TITLE:  LBM, Inc., B-291775, March 21, 2003
BNUMBER:  B-291775
DATE:  March 21, 2003
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LBM, Inc., B-291775, March 21, 2003

   Decision
    
    
Matter of:    LBM, Inc.
    
File:             B-291775
    
Date:              March 21, 2003
    
David Barbour for the protester.
Catherine L. Horan, Esq., and Richard G. Welsh, Esq., Naval Facilities
Engineering Command, for the agency.
Scott H. Riback, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
    
1.  Protest that agency miscalculated in-house performance costs
(associated with federal pay raise assumptions) in Office of Management
and Budget Circular A-76 cost study is denied where record shows that
agency's calculations were in accordance with policy guidelines, and
calculations reflect actual costs agency will experience during first
period of performance.
    
2.  Protest that agency improperly failed to include certain direct costs
in preparing agency in-house cost estimate is denied where record shows
that agency properly treated costs as *wash* costs, consistent with
applicable guidance.
    
3.  Protest allegations that involve dollar amount insufficient to change
outcome of Office of Management and Budget Circular A-76 cost study are
denied where, even if protester were correct in its allegations,
correction of the alleged errors would not change the study's outcome.
DECISION
    
LBM, Inc. protests the Department of the Navy's determination, pursuant to
Office of Management and Budget (OMB) Circular A-76, that in-house
performance of motor transportation operation and maintenance services at
the Marine Corps Recruiting Depot at Parris Island, South Carolina, would
be more economical than awarding a contract under request for proposals
(RFP) No. N62467-02-R-0333.  LBM maintains that the agency made several
errors in calculating the cost of in-house performance.
    
We deny the protest.
The RFP sought fixed-price offers for a base year with four 1-year
options.  After a competition among private sector offerors, LBM was
selected as the concern offering the best overall value to the
government.  After making certain adjustments to LBM's proposed price
called for by Circular A-76 (such as application of the
10 percent one-time conversion cost (Circular A-76 Revised Supplemental
Handbook at 26)) the agency compared LBM's price to the government's
in-house cost estimate (IHCE) for performance by the most efficient
organization (MEO); based on this comparison, the agency concluded that it
would be less expensive to retain the requirement in‑house. 
Specifically, the agency determined that the cost of in-house performance
would be $13,747,300, whereas converting to performance by LBM would cost
$14,047,332, for a difference of $300,032 in favor of in-house
performance.[1]  In response to this protest, the agency has conceded
errors in its calculations that resulted in understating the IHCE by
$123,089.87, AR at 14-17; correcting these errors reduces the price
difference to $176,942.83.  LBM still takes issue with five elements of
the cost comparison.[2]
    
FEDERAL PAY RAISE ASSUMPTION
    
LBM contends that the IHCE understates the costs of direct labor for
federal wage system (FWS) employees by $241,722, due to the agency's
failure to apply appropriate inflation factors.  In this respect, the
protester relies on language found in section C.1.2.4. of the Department
of Defense (DOD) A-76 Costing Manual (Interim Guidance, Mar. 14, 2001),
which provides:  *Positions subject to an [economic price adjustment
provision] are inflated using inflation factors applicable to (and
through) the first performance period only.*  The inflation factors to
which this guidance refers are percentages by which a baseline salary
figure must be increased to arrive at a current year wage rate for the
employees in question.  OMB publishes the inflation factors for use by
agencies in preparing A-76 cost studies; for purposes of this protest, OMB
Transmittal Memorandum No. 24 (which provides updated information for
calculating current year wage rates) includes the inflation factors
applicable from 2001 through 2012 and specifies January of each year as
the effective date for each inflation factor.  AR, exh. 12.
    
The base period of performance for this requirement runs from March 1,
2003 through February 29, 2004.  The record shows that, for purposes of
calculating FWS employee costs, the agency used baseline wage rates
established in September 2001.  The agency then applied the inflation
factors for 2002 and 2003 to update the FWS wages.  Citing the language of
the DOD A-76 Costing Manual quoted above, LBM contends that, since the
base period of performance runs *to and through* February 2004, the agency
also was required to apply the 2004 inflation factor in updating FWS wages
because it is designated in Transmittal Memorandum No. 24 as *effective*
in January 2004.
    
The Navy maintains that it properly omitted the 2004 inflation factor from
its calculations.[3]  It states that, since the FWS employees at issue are
governed by wage determinations that are issued in September of each year
and remain valid for 12 months, the employees will be governed by the
September 2003 wage determination during January and February of 2004 (the
period during which LBM claims the 2004 inflation factor applies).  The
Navy concludes that it would be improper to apply the 2004 inflation
factor in adjusting the base year FWS rates, since the agency will not
actually pay rates at that higher level during the base year. 
    
