TITLE:  Lackland 21st Century Services Consolidated, B-285938.7; B-285938.8, December 4, 2001
BNUMBER:  B-285938.7; B-285938.8
DATE:  December 4, 2001
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Decision

Matter of: Lackland 21st Century Services Consolidated

File: B-285938.7; B-285938.8

Date: December 4, 2001

William A. Roberts, III, Esq., Phillip H. Harrington, Esq., William S.
Lieth, Esq., and Janet L. Eichers, Esq., Wiley, Rein & Fielding, and Helaine
G. Elderkin, Esq., Computer Sciences Corporation, for the protester.

Sharon A. Jenks, Esq., Department of the Air Force, for the agency.

Ralph O. White, Esq., and Christine S. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

1. Protester's contention that it was procedurally improper for an agency to
use its in-house auditors to perform a limited review of the soundness of
any decision it might make before proceeding to a decision in a cost
comparison conducted pursuant to Office of Management and Budget (OMB)
Circular A-76 is denied where the agency sought the review after two prior
reversals and a critical Inspector General report raised questions about
whether any decision made could withstand scrutiny.

2. Protest alleging that the agency improperly canceled solicitation and
reinitiated the A-76 cost comparison process is denied where a limited
review of previous appeal and protest issues performed by in-house auditors
led the agency reasonably to conclude that several problems with the
solicitation may have resulted in a flawed private-sector competition.

DECISION

Lackland 21st Century Services Consolidated (L-21) protests a decision by
the Department of the Air Force to cancel solicitation No. F41689-99-R-0031,
revise its requirements, and reinitiate a cost comparison pursuant to Office
of Management and Budget (OMB) Circular A-76 for base operations support
(BOS) at Lackland Air Force Base, Texas. L-21, having prevailed in both the
private-sector competition and the public/private cost comparison, argues
that the Air Force lacks a reasonable basis to cancel the solicitation and
begin the process anew.

We deny the protest.

BACKGROUND

By press release dated August 27, 2001, the Air Force announced its
intention to cancel and reinitiate its A-76 competition for these services.
This protest was filed 10 days later, and was supplemented after L-21's
receipt of the agency report. As this is the third dispute in a series of
protests filed with our Office by L-21 challenging this A-76 cost
comparison, and as some knowledge of the prior events and disputes is
relevant to an understanding of the issues raised here, a brief review of
this procurement is set forth below.

The RFP for these services was issued on August 9, 1999, and contemplated
the selection of two "best value" offerors, one to provide BOS at Lackland,
the other to provide airfield support at the base; the airfield support
portion of the workload was reserved for a small business. Contracting
Officer's (CO) Statement at 1. At the conclusion of the private-sector
source selection, the Air Force planned to conduct a cost comparison between
the cost estimate for the in-house plan for a "Most Efficient Organization"
(MEO), and the combined price of the two successful private-sector offerors.

By May 19, 2000, L-21 and Phoenix Management, Inc. had been determined to be
the best value offerors for the BOS functions and the airfield support
functions, respectively. Upon comparison of the private offers with the
MEO's cost estimate, the Air Force determined that performance of these
services by contract would be the most economical way to proceed. As a
result, by letter dated August 17, the Air Force advised L-21 that it was
the conditional winner of the BOS portion of the cost comparison.

After the Air Force announced the tentative selection of L-21, the MEO filed
a challenge to the cost comparison with the agency's Administrative Appeal
Authority. Upon completion of his review, the appeal authority reversed the
result of the initial cost comparison, and determined that the Lackland
workload should be performed in-house. The news of this reversal was
communicated to L-21 by letter dated October 25.

On November 6, L-21 filed a protest with our Office (B-285938.3), which it
supplemented on November 13 (B-285938.5), raising several grounds of
challenge to the decision to keep the Lackland workload in-house. By letter
dated December 13, submitted in lieu of an agency report on the merits, the
Air Force agreed with portions of L-21's cost comparison challenge and again
reversed its decision; the Air Force advised that award would be made to
L-21. Thus, the Air Force requested that the protests be dismissed as
academic. By decision also dated December 13, we agreed and dismissed the
protests.

Shortly after our Office dismissed L-21's protests because of the Air
Force's intended corrective action, the Department of Defense's (DOD) Office
of Inspector General (IG) began a review of the A-76 process at Lackland.
The record shows that this review was requested both by the Deputy Secretary
of DOD, and by several members of Congress from the state of Texas. By
memorandum dated December 22, the Under Secretary of the Air Force advised
DOD management that the Air Force would await completion of the IG review to
award the contract to L-21.

