TITLE:  Remtech Services, Inc., B-292182, July 17, 2003
BNUMBER:  B-292182
DATE:  July 17, 2003
**********************************************************************
Remtech Services, Inc., B-292182, July 17, 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:   Remtech Services, Inc.
    
File:            B-292182
    
Date:              July 17, 2003
    
John S. Pachter, Esq., Jonathan D. Shaffer, Esq., Richard C. Johnson,
Esq., and Edmund M. Amorosi, Esq., Smith, Pachter, McWhorter & Allen, for
the protester.
Capt. Gregory A. Moritz, Capt. Peter D. DiPaola, and Raymond M. Saunders,
Esq., Department of the Army, for the agency.
Susan K. McAuliffe, Esq., and Christine S. Melody, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protest challenging agency decision to retain certain services in-house as
a result of a cost comparison conducted pursuant to Office of Management
and Budget Circular A-76 on the basis that government's *most efficient
organization* (MEO) plan improperly failed to include sufficient staffing
to meet performance work statement (PWS) requirements is denied where
record supports reasonableness of agency's determination, confirmed by
independent reviewing official and administrative appeals board, that MEO
included adequate staffing to meet PWS requirements.
DECISION
    
Remtech Services, Inc. protests the determination of the Department of the
Army to retain in-house Directorate of Information Management (DOIM)
information resource management services at Fort Monroe, Virginia.[1] 
Remtech contends that the agency should have determined that award of a
contract to Remtech to perform the services would be more economical. 
Remtech contends that the agency's cost comparison under Office of
Management and Budget (OMB) Circular A-76, comparing Remtech's proposal to
perform the services to the government's *most efficient organization*
(MEO) plan for the services, was flawed, since, according to Remtech, the
MEO plan is insufficiently staffed to meet the solicitation's performance
work statement (PWS), and, consequently, is understated in cost.[2] 
    

   We deny the protest.
    
The Army issued request for proposals (RFP) No. DABT60-01-R-3027 on March
15, 2002, for a private-sector competition, as part of a Circular A-76
commercial activities study to determine whether it would be more
economical to perform the DOIM services at Fort Monroe in-house, using
government employees, or under a contract with a private-sector firm.[3] 
The RFP advised that the lowest-cost technically acceptable private-sector
proposal would be selected for a cost comparison with the MEO plan; if the
private-sector offeror ultimately won the cost comparison, a
cost-plus-award-fee contract for a base year, with up to four 1-year
options, and phase-in/phase-out transition periods, was contemplated.  RFP
amend. 10, at 16, 18.  The RFP's PWS set out the services to be provided
by the contractor or the MEO at the conclusion of the study.[4] 
Private-sector firms and the MEO were to propose costs to perform all of
the PWS requirements in order to provide for a fair comparison between the
private sector and government submissions.
    
The source selection evaluation board evaluated the technical proposals
received from the private sector offerors; discussions were conducted with
two of those offerors, including Remtech.  Based upon the revised
proposals received, Remtech was found to have submitted the lowest-cost
technically acceptable proposal under the RFP.
    
An official of the U.S. Army Audit Agency (USAAA), who served as the
independent reviewing official (IRO) of the government's in-house plan,
reviewed the MEO's management plan and supporting documentation (including
the PWS, the MEO's technical performance plan, and the in-house cost
estimate (IHCE)) to confirm the MEO's ability to meet the PWS requirements
as submitted.  Hearing Transcript (Tr.) at 149-54.[5]  As part of the
review, the IRO interviewed Fort Monroe representatives, evaluated the
methodology and rationale for anticipated efficiencies (vis-`a-vis current
procedures), and reviewed the management plan for consistency with the
PWS.  Based on this review, the IRO certified that the management plan
costs were consistent with the workload in the PWS and the resources in
the management study.  The IRO concluded that the management study
reasonably established the government's ability to perform the PWS's
requirements with the resources identified in the MEO management and
technical performance plans.
    