The agency's calculations are unobjectionable.  LBM's reliance on the DOD
A-76 Costing Manual language quoted above is misplaced, because its
interpretation fails to take into consideration other provisions of the
manual that recognize the need to take the effective periods for wage
rates into consideration when applying inflation factors.  In this regard,
as noted, the FWS employees at issue are governed by FWS wage
determinations issued in September and are valid for 12 months.  However,
FWS employees in other locations may be governed by wage determinations
issued at different times throughout the year.  In contrast, General
Schedule (GS) employees are governed by adjustments to the GS rates that
occur in January of every year.  While the Transmittal Memorandum includes
inflation factors with a January effective date, the DOD A-76 Costing
Manual seeks to accommodate the different effective dates of wage
increases for different employee groups in the following stated policy for
application of the inflation factors discussed above:
    
The General Schedule (GS) salary table is effective for the calendar year
while the Federal Wage System (FWS) pay table is effective for twelve
months beginning in any month of the year.  win.COMPARE2 uses  . . . GS
Annual Salaries [and] . . . FWS Hourly Wages . . . effective periods as
the baseline for determining the need for inflation when coupled with the
performance period dates . . . .
DOD A-76 Costing Manual at 35 (emphasis supplied). 
    
We read this language as providing, in effect, that the inflation factors
are to be applied on the anniversary of the wage determination in
question.  While for GS employees this means that the inflation factors
are applied in January of each year (because the GS pay schedules are
adjusted in January), for FWS employees the inflation factors are applied
on the anniversary of the FWS wage determination--September in the case
here.  This is what the agency did; since the FWS employees in question
will not receive their 2004 wage increase until September 2004, the agency
properly determined that the FWS wages for the months of January and
February 2004 should not be adjusted using the 2004 inflation rate
included in the Transmittal Memorandum. 
    
DIRECT SUPPORT
    
LBM contends that the agency improperly failed to include certain elements
of direct support costs in the IHCE that would increase the cost of
in-house performance by $84,579.  Direct support includes costs for all
direct and indirect managers and supervisors above the first line of
supervision that are essential to performance of the function.  DOD A-76
Costing Manual at 23.  LBM maintains that support will be needed from the
Base Safety Department and the Base Licensing and Testing Department.  LBM
maintains that the Base Safety Department will provide support for the
requirement by issuing safety directives and by performing compliance
management activities for the MEO.  LBM further maintains that the Base
Safety Department will actually perform a more active role for the MEO
than it would for LBM, since LBM claims that its proposal includes a
safety and quality control officer, while the MEO does not.  As for the
Base Licensing and Testing Department, LBM contends that, while all
government personnel operating vehicles over 10,000 pounds gross vehicle
weight (GVW) are required to be issued a government license, contractor
personnel may not be issued a government license, so this cost would be
inapplicable to LBM. 
    
The Navy maintains that it properly treated both of these support costs as
*wash* costs, that is, costs that would be incurred whether the
requirement is performed in‑house or by contract.  DOD A-76 Costing
Manual at 16.  The Navy states that the Base Safety Department will
continue to issue safety directives and ensure compliance management (in
the form of performing periodic safety inspections of the service
provider's workspace and equipment, and by providing escort services for
various federal or state inspectors) whether the function is performed
in-house or by a contractor.  As for the Licensing and Testing Department,
the agency states that all drivers, whether contractor or agency
personnel, will require testing, even if DOD-issued driver's licenses are
not provided to contractor drivers.
    
The agency properly treated these support costs as *wash* costs.  LBM has
not introduced information or evidence to show that the Base Safety
Department's role in issuing safety directives will vary depending on
whether performance is in-house or by contract; thus, we are left to
conclude that any costs associated with the issuance of safety directives
would be the same for LBM and the MEO.  The Performance Work Statement
also references the other activities that the agency states will be
performed by the Base Safety Department--it provides for periodic
inspections of the service provider's workspace and equipment, and also
refers to the safety office escort that would accompany any state or
federal inspector.  RFP, amend. No. 1, at 13.  It is not clear--and LBM
has not shown--why the cost of these Base Safety Department activities
would not be the same regardless of which entity performs the
requirement.  In addition, contrary to LBM's assertion, the record shows
that the MEO's motor transportation supervisor is specifically responsible
for administering the required safety program.  AR, exh. 4, at 3.  Since
both the MEO and LBM included an individual responsible for managing each
group's respective safety program, there is no basis to conclude that the
Base Safety Department will assume a more active role for the MEO than it
would for LBM.  We conclude that the agency properly treated the cost
associated with the Base Safety Department as a wash cost.
    