Approximately 5 months later, on May 11, 2001, as the DOD IG was preparing
to brief members of Congress and/or their staffs on its findings, and to
publish a report, L-21 filed a second protest with our Office (B-285938.6).
In this protest, L-21 argued that the Air Force had improperly delayed
taking corrective action, and the firm sought reinstatement of its earlier
protests, a ruling in its favor on the merits of those protests, and
reimbursement of its protest costs. We dismissed L-21's request that its
earlier protests be reinstated and sustained, and we denied its request for
reimbursement of protest costs. Lackland 21st Century Servs.
Consolidated--Protest and Costs, B-285938.6, July 13, 2001, 2001 CPD para. 124.
[1]

While L-21's protest alleging improper delay was pending, the IG report was
released publicly, albeit with redactions. The IG concluded that "[t]he Air
Force did not achieve supportable results from the Lackland Air Force Base
competition" and, among other options, recommended that the Air Force
consider canceling the solicitation and reinitiating the A-76 competition.
DOD IG Rep. No. D-2001-118 (May 14, 2001) at i. Complaining that it was not
given an opportunity to respond to the IG report prior to its publication,
the Air Force's Air Education and Training Command prepared a detailed
rebuttal to the IG Report. According to the agency report prepared in
response to this protest, this undated report was released on or about June
14.

On June 28--unbeknownst to L-21 and shortly prior to release of the
above-referenced decision from our Office--the Air Force asked its own
auditors, the Air Force Audit Agency (AFAA), for an assessment of the
agency's "ability to produce a supportable and auditable decision" from this
competition. CO Statement at 3. The AFAA considered a limited number of
issues, and completed its review in a limited amount of time. On July 25 and
27, and again on August 7, AFAA personnel briefed Air Force management on
their findings and requested additional time to make a final assessment,
which was denied. Based on its limited review, the AFAA advised Air Force
management that "the Air Force would be at risk to award the workload to the
MEO or best value offeror because of unresolved issues that could materially
affect the cost comparison outcome." AFAA Report at 2.

By memorandum dated August 27, the Air Force's Principal Deputy Assistant
Secretary (Acquisition and Management) formally decided to cancel the
underlying solicitation, and reinitiate the Lackland A-76 cost comparison.
This decision memorandum stated that the agency was canceling the
solicitation based on the AFAA recommendations. By press release of the same
date, the cancellation decision was announced outside the Air Force and this
protest followed.

DISCUSSION

Prior to identifying and addressing L-21's specific challenges to the
agency's cancellation decision, we note first a recurring theme in the
current dispute, and in the earlier disputes between L-21 and the Air Force
over this procurement. This theme is L-21's frustration over what it
describes as a lack of information from the Air Force about the progress of
this ongoing A-76 cost comparison in the 2 years since the procurement
began.

In this light, we note that at the time L-21 learned via press release of
the agency's decision to cancel the solicitation (August 27), the only
rationale for this action known to L-21 was the May 14 report of the DOD IG,
which had been posted on the IG's website in redacted form. As described
above, this report included, among other possible courses of action, a
recommendation that the agency consider canceling the solicitation and
reinitiating the A-76 competition. With no other explanation available,
L-21's initial protest filing necessarily focused on the role of the IG
report in this process, and on the report's specific conclusions.

Upon receipt of the agency report, however, L-21 learned for the first time
that the IG report was not the basis the Air Force identified for canceling
the solicitation. Instead, the Air Force identified the conclusions of its
own AFAA review as the basis for its decision. Thus, none of L-21's initial
challenges are relevant to the validity of the Air Force decision to cancel
the underlying solicitation, revise its requirements, issue a new
solicitation, and restart the A-76 cost comparison process, and we need not
consider them further.

In its supplemental protest, L-21 expands its cancellation challenge to
include the AFAA review. L-21 first raises two procedural challenges to the
review--i.e., that a review by the AFAA at this stage in the A-76 process is
neither authorized nor appropriate, and is therefore an improper imposition
upon the process; and, that the AFAA review was improperly limited in time
and scope, did not result in a formal recommendation, and qualified what few
conclusions it reached. Thus, L-21 argues that the AFAA review cannot be
used to justify a decision to cancel this solicitation. With respect to the
substance of the AFAA review, L-21 raises only one specific challenge--i.e.,
it argues that agency confusion over the number of units of family housing
to be maintained is not a sufficient basis to cancel the solicitation.
Supplemental Protest at 13-15.

In a negotiated procurement, an agency has broad authority to decide whether
to cancel a solicitation; there need be only a reasonable basis for the
cancellation. Safety Storage, Inc., B-280851.2, May 13, 1999, 99-1 CPD para. 93
at 2. This broad grant of authority extends to the cancellation of
solicitations used to conduct A-76 cost comparisons. Source AV, Inc.,
B-241155, Jan. 25, 1991, 91-1 CPD para. 75 at 3; Cantu Servs., Inc., B-219998.8,
B-233697, Mar. 27, 1989, 89-1 CPD para. 306 at 2. So long as an agency has a
reasonable basis for doing so, it may cancel a solicitation regardless of
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 5;
or, as here, after the announcement of a different course of action in
response to a GAO protest. Id. at 1-2.