On November 15, 2002, Remtech was notified by the agency that it had been
successful in the private-sector competition, and that its proposal had
been selected as the private-sector offer for the cost comparison with the
MEO plan.  The firm also was notified that, on the basis of that cost
comparison, the agency had issued its tentative decision that the MEO
provided the most economical approach to meeting the agency's
requirements.  Accordingly, the firm was advised that the agency intended
to retain the DOIM services in-house.
    
Remtech filed an administrative appeal on December 30, challenging
numerous aspects of the agency's Circular A-76 study.  Remtech primarily
challenged that the MEO plan was insufficiently staffed, which, Remtech
contended, led to an understatement of costs in the IHCE.  By decision of
April 1, the administrative appeals board (AAB) found some merit to parts
of the firm's appeal and requested adjustment to the MEO's pricing.  The
adjustment, which increased the MEO's cost slightly, was verified by the
IRO as adequate to meet the PWS requirements.  The amended overall
evaluated MEO cost ($14,457,074, for a staff of 34.502 full time
equivalents (FTE)), was slightly higher than Remtech's cost ($13,579,196,
for [deleted] FTEs) to do the work.  However, the addition of the required
minimum cost differential ($1,282,793) to Remtech's proposed cost resulted
in an overall evaluated cost of $14,861,989 for purposes of the cost
comparison.[6]  Since the adjustment to the MEO's cost did not affect the
outcome of the earlier cost comparison, the AAB ratified the agency's
decision in favor of the MEO over Remtech.  This protest followed.
    
Remtech primarily contends that the government's cost estimate does not
include sufficient staffing to meet PWS requirements for quality control
and program management.[7]  We have reviewed the protester's challenges
and find them to be without merit.
    
Circular A-76 describes the executive branch policy on the operation of
commercial activities that are incidental to performance of government
functions.  It outlines procedures for determining whether commercial
activities should be operated under contract by private companies or
in-house using government personnel.  Where, as here, an agency has issued
a solicitation as part of an A-76 study, thereby using the procurement
system to determine whether to contract out or to perform work in-house,
our Office will consider a protest alleging that the agency has not
complied with the applicable procedures in its selection process, or has
conducted an evaluation that is inconsistent with the solicitation
criteria or applicable statutes and regulations.  See Trajen, Inc.,
B-284310, B-284310.2, Mar. 28, 2000, 2000 CPD P: 61 at 3.
    
We have reviewed the record before us, and have conducted a hearing to
obtain testimony to better understand the record, including testimony from
a technical writer of the MEO plan who had a pivotal role in the
preparation of the government's management and technical performance plan,
as well as from the USAAA auditor (the IRO) who reviewed the MEO plan for
compliance with the PWS.  Based on our review of the record, we find no
basis to question either the reasonableness of the IRO's determination
that the MEO management plan adequately demonstrated compliance with the
PWS requirements, or the agency's decision to retain the DOIM services
in-house.
    
As stated above, Remtech initially argues that the government's IHCE fails
to include adequate staffing to provide quality control services required
by the PWS.  In this regard, the PWS advised that performance measurement
procedures, preventive corrective actions, customer comment/complaint
programs, identification and notice of quality problems, and performance
evaluation meetings were matters to be discussed in the quality control
plans.  PWS S: C-1.4.5.  Manpower matrices were to be provided to show
proposed staffing (by work years and labor category) for the quality
control function.  Id.  However, no minimum or suggested staffing levels
for the quality control function were provided in the PWS.
    
Compared to the MEO, Remtech proposed more staff to conduct its relatively
extensive quality control efforts.  For example, the protester's quality
control plan and pricing contemplated almost 1,700 annual inspections and
audits of its own services.  Remtech Administrative Appeal, Dec. 30, 2002,
attach. 4 at 4-2.  The protester argues that the MEO plan's lower number
of FTEs and lower cost for quality control work, without a manpower matrix
identifying the specific hours intended for quality control work, should
be found insufficient to meet the PWS requirements.
    
