“in- or out-:” the jurisdictional confusion over...
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“In- or Out-:”: The Jurisdictional Confusion Over Challenges to Agency Decisions to In-Source Contracted Work
By Gabriel D. Soll and Tara L. Ward*
Table of Contents
I. MEANS V. ENDS: THE RECENT LEGAL HISTORY OF IN-SOURCING............5
A. FY2006 & FY2008 National Defense Authorization Acts.......7
B. 2009..................................................................................................................1415
C. 2010 & 2011.................................................................................................2829
II. DO I CONTRADICT MYSELF? - FEDERAL DISTRICT COURT AND APPELLATE CIRCUIT COURT CASES..................................................................3941A. Legal Background.....................................................................................4042
B. Federal Courts Finding Jurisdiction.......................................4749
C. Federal Courts Denying Jurisdiction.......................................5256
III. TRIALS TOWARD PROGRESS? - COURT OF FEDERAL CLAIMS CASES. . .6266
A. Santa Barbara v. United States...................................................6468
B. Hallmark-Phoenix 3, LLC v. United States...........................7176
IV. TRUTHS FROM ERROR RATHER THAN CONFUSION - SIMILAR ISSUES CHALLENGES...............................................................................................................8287A. GAO Protests...............................................................................................8388
* Gabriel D. Soll is an Attorney-Adviser in the Office of General Counsel, Procurement and Financial Assistance, U.S. Department of Energy. He thanks Julia Bogolin and Frank Soll[for their patience and encouragement. He is particularly thankful to Ms. Wardbrief author stillis piece as writing with her has been as fun as it has been insightful. Tara L. Ward is an Associate in the government contracts group at Wiley Rein, LLP. She thanks Mr. Soll for his immeasurable enthusiasm, wisdom, and wit, as well as Jason O'Brien for his unwavering support. The authors also wish to thank Heather Kilgore Weiner for her invaluable suggestions. The views expressed in this article are solely those of the authors and do not necessarily reflect the opinions of the Department of Energy, the Federal Government, or Wiley Rein. approval.[Placeholder for brief author bios, still under review for approval.]
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B. A-76 Challenges.......................................................................................9196
V. UNDERSTANDING THE CONFUSION – CONCLUSIONS.................................101108
“In-sourcing,” or the practice of moving functions performed
by contractors back to federal employees,1 is a controversial yet
critical topic as the Ffederal Ggovernment looks to spend
efficiently while achieving required outcomes. The issue of when
and to what extent agencies should bring previously contracted
out work back in-house began to intensify in 2006,2 and was
brought to the fore in 20093 with the promulgation of legislative
1 KATE M. MANUEL AND JACK MASKELL, CONG. RESEARCH SERV., REPORT NO. R41810, INSOURCING FUNCTIONS PERFORMED BY FEDERAL CONTRACTORS: AN OVERVIEW OF THE LEGAL ISSUES, INTRODUCTION (June 8, 2011) [hereinafter INSOURCING FUNCTIONS PERFORMED BY FEDERAL CONTRACTORS ].
2 See National Defense Authorization Act for Fiscal Year 2006, Pub. L. No. 109-163, 119 Stat. 3136 (Jan. 6, 2006). Section 343 required the Department of Defense (“DoD”) to issue guidelines and procedures to ensure consideration was given to government personnel for work performed under contracts. DoD subsequently issued guidance authorizing conversion of contracted activities up to three percent of a component’s spending and requiring independent review and authorization if that threshold were to be exceeded, but the guidance was later cancelled by National Defense Authorization Act for Fiscal Year 2008, § 324, Pub. L. No. 110-181, § 324(c), 122 Stat. 3, 61 (Jan. 28, 2008).
3 See Presidential Memorandum on Government Contracting, 74 Fed. Reg. 9755 (Mar. 6, 2009); see also Omnibus Appropriations Act of 2009, Pub. L. No. 111-8, Division D, Title VII, § 736, 123 Stat. 524, 689-90 (Mar. 11, 2009) (requiring federal agencies, with the exception of the Department of Defense, to develop and implement guidelines to govern in-sourcing decisions); Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 § 321, Pub. L. No. 110-417, § 321, 122 Stat. 4356, 4411 (Oct. 14, 2008) (requiring the Office of Management and Budget to “review the definition of the term ‘inherently governmental function’...
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and policy documents that pushed agencies to consider in-sourcing
activities as a cost-saving measure. These initiatives
represented a sea change to 50fifty years of contracting policy
favoring procurement of commercial products and services.4
Regardless of the extent to which the Government continues to
pursue in-sourcing as a cost-saving measure in the future, the
courts’ most recent treatment of in-sourcing decision suggests
the law is far from settled on how to keep the Government
accountable for its procurement activities.
The entire in-sourcing process warrants review, as it
involves not only complex legal issues, but complex business-like
decisions by the Government as federal This change has already
decreased the amount of work available to the government
[and] develop a single consistent definition”).
4 Kate M. Manuel and Jack Maskell, Cong. Research Serv., R41810, INSOURCING FUNCTIONS PERFORMED BY FEDERAL CONTRACTORS, supra note Error: Reference source not found, at: An Overview of the Legal Issues, 1-2 n. 6 (2011) (comparing Bureau of the Budget Bulletin No. 55-4 (Jan. 15, 1995) (“[The] Federal Government will not start or carry on any commercial activity to provide a service or product for its own use if such product or service can be procured from private enterprise through ordinary business channels.”), with Bureau of the Budget Circular A-76 (Mar. 3, 1966) (“The guidelines in this Circular are in furtherance of the Government’s general policy of relying on the private enterprise system to supply its needs.”), and Office of Management and Budget Circular No. A-76 (Revised), May 29, 2003, at D-2 [hereinafter “Circular A-76”] (“The longstanding policy of the federal government has been to reply on the private sector for needed commercial services. To ensure that the American people receive maximum value for their tax dollars, commercial activities should be subject to the forces of competition.”).
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contracting community and will continue to affect future
contracting efforts. The effects are not, however, limited to
the private sector. Federal agencies also face many challenges
in determining which efforts should be in-sourced. In
particular, Aagencies must not only devise methods of making in-
sourcing decisions, but also manage the “multi-sector workforces”
— which includes supporting functions such as human capital,
finance, and acquisition support.5 Once the initial decisions are
made to bring positions back to federal employees, agencies will
also have to account for hiring timelines, navigate training and
security clearance needs for new hires, and manage ancillary
needs such as facilities or equipment.6 On top of all of that,
these actions must be taken in an environment where the basic
rules are still being defined.7
5 U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-10-58R, CIVILIAN AGENCIES’ DEVELOPMENT AND IMPLEMENTATION OF INSOURCING GUIDELINES 7 (2009) [hereinafter CIVILIAN IMPLEMENTATION OF INSOURCING GUIDELINES ].U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidelines, at 7 (2009).
6 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidelines, at 7 (2009)Id.; see also, Maj. Kevin P. Stiens & Susan L. Turley, Uncontracting: The Move Back to Performing In-House, 65 A.F.L. REV. 145, 174 n.225 (2009)Kevin P. Stiens and Lt. Col. (Ret.) Susan L. Turley, Uncontracting: The Move Back to Performing In-House, 65 Air Force L. Rev. 145 (2009).
7 As discussed herein, uncertainty surrounding central terms such as “inherently governmental” and “special consideration” have hindered agencies from developing specific policies and procedures.
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Amid this changing landscape, government contractors that
are losing work to federal employees are searchinghave searched
for ways to challenge the decision to in-source, or at least to
ensure the choice was made according to stated guidelines and
regulations. This Aarticle explores the justiciability of in-
sourcing determinations and highlights the tensions that exist in
potential forums for resolving such disputes. Part One of this
Aarticle provides background information on recent statutory,
regulatory, and policy guidelines that frame the discussion.
Part Two reviews challenges to in-sourcing decisions before the
U.S. dDistrict cCourts, and discusses the jurisdictional tension
between the Administrative Procedure Act (“APA”) and the
Administrative Dispute Resolution Act’s (“ADRA”) modification of
the Tucker Act. Part Three turns to recent, divergent decisions
from the Court of Federal Claims that address the constitutional
law considerations of jurisdiction in the context of in-sourcing
decisions. Part Four considers similar challenges in the realm
of government contracting, aiming to draw useful arguments for
potential in-sourcing protests.
Finally, this Aarticle observes that though challenges to in-
sourcing decisions appear to be non-justiciable, the law is far
from settled on that point. To that end, this Aarticle
recommends that decisions to in-source be reviewable and
recognizes that the courts’ jurisdiction will become clearer as
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agency-specific guidelines are created. Ultimately, this
Aarticle suggests a possible strategy for challenging such
decisions and recommends other changes that would establish a
fair and regulated system for making these important
determinations.
I. MEANS V. ENDS: THE RECENT LEGAL HISTORY OF IN-SOURCING
“Perfection of means and confusion of ends seem to characterize
our age.” – Albert Einstein8
Regardless of the term used or the method applied, for the
last 50fifty-plus years the balance between paying contractors
and paying gGovernment employees to do the Government’s work has
been debated, changed, and then changed again. “Out-sourcing” is
the general practice of hiring private contractors to perform
functions which could be performed by gGovernment workers.9 “In-
sourcing,” by contrast, is the process of bringing work back to 8 Albert Einstein, Out of My Later Years 113 (Philisophical Library 1950).9 Kevin P. Stiens & Susan L. Turley, Uncontracting: The Move Back to Performing In-House, 65 A.F.L. REV. 145, 146 (2009). Some practitioners define “out-sourcing” narrowly, referring only to those contracts made outside of the Circular A-76 process. See Maj. Kevin P. Stiens and Lt. Col. (Ret.) Susan L. Turley, Uncontracting: The Move Back to Performing In-House, 65 Air Force L. Rev. 145,u. at 149 n. 20 (2009) (citing USLegal, Inc., Outsourcing Law & Legal Definition, http://definitions.uslegal.com/o/outsourcing/ (last visited Sept. 20, 2011), and Bernard D. Rostker, A Call to Revitalize the Engines of Government 3 n.5 (2008)). This Aarticle uses the broader definition of out-sourcing.
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gGovernment employees after it has been performed by a
contractor.10 This section reviews recent changes in law,
regulation, and policy pronouncements that collectively move
gGovernment policy and preferences away from out-sourcing and
toward in-sourcing.
In-sourcing as a policy preference was re-introduced to the
legislative landscape with the enactment of the National Defense
Authorization Act for Fiscal Year 1991.11 Section 1483(b)(2),
enacted as 10 U.S.C. § 129a, established a policy for the
Department of Defense (DoD) to use the “least costly” personnel
in carrying out its missions. Specifically, the statute
provided:
The Secretary of Defense shall use the least costly form of personnel consistent with military requirements and other needs of the Department. In developing the annual personnel authorization requests to Congress and in carrying out personnel policies, the Secretary shall—
(1) consider particularly the advantages of converting from one form of personnel (military, civilian, or private contract) to another for the performance of a specified job; and
(2) include in each manpower requirements report submitted under section
10 See id. at 148 (citing Memorandum from Deputy Secretary of Defense, to Secretaries of the Military Departments et al., subject: Insourcing Contracted Services-Implementation Guidance, Attach. 1, at 2 (May 28, 2009)).11 See generally National Defense Authorization Act for Fiscal Year 1991, Pub. L. No. 101-510, 104 Stat. 1389 (Nov. 5 1990).
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115a of this title a complete justification for converting from one form of personnel to another.12
From this point forward, the in-sourcing debate wavered between
determining how to effectively out-source gGovernment work and
how to reduce costs by bringing this work back in-house.
A. FY2006 & FY2008 National Defense Authorization Acts
In the early 2000s, the George W. Bush Administration
identified “competitive sourcing” (later referred to as
“commercial services management”) as a priority,13 prompting some
concern that the balance had shifted too far in favor of the
private sector performing work that government employees should
do.14 In response, Congress passed legislation directing the 12 10 U.S.C. § 129a (2006).
13 U.S. Office of Management and Budget, Performance of Commercial Activities, 67 Fed. Reg. 69769, 69,772 (proposed Nov. 19, 2002) (identifying competitive sourcing, or “the process of opening the government’s commercial activities to the discipline of competition” as one of President Bush’s five main initiatives for improving the performance of Government).
14 INSOURCING FUNCTIONS PERFORMED BY FEDERAL CONTRACTORS , supra note Error: Reference source not found, at Kate M. Manuel and Jack Maskell, Cong. Research Serv., R41810, Insourcing Functions Performed by Federal Contractors: An Overview of the Legal Issues 2 (2011) (citing U.S. Officer of Management and Budget, Performance of Commercial Activities, 67 Fed. Reg. 69772 (Nov. 19, 2002)); see also generally Memorandum from Peter R. Orszag, Dir., Office of Mgmt. and Budget, to Heads of Executive Dep'ts & Agencies, Managing the Multi-Sector Workforce 1 (July 29, 2009)[hereinafter Orszag Memorandum], available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdf.Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-sector Workforce, July
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Secretary of Defense to “prescribe guidelines and procedures for
ensuring that consideration is given to using Federal Government
employees for work that is currently performed or would otherwise
be performed under Department of Defense contracts.”15
Specifically, section 343 of the National Defense Authorization
Act for Fiscal Year 2006,16 codified at 10 U.S.C. § 2461,
29, 2009, available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdf .
15 National Defense Authorization Act for Fiscal Year 2006, Pub. L. No. 109-163, § 343(a)(1), 119 Stat. 3136, 3200 (Jan. 6, 2006).
