TITLE:  Dan Duefrene; Kelley Dull; Brenda Neuerburg; Gabrielle Martin, B-293590.2; B-293590.3; B-293883; B-293887; B-293908, April 19, 2004
BNUMBER:  B-293590.2; B-293590.3; B-293883; B-293887; B-293908
DATE:  April 19, 2004
**********************************************************************
Dan Duefrene; Kelley Dull; Brenda Neuerburg; Gabrielle Martin, B-293590.2;
B-293590.3; B-293883; B-293887; B-293908, April 19, 2004

   Decision
    
    
Matter of:   Dan Duefrene; Kelley Dull; Brenda Neuerburg; Gabrielle Martin
    
File:            B-293590.2; B-293590.3; B-293883; B-293887; B-293908
    
Date:              April 19, 2004
    
Susan Tsui Grundman, Esq., National Federation of Federal Employees, for
Dan Duefrene, and Martin R. Cohen, Esq., American Federal of Government
Employees, for Kelley Dull, Brenda Neuerburg, and Gabrielle Martin, for
the protesters.
Stephen M. Sorett, Esq., ReedSmith, for SERCO Management Services, Inc.,
an intervenor.
Daniel N. Hylton, Esq., Forest Service, John F. Ruoff, Esq., Defense
Finance and Accounting Service, and Kathleen Oram, Esq., Equal Employment
Opportunity Commission, for the agencies.
Michael R. Golden, Esq., Office of the General Counsel, GAO, participated
in the preparation of the decision.
DIGEST
    
Notwithstanding May 29, 2003 revisions to Office of Management and Budget
Circular A-76, the in-house competitors in public/private competitions
conducted under the Circular are not offerors and, therefore, under the
current language of the Competition in Contracting Act of 1984, 31 U.S.C.
S:S: 3551-56 (2000), no representative of an in-house competitor is an
*interested party* eligible to maintain a protest before the General
Accounting Office.
DECISION
    

   This decision addresses the standing of individuals and organizations
representing in‑house competitors in public/private competitions
conducted under Office of Management and Budget (OMB) Circular A-76 to
protest agency decisions under the Circular to contract work out to the
private sector, rather than to perform the work in-house.
    
DUEFRENE PROTEST
    
Dan Duefrene, Regional Vice President for Region 5, Forest Service
Council, National Federation of Federal Employees (NFFE), protests the
United States Department of Agriculture*s (USDA) decision, pursuant to OMB
Circular A-76, that it would be more economical to perform the fleet
maintenance services for the Forest Service in the Pacific Southwest
region by a contract awarded to SERCO Management Services, Inc. (SERCO)
under request for proposals (RFP) No. R5SCO603058, rather than to have the
services performed in-house.
    
The USDA conducted a standard competition under OMB Circular A-76, as
revised on May 29, 2003, for these fleet maintenance services.  On January
7, 2004, the USDA announced the standard competition performance decision
and the contract award to SERCO.  On January 20, NFFE, acting through Mr.
Duefrene, filed an agency-level protest.  On February 10, the USDA advised
Mr. Duefrene that NFFE did not have standing as a *directly interested
party*[1] to contest the standard competition.  USDA Letter to Mr.
Duefrene (Feb. 10, 2004).  On February 17, NFFE protested the USDA*s
decision to our Office and challenged the agency*s decision to contract
out the work.  Subsequently, Mr. Duefrene, as the elected representative
of a majority of the affected employees, filed a protest with the USDA. 
On March 24, the USDA dismissed and denied the agency-level protest filed
by Mr. Duefrene as the elected representative of the majority of the
affected employees.  On April 2, Mr. Duefrene filed a protest with our
Office essentially appealing the USDA*s March 24 decision.  Thus,
Mr. Duefrene, acting both as NFFE*s representative and as the *directly
interested party* representing a majority of the directly affected
employees, protests the USDA*s standard competition performance decision. 
    