With respect to L-21's procedural challenges to the AFAA review, we disagree
in every instance. In our view, there was nothing unreasonable about the
agency's decision to ask its own auditors to perform a limited review of the
soundness of any decision it might make, given the circumstances of this
case. While L-21 would clearly prefer that the agency simply move forward
with its award, this cost comparison has been fraught with controversy at
every step in the process. After a tentative decision to award to L-21, the
Air Force was reversed by the Administrative Appeal Authority, based on its
consideration of arguments raised by the MEO. This decision was reversed
again when the Air Force reviewed the arguments raised in L-21's first
protest to our Office. Immediately thereafter, the Air Force decision was
scrutinized, and then publicly criticized by the DOD IG, which ultimately
concluded that the results of the cost comparison were unsupportable. Given
the crossfire of criticism associated with any decision the Air Force might
make, we fail to see how it could be improper for the agency to ask its
in-house auditors to give it one last "quick read" of the situation before
making its decision.

We also disagree with the assertion that the Air Force could not rely on the
AFAA review to cancel this solicitation because the review was limited in
scope and time, and because the review did not make a formal recommendation.
In this regard, we note that the AFAA review was limited to four issues that
had been previously raised in the MEO appeal and in L-21's bid protest. In
addition, the AFAA personnel conducting the review qualified their
conclusions as preliminary unless and until they could receive additional
time to perform a more nuanced analysis, a request denied by Air Force
management.

As L-21 indicates in its pleadings, this cost comparison involves a workload
valued at approximately $300 million. To review again this entire
procurement and cost comparison study would have taken significantly longer
than the 3 weeks Air Force management gave the in-house auditors, and would
have further delayed this procurement--a matter about which L-21 has already
protested to this Office. Under these circumstances, we see nothing
unreasonable in the Air Force's approach of conducting a kind of
intellectual triage among issues already identified as controversial to
determine whether any final decision could withstand the scrutiny it was
certain to receive.

With respect to the substance of the Air Force decision to cancel, L-21
simply does not challenge most of the conclusions of the AFAA review that
support the cancellation decision. As indicated above, the only substantive
challenge raised in the L-21 supplemental protest involves agency confusion
about the number of units of military family housing to be maintained under
this solicitation.

The issue of the estimate for military family housing was but one of five
solicitation issues identified in the AFAA briefing for Air Force
management. The remaining four issues are not challenged by L-21. In
addition, L-21 does not address an expanded explanation of the basis for the
cancellation decision provided with the agency report, which L-21 refers to
as the "Air Staff Statement" and describes as a post hoc rationalization
inconsistent with the contemporaneous record that should be given little
weight. [2]

We have reviewed the AFAA report to Air Force management, the AFAA briefing
slides, and the expanded explanation of Air Force management's
considerations set forth in the Air Staff Statement, and we find no basis
for concluding that the decision to cancel the solicitation here was
unreasonable, especially in light of L-21's failure to counter most of the
agency's explanations. [3] See Atmospheric Research Sys., Inc., B-240187,
Oct. 26, 1990, 90-2 CPD para. 338 at 4. For example, we find reasonable the Air
Force's explanation that it was concerned about the lack of direction in the
solicitation for handling common costs, including costs under the headings
"Refreshment of Information Technology under $100,000" and "Replacement of
Information Technology Equipment under $100,000." The agency also explained
its concerns about the solicitation's lack of instructions regarding cost
escalation for supplies and materials, and lack of instructions regarding
the requirements for network management. In the Air Force's view, these
items, as well as the fact that the Performance Requirements Document
incorporated in the solicitation was originally prepared in 1996 and 1997
and was likely outdated in other respects, led it to conclude that the
solicitation should be canceled, the requirements revised, and the
competition reinitiated. As indicated above, we have no basis for a contrary
conclusion.

The protest is denied.

Anthony H. Gamboa

General Counsel

Notes

1. Our prior decision includes a more complete recitation of the events
between the time that the Air Force sought dismissal of L-21's initial
protests in December 2000 and the May 11 filing of L-21's second challenge
to this procurement. Id. at 2-3.

2. For the record, we disagree with L-21's assertion that the Air Staff
Statement expanding on the reasons for canceling the underlying solicitation
is somehow inconsistent with the agency's decision to cancel. Rather, this
statement provides a more detailed rationale for the contemporaneous
decision to cancel by filling in previously unrecorded details. NWT, Inc.;
PharmChem Labs., Inc., B-280988, B-280988.2, Dec. 17, 1998, 98-2 CPD para. 158
at 16.

3. In its final comments filing, submitted more than 5 weeks after its
receipt of the agency report explaining the specific bases for canceling
this solicitation, L-21, for the first time, raised specific challenges to
the bases for cancellation identified in the AFAA briefing materials and the
Air Staff Statement. These challenges are untimely at this juncture and will
not be considered. 4 C.F.R. sect. 21.2(a)(2) (2001).