16 National Defense Authorization Act for Fiscal Year 2006, Pub. L. No. 109-163 § 343 (Jan. 6, 2006) [hereinafter, FY2006 NDAA].Id. Leading up to the passage of the National Defense Authorization Act for Fiscal Year 2006 (FY2006 NDAA), however, were many years of work and research. Notably, section 832 of the Floyd D. Spence National Defense Authorization Act of 2001, Pub. L. No. 106-398 (Oct. 30, 2000), mandated the Comptroller General to convene an expert panel to study “the policies and procedures governing the transfer of commercial activities for the Federal Government from Government personnel to a Federal Contractor.” Floyd D. Spence National Defense Authorization Act of 2001, Pub. L. No. 106-398, § 832(a), 114 Stat. 1654A-221 (2000). The study was to include the procedure governing which functions should be considered, the economic analyses, DoD implementation of the Federal Activities Inventory Reform Act of 1998 [hereinafter the “FAIR Act”)], and comparisons to the Circular A-76 procedures. Id. Pub. L. No. 106-398 § 832(a) (Oct. 30, 2000). The “Commercial Activities Panel,” as came to be known, released its report on April 30, 2002. The report concluded with ten “principle” recommendations, as well as suggesting changes to the Circular A-76 process and an implementation strategy. The ten “principles” recommended were as follows:
1) Support agency mission, goals, and objectives (i.e. link the need for the goods or services to the mission of an agency).
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required DoD guidelines to give “special consideration” to using
gGovernment personnel for functions that: (1) had been performed
by gGovernment employees since late 1980; (2) were closely
associated with the performance of “inherently governmental
functions”; (3) were not contracts that were awarded on a
competitive basis; and (4) received poor performance evaluations
due to excessive costs or inferior quality.17
2) Utilize consistent human capital practices to attract and retain a federal workforce.
3) Recognize “inherently governmental functions” should be performed by federal personnel.
4) Develop practices to foster efficient and effective Government organizations.
5) Make sourcing decisions based on a “clear, transparent, and consistently applied process.”
6) Avoid arbitrary or numerically-driven goals.7) Establish processes to ensure that when work could be
performed by either sector consistent competition practices are applied.
8) Make such competitions as fair, efficient, and effective as possible.
9) Ensure such competition consider quality and cost factors.
10) Ensure accountability in connections with sourcing decisions.
U.S. GENERAL G OV’T ACCOUNTABILITY ING OFFICE, GAO-02-866T , : COMMERCIAL ACTIVITIES PANEL: IMPROVING THE SOURCING DECISIONS OF THE FEDERAL GOVERNMENT, GAO-02-866T, 46-5620-23 (Apr. 30, 2002)ereinafter GAO-COMMERCIAL ACTIVITIES PANEL ] (available at www.gao.gov/new.items/d02866t.pdf).
17 National Defense Authorization Act for Fiscal Year 2006, Pub. L. No. 109-163, § 343(a)(2)(A)-(D), 119 Stat. 3136, 3200 (Jan. 6, 2006). In Section 343(c), the FY06 NDAA linked the definition of “inherently governmental function” to the Federal Activities Inventory Reform Act of 1998 (Pub. L. No. 105-270; codified at 31 U.S.C. § 501), which stated that “‘inherently governmental function’ means a function that is so intimately related to the public interest as to require performance by Federal Government Employees.” 31 U.S.C § 501 (note2006)).
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In response, the Under Secretary of Defense for Acquisition,
Technology, and Logistics issued a policy memorandum implementing
Section 343 of the FY2006 NDAA.18 The policy authorized the use
of federal employees when an economic analysis indicates that
their use would be less costly for eligible contract functions.19
The memorandum required agencies to report any activities
returned to gGovernment performance as a result of the analysis
authorized.20 Additionally, the memorandum permitted DoD
components to convert contracted activities (i.e., to in-source
them) for up to three percent of their “commercial reviewable”
activity, as defined by each component’s approved Inherently
Governmental/Commercial Activities Inventory21 from the previous
18 Memorandum from the Under Secretary of Defense for Acquisition, Technology and Logistics to the Secretaries of the Military Departments, et al., Implementation of Section 343 of the 2006 National Defense Authorization Act, (July 27, 2007)[hereinafter Implementation of Section 343 of the 2006 National Defense Authorization Act] (available at www.dodig.mil/audit/reports/fy08/08-111.pdf 19-20).
19 Id.Memorandum from the Under Secretary of Defense for Acquisition, Technology and Logistics to the Secretaries of the Military Departments, et al., Implementation of Section 343 of the 2006 National Defense Authorization Act, July 27, 2007 (available at www.dodig.mil/audit/reports/fy08/08-111.pdf 19-20).
20 Id.21 Under the FAIR Act, Federal agencies are required to create an inventory of activities and not whether their function is “inherently governmental,” “commercial exempt from private performance,” or commercial. The inventories include results of all public-private competitions under Circular A-76. See 10 U.S.C. § 2462(b) (2006).
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fiscal year.22 Finally, the policy reserved the right of the
DoD’s Competitive Sourcing Official to intervene and stop an in-
sourcing action pursuant to FY2006 NDAA section 343.23
These policies were short-lived, however, as the National
Defense Authorization Act for Fiscal Year 200824 included
additional in-sourcing provisions that superseded the FY2006
policies. In particular, section 324 of that law required the
Under Secretary of Defense for Personnel and Readiness to develop
guidelines and procedures for in-sourcing decisions.25 The
FY2008 NDAA expanded the previous law by requiring DoD not only
to give consideration “on a regular basis” to previously
contracted work, but also to consider new functions as candidates
for in-sourcing.26 The FY2008 NDAA also required that “special 22 Implementation of Section 343 of the 2006 National Defense Authorization Act, supra note .Memorandum from the Under Secretary of Defense for Acquisition, Technology Error: Referencesource not foundError: Reference source not foundand Logistics to the Secretaries of the Military Departments, et al., Implementation of Section 343 of the 2006 National Defense Authorization Act, July 27, 2007 (available at www.dodig.mil/audit/reports/fy08/08-111.pdf. 19-20).
23 Id.24 National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181, 122 Stat. 3 (Jan. 28, 2008) [hereinafter FY2008 NDAA].
25 National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181Id. at § 324 (Jan. 28, 2008) (codified at 10 U.S.C. § 2463).
26 National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181Id. at § 324(a) (Jan. 28, 2008); see also INSOURCING FUNCTIONS PERFORMED BY FEDERAL CONTRACTORS , supra note Error: Referencesource not found, at 2Kate M. Manuel and Jack Maskell, Cong.
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consideration” be given to using federal employees for work
falling under the four considerations developed in the FY2006
NDAA, stated above.27 Additionally, the FY2008 NDAA added
language prohibiting the use of public-private competition under
Circular A-76 for certain contracted functions unless additional
Research Serv., R41810, Insourcing Functions Performed by Federal Contractors: An Overview of the Legal Issues 2 (2011).
27 National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181, § 324(ab), 122 Stat. 3, 60-61 (Jan. 28, 2008). Specifically, section 324(ab)(1) provided as follows:
(b) Special Consideration for Certain Functions.— The guidelines and procedures required under subsection (a) shall provide for special consideration to be given to using Department of Defense civilian employees to perform any function that—(1) is performed by a contractor and—(A) has been performed by Department of Defense civilian employees at any time during the previous 10 years;(B) is a function closely associated with the performance of an inherently governmental function;(C) has been performed pursuant to a contract awarded on a non-competitive basis; or(D) has been performed poorly, as determined by a contracting officer during the 5-year period preceding the date of such determination, because of excessive costs or inferior quality; or(2) is a new requirement, with particular emphasis given to a new requirement that is similar to a function previously performed by Department of Defense civilian employees or is a function closely associated with the performance of an inherently governmental function.)
Id.
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steps were taken in advance of the competition.28 The
prohibition applied to three categories of work: (1) for new
functions, the DoD was required to assign performance to civilian
personnel; (2) for functions that received the “special
consideration” described above, the DoD was required to convert
to performance by civilian employees; and, (3) for those
functions currently being performed by civilian employees, the
DoD was required to expand the scope of the function.29 This
initial moratorium was precipitated, in part, by a series of
contracting/competition issues brought to the public’s attention
through a series of articles discussing conditions at Walter Reed
Army Medical Center.30
Accordingly, the Under Secretary of Defense for Personnel
and Readiness issued a policy memorandum on April 4, 2008, to
help guide decisions based on 10 U.S.C. § 2463.31 The policy
28 National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181 (Jan. 28, 2008)Id. at § 1676 (codified at 10 U.S.C. § 2463(c)).
29 National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181 (Jan. 28, 2008) § 1676 (codified at 10 U.S.C. § 2463(c))Id.
30 VALERIA BAILEY GRASSO, CONG. RESEARCH SERV., REPORT NO. R40854, OFFICE OF MANAGEMENT AND BUDGET CIRCULAR A-76 AND THE PROPOSED MORATORIUM ON FUTURE DOD COMPETITIONS: BACKGROUND AND ISSUES FOR CONGRESS, 2. (Nov. 28, 20112009), (citing , Dana Priest and Ann Hull, “Soldiers Face Neglect, Frustration at Army’s Top Medical Facility,” WASH. INGTON POST, Feb. 18, 2007 at A1)..
31 Memorandum from the Under Secretary of Defense for Personnel and Readiness to the Secretaries of the Military Departments, et
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noted that Department of Defense components must comply with
other laws and regulations,32 but also outlined the
considerations to undertake when deciding to in-source.
Department of Defense components were to deliberate whether the
functions should be eliminated if they were no longer required;
if new or expanded mission requirements were exempt from private
sector performance; if using civilian employees would be less
costly than contractor performance, and if the required personnel
could be available or hired without hindering the mission
requirements.33 As required by the FY2008 NDAA,34 the Inspector
al., Implementation of Section 324 of the National Defense Authorization Act for Fiscal Year 2008 – Guidelines and Procedures on In-sourcing New and Contracted Out Functions, Apr. 4, 2008 [hereinafter Implementation of Section 324 of the National Defense Authorization Act for Fiscal Year 2008] (available at http://prhome.defense.gov/RSI/REQUIREMENTS/docs/OSD%20In-sourcing%20Guidance%2004184-08.pdf).
32 Specifically, 10 U.S.C. § 129a was implemented by Department of Defense Instruction 1100.22, “Guidance for Determining Workforce Mix.” 10 U.S.C. § 129a is discussed later in this article, but generally requires the Department of Defense to use the “least costly” means of staffing.
33 Memorandum from the Under Secretary of Defense for Personnel and Readiness to the Secretaries of the Military Departments, et al., ImImplementation of Section 324 of the National Defense Authorization Act for Fiscal Year 2008plementation of Section 324 of the National Defense Authorization Act for Fiscal Year 2008 – Guidelines and Procedures on In-sourcing New and Contracted Out Functions, Attach. 2 at 2, Apr. 4, 2008 (available at supra note Error: Reference source not found, Error: Reference source not found at Attach. 2 at 2 (specifying that the economic analyses must include elements to create a like comparison appropriate to the circumstances).
34 National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181, § 324(b), 122 Stat. 3, 61 (Jan. 28, 2008)
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General for the Department of Defense issued a report on the
implementation of the requirement, which confirmed that the Army,
Navy, and Air Force had implemented and applied the methodologies
to in-source several requirements.35
B. 2009
At the same time, perhaps because in-sourcing policy was
still developing, legislators attempted to clarify the parameters
of the policy. In particular, several segments of the executive
and legislative branches worked to define the limits to in-
sourcing as well as to provide guidance on effective decision
making. First, the Government endeavored to define the nature
and extent of “inherently governmental functions,” historically
immune from out-sourcing. Indeed, by 2009, the definition of
“inherently governmental” had become “blurred.”36
(codified at 10 U.S.C. § 2463 (b)) (requiring a report from the Department of Defense Inspector General within 180 days after enactment).
35 DoD IG Report to Congress on Section 324 of the National Defense Authorization Act for Fiscal Year 2008 – Review of DoD Guidelines on Considering Civilians for New and Contracted Functions, Report No. D-2008-111 at 7, (July 23, 2008) (available at www.doedig.mil/audit/reports/fy08/08-111.pdf).
36 See Presidential Memorandum on Government Contracting, 74 Fed. Reg. 9755, 9755-56 (Mar. 6, 2009); see also OFFICE OF MGMT. & BUDGET, OMB CIRCULAR NO. A-76, PERFORMANCE OF COMMERCIAL ACTIVITIES, at attach. D (2003) (defining “inherently governmental” as an “activity that is so intimately related to the public interest as to mandate performance by government personnel”) [hereinafter OMB Circular A-76] available at http://www.dni.gov/electronic_reading_room/OMB_Circular_A_76.pdfO
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Highlighting the importance of clarifying the scope of
“inherently governmental,” on March 6, 2009, President Obama
issued a Presidential Memorandum to the Head of Executive
Departments and Agencies regarding government contracting.37 The
memorandum addressed the issue as one of growing concern as the
Administration determined that executive agencies were relying
too heavily on sole-source and cost-reimbursable contracting.38
To accomplish the twin policy goals of effective governance and
getting the best tax dollar value, the President stated that the
“line between inherently governmental . . . and commercial
activities . . . has been blurred and inadequately defined.”39
MB Circular A-76, 2003 Revision, Attachment D (defining “inherently governmental” as an “activity that is so intimately related to the public interest as to mandate performance by government personnel” ); Federal Activities Inventory Reform Act of 1998, Pub. L. No. 105-2780, 112 Stat. 2382 (codified at 31 U.S.C. § 501 note) (adopting the Circular A-76 definition); FAR Subpart 2.1 (characterizing the term as a “policy determination” rather than a legal distinction, and noting that “inherently governmental function[s] include[] activities that require either the exercise of discretion in applying Government authority, or the making of value judgments in making decisions for the Government. Governmental functions normally fall into two categories: the act of governing, i.e., the discretionary exercise of Government authority, and monetary transactions and entitlements”).