Regarding Mr. Duefrene*s protests, the USDA and SERCO argue that Mr.
Duefrene and NFFE lack standing to protest the agency*s contract award to
SERCO because neither is an interested party under the bid protest
provisions of the Competition in Contracting Act of 1984 (CICA), 31 U.S.C.
S:S: 3551-56 (2000).  NFFE primarily argues that based on the changes to
the revised Circular, the employees affected by the decision to contract
out the work meet the CICA definition of an interested party and that NFFE
is the statutory representative designated by the majority of these
employees directly affected by the agency*s decision.  In addition, NFFE
argues that Mr. Duefrene is the directly interested party as defined under
the revised Circular because he specifically was appointed by the majority
of the affected employees to be their representative.  Protest, Apr. 1,
2004, at 3.  As discussed below, we conclude that there is no statutory
basis for an in-house entity to file a protest at the General Accounting
Office (GAO).
    
Our Office*s statutory authority to hear bid protests is found in CICA,
which establishes the standard for standing to file a protest by allowing
a protest to be filed only by an *interested party* with respect to a
contract or a solicitation or other request for offers, and then defines
an *interested party* as *an actual or prospective bidder or offeror whose
direct economic interest would be affected by the award of the contract or
by failure to award the contract.*  31 U.S.C. S: 3551(2).  See also
Bid Protest Regulations, 4 C.F.R. S: 21.0(a) (2004).  Under this
definition of *interested party,* we have heard bid protests filed by
private-sector firms that participated in cost comparisons under the
Circular that preceded the May 29, 2003 revision, since a private firm
participating in an A-76 competition is *an actual . . . offeror whose
direct economic interest would be affected by the award of the contract or
by failure to award the contract.*

    
In contrast, we have consistently found that federal employees and their
unions could not protest any aspect of an A-76 cost comparison under the
prior Circular.  We concluded that they did not meet CICA*s definition of
an *interested party* and, therefore, as a matter of law, we lacked
authority to consider their protests.  In American Fed*n of Gov*t
Employees et al., B-282904.2, June 7, 2000, 2000 CPD P: 87
at 3-4, we identified a number of reasons for this conclusion.  We pointed
out that neither individual federal employees, nor the in-house plan (the
*Most Efficient Organization* or MEO), nor the employees* union
representatives was an offeror. 
In addition, we found that the MEO plan submitted in an A-76 cost
comparison under the prior Circular was not an offer as defined under the
Federal Acquisition Regulation (FAR) because the MEO was not responding to
a solicitation (under the prior Circular, the solicitation applied only to
private-sector competitors), nor would the MEO, if adopted, lead to the
formation of a contract, which is a mutually binding legal relationship to
perform the services.  Indeed, as we pointed out, no contract is awarded
where the MEO prevails in the cost comparison.  See also American Fed*n of
Gov*t Employees, B-223323, June 18, 1986, 86-1 CPD P: 572; American Fed*n
of Gov*t Employees--Recon., B-219590.3, May 6, 1986, 86‑1 CPD P: 436
(affirming an earlier dismissal).  Consistent with our view, the Court of
Appeals for the Federal Circuit has also found that federal employees and
their unions do not qualify as interested parties to protest a decision
made under the prior Circular.  American Fed*n of Gov*t Employees v.
United States, 258 F.3d 1294, 1302 (Fed. Cir. 2001).
    