The MEO's organizational structure includes a Unified Service Center (with
a staff of 3 FTEs), providing a central facility for the intake and
administration of customer requests for services, and six subject-matter
technical teams, ranging in size from two to eight technicians; the
Unified Service Center forwards work to the appropriate team for review
and performance.  Each team is supervised by its senior member, who has
*point of contact* (POC) responsibilities regarding quality control,
program management, and participation in meetings, briefings, and tours. 
The *crosswalk* documentation included in the management study, which
matches PWS requirements to associated MEO staffing and costs,
specifically identifies one FTE (1,776 hours annually) for these POC
duties; the one FTE is shared equally among the six POCs (so that each
team assumes 1/6 of an FTE for its POC's duties).  The POCs are
responsible for performance of the PWS, management of the MEO structure
and adherence to performance standards.  Tr. at 17, 63-64, 128.
    
The senior team members' non-POC time is spent as subject-matter
experts/lead technicians for their teams, working closely with and
supervising the team's technicians in performance of the PWS
requirements.  While program management duties rest primarily with the six
POCs, the DOIM Director oversees certain aspects and overall policies of
the MEO.  Other than the higher-level oversight of the DOIM Director, the
MEO has a linear (*flat*) organizational approach: six subject-matter
teams with six managers of equal authority who resolve management issues
for their individual teams and, collectively, for the MEO.  The DOIM
Director may assign work to the POCs, serve as final arbiter in unresolved
POC disagreements, and prepare performance reviews for the POCs.  (In
light of the program management tasks of the DOIM Director, pertinent to
our discussion of program management later in this decision, the AAB, with
the IRO's concurrence, added .25 FTE to the MEO's costs for the DOIM
Director's time spent supporting the MEO.)  The POCs will report MEO
quality control information to the residual organization, including the
DOIM Director.
    
The management plan does not provide a firm number of POC hours for
quality control; rather, as stated above, one FTE was set aside for *POC
duties,* to include quality control work.[8]  The IRO, recognizing that
the PWS did not require any specific amount of time for quality control
work, found the MEO plan acceptable mainly because quality control is
inherent in the POCs' functions.  Spreading the quality control
responsibilities among the POCs, who are directly familiar with the work
and the responsibilities of the subject matter groups they oversee, was
considered to be more effective than having a single quality control
individual monitoring diverse work requirements spread over six technical
teams.  The IRO reasoned that the MEO's proposed quality control effort
would be sufficient in light of the MEO's limited size and its
well-trained, experienced work force, which has performed the requirements
for years with only minimal supervision.  The MEO's plan set forth a
philosophy of problem prevention, proposed certain measures of performance
quality, and offered quality control software to track and report the
status of performance and reported problems.  Tr. at 129-32 and 146;
Management Plan at 32‑33; Technical Performance Plan at 3, 8, 17,
19.
    
Remtech asserts that the IRO's and AAB's acceptance of the MEO's quality
control plan is unreasonable because, according to Remtech, insufficient
staff hours have been proposed for the PWS quality control requirements. 
In examining the quality control plan, to deduce the number of hours
available under the MEO plan for quality control work, the IRO reasoned
that 606 annual hours of one FTE would be available for the POCs' quality
control and program management functions.[9]  Given the high quality of
performance by the MEO's highly-experienced staff, and the close working
relationship between the POCs and staff, including their direct
involvement and familiarity with the work to be performed and assessed for
quality control, the IRO found the MEO's quality control plan, and the
hours available to accomplish that plan, sufficient to meet the PWS's
requirements for quality control.[10]
    
Our review of the record provides no basis to question the reasonableness
of the MEO's proposed approach to meeting the quality control requirements
of the PWS, or the IRO's acceptance of the hours available under the MEO
plan for those requirements.  While we recognize that the MEO staffing
plan does not provide many hours for quality control separate from other
tasks, the PWS here, as stated above, simply did not set forth any minimal
or suggested staffing requirement for that function.  Remtech has not
shown that a higher level of staffing, like its own, was required in order
to be technically acceptable under the PWS.  Just as two competing private
sector offerors may reasonably propose different levels of staffing,
depending on each offeror's technical approach and proposed efficiencies,
so, too, the in-house plan may be based on a level of staffing different
from that offered by the private sector proposal.  BAE Sys.,
B‑287189, B-287189.2, May 14, 2001, 2001 CPD P: 86 at 20.  Clearly,
it was an exercise of Remtech's business judgment to propose the
substantial staffing it put forth for this function.
    
