TITLE:  Satellite Services, Inc., B-288848.3, April 28, 2003
BNUMBER:  B-288848.3
DATE:  April 28, 2003
**********************************************************************
Satellite Services, Inc., B-288848.3, April 28, 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:    Satellite Services, Inc.
    
File:             B-288848.3
    
Date:              April 28, 2003
    
Rand L. Allen, Esq., William S. Lieth, Esq., and Janet L. Eichers, Esq.,
Wiley Rein & Fielding, for the protester.
Vera Meza, Esq., and Beth Biez, Esq., U.S. Army Materiel Command, for the
agency.
Tania Calhoun, Esq., and Christine S. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
    
Agency's decision to cancel solicitation used to obtain and evaluate
private-sector proposals in conducting an Office of Management and Budget
Circular A-76 cost comparison, after selection of a private-sector
offeror, two cost comparisons, and two General Accounting Office protests,
is denied where agency reasonably based its decision on the cumulative
impact of uncertainty generated by pending agency management decisions
with the potential to substantially affect the solicitation's workload,
workload changes that occurred before and after a recent agency
reorganization, and the uncertainty associated with the full impact of
that reorganization. 
DECISION
    
Satellite Services, Inc. (SSI) protests the Department of the Army's
decision to cancel request for proposals (RFP) No. DAAH03-99-R-0027,
issued in conjunction with a commercial activities study pursuant to
Office of Management and Budget (OMB) Circular A-76; to revise the
agency's requirements; and to issue a new solicitation based upon those
revised requirements for the provision of multi-function services to the
Redstone Arsenal in Alabama.  SSI, which prevailed in the private-sector
competition and has twice challenged the Army's tentative decision to
retain in-house performance of the work, argues that the cancellation
decision lacks a reasonable basis.
    

   We deny the protest.
BACKGROUND
    
The Army issued this RFP on November 29, 1999, to obtain a cost comparison
between performance by the government and performance by the private
sector under what was then known as the Redstone Arsenal Support Activity
(RASA) multi-function study, conducted pursuant to OMB Circular A-76.[1] 
The RFP explained that RASA provided a wide range of installation support
services to the U.S. Army Aviation and Missile Command (AMCOM) and various
other offices located on the Redstone Arsenal or in the Huntsville,
Alabama area.  Performance Work Statement (PWS) S: C.1.2.  At issue in
this RFP were services RASA provided to the Directorate of Logistics, the
Directorate of Public Works, and the Directorate of Flight Operations, and
certain services associated with managerial and administrative functions. 
Id. S:S: C.5, C.1-C.4.  The solicitation, issued as a small business
set-aside, anticipated the award of a cost-plus-award-fee contract to be
performed over a base period and option periods that might extend for as
long as 10 years.  
    
After a private-sector competition that elicited offers from three firms,
the Army selected SSI's proposal as that offering the best value to the
government for purposes of the cost comparison.  The source selection
authority (SSA) ultimately concluded that the in-house offer[2] met the
PWS requirements and offered the same level of performance and performance
quality as did the SSI proposal.  The corresponding cost comparison showed
that the in-house offer was approximately $7.9 million lower than SSI's
cost of $77,827,968 (after inclusion of the various adjustments called for
in Circular A-76), and the Army issued its tentative decision to retain
performance of these services in-house on June 14, 2001.  After SSI's
administrative appeal of this decision was denied, the firm filed its
initial protest in our Office, arguing that the in-house offer failed to
include adequate management and supervision for personnel proposed to
accomplish the PWS requirements and that the in-house offer did not
represent a level of service comparable to the level of service proposed
by SSI.  On the morning of November 13, the day of a scheduled GAO hearing
in the matter, the Army and SSI agreed that the Army would take corrective
action by revising the MEO to capture the workload, including all
management and supervision of all PWS sections, and by reviewing the
resulting in-house offer to ensure that it exhibits the same level of
performance and performance quality as did SSI's offer.  In view of the
Army's proposed corrective action, our Office dismissed SSI's protest as
academic.
    
The Army implemented its proposed corrective action and conducted a second
cost comparison under which the cost of in-house performance was found to
be approximately $3.7 million lower than SSI's cost, and in June 2002 the
Army therefore made a tentative decision to retain in-house performance of
the requirements.  After SSI's administrative appeal of the second cost
comparison decision was denied, the firm filed its second protest in our
Office, arguing that the Army overstated certain amounts added to SSI's
costs, the MEO failed to include sufficient resources to perform all the
services required by the PWS, and the Army failed to ensure the MEO
offered the same level of performance and performance quality as did SSI's
proposal.
    