On May 29, 2003, OMB issued a revised Circular A-76, which changes A-76
competitions to reflect a FAR-based process and which applies to the
competitions   at issue here.  The new Circular is more than a mere
revision to the earlier one; it is essentially a new document that
establishes new FAR-based ground rules for conducting A-76 competitions,
and a number of features of the new Circular reflect significant
departures from its predecessor.  For example, the in‑house
government entity submits, in response to the solicitation, an *agency
tender* developed by an Agency Tender Official (ATO), which must satisfy
the proposal preparation requirements of section L of the solicitation. 
Revised Circular, attach. B, P: D.4.a(1).  The agency tender will be
evaluated against the same award criteria that apply to the private-sector
proposals (with a few exceptions to take into account the unique posture
of the agency tenders); the agency tender may be the subject of
discussions and negotiations with the ATO (on behalf of the MEO); and the
agency tender can be rejected as unacceptable.  Revised Circular, attach.
B, P: D.5.c(3).  If the agency tender prevails in the competition, the
contracting officer will incorporate appropriate portions of the
solicitation and tender in an *MEO letter of obligation* issued to an
official responsible for performance of the MEO.  Revised Circular,
attach. B, P: D.6.f(3).  Finally, the public-sector source*s failure to
perform in accordance with its obligations, as reflected in the letter of
obligation, can result in a termination action.  Revised Circular, attach.
B, P: E.6.a(2).
    
These significant changes caused us to consider the question of whether we
should now reach a different conclusion regarding the in-house entity*s
standing to file a protest at GAO regarding the conduct or outcome of a
public/private competition under the revised Circular.  Accordingly, on
June 13, 2003, we published a notice in the Federal Register soliciting
comments on the revised Circular*s impact, if any, on the standing of an
in‑house entity to file a bid protest at GAO.  68 Fed. Reg. 35,411.
    
In response to the Federal Register notice, we received a total of 71 sets
of comments:  from members of Congress, agencies, unions, associations,
and individuals (federal employees and private-sector lawyers).  Some of
the commenters supported the position that GAO should hear protests filed
by an in‑house entity where the competition was conducted under the
revised Circular; others contended that, even under the revised Circular,
there still is no statutory basis for standing of an in-house entity to
file a protest at GAO.
    
Those who contend that the changes in the revised Circular justify our
Office*s finding that the in-house entity qualifies as an interested party
for purposes of challenging the conduct of public/private competitions
conducted under the new Circular correctly point out that the language of
the Circular has been recast in ways responding to specific points relied
on by our Office for the conclusion that federal employees and their
unions lacked standing to file protests at GAO.  For example, as noted
above, the agency tender in some ways is treated as an offer; if
successful, the agency tender will lead to a formal letter of obligation;
and the agency tender can be terminated if the public sector source fails
to perform as required.  The MEO and its agency tender thus are an
integral part of the FAR-based competition, not separate from it as under
the prior Circular.
    
Nevertheless, the distinctions between the two versions of the Circular
cannot properly make a difference in our position that, under the current
statutory language in CICA--which is the language we must look to in
determining whether a party has standing to protest to our Office--the
in-house entity lacks standing to protest.  First and foremost, the MEO is
still not competing for a contract:  if the MEO wins the competition, the
work will be performed in-house and, notwithstanding the new Circular*s
use of the term *letter of obligation* and the reference to termination,
there will be no contract.  The letter of obligation is not a mutually
binding legal relationship between two signatory parties--there is no
contractual legal relationship between the MEO and the agency. 
Importantly, the agency cannot seek legal redress against the MEO, for
example, by seeking reimbursement of excess reprocurement costs if the MEO
is *terminated* for failure to meet its commitments.  Cf. FAR
S: 49.402-2(e) (contractors are liable to the government for excess
reprocurement costs when a contract has been terminated for default). 
Because the letter of obligation is not a contract, the MEO*s *tender*
cannot properly be viewed as an offer (since an offer is something that,
if accepted, would create a contract, FAR S: 2.101; Restatement (Second)
of Contracts S:S: 24, 35 (1981)).  Hence, under the new Circular, as under
the prior one, no in-house entity can qualify as an *actual or potential
offeror* and thus as an interested party for purposes of filing a protest
at GAO.
    
In addition, since the MEO is not an actual entity, it cannot have a
*direct economic interest [that] would be affected by the award of the
contract or by failure to award the contract,* as CICA requires for a
would-be protester to be an interested party.  While individual employees
certainly may have an interest in who wins the competition, the MEO, as a
mere management plan, has no such interest.  Even the employees* interest
is problematic for at least two reasons.  First, which employees would
ultimately be affected, and how they would be affected, is not clear until
long after a protest would need to be filed, since the government*s
*bump-and-retreat* rules, 5 C.F.R. S:S: 351.701-351.705, make it hard to
predict which employees would actually be affected by a decision to
contract out.  Second, individual employees* interests have never been
viewed as establishing interested-party status, since to do so would allow
any private competitor*s employees to claim that status, a position that
we have always rejected.
    