37 Presidential Memorandum on Government Contracting, 74 Fed. Reg. at 9755 (Mar. 6, 2009).
38 Presidential Memorandum on Government Contracting, 74 Fed. Reg. 9755 (Mar. 6, 2009)Id. at 9755.
39 Presidential Memorandum on Government Contracting, 74 Fed. Reg. 9755,Id. at 9755-56 9756 (Mar. 6, 2009).
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Perhaps recognizing the confusion caused by imprecise
terminology and the importance of clarifying the term, Congress
included a provision in the Duncan Hunter National Defense
Authorization Act for Fiscal Year 2009 that required the Office
of Management and Budget (“OMB”) to develop a single definition
of “inherently governmental.”40 The law required the revised
definition to (1) address any deficiencies in the existing
definitions; (2) apply to all Federal departments and agencies;
and (3) ensure that each agency is equipped to identify each
position within it that much be treated as “inherently
governmental.”41
Similarly, the Omnibus Appropriations Act of 2009 sought to
clarify the term, but to no real avail. Specifically, the law
defined “inherently governmental” as having the meaning
prescribed to it under Federal Acquisition Regulation (“FAR”)
Subpart 7.5.42 However, while FAR 7.5 prohibits contracts for
inherently governmental functions, it does not provide a 40 Duncan Hunter National Defense Authorization Act for Fiscal Year 2009, Pub. L. No. 110-417 § 321, 122 Stat. 4356, 4411 (Oct. 14, 2008) [hereinafter FY2009 NDAA].
41 Duncan Hunter National Defense Authorization Act for Fiscal Year 2009, Pub. L. No. 110-417Id. at § 321(a)(2)(A)-(C) (Oct. 14, 2008).
42 Omnibus Appropriations Act of 2009, Pub. L. No. 111-8, Division D, Title VII § 736 (b)(5)(A), 123 Stat. 524, 690 (Mar. 9, 2009). But see supra note 27. FAR Subpart 7.5 points to a definition of “inherently governmental” that is intended to assist in policy creation rather than legal distinction.
18
definition of “inherently governmental,” but rather offers a list
of examples of inherently governmental functions, thus leaving
it to the agencies to determine the meaning of “inherently
governmental.”.43
Though agencies did not endeavor to define the term, at
least one agency added nuance to the phrase in a memorandum
outlining a framework for sourcing decisions. According to an
OMB memorandum issued in July of 2009, discussed in more detail
infra, when an agency determines that a given function is
“inherently governmental,” related positions can be filled only
by federal employees.44 If, however, the function is “critical,
but not inherently governmental,” an agency should staff the
positions with federal employees “to the extent required by the
agency to maintain control of its mission and operations (or if
required by law, executive order, or internal agreement),” but
could contract for the function if the agency has “sufficient 43 FAR 7.503(c)(1)-(20). The functions listed relate primarily to investigation and prosecution of individuals, control of military and foreign policy, determination of agency policy or the direction of federal employees, Freedom of Information Act determinations, and financial functions such as control of treasury accounts or administration of public trusts. The regulation goes on to list examples of functions that are generally not considered inherently governmental, but border on the definition. Such borderline functions include further reaching activities such as acquisition planning, analyses and/or conduct of studies to assist in policy determinations, contractor evaluations, provision of surveillance, and other functions specifically left to the agencies to determine. FAR 7.503(d).
44 Orszag Memorandum, supra note 1Error: Reference source not found at 2.
19
internal capability to control its mission and operations.”45
Finally, if a function is “essential, but not inherently
governmental” the policy direction permits the performance by
either federal or private sector personnel.46 Thus, regardless
of how ill-defined the term may be, the classification of an
activity as “inherently governmental” or merely “critical”
affects the Government’s ability to make a reasoned in-sourcing
decision.
In addition to attempting to clarify “inherently
governmental” functions, in 2009, the Government also undertook
several efforts to outline and/or clarify the in-sourcing
decision making process. Significantly, the Omnibus
Appropriations Act extended the moratorium on Circular A-76
competitions and extended its reach to include the entire Federal
Ggovernment.47 To clarify the process with regard to civilian
agencies, the Omnibus Appropriations Act of 2009 required non-DoD
agencies subject to the FAIR Act to develop guidelines to aid
45 Id. 46 Id Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, Attachment 1, July 29, 2009, available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdf.
47 Omnibus Appropriations Act of 2009, Pub. L. No. 111-8, Division D, Title VII § 737, 123 Stat. 524, 691 (Mar. 9, 2009) (effectively prohibiting any funds from being used to begin or announce an A-76 competition).
20
with in-sourcing decisions.48 The guidelines mirrored those
required of the DoD included in the FY 2008 NDAA, discussed
above, including guidelines for the “special consideration” of
certain functions.49 The law gave civilian agencies 120 days to
develop the guidelines, and similarly required the Government
Accountability Office to issue a report on the implementation of
the law 90 days later.50
Concurrently, DoD was developing additional guidelines to
help its components make the determination whether to in-source a
given activity. In late May of 2009, the Deputy Secretary of
Defense for Personnel and Readiness issued implementation
guidance regarding “in-sourcing contracted services”51 in
response to a realignment of resources that decreased funding for
contracted services and increased funding for new civilian
hires.52 The guidance was intended to help DoD components 48 Omnibus Appropriations Act of 2009, Pub. L. No. 111-8, Division D, Title VIIId. at § 736 (Mar. 9, 2009).
49 Id.50 Omnibus Appropriations Act of 2009, Pub. L. No. 111-8, Division D, Title VIIId. at § 736 (b)(4) (Mar. 9, 2009).
51 Memorandum from the Deputy Secretary of Defense for Personnel and Readiness to the Secretaries of the Military Departments, et al., In-sourcing Contracted Services - Implementation Guidance, (May 28, 2009) [hereinafter In-sourcing Contracted Services - Implementation Guidance] (available at http://prhome.defense.gov/RSI/REQUIREMENTS/docs/DepSecDef%20Memo%20In-sourcing%20Contracted%20Services-Implementation%20Guidance%20(28%20May%2009)%20(OSD%2005339-09).pdf).
52 Memorandum from the Deputy Secretary of Defense for Personnel and Readiness to the Secretaries of the Military Departments, et
21
identify which contracted services should be in-sourced,
especially in light of the fact that 10 U.S.C. § 2463 precludes
these components from “setting limits on what may be in-
sourced.”53
The Deputy Secretary’s guidance detailed a plan of action
for Departmental components and a graphic “decision tree” for the
prioritization of services to be in-sourced.54 Using 10 U.S.C.
§§ 2330a and 2463 as starting points, the memorandum required
evaluation of current contracts and concluded by identifying five
al., In-sourcing Contracted Services - Implementation Guidance, May 28, 2009 (available at http://prhome.defense.gov/RSI/REQUIREMENTS/docs/DepSecDef%20Memo%20In-sourcing%20Contracted%20Services-Implementation%20Guidance%20(28%20May%2009)%20(OSD%2005339-09).pdf). Id. The realignment was announced by Secretary Gates on April 6, 2009 and formally noted in Resource Management Decision (“RMD”) 802, signed on April 8, 2009. Id. RMD 802 included a realignment plan for FY2010-2014 which included increased funding for civilian manpower and overall decrease in funding for contracted support. Id.
53 Memorandum from the Deputy Secretary of Defense for Personnel and Readiness to the Secretaries of the Military Departments, et al., In-sourcing Contracted Services - Implementation Guidance, May 28, 2009 (available at http://prhome.defense.gov/RSI/REQUIREMENTS/docs/DepSecDef%20Memo%20In-sourcing%20Contracted%20Services-Implementation%20Guidance%20(28%20May%2009)%20(OSD%2005339-09).pdf) (citing 10 U.S.C. § 2463).Id. at 1 (citing 10 U.S.C. § 2463).
54 Memorandum from the Deputy Secretary of Defense for Personnel and Readiness to the Secretaries of the Military Departments, et al., In-sourcing Contracted Services - Implementation Guidance, May 28, 2009, Attachment 1 at 4 (available at http://prhome.defense.gov/RSI/REQUIREMENTS/docs/DepSecDef%20Memo%20In-sourcing%20Contracted%20Services-Id. at Atachment 1 at 4.Implementation%20Guidance%20(28%20May%2009)%20(OSD%2005339-09).pdf).
22
categories of contracts which should be in-sourced. Those
categories were:
(1) contracts for functions which are inherently
governmental;
(2) contracts for functions which are exempted from
private sector performance by Department of Defense FAR
Supplement (“DFARS”) Subsection 207.503;
(3) contracts for unauthorized personal services;
(4) contracts for functions in which there are not
“sufficiently trained and experienced officials” to
oversee them; and
(5) those contracts where it would be more cost-effective
to in-source, giving special consideration to those
contracts which either were performed by civilian
employees in the previous ten years, are closely
associated with inherently governmental functions, were
awarded on a non-competitive basis, or were performed
poorly.55
55 Memorandum from the Deputy Secretary of Defense for Personnel and Readiness to the Secretaries of the Military Departments, et al., In-sourcing Contracted Services - Implementation Guidance, May 28, 2009,Id. at Attachment 1 at 7-86-8 (noting that if a function were to become “inherently governmental” by virtue of a change in law, regulation, or policy after the time of award, the function should be in-sourced expeditiously; further citing 10 U.S.C. § 2383(a)(2) and FAR 37.102(h)).)) (available at http://prhome.defense.gov/RSI/REQUIREMENTS/docs/DepSecDef%20Memo%20In-sourcing%20Contracted%20Services-Implementation%20Guidance%20(28%20May%2009)%20(OSD%2005339-09).pdf)
23
In addition to these sector-specific efforts, the
Presidential Memorandum on Government Contracting discussed above
also directed the Director of OMB to create a process usable by
all Government agencies to identify existing contracts that are
not efficient or performed well, as well as “corrective actions”
which can be taken once identified.56 In particular, the
memorandum required OMB to clarify when out-sourcing (and
conversely in-sourcing) is and is not appropriate by federal
agencies.57
Responding to the President’s direction, on July 29, 2009,
the Director of OMB released a memorandum entitled “Managing the
Multi-Sector Workforce.”58 The memorandum articulated the risks
to the Government – beyond mere excessive costs – in relying too
heavily on contracted personnel. Director Orzag described the
risk as an “erosion of the in-house capacity that is essential to
effective Government performance.”59 The memorandum opined that
56 Presidential Memorandum on Government Contracting, 74 Fed. Reg. 9755,at 9756 (Mar. 6, 2009) (these guidelines were directed to be issued by July 1, 2009).
57 Presidential Memorandum on Government Contracting, 74 Fed. Reg. 9755, 9756 (Mar. 6, 2009) (this guidance was to be issued by September 30, 2009)Id.
58 Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, July 29, 2009, available at Orszag Memorandum, supra note 14, at 1.
59 Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, July 29, 2009, available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdfId.
24
“[t]oo often agencies neglect the investments in human capital
planning, recruitment, hiring, and training that are necessary
for building strong internal capacity – and then are forced to
rely excessively on contractors.”60
Recognizing the importance of both federal and contractor
personnel (the “multi-sector workforce”) and to combat the
overreliance problem, OMB directed the executive agencies to take
three immediate steps: (1) adopt a framework to manage the
workforce balance;61 (2) conduct a test analysis on one program
where there may be concerns about overreliance on contractors;62
60 Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, July 29, 2009, available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdfId.
61 Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Mutli-Sector Workforce, Attachment 1, July 29, 2009, available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdfId. at 2. The framework begins from the premise that agencies should not base their decisions on a desired outcome (to in-source or out-source), but rather on mission and full programmatic considerations. Id. at Attachment 1 at 1. As such, the framework considers workforce planning, whether a function can be contracted out, cost analysis, required management, and organizational cohesion. Id. The guidelines suggest, but do not specify, that the process should be “reasonable and impartial.” Id. at Attachment 1 at 2.
62 Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, Attachment 2, July 29, 2009, available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdfId. at Attachment 1 at 2. The program to be analyzed was to be identified to the Office of Management and Budget by October 1, 2009, with a full report on the analysis to be submitted by April 30, 2010. Id. at 3 (attach. 2).
25
and (3) follow specific guidelines when considering in-
sourcing.63 The guidelines also provided separated the criteria
to be considered in making an in-sourcing determination into
three major groups: (1) general management responsibilities; (2)
general consideration for federal employee performance; and (3)
special consideration of federal employee performance.”64
In discussing “general management” considerations, the
memorandum stressed the larger practical concerns that face
agencies looking at in-sourcing possibilities. First, the
memorandum instructed agencies to act collaboratively because in-
sourcing decisions are a shared responsibility. Specifically,
the memorandum urged cooperation between the requiring activity,
the human capital office, the budget and finance office, and the
acquisition office,65 particularly for programs at risk of
63 Id. at 2.Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, Attachment 3, July 29, 2009, available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdf.
64 Orszag Memorandum, supra note Error: Reference source not found, at 1-3 (attach. 3).Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, Attachment 3, July 29, 2009, available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdf.
65 Id. at 1 (attach. 3).Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, Attachment 3, July 29, 2009, available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdf
26
overreliance on contractors.66 Second, the memorandum
recommended “accelerated” monitoring of in-sourced functions that
are either inherently governmental or involve unauthorized
personal services.67 Finally, the memorandum urged agencies to
dedicate sufficient human capital resources to support the
management of contractors and recruitment of federal employees.68
The second category of decision-making criteria – “general
consideration of federal employee performance” – centered around
the statutory requirement that agencies consider the use of
federal employees “on a regular basis.”69 The memorandum first
66 Id..Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, Attachment 3, July 29, 2009, available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdf.
67 Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, Attachment 3, July 29, 2009, available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdfId. at 1 (attach. 3). A “personal services contract” is defined by the Federal Acquisition Regulation as one characterized by an employer-employee relationship between the Government and contractor personnel. FAR 37.101 They are generally prohibited under FAR 37.104(b), except when specifically authorized by 5 U.S.C. § 3109 -- generally for temporary expert or consultant services.
68 Orszag Memorandum, supra note Error: Reference source not found, at 2 (attach. 3).Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, Attachment 3, July 29, 2009, available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdf.
69 Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, Attachment 3, July 29, 2009, available at
27
recommended that agencies “augment” those management reviews
designed to identify opportunities for use of federal
employees.70 When appropriate, these augmented evaluations would
involve a cost analysis.71 However, the memorandum recognized
that agencies need not conduct a cost analysis if the identified
programs face future performance risk if not performed by federal
employees.72 To identify such programs, the memorandum
instructed agencies to develop additional guidelines to determine
when a program needs “to establish or build internal capacity to
maintain control of its missions or operations,” where the
functions are closely associated with inherently governmental
functions, or when operation in the private sector would threaten
non-compliance with an agency or Administration policy.73
Finally, the memorandum discussed the requirement that
special consideration be given to using federal employees in
http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdf.Id. at 2 (attach. 3).