On January 23, 2003, the due date for the agency report, the Army notified
our Office that it planned to cancel the solicitation.  The contracting
officer's cancellation memorandum set forth two bases for the
cancellation.  The first was associated with a recent Army management
restructuring and reorganization that directly affected Redstone and the
workload of the organizations covered by the PWS.  The second basis was
associated with the implementation of the Army's current *Third Wave*
initiative and the Federal Activities Inventory Reform (FAIR) Act, which
resulted in exempting from A-76 review 204 of the 315 positions that were
included in the commercial activities study when the solicitation was
issued.  Cancellation Memorandum at 1.  The contracting officer stated
that Army-directed changes, in the form of exemption requests associated
with positions whose workload was captured in the PWS, reflected a 66
percent change in the scope of work of the solicitation, and she concluded
that it was not viable to continue with either implementation of the MEO
or award of a contract because the existing RFP was outdated and neither
implementation of the MEO nor contract award would meet the agency's
current requirements.  Id. at 2. 
    
In view of the Army's decision to cancel the solicitation, our Office
dismissed SSI's protest of the second cost comparison as academic.  In the
instant protest, SSI argues that the Army's cancellation decision is
unreasonable.[3]  Our review of the record, the pleadings, and testimony
taken at a hearing leads us to conclude that we cannot find the
cancellation decision to be unreasonable, based on the cumulative impact
of uncertainty generated by the pending exemption requests with the
potential to substantially affect the solicitation's workload, taken
together with changes in the solicitation's workload that occurred both
before and after the reorganization and the continuing uncertainty
associated with the full impact of that reorganization.  We begin our
discussion by explaining the recent developments underlying the
cancellation decision.
    
RECENT DEVELOPMENTS
    
In May 1997, the initial Commercial Activities Proposed Action Summary
(CPAS)[4] for the RASA multi-function study encompassed the Directorate of
Public Works (DPW), the Directorate of Logistics (DOL), the Directorate of
Community and Family Activities (DCFA), and the Directorate of Flight
Operations (DFO), for a total of 337 full-time equivalents (FTE).  In
subsequent years, the DCFA activity was excluded from the study and the
CPAS was amended to reduce the number of FTEs from 337 to 315.  When this
solicitation was issued in November 1999, the covered activities were
performed by RASA under the cognizance of the Army Materiel Command
through AMCOM at the Redstone Arsenal. 
    
In late 2001, the Secretary of the Army announced the Transformation of
Installation Management (TIM) initiative, a centralized installation
management initiative that changed the way the Army manages base
operations and support functions.  In October 2002, in conjunction with
the TIM initiative, the Army established the new Installation Management
Agency (IMA) to oversee all facets of installation support and
installation management under a new regionalized structure.  RASA was
removed from the organizational control of AMCOM and renamed the U.S. Army
Garrison, Redstone Arsenal (the garrison) under the IMA's authority.  The
IMA will exercise its authority over the garrison through its Southeast
Region, housed at Fort McPherson, Georgia. 
    
In October 2002, the Secretary of the Army also announced the Army's
*Third Wave* initiative, under which all Army commands were required to
develop and present to the Assistant Secretary of the Army, Manpower and
Reserve Affairs (ASA(M&RA)), implementation plans for *privatizing,
divesting, competing using A-76, outsourcing using 'alternatives to A-76,'
converting military spaces to civilian or contract, or transferring to
other government agencies, all non-core functions that fall under [the
command's] purview.*[5]  Secretary of the Army's Third Wave Memorandum,
Oct. 4, 2002, at 1.  The plans were required to include *all non-core
spaces (i.e., spaces potentially eligible for private sector performance)
unless an exemption, based on disruption to core missions, is approved [in
writing] by the ASA(M&RA).*  Id.
    