In sum, we find that, under the current language of CICA, our Office
cannot consider a protest filed on behalf of an MEO, and we therefore
dismiss Mr. Duefrene*s protest.
    
DULL, NEUERBURG, AND MARTIN PROTESTS
    
On March 24, 2004, Kelley Dull, *in her capacity as President of American
Federation of Government Employees, AFL-CIO, Council 171, the union, and
in her capacity as the individual selected by a majority vote of affected
employees to represent them on an OMB Circular A-76, the circular,
competitive sourcing matter,* protested *a sourcing decision by the
Defense Finance and Accounting Service* to contract for desktop services. 
Protest, Mar. 24, 2004, at 1-2.
    
On March 26, 2004, Brenda Neuerburg, *in her capacity as President of
American Federation of Government Employees, AFL-CIO, Council 117, the
union, and in her capacity as the individual selected by a majority vote
of affected employees to represent them on an OMB Circular A-76, the
circular, competitive sourcing matter,* protested a sourcing decision by
the Department of Homeland Security to contract for background checks. 
Protest, Mar. 25, 2004, at 1-2.
    
On March 29, 2004, Gabrielle Martin, *in her capacity as President of the
AFGE Council 216 . . . the union, and in her capacity as the individual
selected by a majority vote of affected employees to represent them on an
OMB Circular A-76, the circular, competitive sourcing matter and/or on a .
. . procurement system matter,* protested the United States Equal
Employment Opportunity Commission* s decision to contract for call-center
services.  Protest, Mar. 29, 2004, at 1-2.
    
In these protest filings, the protesters argue that these *sourcing
decisions* violate the competition requirements of the revised Circular. 
Even assuming the protesters are correct and the agencies were required,
under the revised Circular, to conduct a standard competition between the
public and private sectors, the reasoning set out above applies equally to
the standing of these protesters:  under the current language of CICA, our
Office is precluded from considering protests on behalf of in-house
entities in A-76 competitions.
    
We recognize the concerns of fairness that weigh in favor of correcting
the current situation, where an unsuccessful private-sector offeror has
the right to protest to our Office, while an unsuccessful public-sector
competitor does not.  As a result, consistent with the principles adopted
unanimously by the Commercial Activities Panel in its April 2002 report,
we are recommending that Congress consider amending CICA to allow protests
to be brought on behalf of MEOs.  Accordingly, by letter of today to the
Chairman and Ranking Minority Member of the House Committee on Government
Reform, the Senate Committee on Governmental Affairs, and the Senate and
House Committees on Armed Services, we are transmitting a copy of this
decision, with the suggestion that Congress may wish to consider amending
CICA to provide for MEO standing.  The letter also suggests that any
amendment to CICA specify who would be authorized to protest on the MEO*s
behalf:  the ATO, affected employees (either individually or in a
representative capacity), and/or employees* union representatives.
    
Because the protesters are not interested parties for purposes of filing a
protest, we dismiss the protests.
    
Anthony H. Gamboa
General Counsel
    
B-293590.2; B-293590.3; B-293883; B-293887; B-293908
    
    
    
April 19, 2004
    
The Honorable Susan M. Collins
Chairman, Committee on Governmental Affairs
United States Senate

   Dear Madam Chairman:
    