Our review supports the reasonableness of the IRO's acceptance of the plan
as meeting PWS minimum requirements.  The MEO plan set out its quality
control philosophy (of prevention versus problem-solving), as well as its
methods to measure performance (using automation and reporting software,
sampling, and audits) and to meet reporting requirements (with technicians
reporting to the POC, who report to agency officials).  Tr. at 68-71.  As
to staffing the quality control function, the MEO plan clearly set forth
the role and responsibilities of the POCs in meeting the PWS quality
control requirements.  In sum, in light of the MEO's use of well-trained,
highly experienced staff known to have performed the required services for
years at a high level of quality; the preventative and corrective measures
in the plan; the close working relationship of the POCs charged with
monitoring the quality of the performance of the technicians with whom
they work; the POCs' substantial familiarity with all work processes and
required services; the use of specialized software and automated
procedures for work requests and quality control reports; the very
infrequent occurrence of past service complaints; and the limited size of
the MEO organization here, we have no basis to question the reasonableness
of the IRO's and AAB's determinations that the MEO adequately anticipated
and costed its quality control function, clearly inherent in the POCs'
stated duties, to meet the PWS's quality control requirements.  Tr. at
17-19, 38-39, 151-53 and 163-64.
    
Remtech next argues that the MEO does not include sufficient program
management staffing to meet the PWS's requirements for an adequate
management plan.  In support of its argument, Remtech cites PWS S:
C-1.4.3.1, which required offerors to submit a draft management plan for
evaluation (with a final plan to be submitted prior to performance).  The
management plan was to set out the intended management personnel,
operations (e.g., scheduling, work flow, and adherence to standards),
overall management, including cost control, and staffing matrix showing
management interactions within the organization.
    
As stated above, the MEO presented a linear organizational structure of
six subject-matter groups, each managed by a team leader POC who was to
assign and monitor PWS work for the team; each POC was to spend 1/6 of an
FTE performing supervisory functions, including program management.  The
DOIM Director was to serve as the overseeing manager responsible for
overall policy and planning and forwarding tasks to the six POCs.  The
DOIM Director was to complete performance reviews for the POCs, and, if
needed, resolve disagreements among them.  For these duties, the DOIM
Director's time (.25 FTE) was added to the IHCE.
    
The MEO believed that this management structure removed duplication of
subject-matter efforts, as well as duplication in terms of layers of
managerial review and supervision over a highly experienced, relatively
small group of MEO technicians currently performing the tasks with little
supervision. This approach also was expected to consolidate branches of
operations so individuals could reasonably do more than one function. 
Management Plan at 24-25, and 36.  Under this management plan, each POC
would also work side-by-side with the team members he or she supervised,
and would coordinate the team's efforts, and implement plans and
policies.  Id. at 32-33; Technical Performance Plan at 4, 17, and 19.
    
The protester's proposal, on the other hand, presented a more hierarchical
management framework, including five subject-matter groups with team
supervisors having only limited management authority.  The five
subject-matter groups were to be managed [deleted].
    
The protester argues that the MEO's management structure, providing only
minimal overall oversight to the project, is understated in terms of
management personnel and their associated costs.  In this regard, the
protester argues that it proposed [deleted] employees to function in
senior management positions for the project and that, because its staffing
was found acceptable, the MEO should be adjusted to add the same level of
managerial oversight as proposed by Remtech.
    