The guidance accompanying the memorandum defined the scope for the Third
Wave as *100% of the Inventory of Commercial and Inherently Governmental
Activities (ICIGA) reviewable spaces (Codes L through V and X)[6] and
contract support,* for a total of 213,637 military and civilian non-core
spaces.  Id., encl. 2 at 1-2.  The guidance also established deadlines for
the exemption process, which were subsequently extended.  In brief, an
exemption request, signed by a principal official of the headquarters of
the Department of the Army or a major command commander, must have been
provided to and received by the ASA(M&RA) on or before November 29, 2002,
and the exemption approval must have been signed by the ASA(M&RA) on or
before January 21, 2003.  Unless these deadlines were met, the commands
were required to include the spaces being considered for exemption in
their implementation plans.  If the exemptions were approved, the spaces
exempted were to be considered *core* and removed from the implementation
plans.  These deadlines were subsequently extended again to permit Army
functional chiefs to submit their final exemption requests by January 15,
2003.  ArmyLink News, Dec. 18, 2002, *Army extends deadline for 'Third
Wave' exemptions.* 
    
Over the fall of 2002 and into January 2003, USAG-Redstone personnel had
telephonic and e-mail communications with an IMA representative regarding
implementation of the Third Wave initiative and associated exemption
requests.  Testimony of the Deputy to the Garrison Commander (the Deputy),
Hearing Transcript (Tr.) at 42-44, 46.[7]  On January 13, the garrison
forwarded to the IMA a number of Third Wave exemption requests covering
various positions in each of the three directorates at issue in the
solicitation.  Agency Report (AR) Tab BV.  In the following days, the IMA
representative advised garrison personnel of the status of these exemption
requests.  Specifically, on January 14, the garrison was advised that,
with respect to the DPW, a *blanket exemption [is] in place and [the IMA
representative] is checking it to see if all positions listed are exempt;
some may not fit.*  AR Tab BU, E-Mail no. 4, Jan. 14, 2003.  The IMA
representative updated this advice on January 15, stating, *The Redstone
Garrison DPW functions are covered in a blanket exemption request . . .
[a]lso, the DOL functions have been addressed by the IMA proponent in
Operations Div here.  I don't understand exactly what they've done, but
will figure it out and let you know.*  AR Tab BU, E-Mail no. 3, Jan. 15,
2003.  The Deputy testified that the IMA representative subsequently
advised garrison personnel by telephone of the positions that would be
covered by the exemption requests.  Tr. at 42-43, 46.  The Deputy
testified that these personnel told him that, of the 108 positions in the
MEO, the exemptions covered all [DELETED] FTEs in the DPW, [DELETED] of
the 60 positions in the DOL, and all [DELETED] FTEs in the DFO.  Id. at
46, 18-20; see also Agency Hearing Exhibit 1.
    
The Deputy testified that, after receiving this information, he felt a
need to cancel the solicitation because it was no longer a viable
acquisition.  Tr. at 67.  First, it appeared that the agency would be
changing in excess of 60 percent of the requirement based on the number of
FTEs that would be exempt based upon the information provided by the IMA
representative.[8]  Id. at 67-68.  Second, he considered changes in
workload that had occurred both before and after the reorganization, as
well as the impact of the loss of funding on certain operations.  Id. at
68-69, 72-74, 95-102.     
    
On January 16, the Deputy sent the garrison commander an e-mail requesting
authorization to cancel the solicitation.  In that e-mail, the Deputy
stated that changes had occurred since the RFP was released and it no
longer met the agency's requirements.  The e-mail stated that, *if a
contract were to be awarded, significant descope, [termination for
convenience], and probably de-obligation of funds would occur.*  Agency
Hearing Exhibit 3.  The e-mail also stated that, *during the course of the
procurement action the RASA workload changed dramatically and the
configuration of the organization was also beginning to change
dramatically.  These changes were discussed and cancellation of the
procurement action was discussed several times but the end decision was
that the mission changes had not yet reached the point to warrant a
cancellation of this specific action.  That is no longer the case.*  Id. 
The e-mail explained that *what was RASA in 1997 changed to the [garrison]
in 2002, the funding streams and the funding process for all the Garrison
Services is/has changed and most dramatically, recent 'Third Wave/Fair
Act' changes have exempted 204 of the original 315 FTEs on the
CPAS--significant change because DPW and DFO (with the exception of a
single [administrative] FTE in DFO) are now entirely exempt.*  Id.  The
Deputy testified that he received telephonic approval of this request. 
Tr. at 62-63.
    
On January 21, the Deputy sent a formal request to cancel the solicitation
to the contracting officer and the SSA, expanding upon the reasons
outlined above.  On that same day, the contracting officer and SSA issued
the formal determination to cancel the solicitation using much the same
language as that used by the Deputy. 
    