As you know, since the Office of Management and Budget (OMB) issued its
revised Circular A-76 in May 2003, there has been controversy about
whether in-house competitors should have standing to file bid protests at
the General Accounting Office (GAO) to challenge the conduct of
public/private competitions under the revised Circular.  I am writing
today to report to you GAO*s legal conclusions regarding this matter.  As
explained in the enclosed bid protest decision, which we are issuing
today, we conclude that, as the law stands now, no one has standing to
file a bid protest at GAO on behalf of an in-house competitor (the *most
efficient organization* or MEO).  However, we believe that a number of
policy considerations, including the principles unanimously agreed to by
the Commercial Activities Panel, weigh in favor of allowing certain MEO
protests with respect to public/private competitions conducted in
accordance with OMB*s revised Circular A-76.  As a result, Congress may
want to consider amending the law to allow such protests, and we set out
in this letter some points that may be helpful in that consideration.  We
stand ready to help in drafting legislation or in other ways that you
request.
    
GAO*s statutory authority to hear bid protests is found in the Competition
in Contracting Act of 1984 (CICA), 31 U.S.C. S:S: 3551-56 (2000).  CICA
establishes the standard for standing to file a protest by allowing a
protest to be filed only by an *interested party,* with respect to a
contract or a solicitation or other request for offers, and then defines
an *interested party* as *an actual or prospective bidder or offeror whose
direct economic interest would be affected by the award of the contract or
by failure to award the contract.*  31 U.S.C. S: 3551(2); see also GAO*s
Bid Protest Regulations, 4 C.F.R. S: 21.0(a) (2004).
    
Under this definition of *interested party,* we currently hear bid
protests filed by private-sector firms that have participated in cost
comparisons conducted pursuant to the Circular, since a private firm that
participated in an A-76 cost comparison submits a proposal in response to
a solicitation in the hope of obtaining a contract.  Thus, a private firm
participating in an A-76 competition is *an actual . . . offeror whose
direct economic interest would be affected by the award of the contract or
by failure to award the contract.*  In fact, during the past several
years, GAO has considered dozens of protests from private firms
challenging the conduct of A-76 cost comparisons.
    
In contrast, we have consistently found that federal employees and their
unions lack standing to protest an A-76 cost comparison under the prior
Circular.  We concluded that they do not meet CICA*s definition of an
*interested party* and, therefore, as a matter of law, we lack authority
to consider their protests.  In American Fed*n of Gov*t Employees et al.,
B-282904.2, June 7, 2000, 2000 CPD P: 87 at 3-4, we identified a number of
reasons for this conclusion.  We pointed out that neither individual
federal employees, nor the in-house plan (the MEO), nor the employees*
union representatives is an offeror.  In addition, we found that the MEO
plan submitted in an A-76 cost comparison under the prior Circular was not
an offer as defined under the Federal Acquisition Regulation (FAR) because
the MEO was not responding to a solicitation (under the prior Circular,
the solicitation applied only to private-sector competitors), nor would
the MEO, if adopted, lead to the formation of a contract, which is a
mutually binding legal relationship to perform the services.  Indeed, as
we pointed out, no contract is awarded where the MEO prevails in the cost
comparison.  See also American Fed*n of Gov*t Employees, B-223323, June
18, 1986, 86-1 CPD P: 572; American Fed*n of Gov*t Employees--Recon.,
B-219590.3, May 6, 1986, 86‑1 CPD P: 436 (affirming an earlier
dismissal).  Consistent with our review, the Court of Appeals for the
Federal Circuit has also found that federal employees and their unions do
not qualify as interested parties to protest a decision made under the
prior Circular.  American Fed*n of Gov*t Employees v. United States,
258 F.3d 1294,
1302 (Fed. Cir. 2001).
    
The asymmetry between the protest rights of private-sector and
public-sector participants in A-76 competitions has been widely criticized
as unfair.  As stated previously, the congressionally-chartered Commercial
Activities Panel, which I chaired, recognized in its April 2002 report
that the principle of fair treatment meant that both sides in these
competitions should have rights as nearly equal as possible to challenge
the way the competitions have been conducted.  I believe that providing a
level playing field in A-76 competitions, with regard to protest standing
as well as other areas, is key to addressing the widespread lack of trust
in the A‑76 process.  Important public policy concerns thus weigh in
favor of allowing someone to file a GAO bid protest on behalf of the MEO. 
Our outreach efforts to both parties and to both Houses of Congress have
led us to understand that there may be bipartisan interest in addressing
these concerns.
    