As with quality control, we recognize that the MEO plan did not include
many hours for program management; in fact, it included far fewer hours
than Remtech proposed for that function.  The PWS, however, did not
require any minimum management framework, staffing, or number of hours for
the management function.  Further, as stated above, the successful
private-sector offeror's staffing approach to meet the management needs of
a project does not govern the acceptability of the MEO's staffing approach
to meet the same needs.  See BAE Sys., supra.  Accordingly, the
protester's offer of [deleted] higher-level managers to supervise
performance of the contract it anticipated under the PWS does not
establish a threshold of acceptability, as Remtech argues.
    
We have no reason to question the reasonableness of the determination of
the sufficiency of the MEO's management plan.  As stated above, the cost
of the DOIM Director's time expected to be spent on MEO oversight was
added to the IHCE; this adjustment was found to be adequate by the IRO. 
Remtech has not provided any persuasive basis to question the adequacy of
the cost of this fraction of the Director's time for functions he performs
for the MEO.  Further, we find reasonable the agency's position that the
experience and subject-matter expertise of the POCs, who are familiar with
the PWS requirements and the work and personnel to be managed, allow for
effective management of the relatively small organization here with the
supervisory personnel hours included in the technical performance plan and
IHCE.[11]  Tr. at 150-55, 163-64.  Accordingly, our review of the record
presents no basis to question the reasonableness of the determination that
the MEO provides the lower cost approach to meeting the agency's
requirements.
    
The protest is denied.
    
Anthony H. Gamboa
General Counsel
    
    

