TITLE:  IT Corporation, B-288507, September 7, 2001
BNUMBER:  B-288507
DATE:  September 7, 2001
**********************************************************************
IT Corporation, B-288507, September 7, 2001

Decision

Matter of: IT Corporation

File: B-288507

Date: September 7, 2001

Alison L. Doyle, Esq., C. Stanley Dees, Esq., Richard P. Castiglia, Esq.,
and Paul C. Smith, Esq., McKenna & Cuneo, for the protester.

Thomas J. Lundstrom, Esq., and Garrett L. Ressing, Esq., Naval Air Systems
Command, for the agency.

Guy R. Pietrovito, Esq., and James A. Spangenberg, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Protest objecting to possible agency actions in response to the decision of
an administrative appeal authority under Office of Management and Budget
Circular A-76 is dismissed as premature, where the appeal authority upheld
the protester's appeal and remanded the matter to the agency to take
corrective action and the agency has not yet determined what action it will
take.

DECISION

IT Corporation protests the actions of the Department of the Navy under
request for proposals (RFP) No. N68711-00-R-4101, which provided for a cost
comparison pursuant to Office of Management and Budget (OMB) Circular No.
A-76 to determine whether to retain in-house or contract out performance of
public works services at the Naval Air Weapons Station, China Lake,
California.

We dismiss the protest as premature.

The RFP was issued as a part of a public/private cost comparison to
determine whether accomplishing the specified work under contract by
government performance was more economical than retaining the work in-house.
[1] In response to the RFP's performance work statement, agency personnel
prepared an in-house plan consisting of a management plan, a technical
performance plan, and an in-house cost estimate. The Naval Audit Service,
acting as the "independent review officer," certified that the in-house plan
provided sufficient hours to perform the performance work statement
requirements. Offers were received from a number of private-sector offerors,
including IT. Discussions were conducted, and best and final offers
received. IT was selected to compete against the agency's most efficient
organization (MEO). As a result of the cost comparison between the MEO and
IT, the Navy tentatively decided that performance in-house would be less
costly (after the appropriate adjustments were made) than performance by IT.

IT appealed the cost comparison to the agency's appeal authority. In its
administrative appeal, IT complained that the MEO's technical performance
plan did not address all the requirements of the performance work statement,
that the in-house cost estimate did not include costs associated with
performance commitments in the technical performance plan, that the in-house
plan significantly understated the level of effort required to perform many
of the performance work statement requirements, that the Navy "failed to
level clear quality differences between the IT Corporation and the MEO," and
that the Navy (in making the adjustments called for by Circular A-76)
applied excessive contract administration and one-time conversion costs to
IT's proposal and failed to provide sufficient credit to IT for federal
taxes paid. Appeal of IT Corp. at 2.

The Navy's administrative appeal authority upheld IT's appeal, finding that
"several of the questions raised by IT Corporation should be sustained in
IT's favor." Appeal Decision at 2. The appeal authority, however, did not
specifically identify the issues sustained or their cost impact. With
respect to IT's complaint that the in-house plan significantly understated
the level-of-effort required to satisfy the performance work statement
requirements, [2] the appeal authority found that in 14 areas there were
"large disparities in the bases that were used in judging what would be
realistic levels of performance." Id. at 3. That is, the appeal authority
found that the independent review officer (in reviewing the in-house offer)
and the evaluation board (in reviewing the private-sector offers) had used
substantially different judgments as to realism of the proposed levels of
effort. In one example, the appeal authority noted that, although IT
proposed a higher level of effort than had the MEO (whose level of effort
was found realistic by the independent review officer) to perform a
particular function, the evaluators found IT's proposed level of effort to
be unrealistically low. As a result, IT was encouraged in discussions to
substantially raise its level of effort for the function, which resulted in
IT's level-of-effort for this work being substantially higher (and therefore
presumably far more costly) than that estimated in the in-house plan. Id.
at 4. The appeal authority also found that, in addition to the evaluators'
and independent review officer's application of different estimating methods
and estimates of labor hours required to perform the work, there was
"evidence of vast disparities that indicate that the requirements in the
[performance work statement] were not understood by the offerors." Id. at 5.

The appeal authority remanded the cost comparison back to appropriate Navy
officials with instructions to make corrections and complete the competition
within 1 year. Among other things, the team that prepared the performance
work statement was directed to review that work statement to ensure that it
accurately and unambiguously stated the requirements of the public works
function. If modified, the performance work statement was to be
re-certified, and the private-sector offeror(s) were to submit new proposals
and the in-house team was to prepare a new plan. The procuring activity was
also directed to "formulate a process which will preclude the use of
disparate evaluation techniques," and ensure a level playing field and a
fair and reasonable competition. Finally, the source selection authority was
to ensure that the level of performance and quality proposed by the
contractor was achieved by the MEO.