70 Id. Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, Attachment 3, July 29, 2009, available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdf.
71 Id.72 Id.
73 Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, Attachment 3, July 29, 2009, available at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdf.http://www (attach. 3).
28
certain circumstances.74 In particular, the memorandum laid out
an initial two-step process for the “special consideration”:
1. Does the fact that the work is performed by contractors cause the agency to lack sufficient internal expertise to maintain control of its mission and operations?75
2. Does preliminary analysis suggest that public sector performance is more cost effective and that it is feasible to hire federal employees to perform the function?76
74 Orszag Memorandum, supra note Error: Reference source not found, at 3 (attach. 3) (noting that Omnibus Appropriations Act of 2009, Pub. L. No. 111-8, Division D, Title VII § 736 (Mar. 9, 2009). Special consideration was to be given provides special consideration for functions that: (1) had been performed by Government employees since late 1980; (2) were closely associated with the performance of inherently governmental functions; (3) were not contracts that were awarded on a competitive basis; and (4) have received poor performance evaluations due to excessive costs or inferior quality). The distinction drawn between these functions to be given this “special consideration” and the general consideration noted above is that agencies are required to give the consideration prior to “pursuit or non-pursuit of a contract action.” Id. supra no, at ach. 3Error: Reference sourcenot foundPeter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, Attachment 3, July 29, 2009, available at, http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdf. 75 Id. If the answer to this question was “yes,” the agency was directed to “develop and execute hiring and/or development plans and secure the necessary funding to support the needed in-house capacity.” If “no,” the agency was to proceed to question two. Id.
76 Id. at 4 (attach. 3). If the answer to this question was “yes,” the agency was instructed to commence more detailed analysis of in-sourcing options that reflects the complexity and importance of the identified function to the agency’s mission. If “no,” the agency could not consider in-sourcing options unless
29
The Government Accountability Office (“GAO”) analyzed the
actions taken by OMB and “selected” civilian agencies in
developing and implementing in-sourcing guidelines, and, as
required by section 736 of the Omnibus Appropriations Act of
2009, provided a report to Congress.77 GAO’s report concluded
that OMB had generally addressed the requirements of the law by
providing a framework that the agencies could use to generate
their own in-sourcing guidelines.78 The report further discussed
the status of agency-specific guidelines at nine civilian
agencies, and found that none had been finalized, and only four
had even begun to draft those guides.79
performance risks outweighed the cost considerations. Id.
77 CIVILIAN IMPLEMENTATION OF INSOURCING GUIDELINES U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidelines, Introduction (2009).supra note Error: Reference source not found, at 1.
78 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidelines, at 4 (2009).Id. at 4.
79 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidelines, at 6 (2009)Id. at 6. The civilian agencies chosen for review were the Department of State, General Services Administration, Department of Health and Human Services, Department of Homeland Security, Department of Justice, NASA, Department of Energy, Department of Transportation, and the Department of Veterans Affairs, as they accounted for more than 80% of civilian spending. Id. at 1. According to the report the agencies offered the following excuses for the delay: waiting to ensure compliance with the July Office of Management and Budget memorandum; awaiting additional guidance regarding the definition of “inherently governmental;” awaiting the results of pilot program studies and intending to use those results to better-inform the decision making process; and stressing that these are
30
The report noted several challenges identified by the
civilian agencies in approaching the development of in-sourcing
guidelines. Agency officials stated that there had to be better
definitions for “inherently governmental,” “mission-critical,”
and “core competency” in order to frame the agency-specific
guides.80 In addition, agency officials noted that they needed
clarification of the difference between “consideration” and
“special consideration” before they could develop the agency-
specific guidelines.81 The agencies reported confusion regarding
not only when cost analyses are required, but also the specific
make-up of such analyses (e.g., what constitutes the “full” cost
of performance).82 The difficulty in gathering and reviewing
information about service contracts was noted as a concern
because it was unclear if that data was even needed to perform
the cost-analysis required.83 Finally, all nine of the agencies
difficult guidelines and decisions and that to do them properly takes time. Id. at 6-7.
80 Id. at 7.81 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidelines, at 7 (2009).Id.
82 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidelines, at 7 (2009).Id. According to the report, agencies disagreed as to whether there should be a standard cost-analysis technique as at least one agency preferred flexibility in determining how such reviews should be performed. Id.
83 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidelines,CIVILIAN IMPLEMENTATION OF INSOURCING GUIDELINES , supra note Error: Reference source not found, . at 7-8 (2009).
31
pointed to limited budget and resources as constraining the
development of in-sourcing efforts and policies.84
C. 2010 & 2011
While the last two years have been relatively quiet in terms
of the quantity of changes to the in-sourcing legal landscape,
the political landscape has changed dramatically. In the
beginning of 2010, it was business as usual: agencies proceeded
with in-sourcing initiatives as DoD worked to comply with
reporting requirements outlined in the FY2010 NDAAthe effects of
the changes that did occur will be long-felt. However, budget
cuts soon put a damper on agency hiring, which in turn
drastically changed the direction of in-sourcing policy
Government-wide effects of the changes that did occur will be
long-felt. The moratorium on competitions through the Circular
A-76 process was extended for an additional three years to permit
a study of the process.85 Specifically, the DoD was instructed
to report to Congress on how it conducts public-private
competitions, with focus on five particular areas. To comply
with the statute, DoD has to report on: (1) the status of how it
complied with a revision to 10 U.S.C. § 2461(a); (2) what actions 84 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidelines,Id. at 8. (2009).
85 FY2010 NDAANational Defense Authorization Act for Fiscal Year 2010, Pub. L. No, 111-84, § 325, 123 Stat. 2190, 2253 (2009).
32
had been taken to address concerns over its A-76 procedures; (3)
how well its systems provide reliable information in conducting
A-76 competitions; (4) the appropriateness of cost differential
and overhead rate usage in public-private competitions; and (5)
the adequacy of DoD policies to ensure the prohibition on public-
private competitions.86 On June 28, 2011, DoD submitted its
report to GAO as a step in attempting to have the prohibition
lifted.87 GAO found the report complied with the statutory
requirements, but no action to lift the moratorium has been taken
as of the time of this writing.88
In early 2010, however, agencies proceeded to tackle the
long-standing, unresolved issues surrounding in-sourcing policy.
In March 2010, for example, the Office of Management and Budget’s
Office of Federal Procurement Policy (“OFPP”) issued a draft
Policy Letter which set out a proposed definition of “inherently
governmental” and addressed other concerns raised in section 321
of the FY2009 NDAA.89 After reviewing more than 30,000 comment
letters and refining the policy, OFPP issued Policy Letter 11-01
86 FY2010 NDAA, Pub. L. No, 111-84Id. at § 325(b) (2009).
87 U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-11-923R , DOD PUBLIC-PRIVATE COMPETITIONS 5, 7 (Sept. 26, 2011)[hereinafter DOD PUBLIC-PRIVATE COMPETITIONS ] .88 GAO-11-923R; DOD Public-Private Competitions 11, Sept. 26, 2011.Id. at 11.
89 Work Reserved for Performance by Federal Government Employees, 75 Fed. Reg. 16,188, 16188-97 (proposed Mar. 31, 2010).
33
concerning the “Performance of Inherently Governmental and
Critical Functions.”90 The Policy Letter more clearly defined
the functions that can only be performed by federal employees and
explained the agencies’ responsibilities regarding work that is
“closely associated with inherently governmental functions,” and
required agencies to ensure appropriate implementation of the
policy.91
The central piece of this policy is was the definition of
“inherently governmental.” OFPP opted to adopt the definition
given in the FAIR Act, which defined stated that an “inherently
governmental function” ias “a function that is so intimately
related to the public interest as to require performance by
Federal Government employees.”92 The Policy Letter further
stated that the term includes functions that require “discretion
in applying Federal Government authority” or “value judgments in
making decision for the Federal Government.”93 By way of 90 Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg. 56,227-42 (Sept. 12, 2011).
91 Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg. Id. at 56,227-28 (Sept. 12, 2011).
92 Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg. 56,227,Id. at 56,236 (Sept. 12, 2011)..
93 According to the Policy Letter, these function include: (1) the binding of the Federal Government through contract, policy,
34
differentiation, the Policy Letter also provided two broad
categories of functions “not normally” included in the term
“inherently governmental”: functions that gather information in
support of or present advice or ideas to Federal Government
officials, and functions considered which are “internal and
ministerialministerial and internal” in nature.94
The letter then restated the Executive Branch policy that federal
agencies are to “ensure that contractors do not perform
inherently governmental functions.”95 The Policy Letter
discussed the management of functions that are “closely
associated with inherently governmental functions,” and instructs
regulation, authorization, order, or otherwise to take or not to take a particular action; (2) undertaking military, diplomatic, civil or criminal judicial proceedings, managing contracts or otherwise taking actions which determine, protect or advance the interests of the United States; (3) functions which interpret or execute laws which “significantly” affect life, liberty, or property of private persons; ( 4) commissioning, appointing, hiring or directing employees of the United States; and (5) exercising “ultimate control” over United States property by acquisition, use, or disposal thereof, include the appropriation or disbursement of funds in support of such activities. Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg.Id. 56,227, at 56,236 (Sept. 12, 2011) (supplemented by Appendix A, 76 Fed. Reg. 56,240-41). This list expands, in number and detail, the list in FAR Subpart 7.503(c).
94 Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Id. Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg. 56,227, at 56,236 (Sept. 12, 2011) (giving examples such as building maintenance and security, cafeteria and mail operations, motor vehicle fleet management, etc.).
95 Id.
35
agencies to give “special consideration” to the use of fFederal
employees and enhanced management if those functions are
performed by contracted personnel.96 Related, is the policy
requiring agencies to implement guidelines to ensure that
“critical functions” are to be performed or managed by fFederal
employees “to the extent necessary for the agency to operate
effectively and maintain control of its mission and
operations.”97 The letter offers additional guidance to assist
agencies in making the determination as to whether a function is
inherently governmental or critical. If a function either 96 Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg. 56,227, at 56,236 (Sept. 12, 2011) (supplemented by Appendix B, 76 Fed. Reg. 56,241). Appendix B provides examples of functions which are “generally not considered to be inherently government but are closely associated” to such functions. Id. A note indicates that this list does not include specific positions, but rather that a particular description may encompass multiple activities. Id. The listed functional areas largely consist of supporting activities but also encompass certain services including some areas requiring differentiation from inherently governmental functions (i.e., “non-law-enforcement security activities that do not directly involve criminal investigations”). Id.
97 Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg.Id. 56,227, at 56,236 (Sept. 12, 2011). “Critical functions” are defined by the Policy Letter as a function “that is necessary to the agency being able to effectively perform and maintain control of its mission and operations. Typically, critical functions are recurring and long-term in duration.” Id. at 56,236. To assist in the identification of “critical functions,” the Policy Letter outlines the considerations an agency should take into account and notes that each agency will need to exercise informed judgment to make these determinations. 76 Fed. RegId. at 56,238.
36
exercises the sovereign powers of the United States by its very
nature, or requires the exercise of discretion not limited by law
or regulation and thereby commits the United States to a
particular course of action, it is inherently governmental.
If a function either, by nature exercises td the f sovereign
powers of the United Statesture, or requires the exercise of
discretion on and thereby which commits the United States to a
course of action when the decision is not limited by other law,
regulation, or other orders, it is inherently governmental.98
At the same time, in the beginning of 2010, DoD was working
to comply with the FY2010 NDAA, which extended the moratorium on
Circular A-76 competitions for an additional three years to
permit a study of the process.99 Specifically, the FY2010 NDAA 98 Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg.Id. 56,227 at 56,237-38 (Sept. 12, 2011).
99 National Defense Authorization Act for Fiscal Year 2010, Pub. L. No, 111-84 § 325 (2009). In January of 2010, DoD issued highly detailed, practical advice on how to compare public and private labor costs when making an in-sourcing decision, indicating its intent to press forward with in-sourcing as a potential cost-saving measure. Specifically, Directive-Type Memorandum (DTM) 09-007, “Estimating and Comparing the Full Costs of Civilian and Military Manpower and Contract Support” outlined “business rules,” cost elements, and methodologies for use in analyzing the costs of military, civilian, and private contractor labor. U.S. Department of Defense, DTM 09-007, “Estimating and Comparing the Full Costs of Civilian and Military Manpower and Contract Support” (Jan. 29, 2010). The Memorandum outlined cost elements, data sources, and accounting mechanisms associated with DoD labor, including direct and indirect costs, such as General and Administrative (“G&A”) and Overhead. Id. at Attach. 2 at 6-10, 12-15, Attach. 4. The Memorandum also addressed cost
37
instructed DoD to report to Congress on how it conducts public-
private competitions, focusing on five particular areas: (1) the
status of how it complied with a revision to 10 U.S.C. § 2461(a);
(2) what actions had been taken to address concerns over its A-76
procedures; (3) how well its systems provide reliable information
in conducting A-76 competitions; (4) the appropriateness of cost
differential and overhead rate usage in public-private
competitions; and (5) the adequacy of DoD policies to ensure the
prohibition on public-private competitions.100 On June 28, 2011,
DoD submitted its report, detailing DoD’s belief that its revised
policies and procedures were sufficient to resume conducting
public-private competitions.101 GAO found the report complied
with the statutory requirements, but no action to lift the
moratorium has been taken as of the time of this writing.102
Paradoxically, however, around the same time DoD was
preparing its report, the actual value of in-sourcing was called
into question. In May of 2011, the Center for Strategic &
International Studies (“CSIS”) issued a report that called into
elements and methodologies for analyzing service contract costs. Id. at Attach. 2 at 11-15. 100 National Defense Authorization Act for Fiscal Year 2010 , Pub. L. N009).101 DOD PUBLIC-PRIVATE COMPETITIONS , supra note Error: Reference sourcenot found,DOD Public-Pr26, 2011.
102 DOD Public-Pr, 2011.Id. For more informatiotorium, see generally Valerie B. Grasso, Circular A-76 and the Moratorium on DOD Competitions: Background and Issues for Congress, supra note 26.