First, the contracting officer explained that TIM *has had, and will
continue to have, a profound effect on the operations* of the garrison. 
The significant change was to the command and control of the garrison,
which would no longer be managed through AMCOM and its headquarters, the
Army Materiel Command, but, instead, by the IMA through its regional
office.  She stated that base operations funding would be channeled
through the IMA, instead of AMCOM, and that *[t]he customer base and the
budget process for the entire garrison changed dramatically with this
reorganization and this substantially changed the workload for the
organizations listed in the original A-76 solicitation.*  Cancellation
Memorandum at 1-2.
    
Second, the contracting officer discussed the impact of the Third Wave and
the FAIR Act.  In her cancellation memorandum, the contracting officer
stated that compliance with the most recent coding guidance from DOD and
OMB changed many of the functions listed in the original CPAS from
*contractible* to *non-contractible* functions, with the end result being
that 204 of the 315 FTEs in the original study were now exempt from
review.  As relevant to this solicitation, she stated that e-mails from an
IMA representative informed the garrison that the IMA had *submitted
blanket exemptions* for the DPW, and the DOL and DFO were *under review
now for blanket exemptions.*[9]  Id.  The contracting officer stated that
these Army-directed changes reflected a 66 percent change in the scope of
work of the original A-76 solicitation.  Id. 
    
The contracting officer concluded that continuation of the solicitation
would result in immediate termination for convenience of any resultant
contract award, as the information in the RFP, which was the basis for the
MEO and the private-sector proposals, did not adequately identify the work
required to meet the garrison's current needs.  She believed that any
amendment to conform the terms of the solicitation to the changed workload
requirements would be an amendment of such substance and magnitude that
the cancellation of the solicitation was mandatory, citing FAR S:
15.206(e).  The contracting officer added that the flight operations
function was so unique that it severely limited the number of qualified
offerors, and anticipated that a new solicitation for the logistics effort
alone would result in greater competition. 
    
DISCUSSION
    
SSI argues that the agency's decision to cancel the solicitation lacks a
reasonable basis.  The protester contends that the reorganization at
Redstone had no effect on the workload in the PWS; there is no reliable
evidence that any blanket exemption requests that may be pending cover any
of the functions in the PWS; and there are currently no final approved
exemptions. 
    
Where an agency determines that a solicitation does not accurately reflect
its needs, cancellation is appropriate.  Rice Servs., Ltd., B-284997.5,
Mar. 12, 2002, 2002 CPD
P: 59 at 4.  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.  This broad grant of authority extends to the
cancellation of solicitations used to conduct A-76 cost comparisons.  IT
Corp., B-289517.3, July 10, 2002, 2002 CPD P: 123 at 3; Source AV, Inc.,
B-241155, Jan. 25, 1991, 91-1 CPD P: 75    at 3.  So long as a reasonable
basis exists to exercise this authority, an agency may cancel a
solicitation regardless of when the information precipitating the
cancellation first surfaces.  Rice Servs., Ltd., supra; Lackland 21st
Century Servs. Consol., B-285938.7, Dec. 4, 2001, 2001 CPD P: 197 at 5. 
    
We acknowledge at the outset that SSI correctly asserts that, at the
hearing on the protest, the contracting officer testified that she
believed the exemptions had been granted when she made the determination
to cancel the solicitation, and that, if she had known they were still
pending, she would have concluded she did not have a basis for
cancellation at that time.  Tr. at 120, 140-41.  However, we do not agree
with SSI that this admission alone means that the cancellation decision
cannot be reasonably based.  The contracting officer's testimony
contradicts the language in the cancellation memorandum she drafted,
wherein she states that a blanket exemption for the DPW had been
*submitted,* and that the DOL and DFO were *under review now for blanket
exemptions.*  Cancellation Memorandum at 2.  The contemporaneous language
clearly indicates the contracting officer's understanding that these
requests had not yet been granted but were still pending.  In any event,
the Army is standing by its decision to cancel the solicitation, citing
not only the pending exemption requests, but changes in the PWS workload
both before and after the restructuring and reorganization, as well as
funding shortfalls.  It is the reasonableness of this agency decision that
we are called on to review in this protest.
    
As explained below, the Army provided scant evidence to support its
conclusions regarding the effects of reorganization-related workload
changes and funding concerns.  Because of the limited record in these
areas, we cannot conclude that either factor, standing alone, justifies
cancellation of the solicitation.  It is also clear from the record,
however, that the primary factor leading to the cancellation was the
information concerning pending exemption requests affecting the workload
in the PWS.  We conclude that this justification--in conjunction with the
agency's other concerns--reasonably supports the decision to cancel.  We
address each of the agency's justifications in turn.
    