As for the costs associated with the Base Licensing and Testing
Department, the record confirms the agency's position that, regardless of
whether a driver is a contractor employee or part of the MEO, he or she
will be required to pass government-administered tests in order to be
authorized to operate vehicles over 10,000 pounds GVW.  RFP, amend. No. 1,
at 32.  LBM's assertion that contractor personnel will not require support
from this department because they cannot be issued a government license
ignores this requirement for testing that would be administered by the
Base Licensing and Testing Department.  Accordingly, we again have no
basis for questioning the agency's treatment of this support cost as a
wash cost.
    
ADDITIONAL ASSERTIONS
    
LBM raises three additional assertions.  First, LBM asserts that the
agency improperly used Heavy Mobile Equipment Repairers (wage grade (WG)
08) as opposed to more costly Heavy Mobile Equipment Mechanics (WG 10) in
preparing the IHCE.  In its initial protest, LBM asserted (without
supporting calculations) that the dollar value of this alleged error was
$92,222.  In its agency report, the agency maintained that it properly
used the less expensive employees and also presented detailed calculations
showing that, even if the protester were correct, the actual cost impact
was only $55,907.  AR at 14.  In its comments responding to the report,
LBM did not challenge the agency's calculations.  Accordingly, we assume
for purposes of our analysis here that the impact of this alleged error is
$55,907.
    
Second, LBM alleged in its initial protest that the agency improperly
classified its proposed motor vehicle operator leader as a *work leader,*
rather than as a more costly *work supervisor,* and that the alleged cost
impact was $74,730.  The agency responded in its report that the
protester's assertion lacked merit, and also presented detailed
calculations showing a cost impact of only $16,336.  AR at 18.  LBM did
not challenge the agency's calculations in its comments on the report. 
Accordingly, we will assume here that the impact of this alleged error is
only $16,336. 
    
Finally, LBM asserted in its initial protest that the agency improperly
failed to include the cost of 6/10 of a full-time equivalent (FTE) in the
IHCE; LBM asserted that the agency should have *rounded this up* to 1 FTE,
and that the cost associated with this was $278,366.  In response, the
agency conceded that it had failed to include the cost of 4/10. of an FTE,
at a cost of $97,889 (this amount is included in the $123,089.87 that the
agency concedes was not included in its IHCE).  AR at 16-17.  Even if LBM
is correct that the agency improperly failed to cost 6/10 of a FTE, there
is no basis to round this up, since to do so would result in an
overstatement of the IHCE by 4/10 of a FTE.  Accordingly, even if LBM were
correct that the IHCE fails to include 6/10 of a FTE, the potential cost
impact for the remaining 2/10  of an FTE that the agency has not conceded
amounts to only $48,944.
    
In sum, the potential cost impact of the alleged errors amounts to
$121,187, which is less than the outstanding difference between the IHCE
and LBM's adjusted price of
$176,942.83.  Thus, even if LBM were correct in all three of its
assertions, it was not prejudiced by the agency's alleged errors. 
Prejudice is an element of every viable protest, and where none is shown,
our Office will not sustain a protest, even where the agency's actions may
have been improper.  Amcare Med. Servs., Inc., B‑271595, July 11,
1996, 96-2 CPD P:10 at 3.
    
The protest is denied.
    
Anthony H. Gamboa
General Counsel
    
    
    

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

   [1] The agency initially found that the relative costs of in-house
performance versus performance by LBM were slightly different from the
above figures.  Agency Report (AR) at 8.  LBM filed an administrative
appeal and the agency's administrative appeals board arrived at the
corrected figures noted above.  AR at 9. 
[2] LBM's initial protest raised an additional assertion relating to the
cost of insurance for purposes of calculating the cost of in-house
performance.  After receiving the agency's report, LBM concurred with the
Navy's position that the insurance costs were understated by $25,200.  AR
at 13-14; LBM comments, Jan. 24, 2003, at 4-5; LBM Supplemental Comments,
Feb. 11, 2003, at 3. 
[3] The record shows that the agency arrived at its calculation using a
DOD-maintained software package known as win.COMPARE2, which automatically
calculates wage rates after being provided the necessary data, such as the
number of employees, their respective wage rates (including the effective
date of the FWS wage determination being used) and the latest inflation
factors from Transmittal Memorandum No. 24.  AR, exh. 3, at 3-4.  The
win.COMPARE2 software automatically calculates the agency's direct labor
costs based on the information provided, without any opportunity for
manipulation on the part of the contracting activity.