38
question the extent to which DoD in-sourcing actually produced
cost savings.103 The report noted the importance of accurately
projecting costs, whether making an in-sourcing decision on the
basis of anticipated cost-savings, or for policy reasons.104
However, the report highlighted differences in public and private
accounting systems, which may render it “impossible for even the
most expert and objective observer to compare in-house and
contractor costs with any useful degree of accuracy.”105
As 2010 wore on, the Government faced mounting budget
concerns, which inspired caps on Government hiring and put a
damper on in-sourcing initiatives. .In both 2010 and 2011,
Congress struggled to pass full appropriations bills, instead
relying on a number of continuing resolutions to fund gGovernment
agencies in the interim. As a result, several gGovernment
agencies investigated freezing, or at least slowing, hiring. In
August of 2011, the Army detailed a plan to cut more than 8,700
103 DAVID BERTEAU ET AL.,DOD WORKFORCE COST REALISM ASSESSMENT” AT 8 , (May 2011), available at http://www.nationaldefensemagazine.org/blog/Documents/110517_Berteau_DoDWorkforceCost_Web.pdf.. 104 Id. at 9-10 (May 2011), available at http://www.nationaldefensemagazine.org/bl110517_BerteaeCost_Web.pdf105 Id. at 8at 8 (May 2011), available at http://www.nationaldefensemagazine.or110517_Berteau_Dot_Web.pdf. Tirely on anticipated short-term cost savings. Id. at 8.
39
civilian positions by September 2012.106 Days later, the Air
Force announced a civilian hiring freeze for 90 days.107
These budgetary concerns ultimately led the Secretary of
Defense to all but abandon in-sourcing. On August 9, 2010,
Defense Secretary Robert Gates held a press briefing during which
he stated that DoD would cut funding for contractors and reduce
in-sourcing.108 He acknowledged that the Government had not seen
the expected savings, and stated more bluntly that he was “not
satisfied with the progress made to reduce our overreliance on
contractors.”109 As a result, Gates represented that “no more
full-time positions . . . will be created after this fiscal year
to replace contractors.”110
The outlook does not look to be improving. The Budget
Control Act, passed in August of 2011, not only cut DoD spending
by approximately $450 billion, but also tasked a 12-member Joint
Select Committee on Deficit Reduction (also known as the “Super
Committee”) with identifying $1.2 trillion across all agencies 106 See Charles S. Clark, Army Sets Stage to Slash 8,700 Civilian Jobs,”GOV ’ EREXECUTIVE , (Aug. 52011), availabe at http://www.govexec.com/story_page.cfm?filepath=/dailyfed/0811/080511cc1.htm&oref=searchbegan.107 See Charles S. Clark, Air Force Announces Civilian Hiring Freeze,,NAT ’ IONOURNAL , (Aug. , 2011), availale at http://www.nationaljournal.com/nationalsecurity/air-force-announces-civilian-hiring-freeze-20110816.108 See Robert Brodsky, Pentagon Abandons Insourcing Effort,,GOV ’ T EXECUTIVE , Govg. 10, 2010), availabe at http://ww.govexec.com/dailyfed/0810/081010rb1.htm; 109 See id.
110 Id.
40
over the period of fiscal years 2012 to 2021 in order to reduce
the federal deficit.111 Though the specifics of the budget plan
are beyond the scope of this Aarticle, the overarching budget
concerns bear mentioning, as all gGovernment agencies stand to
lose even more personnel in the coming years. Indeed, Secretary
of Defense Leon Panetta advised Congress that if the super
committee did not act and/or the deficit reduction was to be
achieved through across-the-board cuts,112 DoD’s workforce could
be reduced by approximately 20 %percent over the next decade.113 111 Pub. L. No.112-25, § 401(a)-(b), 125 Stat. 243, 259-639 4011); see Kate Brannen, “Panetta Describs Consequences of More DoD Cuts,” NAVYTIMES, (Nov 14, 2011), aailable at htt://www.navytimes.com/news/2011/11/defense-panetta-letter-to-mccain-sequestration-111411w/; see David J. Berteau & Ryan Crotty, CSIS, “Super Committout and the Implications for Defense, CSIS,” (Dec. 2, 2011), availableathttp://csis.og/publication/super-committee-fallout-and-implications-defense.112 The Budget Control Act provided that: “Loss of Privilege. The provisions of this section shall cease to apply to the joint committee bill if—
(1) the joint committee fails to vote on the report or proposed legislative language required under section 401(b)(3)(B)(i) not later than November 23, 2011; or (2) the joint committee bill does not pass both Houses not late
Pub. L. No. 112-25 § 401(g). 113
? Letter from Leon Panetta to Senators McCain and Graham (Nov. 14, 2011),available at http://mccain.senate.gov/public/index.cfm?FuseAction=PressOffice.PressReleases&ContentRecord_id=a4074315-fd3e-2e65-2330-62b95da3b0e9; see Kaailable at http://www.navytimes.com/news/2011/11/defense-panetta-letter-to-mccain-sequestrat Sean Reilly,ederaltimes.com/article/20111204/BENEFITS01/112040307/. On November 21, 2011, the super committee issued a tatement that,
41
Though budget cuts requiring substantial personnel cuts have
undoubtedly reduced the viability of in-sourcing as a cost-
savings measure, in-sourcing remains an option for procuring
agencies. As such, the significance of the 2010 Policy Letter,
which outlined the “inherently governmental” inquiry as discussed
supra, should not be overlooked in discussing jurisdiction over
challenges to in-sourcing decisions. Though the Policy Letter
specifically noted that it was intended only as policy guidance
to agencies, expressly denying that it created any substantive or
procedural rights that could be enforced,114 its construct remains
“After months of hardwork antense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.” Statement from Co-Chairs of the Joint Select Committee on Deficit Reduction (Nov. 21, 2011)., available at http://www.deficitreduction.gov/public/index.cfm/2011/11/statement-from-co-chairs-of-the-joint-select-committee-on-deficit-reduction.
114 Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg. 56,227, 56,240 (Sept. 12, 2011); see Chrysler Corp.ora Brown, 441 U.S. 281, 295-302 (1979) (citing Morton v. Ruiz, 415 U.S. 199, 235-36 (1974) (noting that for a policy directive to be enforceable by law it must have been issued pursuant to Congressional grant of authority and contain substantive or “legislative type” rights which may be enforced as evidenced by meaningful standards which would be susceptible to judicial review)). Cf. U.S. Dep’tartment of and Human Serv.ices v. FLRA, 844d 1087 (4th Cir. 1988) (determining that OMB Circular A-76 did not have the effect of law because it was directed by the President, not Congress, and was a “managerial’ document).
42
critical to the understanding of the policies and regulations
which mustthat flow from that point. Primarily, this the Policy
Letter’s definition sets the tone and will allow executive
agencies to develop agency-specific policies and guidelines for
making the initial decisions on work that could, or should, be
in-sourced. In addition, the Policy Letter’s assignment of
management responsibilities to agencies both pre- and post-
contract award provides fodder for litigation where agencies have
not fulfilled their responsibilities.115 Further, the Policy
Letter’s guidance as to the relative prioritization of work to be
in-sourced, with special consideration of small business concerns
constitutes another important aspect of in-sourcing policy ripe
for review.116
115 Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg. 56,227 at 56,238-39 (Sept. 12, 2011).
116 Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg.Id. 56,227 at 56,239-40 (Sept. 12, 2011) (stating that work which has been performed by small businesses that is not inherently governmental and does not threaten a loss of agency control or operations should take lower priority in the review of in-sourcing considerations). If at least one segment of work is to remain available for contracting after the activity is identified for in-sourcing, the Policy Letter instructs that Far Subpart 19.5 should govern any decision to set aside the work for small businesses. Id.
43
That said, the Policy Letter specifically noted that it was
intended only as policy guidance to agencies.117 In particular,
the letter expressly denied that it creates any substantive or
procedural rights that could be enforced.118 As the policies
andGiven the complex decisions and possible effects of in-
sourcing on the government made pursuant to this guidance
decrease the availability of federal contracting community, there
will have toshould be a means for analyzing and adjudicating
those decisions. These considerations, and certainly many
others, will likely be debated among the contracting community as
this aspect of federal policy is worked through and better
understood.
II. DO I CONTRADICT MYSELF? - FEDERAL DISTRICT COURT AND APPELLATE CIRCUIT COURT CASES
117 Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg. 56,227 at 56,240 (Sept. 12, 2011).
118 . See Chrysler Corporation v. Brown, 441 U.S. 281, 295-302 (1979) (citing Morton v. Ruiz, 415 U.S. 199, 235-36 (1974) (noting that for a policy directive to be enforceable by law it must have been issued pursuant to Congressional grant of authority and contain substantive or “legislative type” rights which may be enforced as evidenced by meaningful standards which would be susceptible to judicial review)). Cf. U.S. Department of Health and Human Services v. FLRA, 844 F.2d 1087 (4th Cir. 1988) (determining that OMB Circular A-76 did not have the effect of law because it was directed by the President, not Congress, and was a “managerial’ document).
44
“Do I contradict myself? Very well then, I contradict myself. I
am large; I contain multitudes.”
— Walt Whitman119
It should not be surprising that businesses have attempted
to challenge in-sourcing decisions that affect the contracts they
are or had been performing. Among the policy debates swirling
around in-sourcing policy and procedure, legal battles have
naturally popped up. The legal questions, at their core, address
whether federal agencies can be constrained in their in-sourcing
activities through judicial or administrative review of such
actions.
One of the central questions addressed by these early in-
sourcing cases is which court has subject matter jurisdiction to
decide such cases. As discussed below, there is no consensus
among the fFederal district courts or the aAppellate cCircuits
regarding whether district courts may hear such matters.
A. Legal Background
U.S. dDistricts cCourts enjoy general jurisdiction over
questions of federal law, including matters brought under the
APA.120 The APA permits challenges to federal agencies’ actions 119 WALT WHITMAN , Song of Myself in LEAVES OF GRASS 104 (Penn. State Univ. 2007) (1855). 120 28 U.S.C. § 1331.
45
and defines the standards by which they are judged.121 The APA
states that reviewing courts will hold agency actions which are
“arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law” as unlawful and will set them aside.122
Additionally, the APA gives courts authority to review agency
actions which are unconstitutional,123 in excess of statutory
authority,124 unsupported by substantial evidence with regards to
rule-making or adjudications,125 or do not comport with the facts
to the extent that those facts are reviewable by the court.126
Finally, the APA requires a reviewing court to overturn an agency
action that is “without observance of procedure required by
law.”127
As they have developed, in-sourcing decisions have been
based on internal guidelines rather than traditional regulatory
processes such that the availability of APA review is unclear.
Some courts have determined that agencies are still bound to
121 See generally 5 U.S.C. § 706.
122 5 U.S.C.Id. at § 706(2)(A).
123 Id. at 5 U.S.C. § 706(2)(B).
124 Id. at 5 U.S.C. § 706(2)(C).
125 Id. at 5 U.S.C. § 706(2)(E).
126 Id. at 5 U.S.C. § 706(2)(F).
127 5 U.S.C. § 706(2)(D).
46
comply with their internal guidelines in certain circumstances.
A 1966 Fifth Circuit decision noted that under the APA:
[w]hen an administrative agency promulgates rules to govern its proceedings, these rules must be scrupulously observed. This is so even when the defined procedures are “. . . generous beyond the requirements that bind such agency . . . .” For once an agency exercises its discretion and cerates the procedural rules under which it desires to have its actions judged, it denies itself the right to violate these rules.”128
However, oOther, more recent cases, however, distinguish
between a substantive rule (i.e., one that must be published in
the Federal Register as a regulation) and an interpretive rule
(e.g. guidance, statements, and other internal procedures).129
The major difference the courts identify, beyond mere procedural
differences, is whether the statements create rights in the
individuals affected by the application of the rules and whether
the statements were intended to bind the agency.130 The Court of
Appeals for the Ninth Circuit formulated a two-step test to
determine if whether regulations carry the force and effect of
law: (1) did the regulation prescribe a substantive rule (as
128 Pacific Pac. Molasses Co. v. Fed. Trade Comm’n., 356 F.2d 386, 389-90 (5th Cir. 1966).
129 See Nat’l Org. of Veterans’ Advocates, Inc. v. Sec’y of Veterans Affairs, 260 F.3d 1365, 1374-75 (Fed. Cir. 2001).
130 See generally Farrell v. Dep’t of the Interior, 314 F.3d 584, 590-91 (Fed. Cir. 2002).
47
opposed to interpretive rule, policy statements, or rules of
agency organization, procedure or practice); and (2) did the
regulation conform to certain procedural requirements.131
The first step in this analysis is to decide if the
promulgation is a “substantive rule.” Building on long-standing
precedent, the Ninth Circuit determined that substantive rules
are “legislative in nature, affecting individual rights and
obligations.”132 In so holding, the Ninth Circuit validated
longstanding legal precedent analyzing whether a given internal
rule or policy is intended to be binding upon the agency. In a
seminal federal employment discharge case, the Supreme Court held
that an unpublished Department of State manual bound the agency
because it “purported to set forth definitively the procedures
and standards to be followed.”133 Because of their ability to
determine the rights of individuals, manuals delineating
entitlement to government benefits134 and procedures for grant-
131 United States v. Alameda Gateway, Ltd., 213 F.3d 1161, 1168 (9th Cir. 2000) (citing United States v. Fifty-Three Eclectus Parrots, 685 F.2d 1131, 1136 (9th Cir. 1982)); accord Davis Mountain Trans-Pecos Heritage Ass’n v. Federal Fed. Aviation Adm’nAdmin., 116 Fed. Appx. 3, 9-10 (2d Cir. 2004).
132 James v. United States Parole Comm’n, 159 F.3d 1200, 12056 (9th Cir. 1998) (quoting Fifty-Three Eclectus Parrots, 685 F.2d at 1136)..
133 Service v. Dulles, et al., 354 U.S. 363, 376 (1957); see also Vitarelli v. Seaton, 359 U.S. 535, 539 (1959).
134 See Morton v. Ruiz, 415 U.S. 199, 235 (1974).
48
funding135 have been held as binding on the agency which used
them.
