDP be
reimbursed the reasonable costs of filing and pursuing the protest,
including reasonable attorneys' fees.  4 C.F.R. S: 21.8(d)(1).  EDP's
certified claim for costs, detailing the time expended and costs incurred,
must be submitted to the agency within 60 days of receiving this decision.
    
The protest is sustained.
    
Anthony H. Gamboa
General Counsel
    
    

   ------------------------

   [1] The procedures for determining whether the government should transfer
an activity from in-house performance to performance by a contractor, or
vice versa, are set forth in OMB Circular A-76 and the Circular's Revised
Supplemental Handbook (RSH), which have been made expressly applicable to
the Department of Defense and its military departments and agencies.  See
32 C.F.R. S: 169a.15(d) (2002).
[2] While this current private-sector competition and the subsequent cost
comparison are pending, the logistics support functions, including food
services, will be provided by a contractor (for whom EDP is not a
subcontractor) under an interim bridge contract awarded in March 2003 for
a 1-year base period and six 6‑month option periods to begin in June
2003.
[3] The agency argues that this protest should be dismissed as untimely
because EDP has known since 1999, when the original solicitation was
issued, that the agency had determined to bundle food services with the
other logistics support functions at Fort Riley.  We disagree, because,
although the August 22, 2001 action was technically simply a solicitation
amendment, in substance it began a new competition.  Thus, in implementing
the AAB's recommendation, the Deputy Chief of Staff for Personnel and
Installation Management directed Fort Riley to take corrective action by
issuing a new solicitation.  AR, Tab 26, Memorandum from the Deputy Chief
of Staff for Personnel and Installation Management to the Commander 24th
Infantry Division (Mech) and Fort Riley (May 15, 2001).  In addition, the
Deputy Chief of Staff stated that *[t]o ensure that a level basis for
competition is afforded to all offerors, we must go back to the beginning
of the solicitation process.*  AR, Tab 27, Memorandum from the Deputy
Chief of Staff for Personnel and Installation Management to the Garrison
Commander 24th Infantry Division (Mech) and Fort Riley (May 18, 2001). 
While the bundling terms were not changed when the agency implemented the
decision of the AAB by issuing amendment No. 22, the issuance of this
amendment constituted a complete resolicitation of Fort Riley's
requirements.  In this regard, the cover page to amendment No. 22
described the purpose of this amendment as, in relevant part, *[t]o make
changes throughout [the] solicitation after the AAB decision to amend the
solicitation and re‑solicit.*  Accordingly, we conclude that EDP's
protest of the RFP's bundling terms was timely filed prior to the closing
date for that resolicitation.  Bid Protest Regulations, 4 C.F.R.
S: 21.2(a)(1) (2003).
[4] In its original protest, EDP also argued that the RFP violated the
Small Business Act's prohibition on bundling.  15 U.S.C. S: 631(j) (*to
the maximum extent practicable,* an agency is required to *avoid
unnecessary and unjustified bundling of contract requirements that
precludes small business participation in procurements as prime
contractors*).  At GAO's request, the Small Business Administration (SBA)
filed a report responding to this issue.  The SBA, citing our decision in
Phoenix, concluded that a procurement that is exclusively set aside for
small business concerns, like the procurement here, cannot constitute
improper bundling under the Small Business Act (even if it is improper
under CICA).  In its comments on the agency report, EDP withdrew this
ground for protest; our decision, therefore, addresses only the alleged
violation of CICA.  (During the course of this protest, EDP also withdrew
issues involving the agency's price evaluation methodology and alleged
inconsistencies in the contract periods and workload estimates.)