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

   [1] The DOIM provides information services (including information
management, automation, network and server operations, desktop computing
data, telephone and video communications, records management, database
administration, application sustainment, printing and mail distribution)
to the U.S. Army Training and Doctrine Command and other installation
headquarters at Fort Monroe.  PWS S:C‑1.1.3; Source Selection Plan
at 1.
[2] The MEO refers to the government's in-house organization to perform a
commercial activity; it is the product of the government's management plan
that details what changes will be made by the agency in performing the
commercial activity in-house.  It is the basis for all government costs
entered on the cost comparison form used by the agency to compare the
MEO's costs to the private contractor's proposed costs.  OMB Circular
A-76, Revised Supplemental Handbook (RSH), app. 1, Definition of Terms, at
36. 
[3] OMB's recent revision to Circular A-76 does not apply here, since the
challenged cost comparison study was conducted prior to its effective
date.  See 68 Fed. Reg. 32,134 (May 29, 2003).  The A-76 provisions
applicable here encompass the following steps for a public/private
competition to determine whether the commercial activity should be
performed in-house or by a private-sector contractor.  First, after the
PWS has been drafted, the agency ensures, through certification by an
independent reviewing official, that the government's in-house management
plan satisfies the requirements of the PWS.  See RSH, part I, ch. 3, P:
I.  Second, there is a competition among private-sector offerors, which is
conducted much as any competitive federal procurement.  Where, as here,
the private-sector competition is based on selection of the technically
acceptable, low cost offer, the last step is to conduct a cost comparison
(after certain cost adjustments are made) between the private-sector offer
and the in-house plan to determine which provides the more economical
approach to performance.  Id. P:P: H, J.
[4] The PWS, section C of the RFP, was set out in six parts.  As relevant
here, section C‑1, *Introduction,* among other things, set out the
history of Fort Monroe, specified administrative responsibilities under
the RFP, such as quality control, management, and participation in
meetings, briefings and tours, and explained to offerors that the annual
workload data (set out in PWS S: C-5) were work estimates to be used by
offerors and the MEO in their technical responses.  Section C-5, *Specific
Tasks,* also relevant to this protest, included the functional
requirements (and provided historical workload data to each requirement)
for the types of technical services to be provided by the contractor or
MEO.  Technical exhibits included in the PWS provided supporting
documentation, for example, providing identification of customers and
applications to be supported.
[5] Our Office conducted a hearing during which we received testimony from
contracting agency officials relevant to the issues raised in the protest.
[6] The minimum cost differential (here, 10 percent of the MEO's personnel
costs) is required to convert in-house performance to a private contract
(or vice-versa) to ensure that the government does not convert between
sectors for only marginal estimated savings.  See RSH, Part II, ch. 4, S:
A.1.chap. 2(A)(8)(b).
[7] The protester also generally contends that the MEO's cost is
understated because *residual organization* personnel will be performing
commercial work included in the PWS.  The residual organization, a group
of government personnel separate from the MEO, will perform certain work
regardless of whether the MEO or contractor is successful in the cost
comparison.  Remtech's argument is that the agency failed to conduct the
cost comparison on an equal basis if the MEO assumes that the residual
organization will do some of the PWS work that Remtech included in its
costs.  In this regard, Remtech argues that the PWS technical exhibits
identify potential customers and applications to be serviced, but, by
their own terms, anticipate different customers or applications may be
required, since they advise that potential work is *not limited to* the
listed information.  Regardless of this *not limited to* language in the
technical exhibits of the PWS, we cannot conclude that the competition was
conducted unfairly or on an unequal basis, as Remtech alleges.  Although
the exhibits were provided as supporting documentation for proposal
preparation, the MEO and offerors were specifically advised by the PWS
that the comprehensive workload data (i.e., the historical annual number
of iterations or occurrences required under each specific task of the PWS
to be priced) was provided for offerors to use in the preparation of their
proposals.  PWS S:S: C-1.0 and C-2.2.2; Tr. at 36, 47-48 and 119-21. 
Thus, to the extent Remtech now complains that it prepared its proposal on
a higher workload than stated in order to limit its risk (if additional
work ultimately was required under a resulting contract with the firm), it
did so in an exercise of its own business judgment and not in response to
a defective solicitation or any improper agency action.  In any event, as
to the type of work Remtech alleges is to be performed by the residual
organization instead of the MEO, (e.g., application sustainment), our
review of the record shows that, although the same type of work may be
performed by the residual organization and MEO, the parallel effort is to
meet separate needs of each entity, so that the residual organization
would not be performing work included in the PWS workload data.  Tr. at
41-44, 118-23.  
[8] We note that, although Remtech now concedes that the MEO plan mentions
quality control efforts by the POCs, the protester continues to argue that
because the installation's response to Remtech's administrative appeal
stated that a quality control plan was not required or included in the
management plan, the plan should be found to be lacking any staff or costs
for quality control, and the IHCE should be adjusted to account for such
costs.  The agency has explained, however, that the installation's
response to the administrative appeal is not the agency's official
position on the matter.  Tr. at 72-74.  The installation's response was
authored by costing personnel, not by the technical writer who authored
the management plan (who has since retired).  At a hearing held on the
matter, the retired technical writer (the former official responsible for
DOIM operations at Fort Monroe) unequivocally confirmed that the quality
control plan included in the MEO management and technical performance
plans was reflected in the IHCE.  Tr. at 12-13.  Since our review of the
management and technical performance plans supports this testimony,
including the costing of the POCs' time (one FTE) for POC duties,
including quality control work, we reject the protester's argument that
the agency should not be able to rely on an explanation of the matter
different from its apparently mistaken administrative appeal response.
[9] Specifically, of the 1,776 hours represented by one FTE, the PWS
estimated that a total of 1,170 hours (22.5 hours per week x 52 weeks)
would be needed for one of the functions (referred to as meetings,
briefings and tours) to be performed by the POCs.  Accordingly, 606 hours
remain for the other POC functions, quality control and program management
(1,776 total hours * 1,170 hours for meetings, briefings and tours).
[10] At the hearing held on this issue, the technical writer of the MEO
and technical performance plans explained that approximately 20 percent of
the POCs' time (or 355 hours) was anticipated for the quality control
function.  Tr. at 17, 134.
[11] Remtech contends that because, during discussions, the agency
questioned the adequacy of Remtech's offer of [deleted] managers, the MEO
should be required to add more managers.  We disagree.  Our review of the
record confirms that discussions question posed to Remtech did not focus
on the number of managers the firm proposed, but rather, the skills of its
managers in terms of the wide span of subject matter areas they were
supposed to supervise.