By contrast, when individuals’ rights are not directly
implicated, the enforcement of such internal statements turns on
whether the agency announced its intent to be bound. To that
end, internal policy manuals generally are not enforceable as
they tend to interpret rather than create rights.136 This
principle derives from case law governing challenges to decisions
allegedly not in compliance with published manuals.137 135 See Massachusetts Fair Share v. Law Enforcement Assistance Admin., 758 F.2d 708, 711-12 (D.C. Cir. 1985).
136 United States v. Alameda Gateway, Ltd., 213 F.3d 1161,at 1168 (9th Cir. 2000) (citing James v. United States Parole Comm’n, 159 F.3d 1200,at 1206; (9th Cir. 1998) and Western W. Radio Service Serv. CompanyCo., Inc. v. Espy, 79 F.3d 89986, 901 (9th Cir. 1996)).
137 For example, the Ninth Circuit found that a U.S. Army Corps of Engineers “Engineering Regulation” regarding the exercise of “federal authorities” to remove private property was non-binding as a regulation because it merely provided guidance, essentially “memorializing the agency’s general policy.” United States v. Alameda Gateway, Ltd., 213 F.3d 1161, at 1168 (9th Cir. 2000) (citing James v. United States Parole Comm’n, 159 F.3d 1200,at 1206 (9th Cir. 1998); Western W. Radio Service Co.. v. Espy., 79 F.3d 986,at 901 (9th Cir. 1996)). Similarly, the Court of Appeals for the District of Columbia Circuit found that a National Transportation Safety Board pronouncement regarding its investigative process was not binding on the agency because there was no intent to be bound nor a creation of private rights. Chiron Corp. and& Perceptive Biosystems, Inc. v. Nat’l Trans. Safety Bd.oard, , et al., 198 F.3d 935, 943-44 (D.C. Cir. 1999) (discussing the Board’s “Information for the Guidance of Parties to Safety Board Investigations of Accident” and considering whether petitioners suffered an “informational injury” by virtue of not being given information as a part of the Board’s investigation). Finally, federal courts routinely find that sentencing guidelines, penalty matrices, and other such tables
49
The APA is significant as it is one of few statutes that
expressly waives the Government’s sovereign immunity from
lawsuits.138 The waiver, however, is limited, and does not apply
if “any other statute that grants consent to suit expressly or
impliedly forbids the relief which is sought.”139 With regard to
are not usually binding as law because they often demonstrate guidance for a range of offenses and still require judgment on the part of the agency official. See Farrell v. Dep’tt. of the Interior, 314 F.3d 584, 5910-92 (Fed. Cir. 2002) (ruling that a National Park Service manual entitled “Discipline and Adverse Actions” which included a table of penalties as an appendix was not binding because it explicitly stated it was a “general framework” and was not comprehensive). In that case, the Federal Circuit further differentiated that a “binding norm” is one which “so fills out the statutory scheme that upon application one need only determine whether a given case is within the rule’s criteria.” Farrell v. Dept. of the Interior, 314 F.3d 584, 590-92Id. at 592 (Fed. Cir. 2002) (quoting Ryder Truck Lines, Inc. v. United States, 716 F.2d 1369, 1377 (11th Cir. 1983);(quoting Prof’ls & Patients for Customized Care v. Shalala; 56 F.3d 592, 597 (5th Cir. 1995) see also Rapp v. U.S. Dep’tpt. of Treasury Office of Thrift Supervision, 52 F.3d 1510, 1522 (10th Cir. 1995) (finding that the agency could vary from a penalty matrix that was published in the Federal Register to impose a more severe sentence when the publication noted that it was intended for guidance and not a “substitution for sound supervisory judgment”).
138 5 U.S.C. § 702; see United States v. Dalm, 494 U.S. 596, 608 , 608 548 (1990) (the doctrine of federal sovereign immunity is often debated as a jurisprudential question, but “is in no danger of falling out of official favor” in the law); ; Gregory C. Sisk, The Continuing Drift of Federal Sovereign Immunity Jurisprudence, 50 WM. & MARY L. REV. 517, 528 (20089) (the doctrine of federal sovereign immunity is often debated as a jurisprudential question, but “is in no danger of falling out of official favor” in the law) (citing quoting LAURENCE H. TRIBE, AMERICAN CONSTITUTIONAL LAW § 3-25 at 520 (3d ed. 2000)).
139 5 U.S.C. § 702; see also Ruckelshaus v. Sierra Club, 463 U.S. 680, 685 (1983) (holding that s“[s]uch a waiver of sovereign immunity must be strictly construed in favor of the sovereign and
50
government procurements and contracts, the Tucker Act,140 as
amended by ADRA,141 waives immunity from suits, but reserves
jurisdiction in certain cases to the U.S. Court of Federal
Claims. Effective January 1, 2001, the Court of Federal Claims
has exclusive trial-level jurisdiction over “action[s] by an
interested party objecting to a solicitation by a Federal agency
for bids or proposals for a proposed contract or to a proposed
award or the award of a contract or any alleged violation of
statute or regulation in connection with a procurement or a
proposed procurement.”142 Previously, the U.S. district courts
shared this jurisdiction (often referred to as “Scanwell”
jurisdiction, in reference to Scanwell LaboritoriesLaboratories,
Inc. v. Shafer, 424 F.2d 859 (D.C. Cir. 1969)). The ADRA
may not be extended beyond the explicit language of the statute”).
140 Originally, the Tucker Act of 1887 (24 Stat. 505) was enacted to alleviate some of the burden on Congress to hear claims arising from the Civil War (and beyond) by creating jurisdiction in the Court of Claims (later renamed the Court of Federal Claims) for all claim against the Federal Government. See Floyd D. Shimomura, The History of Claims Against the United States: The Evolution from Legislative Torward a Judicial Model of Payment, 45 La. L. Rev. 625, 664 (1985)See http://www.fjc.gov/history/home.nsf/page/courts_special_coc.html. The Tucker Act was codified at 28 U.S.C. § 1346 and § 1491.
141 Administrative Dispute Resolution Act of 1996, Pub. L. No. 104-320, § 12, 110 Stat. 3870, 3874 (codified at 28 U.S.C. § 1491(b)(1)). (1996).
142 Id. 28 U.S.C. § 1491(b)(1).
51
amendment, however, officially removed this jurisdictional
arrangement.143
The question of how to classify in-sourcing decisions is
plaguing the federal courts as more decisions are questioned.144
As discussed below, the U.S. district courts are reaching
143 See Labat-Anderson, Inc. v. United States, 346 F. Supp. 2d 145, 153 (D.D.C. 2004). The seemingly expansive jurisdictional grant of the amended Tucker Act has, at times, created open questions before the Court of Federal Claims. Prior to the amendment, the Tucker Act only provided the cCourt bid protest jurisdiction based on an “implied-in-fact” theory. Info.rmation Sciencesence Corp.poration v. United States, 85 Fed. Cl. 195, 204 (2008) (citing Southfork Sys.tems, Inc. v. United States, 141 F.3d 1124, 1132 (Fed. Cir. 1998). Prior to amendment, the Tucker Act’s grant of jurisdiction in this regard extended only to an alleged breach of “an implied contract to have the involved bids fairly and honestly considered” during the procurement process. See Heyer Prods.ucts Co. v. United States, 140 F. Supp. 409 (1956) (stating that the Public Contracts Act served to protect the Federal Government and provided no standing to aggrieved bidders wishing to protest). ADRA sought to “unify bid protest law under one standard.” Emery Worldwide Airlines, Inc. v. United States, 264 F.3d 1071, 1079 (Fed. Cir. 2001) (noting that a purpose of ADRA was to prevent “forum shopping and to promote uniformity in government procurement award law”). However, the Court of Federal Claims has continued to wrestle with the question of whether or not the implied-in-fact jurisdiction survived ADRA. See L-3 Communications Integrates Systems, L.P. v United States, 84 Fed. Cl. 768, 775-7692 Fed. Cl. 232, 249-50 (200810) (recognizing jurisdiction over a bid protest matter invoking both types of jurisdiction rather than implying repeal). Following the passage of ADRA, the APA’s “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” standard governs. Castle-Rose, Inc. v. United States; -- Fed. Cl. -- , 2011 WL 2550871 (June 23, 2011). Prior to that, if a matter was heard under pre-ADRA Tucker Act jurisdiction, such protest would be decided under a “fairly and honestly” standard announced in the statute. Heyer Products Co. v. United States, 140 F. Supp. 409, 412 (1956).
144 See Robert Brodsky, Tell it To The Judge, GOV’ ERNMEN T EXECUTIVE, Nov. 1, 2010 (available at http://www/govexec.com/features/1110-
52
opposite opinions on this central jurisdictional question. On
one side, there are courts finding that they may exercise
jurisdiction under the APA. On the other, the courts are
persuaded that the amended Tucker Act strips the U.S. district
courts of trial-level jurisdiction, instead reserving such
jurisdiction for the Court of Federal Claims.
B. Federal Courts Finding Jurisdiction
In K-Mar Industries, Inc. v. U.S. Department of Defense, the
U.S. District Court for the Western District of Oklahoma held
that it had jurisdiction over a challenged in-sourcing decision
under the APA.145 K-Mar Industries, Inc. (“K-Mar”) alleged that
the Army violated in-sourcing policies when it decided to in-
source operation of a Multi-media/Visual Information Service
Center and Training Support Center services, which K-Mar had been
performing.146 K-Mar alleged that the Army did not comply with
in-sourcing procedures.147
In denying the Government’s motion to dismiss for lack of
jurisdiction, the court traced its jurisdiction over federal
matters (including review of agency actions under the APA) to 28
01/1110-01na2.mth).
145 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207 (W.D. Okla. Nov. 4, 2010).
146 Id. at 1209. 147 Id.
53
U.S.C. § 1331, a statute conferring jurisdiction over questions
of federal law to the federal courts.148 The court reasoned that
the APA demonstrated the consent to suit, waiving the United
States’ sovereign immunity.149
Noting the APA’s jurisdictional bar where another statute
“expressly or impliedly forbids the relief,”150 the court then
directed its attention to the strain between the Tucker Act (as
amended by ADRA) and the APA. The analysis focused on two key
terms which would grant exclusive jurisdiction to the Court of
Federal Claims. The K-Mar cCourt examined whether the action
before it was one by an “interested party,” a criterion which, if
satisfied, would require jurisdiction to lie exclusively in the
Court of Federal Claims. Relying on the definition of
“interested party” articulated in ADRA151 and a Federal Circuit
decision, the court stated that an interested party is an “actual
or prospective bidder or offeror whose direct economic interests
148 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207, 1210 (W.D.Okla. Nov. 4, 2010).Id. at 1210.
149 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207, 1210 (W.D. Okla. Nov. 4, 2010) (citing Normandy Apartments Ltd., v. U.S. Department of Housing & Urban Development, 554 F.3d 1290, 1295 (10th Cir. 2009) and 5 U.S.C. § 702)Id.
150 5 U.S.C. § 702.
151 ADRA borrows its definition of “interested party” from the Competition in Contracting Act (“CICA”) at 31 U.S.C. §3551(2)(2006).
54
would be affected by the award of the contract or by failure to
award the contract.”152 The court concluded that for the
“interested party” requirement to even be analyzed, it must find
that a “contract or prospective contract” is at issue – which it
could not in this instance.153 In support of this conclusion, the
court explained that the ADRA definition, by the terms of the
statute where it is found, applied only to contract disputes.154
Instead, the district court ruled that K-Mar had “allege[d] an
objection to a decision to in-source, a decision which implicitly
includes a decision not to procure and therefore not to solicit,
award, contract or propose a contract.”155
The court then turned its attention to parsing the second
aspect of the ADRA jurisdiction over matters alleging a
“violation of statute or regulation in connection with a
152 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207,at 1211 (W.D. Okla. Nov. 4, 2010) (quoting 31 U.S.C. § 3551(2)American Federation of Government Employees, AFL-CIO v. United States, 258 F.3d 1294, 1302 (Fed. Cir. 2001) (emphasis in original)).
153 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207, 1211 (W.D. Okla. Nov. 4, 2010)Id.
154 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207, 1211 (W.D. Okla. Nov. 4, 2010)Id. (citing American Federation of Government Employees, AFL-CIO (“AFGE”) v. United States, 258 F.3d 1294, 1302 (Fed. Cir. 2001))American Federation of Government Employees, AFL-CIO v. United States, 258 F.3d 1294, 1302 (Fed. Cir. 2001)).
155 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207, 1211 (W.D. Okla. Nov. 4, 2010) (emphasis added)Id.
55
procurement or proposed procurement,” focusing on the definition
of “procurement” as a determinant of subject matter
jurisdiction.156 Again, quoting the Federal Circuit, the court
interpreted ADRA’s definition of “procurement” from the Office of
Federal Procurement Policy Act as, “[a]ll stages of the process
of acquiring property or services, beginning with the process for
determining a need for property or services and ending with
contract completion and closeout.”157
The court did not accept the Government’s position that this
definition included the decision “whether there is a need” for
the property and services, thus implicating the Tucker Act’s
exclusive jurisdiction in the Court of Federal Claims.158
Specifically, the court found that the matter was limited in
scope to the procedural questions and did not involve a contract
dispute.159 As there was no implication of a bar to jurisdiction
156 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207, 1211 (W.D. Okla. Nov. 4, 2010)Id. (citing 28 U.S.C. § 1491(b)(1)) (emphasis added).
157 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207,Id. at 1212 (W.D. Okla. Nov. 4, 2010) (quoting Distributed Solutions, Inc. v. United States, 539 F.32d 1340, 1345 (Fed. Cir. 2008)).
158 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207,at 1212 (W.D. Okla. Nov. 4, 2010).
159 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207,Id. at 1214 (W.D. Okla. Nov. 4, 2010);.
56
that would prevent the court from undertaking an APA review, the
court denied the Motion to Dismiss on that ground.160
The K-Mar cCourt drew much of its reasoning from an earlier
Tenth Circuit case discussing the scope of judicial review over
regulatory violations in the context of a Federal procurement.