Reorganization
    
The cancellation memorandum explained that the TIM initiative had had, and
*will continue to have, a profound effect* on the garrison's operations. 
Cancellation Memorandum at 1.  When the RFP was issued in 1999, the
garrison was managed through AMCOM and its headquarters.  However, as of
October 2002, the garrison is managed by a new agency, the IMA.  The
contracting officer explained that base operations funding will now be
channeled through the IMA instead of AMCOM, and that *the customer base
and the budget process for the entire garrison changed dramatically with
this re-organization and this substantially changed the workload for the
organizations listed in the original A-76 solicitation.*  Id. at 2.
    
SSI is correct that the cancellation memorandum contained no support for
the statement that the restructuring and reorganization *substantially
changed the workload* for the organizations covered by the PWS, and is
equally correct that the Army has failed to provide any documentary
evidence to support the statement during the pendency of this protest. 
However, both the Deputy and the contracting officer provided testimony on
this matter at the hearing. 
    
The Deputy stated that the changes wrought by the TIM and the shift to the
IMA had been dramatic, causing the garrison to integrate various new
pieces into its existing organization, all of which were accompanied by
such things as budget and personnel requirements.  This process is still
ongoing.  Tr. at 10-12.  The Deputy added that consolidating the groups
that do installation management work into a central group to achieve
efficiencies was a process that would probably continue on until 2004 or
2005.  Id. at 12.  The contracting officer testified that, prior to the
reorganization, RASA had only one customer, AMCOM, but, after the
reorganization, the garrison's customer base expanded beyond AMCOM, in a
way that will have an impact on how the activity is funded.  Id. at
123-24.  As the Army explains, because the garrison has increased in size
and mission over its former incarnation as RASA, the workload for some
functions may expand. 
    
Citing the Deputy's testimony that the number of personnel performing the
PWS work has fluctuated only slightly over the past year and has been a
constant [DELETED] personnel since October 2002, when the garrison came
under the IMA's authority, SSI argues that the workload has not changed
due to the reorganization, even though, as discussed below, certain tasks
have been eliminated or consolidated, because the number of personnel
performing the work is the same and there has been no increase in overtime
to compensate for any additional work.  We do not share SSI's view that
this fact means the workload has not changed.  The Deputy testified that
the number of personnel has been constant due to *pure funding.*      Tr.
at 72.  Moreover, it is not clear to us that the full impact of the
restructuring and reorganization has been realized in any concrete manner
in the few short months since the reorganization.
    
Beyond changes to the workload caused by the reorganization, the Deputy
provided testimony concerning changes to the PWS over the nearly 6 years
since the study's inception.  The Deputy testified that the garrison has
incorporated the military construction engineers, master planners, and
space management personnel who had been in a different organization into
the DPW, and has suffered a major funding shortfall in customer design
requirements.  As a result, even without considering the implications of
the Third Wave or the FAIR Act, the Deputy testified that the entire DPW
PWS, *the way it's written, would have to be redone.*  Id. at 97-98.  SSI
asserts that the Deputy failed to provide testimony that any of the actual
workload being performed by the engineers has changed but, in our view,
the interweaving of a new organization not previously covered by the PWS
into an organization that was covered by the PWS brings inherent changes
that, at a minimum, make the workload different from that anticipated by
the solicitation. 
    
The Deputy also testified that the garrison moved some of the fleet
management workload under the DOL to an existing contract, and that there
had been reductions and consolidations based on funding considerations
with respect to other DOL workload.  Id. at 95, 96.  The Deputy testified
that certain work within the DFO had been dropped, other work was no
longer performed based on funding constraints, and the aircraft
maintenance task had already been contracted out.[10]  Id. at 98-100.
    
SSI argues that the fact that the aircraft maintenance work has not been
removed from the RFP compels the conclusion that the Army intended to move
the work to the MEO or SSI's contract at the end of the competition.  On
the contrary, the contracting officer explains, *during the TIM
initiative, it was discussed on numerous occasions that it did not appear
the DFO would be under the control of the garrison and should be removed
from the RFP.  Because it was a small portion of the entire effort, the
decision was made to go forward and implement a reduction in either the
MEO or a partial termination for convenience, in the event of contract
award rather than cancel the RFP.*  Contracting Officer's Statement, Feb.
4, 2003, at 3. 
    