On May 29, 2003, OMB issued a revised Circular A-76, which changes A-76
competitions to reflect a FAR-based process.  Those favoring MEO standing
argue that these changes to the Circular affect the standing of an
in-house entity to file a bid protest at GAO.  Accordingly, on June 13,
2003, GAO published a notice in the Federal Register soliciting comments
on the revised Circular*s impact, if any, on the standing of an in-house
entity to file a bid protest at GAO.  In response to the Federal Register
notice, GAO received a total of 71 sets of comments that break down as
follows:  1 letter from three members of Congress; 9 letters from
agencies; 5 from unions; 7 from associations; 47 from individuals
(including federal employees); and 2 from private lawyers.  The comments
ranged from those who argued that no one has standing to protest on behalf
of an MEO unless CICA is amended (among others, the Office of the General
Counsel of the Department of the Air Force took this position) to those,
such as federal employees and their unions, who contended that the changes
in the revised Circular justified GAO finding that the unions and
individual employees now have standing to file protests, without the need
to amend CICA.
    
We have carefully considered all of the comments received, as well as the
deliberations in Congress last fall regarding this issue.  As explained in
the enclosed decision, the law requires us to find that, even under the
revised Circular, the MEO is not an *actual or prospective offeror* and
we, therefore, do not have legal authority to hear protests filed on
behalf of MEOs.  Accordingly, if MEOs are to be granted standing, that
will be a decision for Congress to make, if it so decides, by amending
CICA.
    
The question of representational capacity--who speaks for the MEO and
could therefore file a protest on its behalf--is a separate question, and
it is an important and difficult one.  Importantly, there was no consensus
on this point even among those responding to GAO*s June 2003 Federal
Register notice who contended that the MEO had standing at GAO.  Some
believed that only the official who will develop and submit the agency
tender, the Agency Tender Official (ATO), could file a protest; others
thought, consistent with the revised Circular*s *directly interested
party* definition, that either the ATO or an employee representative
should be allowed to file; still others thought the unions should be
allowed to file along with the ATO and the employee representative.  In
our view, choosing among those options, if MEO standing is permitted, is
an important policy decision appropriately left to Congress.
    
In sum, we have reached the following conclusions.  First, MEOs do not
meet the current CICA definition of *interested parties,* so that GAO must
dismiss protests filed by MEOs.  Second, in light of the public policy
concerns weighing in favor of allowing MEOs to file bid protests, Congress
may wish to amend CICA.  Finally, any amendment to CICA to allow MEO
protest standing should specify whether standing extends to ATOs,
individual federal employees (either as individuals or with one or more
individuals acting on behalf of all affected employees), and/or federal
employees* union representatives.
    
We are available to discuss this matter, if you would like.  In addition,
if there is congressional interest in amending CICA to address these
concerns, we would be happy to provide assistance in drafting appropriate
legislation or to help in other ways that you request.  We are sending
similar letters to the Ranking Minority Member of your Committee as well
as the Chairman and Ranking Minority Member,
    
House Committee on Government Reform as well as the Chairman and Ranking
Minority Member of the Senate and House Committees on Armed Services.  We
will provide copies to other interested parties.
    
Sincerely yours,

   David M. Walker
Comptroller General
of the United States
    
Enclosure
    

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

   [1] The revised Circular (May 29, 2003) provides that *a directly
interested party* may contest certain enumerated agency actions *taken in
connection with the standard competition.*  Revised Circular, attach. B,
P: F.1.  The revised Circular further provides that *the pursuit of a
contest by a directly interested party and the resolution of such contest
by the agency shall be governed by the procedures of FAR [Federal
Acquisition Regulation] Subpart 33.103.*  Id.  FAR S: 33.103 provides the
procedures for filing and resolving agency-level protests.