In Normandy Apartments, the Tenth Circuit was asked to decide
whether a district court erred in dismissing a dispute between a
low-income housing provider and the Department of Housing and
Urban Development (“HUD”).161 There, Normandy Apartments sought 160 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207, 1214 (W.D Okla. Nov. 4, 2010)Id. While not germane to the subject of this article, the K-Mar decision also denied two other theories of the Motion to Dismiss, the first relating to the applicability of the Contract Disputes Act (“CDA”), and the second relating to a Freedom of Information Act (“FOIA”) claim raised in the complaint. In denying the former, the cCourt found that there was no action relating to a government contract which would invoke the CDA, 41 U.S.C. §7105(a). Id. In addition, the Sixth Circuit had previously held that when a claim is “essentially contractual in nature,” the CDA confers exclusive jurisdiction to the Court of Federal Claims. Id. (citing B&B Trucking Inc. v. U.S. Postal Service, 406 F.3d 766, 768 (6th Cir. 2005)). The K-Mar cCourt ruled that the classification of whether or not an action is “essentially contractual” rests “on both the source of the rights upon which the plaintiff bases its claim, and upon the type of relief sought or appropriate,” not on how the issue is characterized by the plaintiff. Id. The court found that the rights asserted by the plaintiff were not grounded in contract, nor was the requested relief contractual in nature. Id. With these conclusions, the court denied the Government’s motion because the action was not within the scope of the CDA. Id. at 1215. In denying the latter theory of the motion relating to the FOIA request, the cCourt held that K-Mar had pursued its request diligently enough so as to consider the administrative remedies to have been exhausted. Id.
161 Normandy Apartments, Ltd. v. U.S. Department of Housing and Urban Development, et al., 554 F.3d 1290, 1293 (10th Cir. 2009).
57
declaratory and injunctive relief to prevent HUD’s attempt to
abate certain payments, alleging that HUD had violated
regulations and breached its contract by attempting abatement.162
The district court dismissed both the regulatory and contractual
claims.163
On appeal, the Circuit determined that the district court
did not have jurisdiction over the breach of contract claim.164
Central to the court’s reasoning in K-Mar, the Tenth Circuit
proceeded to analyze the regulation-based claim to find
jurisdiction based on “the source of the right upon which the
plaintiff bases its claims, and upon the relief sought.”165
Specifically, the Normandy Apartments court found that the
regulatory violations . . . implicate its contractual relationship . . . [b]ut this does not convert a claim asserting rights based on federal regulations into which is, “at its essence,” a contract claim. When the
162 Normandy Apartments, Ltd. v. U.S. Department of Housing and Urban Development, et al., 554 F.3d 1290, 1297-98 (10th Cir. 2009)Id.
163 Normandy Apartments, Ltd. v. U.S. Department of Housing and Urban Development, et al., No. CIV-07-1161-R, 2007 WL 3232610 (W.D.Okla., Nov. 1, 2007)Id.
164 Normandy Apartments, Ltd. v. U.S. Department of Housing and Urban Development, et al., 554 F.3d 1290, 1300-01 (10th Cir. 2009)Id.
165 Normandy Apartments, Ltd. v. U.S. Department of Housing and Urban Development, et al., 554 F.3d 1290, 1299 (10th Cir. 2009)Id. at 1299 (quoting Megapulse, Inc. v. Lewis, 672 F.2d 959, 968 (D.C.Cir.1982)).
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source of rights asserted is constitutional, statutory, or regulatory in nature, the fact that resolution of the claim requires some reference does not “magically transform [the] action . . . into one on the contract and deprive the court of jurisdiction it might otherwise have.”166
Rather the court noted, “
Rather, litigants may bring statutory and constitutional claims
in federal district court even when the claims depend on the
existence and terms of a contract with the government.”167
The K-Mar cCourt relied on this reasoning to find that it
had jurisdiction over a challenge to the Government’s compliance
with its own in-sourcing procedures.168 The lesson from K-Mar
appears to be that a narrowly tailored complaint – based on the
violation of regulation and not on contract-based claims – may
help establish jurisdiction over an in-sourcing decision.
C. Federal Courts Denying Jurisdiction
In stark contrast to the K-Mar decision, other U.S.
district courts have explicitly declined to exercise 166 Id. 1299-1300 (quoting Megapulse, 672 F.2d at 968).167 Normandy Apartments, Ltd. v. U.S. Department of Housing & Urban Development, et al., 554 F.3d 1290,at 1299-1300 (10th Cir. 2009) (quoting Megapulse, Inc. v. Lewis, 672 F.2d 959, 968 (D.C.Cir. 1982); Robbins v. U.S. Bureau of Land Management, 438 F.32d 1074, 1083-04 (10th Cir. 2006)).
168 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207,at 1214 (W.D. Okla. Nov. 4, 2010).
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jurisdiction. In Vero Technical Support, Inc. v. U.S. Department
of Defense,169 and Rothe Development, Inc. v. U.S. Department of
Defense,170 courts were asked by incumbent contractors to review
in-sourcing decisions. These courts found that exclusive
jurisdiction to hear such matters rests in the Court of Federal
Claims and that the matters should be dismissed.
Vero Technical Support, Inc. (“Vero Tech.”) performed
“weather-related” services at various U.S. Army sites” under a
contract that was to be performed in one-month option periods.171
Within three months of award, the Government began converting the
performance in-house by hiring some of the plaintiff’s personnel
and modifying the contract to account for the in-sourced
personnel.172
Vero Tech. filed its suit seeking injunctive relief,
“carefully defin[ing] its cause of action” in an attempt to
169 Vero Technical Support, Inc. v. U.S. Dep’partment of Def.ense, 733 F. Supp. 2d 1336 (S.D. Fl. 2010), aff’d 437 F. App’x. 766 2011 WL 3501843 (11th Cir. Aug. 10, 2011).
170 Rothe DevelopmentDev., Inc. v. U.S. Dep’t of Def.U.S. Department of Defense, 2010 WL 4595824 (W.D. Tx. Nov. 3, 2010).
171 Vero Technical Support, 733 F. Supp. 2d at 1338-39.Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d 1336, 1139 (S.D.Fl. Aug. 18, 2010).
172 733 F. Supp. 2dId. at 13Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d 1336, 1339 (S.D.Fl. Aug. 18, 2010).
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invoke the general jurisdiction of the U.S. district court.173
The complaint was limited to alleging that the decision to in-
source the services was based on findings which were “arbitrary,
capricious, and an abuse of discretion or otherwise not in
accordance with law,” the famous standard for decisions under the
APA.174 Vero Tech. argued that the decision to in-source the
function was arbitrary and capricious because the cost analysis
that informed the decision was performed improperly.175 The
Government moved to dismiss the action under Fed. Civ. R. 12(b)
(1) arguing that there was a lack of subject matter jurisdiction
and contending that the Court of Federal Claims is the
appropriate and exclusive body to hear the complaint.176
The court agreed, focusing on the language granting
jurisdiction to the Court of Federal Claims, and the surrounding
interpretations thereof. In particular, the court quoted CICA,
41 U.S.C. § 1491, noting that the Court of Federal Claims must 173 733 F. Supp. 2dId. at 13Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d 1336, 1340 (S.D.Fl. Aug. 18, 2010).
174 Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d 1336, 1340 (S.D.Fl. Aug. 18, 2010).Id.
175 Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d 1336, 1340 (S.D. Fl. 2010)Id. (alleging that the Government failed to account for the costs of benefits to personnel, the costs for using government vehicles in the performance of the work, that it “misclassified” the personnel needed, and finally, that the estimated cost of contractor performance was grossly disparate from actual costs).
176 Id.
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hear cases of “alleged violation of statute or regulation in
connection with a procurement or proposed procurement.”177
Turning first to the definition of “procurement,” the court
explained that the term includes “all stages of the process of
acquiring property or services, beginning with the process
determining a need for property or services and ending with
contract completion and closeout.”178 The court determined that
this jurisdictional grant was “broad enough to include the
decision of whether or not to procure, either as a matter of
determining the need for procurement or deciding whether to
continue a procurement arrangement.”179
The court went on to analyze whether Vero Tech. was an
“interested party” under the Tucker Act. Vero Tech. argued it
could not be an “interested party” as that would imply the
existence of a solicitation to which it could be an “actual or
prospective bidder[] or offeror[].”180 Agreeing with the
177 733 F. Supp. 2d Vero Tec733 F. Supp. 2d atId. at 1340-41.
178 Id. at Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d 1336, 1342 (S.D. Fl. 2010) (citing Resource Conservation Group, LLC v. United States, 597 F.3d 1238, 1244 (Fed. Cir. 2010) (challenge to a Government decision to lease land that it already owned ruled to be “not procurement related”)).
179 Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d 1336, 134Id0 (S.D. Fl. Aug. 18, 2010).
180Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d Id. at 1336, 1342-433 (S.D. Fl. Aug. 18, 2010).
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Government, the court ruled that Vero Tech. was an interested
party in that it currently held a contract to perform the
services in question; therefore it had “a direct economic
interest in maintain[ing] that contract, which presumably is the
ultimate goal of its challenge to the in-sourcing decision.”181
Based on this analysis the district court declined to
exercise general jurisdiction and dismissed the case. The court
determined that the Court of Federal Claims was the proper forum
to hear the dispute.182 Interestingly, the decision recognized
two remaining jurisdictional tensions. First, the court
recognized Vero Tech.’s fear that after filing at the Court of
Federal Claims the Government would shift its argument to attack
that court’s jurisdiction.183 Without resolving the question, the
court allayed that fear by noting the Government had taken an
official position for that cCourt’s jurisdiction which could be
used against it, if such an argument were presented.184 Second,
the court indicated a tension regarding the proper form of
action. Specifically, would a challenge to an in-sourcing 181 Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d 1336,. at 1343 (S.D. Fl. 2010) (citing Roxco, Ltd. v. United States, 1999 WL 160608, *29 (Fed. Cir. 1999), for the proposition that a plaintiff can be an “interested party” when there is a possibility of a later solicitation for the same work).
182 , 733 F. Supp. 2d at 1343Id. 183 Vero Technical Support, 733 F. Supp. 2d at 1343.Id. 184 Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d 1336, 1343 (S.D. Fl. Aug. 18, 2010).
63
decision be best made as a bid protest, invoking the Tucker Act
and ADRA; or would it be better made as a contract-related action
under the CDA.185 Again, the district court did not resolve these
questions.186
In Rothe Development, Inc. v. U.S. Department of Defense,
the plaintiff (“RDI”) sought an injunction from the U.S. District
Court for the Western District of Texas against a U.S. Air Force
decision to in-source “base network control center” and other
information technology work that it had been performing under
185 Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2dId. at 1336, 1343-44 (S.D. Fl. Aug. 18, 2010).
186 Following this decision, Vero Tech. appealed to the Eleventh Circuit Court of Appeals. In Vero Technical Support, Inc. v. U.S. Department of Defense, 437 F. App’x. 766No. 10-14889, 2011 WL 3501843 (11th Cir. Aug. 10, 2011) (unpublished decision), the Eleventh Circuit affirmed the district court’s rulings. Vero Tech argued that jurisdiction should not fall within the Tucker Act because the claim did not involve a violation of statute or regulation, was not “in connection with a procurement,” and Vero Tech was not an “interested party” as required by the law. Id. at 6. The appellate court disagreed with all three points. First, the court found that the allegations that the Agency violated its internal in-sourcing procedures amounted to a violation of law or regulation. Id. at 6-7. Relying on the precedent set in Distributed Solutions, Inc. v. United States, 539 F.3d 1340 (Fed. Cir. 2008), the court found that matter did involve a “procurement” because it dealt with the determination of a need for property or services. Id. at 7-9. Finally, relying on Vero Tech.’s own characterization that it would be “injured under its contract by not having an option extended due to the in-sourcing decision,” the Court of Appeals was able to rule that Vero Tech. was an “interested party” for the purpose of the jurisdictional analysis. Id. at 9-10. The Eleventh Circuit also declined to analyze whether or not an in-sourcing decisions should fall under the CDA’s jurisdictional grant to the Court of Federal Claims. Id. at 11.
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contract at the Minneapolis-St. Paul Air Reserve Station since
1987.187 The complaint alleged that the decision to in-source the
work violated 10 U.S.C. § 2463188 and the internal regulations and
in-sourcing procedures.189 Specifically, RDI alleged that under
the APA the decision to in-source the work it had been performing
was improper because the Air Force “(1) unlawfully bundled RDI’s
current scope of work with scopes of work from other contracts,
(2) did not make ‘like comparisons’ of cost or account for the
‘full cost of manning,’ and (3) therefore did not select the true
‘low cost provider.’”190 The Government moved for dismissal under
Rule 12(b)(1) arguing that proper jurisdiction rested with the
Court of Federal Claims under the Tucker Act (as amended by
ADRA), or alternatively under the Contract Disputes Act.191
187 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824 at *1 (W.D. Tx. Nov. 3, 2010).
188 See, infra Sec. I.a. At the time, 10 U.S.C. § 2463 required the Department of Defense to develop in-sourcing policy guidelines and to give “special consideration” to certain functions as a potential requirement to in-source.
189 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824, at *1 (W.D. Tx. Nov. 3, 2010).
190 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824, at *1 (W.D. Tx. Nov. 3, 2010)Id. RDI also alleged that the Air Force unlawfully withheld materials requested through the Freedom of Information Act (“FOIA”). Id. This article will not discuss the FOIA request as it is not directly pertinent to the jurisdictional topic.
191 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824, at *1 (W.D. Tx. Nov. 3, 2010)Id.
65
In dismissing the matter, the Rothe cCourt picked up the
same line of reason as the Vero Tech. cCourt, but deepened its
analysis regarding the Court of Federal Claims’ jurisdiction
under the Tucker Act. In deciding that an in-sourcing decision
was “in connection with a procurement,” the court built from the
Resource Conservation decision.192 Quoting from Distributed
Solutions and the earlier RAMCOR Services Group, Inc. v. United
States to show how broadly the phrase is construed, the court
found the amended Tucker Act conferred jurisdiction over
questions “where a statute clearly affects the award and
performance of a contract.”193 The court then looked to policy
guidelines that RDI asserted were violated to see if they shed
light on whether the in-sourcing decision was related to a
procurement. Quoting the April 4, 2008 Memorandum from the Under
Secretary of Defense for Personnel and Readiness,194 the court 192 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824,Id. at *3 (W.D. Tx. Nov. 3, 2010) (citing Resource Conservation Group, LLC v. United States, 597 F.3d 1238, 1244 (Fed. Cir. 2010)).