We recognize that the Army has provided scant evidence with respect to
specific workload changes to the PWS that occurred either before or as a
result of the reorganization.  We find, nonetheless, that there is
sufficient evidence in the record to show that there have been revisions
to the workload covered by the PWS over the 6 years since the study
commenced, both before and after the reorganization.  We also find that
there is sufficient evidence to show that the reorganization has created
uncertainty for some time to come about the garrison's organization as a
whole, and that this uncertainty necessarily extends to the components of
the organization that were the subject of the solicitation. 
    
Funding
    
The second basis for cancellation cited by the Army in its post-hearing
comments concerns funding issues.  The Army argues that obtaining the
services covered by the PWS through either the MEO or a contract is not
cost-effective, citing testimony provided by the Deputy and the
contracting officer concerning the garrison's funding problems and the
likelihood of *de-scoping* the work if this procurement went forward.  SSI
argues that the Army's *funding* justification is a post hoc
rationalization that does not appear in the cancellation memorandum but
was created for the purpose of responding to this protest.
    
SSI is correct that the cancellation memorandum does not use funding as a
justification for the cancellation, and does not mention funding other
than to say that there has been a shift in the source of funding from
AMCOM to the IMA.  There is, however, contemporaneous evidence to show
that funding concerns were a consideration underlying the decision to
cancel the solicitation.  As noted above, in his request to the garrison
commander to authorize cancellation of the solicitation, the Deputy
stated, *if a contract were to be awarded, significant descope,
[termination for convenience], and probably de-obligation of funds would
occur.*  Agency Hearing Exhibit 3.  The Deputy also stated, *what was RASA
in 1997 changed to the [garrison] in 2002, the funding streams and the
funding process for all the Garrison Services is/has changed . . . * 
Id.      
    
The Deputy testified that the garrison started having financial problems 3
years ago and, citing an example, had to reduce its base operations
contract significantly and will have to reduce it again this year.  Tr. at
69.  The Deputy stated that the garrison could not afford to proceed with
the RFP as written and would have to *descope,* or eliminate some of its
requirements.[11]  Id. at 73.  We have no basis to question the Deputy's
testimony that funding concerns, including those associated with the
reorganization, may have influenced the agency's decision to cancel the
decision.  Nonetheless, the minimal support the Army has provided as
evidence of these funding concerns is not sufficient for us to conclude
that this factor, standing alone, justified cancellation of the
solicitation. 
    
Exemption Requests
    
As stated above, the record is clear that the precipitating justification
for canceling the solicitation was the information concerning pending
exemption requests affecting the workload in the PWS. 
    
SSI argues that there is no reliable evidence that any blanket exemption
requests that may be pending cover any of the functions in the PWS.  The
protester asserts that the Army has not produced the IMA's exemption
requests, and failed to provide a hearing witness with first-hand
knowledge of the information provided by the IMA on specific functions
covered by the exemption requests.
    
As the Army explains, neither AMCOM nor the garrison has access to the
IMA's exemption requests or their underlying rationale.  Army Letter March
7, 2003, at 2.  We are troubled, however, that the Army failed to provide
a hearing witness with first-hand knowledge of the information provided
orally by the IMA on the specific positions covered by the exemption
requests.  The Army was on notice that the hearing's purpose was to
discuss, among other things, the status of the exemption requests and to
support the changes of certain FTEs from *contractible* to
*non-contractible,* and the Army was asked to provide witnesses that could
shed light on these issues.  GAO Hearing Notice, Mar. 25, 2003, at 1-2. 
Neither of the witnesses the Army provided had first-hand knowledge of the
communications with the IMA representative; the Deputy could only relay
the information he was given by staff who did have such knowledge. 
    