IT protested to our Office, complaining that the appeal authority had failed
to specifically decide the issues raised in IT's administrative appeal and
had improperly decided to reopen the private-sector competition.

The Navy requests that we dismiss the protest because the agency has not yet
determined what "corrective action" it will take in response to the appeal
authority's decision. Specifically, the Navy notes that, depending upon the
results of its review of the matter, and in accordance with the appeal
decision, the agency may take one of three different courses of action.

(1) If, from its review, the Navy determines that the solicitation and
performance work statement were defective in a way that materially affected
the underlying private-sector competition, the agency will cancel the
solicitation and issue a new one incorporating the necessary changes.

(2) If the Navy determines that the solicitation and performance work
statement were not defective in any material way, so that the private-sector
competition was not affected, but that the public/private cost comparison
was significantly flawed, it may conduct a new public/private competition,
making any needed non-material changes to the solicitation and performance
work statement, obtaining a revised proposal from IT and a revised plan from
the in-house team, and conducting a new cost comparison.

(3) The agency may decide that the solicitation and performance work
statement were not defective and that the problems in the cost comparison
identified in the appeal decision do not require further competition between
IT and the MEO, and, in this case, the Navy will correct the problems in the
cost comparison and issue a new tentative decision.

The Navy states that it will decide within 30 days which course of action it
will pursue.

IT objects to dismissal of its protest, contending that the Navy's statement
of possible corrective actions does not provide "any hint of what the Navy
actually intends to do as corrective action (if anything). . . . Thus[,] we
remain where we were at last week--with no representations about what the
Navy needs or plans to do regarding the Performance Work Statement that
merits dismissal of this action as premature." Letter from IT to GAO (Aug.
31, 2001) at 1-2. IT also complains that, with respect to the Navy's second
possible course of corrective action, if the performance work statement does
not need to be materially amended, there is no reasonable basis to allow the
MEO to prepare a new in-house plan. IT also argues that the Navy personnel,
reviewing the performance work statement and deciding upon the corrective
action to be taken, may have an organizational conflict of interest.

Protests that merely anticipate improper agency action are premature. See
Saturn Indus.--Recon., B-261954.4, July 19, 1996, 96-2 CPD para. 25 at 5. Here,
the Navy has, as the protester acknowledges, not yet decided what action or
actions the agency will take in response to the appeal authority's decision,
so that there is no agency action for our Office to review. We share the
protester's concern about the process being drawn out unnecessarily, and in
this regard it is helpful that the Navy appears committed to moving forward
expeditiously. We recognize, however, that the issues identified by the
appeal authority are significant, and we believe that the agency should have
a reasonable opportunity to review the appeal authority's decision to
determine its course of action. Once the Navy decides what action to take in
response to the appeal authority decision, that decision may form the basis
for a valid bid protest, which IT or another interested party may file with
our Office at that time.

The protest is dismissed.

Anthony H. Gamboa

General Counsel

Notes

1. The procedures governing decisions to transfer work from in-house to
contractor performance (or vice versa) are set forth in OMB Circular
No. A-76 and the Revised Supplemental Handbook, which have been made
expressly applicable to the Department of Defense and its military
departments and agencies. See 32 C.F.R. sect. 169a.15(d) (2001). The process set
out in the Circular and the Supplemental Handbook broadly encompasses the
following steps in the conduct of a public/private competition. First, after
the performance work statement has been drafted, the agency ensures that the
government's in-house plan complies with that performance work statement.
Supp. Handbook, part I, ch. 3, para. I. Second, there is a competition among
private-sector offerors, which is conducted much as any competed federal
procurement is conducted. Third, if that competition is done on a "best
value" basis (that is, evaluating non-cost factors on a comparative basis
and allowing the possibility of a cost/technical tradeoff), the government's
technical performance plan is compared with the winning private-sector offer
to assess whether or not the same level of performance and performance
quality will be achieved--and if it will not, to make all changes necessary
to meet the performance standards of the private-sector proposal. Id.
para.para. H.3.d, e. Finally, once the playing field is thus leveled, there is a
cost comparison (with certain required adjustments) between the
private-sector offer and the in-house cost estimate. Id. para.para. H, J.

2. This protest allegation identified 16 separate performance work statement
functions where IT asserted that the in-house cost estimate was
unrealistically low.