Nonetheless, we do not agree with SSI's assertion that we should infer
that the information that could have been provided by another witness
would have been adverse to the Army, citing Department of
Commerce--Recon., B-277260.4, July 31, 1998, 98-2 CPD P: 35 at 3.  In the
case at hand, it is more important for us to know that the *DPW functions
are covered in a blanket exemption request,* and *the DOL functions have
been addressed,* AR, Tab BU, E-Mail no. 3, Jan. 15, 2003, than to know the
specific positions at issue.  In any event, we have no basis to discount
the Deputy's testimony concerning his staff's account of the contents of
the telephone conversations with the IMA representative.[12] 
    
SSI also asserts that the cancellation decision was unreasonable because
there are currently no final approved exemptions.  As of the date of this
decision, it is apparently still true that no final approved exemption
requests have been released.  The Deputy and the contracting officer
testified that they were told, on or about April 1, that the Assistant
Secretary had signed 20 of the 24 exemption requests that were pending
before him from the IMA.  Tr. at 45-46; see also Agency Hearing Exh. No.
2, at 2.  These requests have not yet been released, and may not be
released for some time to come.  Id. at 120; see also Agency Hearing
Exhibit No. 2 at 2.  SSI is also correct that there is little information
concerning the contents of these signed exemption requests.  The only
information in the record is an e-mail from the IMA indicating that
*[DELETED].*  Agency Hearing Exh. No. 2, at 2.  As a consequence, there is
great uncertainty regarding the scope of the exemption requests and their
potential impact on this solicitation.[13] 
    
Conclusion
    
Considering the record before us, we find that the Army has presented
evidence that the workload in the PWS has undergone revision and will
likely undergo continuing revision as a result of the reorganization, and
that the garrison has faced funding shortfalls that have had an impact on
the workload in the PWS and will likely face additional such challenges. 
We also find that the Army has presented evidence that its authorizing
agency, the IMA, has submitted requests for exemption from A-76
competition that, if approved, may have a substantial impact on the
workload in the PWS whether the work is ultimately performed by the MEO or
by SSI.  What remains to be considered is the question of what action the
agency reasonably may take where, during the course of an ongoing protest
of the validity of the cost comparison, agency management decisions raise
the prospect that two-thirds of the positions covered by the PWS may be
exempted from A-76 competition.
    
In such a case, the agency faces two alternatives.  First, the agency
could continue to defend the protest and either award a contract to SSI to
perform the services covered by the PWS or proceed to in-house performance
by the MEO of the services covered by the PWS, and address after award the
implications of the Army management decision that two-thirds of the
positions in the PWS should not have been competed.  Second, the agency
could--as the Army has chosen to do here--cancel the solicitation and
await more certain information regarding the outcome of the exemption
requests.
    
We believe that determinations of this kind must be left in the first
instance to the sound judgment and discretion of responsible agency
officials, subject to objection upon review only if clearly shown to be
without a reasonable basis.  See Federal Leasing, Inc.; DPF, Inc.,
B-182534, Apr. 18, 1975, 75-1 CPD P: 236 at 7-8.  After a review of the
record in the present case, we cannot conclude that the Army lacked a
reasonable basis to cancel the solicitation at the time it did so.
    
In reaching this conclusion, we take note of the evidence in the record
that the PWS workload has changed over the lengthy period of time since
the study commenced; of the recent restructuring and reorganization of the
way the Army manages installation support operations and the inevitable
but uncertain impact this will have on the garrison's organization and its
components, including the three components at issue in the solicitation;
and of the garrison's concerns about funding.  In an appropriate case,
each of these factors may be sufficient to justify the cancellation of a
solicitation.  Printz Reinigung GmbH, B-241510, Feb. 8, 1991, 91-1 CPD P:
143 (cancellation of solicitation justified because of agency concerns
about inaccuracy of the RFP's stated workload due to recent organizational
changes and potential for cost savings through consolidation); Source AV,
Inc., supra (cancellation of A-76 solicitation was reasonable where agency
based its decision on uncertainty regarding budgetary constraints and
likelihood that a reduction in the workload would materialize after a
planned agency reorganization); Mercury Consolidated, Inc., B-218182, June
17, 1985, 85-1 CPD P: 687 (cancellation of A-76 solicitation justified
based on substantial changes in the government's needs and the long period
of time between the original solicitation and necessary revisions). While
we find that the Army failed to provide sufficient support to justify the
cancellation of the solicitation on any one of these factors alone, in our
view, when the implications of these factors are combined with the
uncertainty raised by the pending exemption requests and their potential
impact on the scope of this procurement, we cannot conclude that the
cancellation decision was clearly unreasonable.
    
The protest is denied.
    
Anthony H. Gamboa
General Counsel
    

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

   [1] The procedures for determining whether the government should shift
performance of an activity from in-house employees to a contractor, or
vice versa, are set forth in OMB Circular A-76 and its Revised
Supplemental Handbook (RSH), which have been made expressly applicable to
the Department of Defense (DOD) and its military departments and
agencies.  See 32 C.F.R. S: 169a.15(d) (2002). 
[2] Consistent with the OMB Circular A-76 RSH, we use the term *in-house
offer* to refer to the government's management plan detailing the changes
that will be made to perform the commercial activity in-house and in
accordance with the PWS, even though the government's plan to perform the
work in-house is not an offer.  American Fed'n of Gov't Employees,
AFL-CIO, et al., B-282904.2, June 7, 2000, 2000 CPD P: 887 at 3-4.  The
government's in-house organization to perform a commercial activity, the
most efficient organization (MEO), is a product of the government's
management plan.  OMB Circular A-76 RSH, app. 1, Definition of Terms, at
35.
[3] SSI also argues that, since it has demonstrated on two occasions that
it can provide the work at a cost lower than that of in-house performance,
the cancellation violates the statutory prohibition against retaining work
in-house when it can be performed less expensively by contract, citing our
decision in Pemco Aeroplex, Inc., Aero Corp., B-275587 et al., June 29,
1998, 98-2 CPD P: 17 (there could be no reasonable basis for canceling a
solicitation in order to bring work in-house if doing so violated 10
U.S.C. S: 2462 (2000), a congressional mandate to allow private companies
to provide goods and services to DOD unless the government can provide
those goods and services at a lower cost).  SSI has twice argued that it
can provide the work at a cost lower than that of in-house performance,
but has not demonstrated that this is the case--the administrative appeals
board twice denied SSI's appeals and our Office has never issued a
decision on the merits.  Moreover, the Army's cancellation decision was
not based on a conclusion that in-house performance is less costly than
contract performance.  Cf. Imaging Sys. Tech., B-283817.3, Dec. 19, 2000,
2001 CPD P: 2.  As a result, we will not consider SSI's argument in this
regard.
[4] The CPAS is an Army document that delineates which function or
functions are to be studied.  Department of the Army Pamphlet 5-20 P: 2-5.
[5] This is the *Third Wave* initiative because it was preceded by two
*waves* of public-private competitions.  Secretary of the Army's Third
Wave Memorandum,  Oct. 4, 2002, encl. 2 at 1.
[6] These codes refer to DOD's manpower mix criteria codes, which provide
a shorthand description of the reason for concluding that a given military
or civilian position is or is not subject to cost comparison.  See DOD
Instruction No. xxxx.x, Oct. 1, 1997, and the draft on the Under Secretary
of Defense for Personnel and Readiness website,
.
[7] Cites to the hearing transcript refer to the transcript of the hearing
that our Office conducted in connection with this protest.
[8] The Army explains that the information communicated by the IMA
representative was that [DELETED] functions, or [DELETED] FTEs, were
affected by these exemption requests, which translates to [DELETED]
percent of the 108 FTEs in the MEO.  Army Letter, Mar. 17, 2003, at 2.
[9] The contracting officer's statement that e-mail communications from
the IMA representative provided exemption information on the DFO is in
error, since the      e-mails do not address the DFO.  The Deputy
testified that information concerning the DFO exemptions was transmitted
telephonically.  Tr. at 46-69.
[10] The Deputy also testified as to the uncertain status of the DFO. 
When RASA transitioned into the garrison, ownership of the airfields was
in question and was transferred this year to another organization.  Since
then, the Army has decided to transfer ownership back to the garrison
effective October 1, 2003.  Id. at 13-14. 
    
[11] SSI argues that since the Deputy has not seen its proposal, his
testimony concerning what might happen if SSI won the contract is
speculative.  We do not think the Deputy is saying any more than that the
RFP's requirements will cost more than the garrison is able to afford,
regardless of whether SSI or the MEO performs the work set out in the
PWS.  
    
[12] SSI argues that an e-mail exhibit to the Army's post-hearing comments
undermines the Deputy's testimony concerning the content of these
conversations because the sender of the e-mail, a staff member privy to
the conversations, states that *all we have are [the IMA representative's]
e-mails stating such blanket exemptions are in place.*  Army Post-Hearing
Comments, Exhs., at 1.  When the e-mail is read in context, the staff
member is clearly responding to a request for documentation.
[13] As SSI points out, this uncertainty is magnified by the fact that,
even if some or all of the positions in the PWS are included in the signed
exemption requests, they are still subject to challenge under the FAIR
Act.