193 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824,Id. at *43 (W.D. Tx. Nov. 3, 2010) (citing Distributed Solutions, Inc. v. United States, 539 F.3d 1340 (Fed. Cir. 2008) and RAMCOR Services Group, Inc. v. United States, 185 F.3d 1286, 1289 (Fed. Cir. 1999)).
194 Implementation of Section 324 of the National Defense Authorization Act for Fiscal Year 2008, supra note Error: Reference source not found, at Attach. 2 at 2Supra note Error: Reference source not found20. The Memorandum stated:
DoD Components shall perform an economic analysis to determine whether DoD civilians or private sector
66
held that the question answered by an in-sourcing analysis is
whether an agency “should engage in a procurement process in
order to acquire the necessary services.”195 The court thus
determined that an in-sourcing analysis is “not an evaluation of
an ‘abstract need’ or a ‘speculative’ future procurement
process . . . but rather a specific and detailed process for
evaluating the costs and benefits in relation to a previously
identified, specific and concrete need.”196
The court rejected RDI’s argument that it was not an
“interested party.” RDI had attempted to assert that the in-
sourcing decision did not concern an action for which RDI could
have been an actual or prospective bidder.197 The court
determined that RDI’s own claim undermined this theory, as RDI
represented that it was seeking “to keep its scope of work in the
contactors are the low cost provider and should perform the work. Qualified cost analysts/experts shall perform the analyses using cost factors/models that account for the full costs of manpower, as appropriate, and make “like comparisons” of all relevant costs. Decisions on which costs to include (e.g., overhead, facilities, equipment, suppliedsupplies, health and retirement benefits) shall depend on what is needed to achieve “like comparisons” and whether the costs are of sufficient magnitude to influence the final decision.
Id.
195 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824, at *4 (W.D. Tx. Nov. 3, 2010).
196 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824, at *4 (W.D. Tx. Nov. 3, 2010)Id.
197 , No. SA-10-CV-743-XR, order at 9 (W.D. Tx. Nov. 3, 2010)Id.
67
competitive realm in order to re-compete for the work” therefore
creating a situation where it could be injured by a decision not
to award a contract.198 In so reasoning, the court undertook a
“zone of injuryinterest” analysis to show that under the APA, the
only reasons RDI would have standing were the same reasons that
would place the matter squarely under the jurisdiction of the
Court of Federal Claims.199
The district court dismissed the action finding that it
lacked jurisdiction.200 RDI moved the court to alter or amend its
judgment in light of the recently available K-Mar decision.201
The court denied this motion, noting that the mere fact that two
courts came to opposite conclusions does not automatically create
198 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824, at *5 (W.D. Tx. Nov. 3, 2010) Id. (emphasis added).
199 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824, at *5 (W.D. Tx. Nov. 3, 2010)Id. (recognizing that the “zone of interest” analysis notes that to have standing to bring an action under the APA a plaintiff must have been cause an injury in fact by the agency which is within the “zone of interest” sought to be protected or regulated. See (citing 5 U.S.C. § 702; see also Lujan v. National Wildlife Federation, 497 U.S. 781, 883 (1990))). The Rothe cCourt notes that the only zone of interest is whether or not the Department of Defense’s guidelines seek to ensure in-sourcing decisions are made only when cost-effective, and that to be injured by this decision a party would have to be a potential bidder or offeror in order to suffer injury by this decision.) Id.)
200 Rothe Development, Inc., 2011 WL 196926, at *9, No. SA-10-CV-743-XR, order at 16 (W.D. Tx. Nov. 3, 2010).201 Rothe Development, Inc. v. U.S. Department of Defense, 2011 WL 196926, at *2 (W.D. Tx. Jan. 19, 2011).
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a “manifest error,” but indicates a lack of controlling case
law.202
RDI also appealed the dismissal to the Fifth Circuit Court
of Appeals, which reviewed the case de novo as the underlying
case involved the interpretation of statute.203 In affirming the
district court, the Fifth Circuit was succinct in finding that
the challenge to the in-sourcing decision was “an action by an
interested party alleging a violation of a statute or regulation
in connection with a procurement” which implicates the exclusive
jurisdiction of the Court of Federal Claims.204 In discussing
RDI’s “interested party” argument, the Circuit added to the
district court’s finding that RDI was an interested party, noting
that “if [RDI] had no such interest, it is difficult to imagine
how it could demonstrate particularized injury for Article III
standing.”205 Echoing the logic of the district court and the
Vero Tech. appeal before the Eleventh Circuit, the appeals court
found that RDI was clearly challenging a decision encompassed
under the definition of “procurement.”206 While these two 202 Rothe Development, Inc. v. U.S. Department of Defense, 2011 WL 196926,Id. at *2-3 (W.D. Tx. Jan. 19, 2011).
203 Rothe Development, Inc. v. U.S. Department of Defense, No. 11-50101, slip op. (5th Cir. Dec. 29, 2011).204 Id. at 5 (5th Cir. Dec. 29, 2011).205 Id. at 3 (5th Cir. Dec. 29, 2011) (citing K.P. v. LeBlanc, 627 F.3d 115, 1225th Cr
206 No. 11-50101,Id. at 4-5 (5th Cir. Dec. 29, 2011) (citical Support, Inc. v. U.Sparte. App’x. 766, 76970-7701 (11th Cir. Aug. 10, 2011) (unpublished decision)). See discussion supra note
69
Circuits seemingly agree that the Court of Federal Claims should
have the exclusive jurisdiction to hear challenges to in-sourcing
decisions, the K-Mar decision and the non-binding nature of the
Vero Tech. appeal leave the question far from settled in the
district courts.
III. TRIALS TOWARD PROGRESS? - COURT OF FEDERAL CLAIMS CASES
“History and experience tells us that moral progress comes notcannot come in comfortable and complacent times, but out of
trial and confusion.” – Pres. Gerald R. Ford207
The Court of Federal Claims has grappled with jurisdiction
over challenges to in-sourcing decisions, despite some district
courts’ determination that it should have exclusive jurisdiction
over the issue. In two recent cases, Santa Barbara v. United
States208 and Hallmark-Phoenix 3, LLC v. United States,209 the
court considered complex issues of standing and jurisdiction.
Indicative of the confusion surrounding in-sourcing decision
challenges, the court came to opposite conclusions.210 The cCourt
150.207 Gerald Ford, President of the United States, Address Before a Joint Session of the Congress Reporting on the State of the Union (Jan. 9, 1976) available at http://www.ford.utexas.edu/LIBRARY/SPEECHES/760019.htm.208 98 Fed. Cl. 536 (2011).
209 99 Fed. Cl. 65 (2011).
210 In the absence of Supreme Court or Federal Circuit precedent that would dictate an outcome, judges on the Court of Federal Claims may come to differing conclusions about identical questions of law. Here, for example, Judges Firestone and
70
in Santa Barbara determined that a plaintiff that had lost a
contract due to an agency’s decision to in-source the activity
was an “interested party” under the Tucker Act, thereby
authorizing the cCourt to exercise jurisdiction over the
complaint.211 In so doing, the cCourt rejected the government’s
argument that the plaintiff’s lack of “prudential standing”
precluded the cCourt from exercising jurisdiction.212 The
Hallmark-Phoenix cCourt disagreed, noting that a plaintiff
challenging an in-sourcing decision could not be said to be a
“prospective bidder” and therefore is not an “interested party”
under the Tucker Act.213 Ultimately, the court based its
determination that it did not have jurisdiction over the
Allegra came to opposite conclusions as to whether the Court of Federal Claims has jurisdiction over in-sourcing decisions. See Ralph C. Nash, “Jurisdiction Over Protests of In-Sourcing Decisions: Judicial Disagreement,” 25 No. 12 Nash & Cibinic Rep. ¶ 60 (2011) (“We won’t know which judge is right until the Federal Circuit rules on this issue.”).
211 98 Fed. Cl. at 543. Under the Tucker Act, the court’s jurisdiction is limited to claims brought by “interested parties” as defined in CICA. 31 U.S.C. §§ 3551-3556; see also Am.erican Fed.eration of Government Gov. Employees, AFL-CIO (“AFGE”) v. United States, 258 F.3d 1294 (Fed. Cir. 2001). CICA, in turn, defines “interested parties” as “actual or prospective bidders and offerors whose direct economic interest would be affected by the award of the contract or the failure to award the contract.” AFGE, 258 F.3d at 1302.
212 98 Fed. Cl. at 544.213 99 Fed. Cl. at 68.
71
plaintiff’s challenge to the in-sourcing decision on its analysis
of prudential standing, not “interested party” standing.214
A. Santa Barbara v. United States
With the issuance of the Santa Barbara v. United States
decision on May 4, 2011, jurisdiction and standing seemed
certain. There, the cCourt held that Santa Barbara Applied
Research, Inc. (“SBAR”) was an interested party and therefore had
standing to challenge the Government’s decision to in-source
services SBAR had previously performed.215 SBAR held an
indefinite quantity contract for multi-wing logistics support
(“MWLS”)216 for nine locations within Air Force Space Command
(“AFSPC”).217 However, new DoD policies218 and budgetary concerns 214 Id. Hallmark initially appealed the Court of Federal Claims’ decision to the Federal Circuit, but later withdrew its appeal. It is also worth noting that at the time of this writing, a third challenge to an agency decision to in-source is pending before Judge Horn on the Court of Federal Claims. See Triad Logistics Servs. Corp. v. United States, No. 11-43C. In March of 2011, i.e., prior to issuance of the Santa Barbara and Hallmark decisions, the Government moved to dismiss the action for lack of jurisdiction. Following their publication, both parties briefed the cCourt on what, if any, impact these decisions should have on the pending motion.
215 98 Fed. Cl. at 543536 (2011).
216 MWLS services support the mission of a base or command and include fuels management, vehicle operation and maintenance, vehicle operation and maintenance, base transportation, surface freight operations, and ordering, storing, receiving, handling, issuing, and maintaining weapons. Id. at 537-38.
217 Id. 218 In-sourcing Contracted Services - Implementation Guidance, Memorandum from the Deputy Secretary of Defense for Personnel and Readiness to the Secretaries of the Military Departments, et al.,
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led AFSPC to start identifying contracts for in-sourcing in
2009.219 Ultimately, in June of 2010, the Air Force notified SBAR
that the Air Force was in-sourcing functions under the MWLS
contract.220
The lawsuit that ensued exposed the complex nature of the
in-sourcing jurisdictional debate. SBAR filed a complaint in the
Court of Federal Claims challenging the Air Force’s decision to
in-source portions of the plaintiff’s MWLS contract.221 The
supra note 5Error: Reference source not found at Atachment 1 at 6-7. In-sourcing Contracted Services - Implementation Guidance, May 28, 2009, Attach. 1 at 4 (available at http://prhome.defense.gov/RSI/REQUIREMENTS/docs/DepSecDef%20Memo%20In-sourcing%20Contracted%20Services-Implementation%20Guidance%20(28%20May%2009)%20(OSD%2005339-09).pdf). As noted above, this memorandum advised that when making a decision whether to in-source a particular activity, DoD components should consider whether: (1) the function is inherently governmental; the function is exempt from private sector performance; (3) the contract is for unauthorized personal services; (4) there were problems with contract administration on the contract; and/or (5) a cost analysis shows that in-house performance would be more cost effective than contractor performance. Id.
219 Though the AFSPC originally targeted only “inherently governmental activities,” due to budgetary concerns, the agency began to consider in-sourcing “contracts that were common across the AFSPC and contracts that posed the least risk to AFSPC’s mission.” 98 Fed. Cl. at 539. With regard to the MWLS contract, cost analyses performed on each of the locations showed a cost savings of more than $31 million contract-wide. Id. at 540.
220 Id. at 540. 221 SBAR challenged the Air Force’s decision to in-source work performed at four of eight Air Force bases covered by the contract. After SBAR filed its complaint, the Air Force voluntarily agreed to re-evaluate its decision, but after recalculating the costs of agency and government performance, concluded that DoD would save approximately $7.3 million – later corrected to $8.8 million – from 2011 through 2015 by in-sourcing
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Government swiftly moved to dismiss SBAR’s complaint on the
ground that SBAR did not have standing to challenge the Air
Force’s decision to in-source the services at issue.222 The
Government asserted that SBAR was not an “interested party”
within the meaning of 31 U.S.C. § 1491(b)(1) because the in-
sourcing decision at issue did not involve a formal public-
private competition.223 Consequently, the Government argued SBAR
could not claim it suffered the “competitive injury” necessary
for standing under § 1491(b)(1).224
The Government argued, in the alternative, that SBAR did not
have “prudential standing” to challenge the Air Force’s decision
under the test established by the Federal Circuit in Galen
Medical Associates, Inc. v. United States.225 Specifically, the
the non-fuels portion of the MWLS contract. Id. at 541. Thus, on April 5, 2011, the Air Force affirmed its decision to in-source the non-fuels portion of the MWLS contract. Id.
222 Id. at 541. The Government also argued that SBAR failed to state a claim for which relief can be granted because the decision to in-source is committed to agency discretion as a matter of law such that there were no standards applicable. Id. On that issue, the court held that the decision to in-source work was subject to judicial review. Id. at 544-45 With regard to the merits, the court also considered the parties’ cross-motions for judgment on the Administrative Record and held that the Air Force’s decision to compare cost data from contract locations affected by the decision to in-source was not arbitrary or capricious. Id. at 545-46.
223 Id. at 542.224 Id. 225 Santa Barbara Applied Research, Inc., 98 Fed. Cl. at 542. 369 F.3d 1324 (Fed. Cir. 2004) (requiring court held that a protestor to must show that it had been prejudiced by an error in the Government’s decision). 369 F.3d 1324, 1330-31 (Fed. Cir.
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Government noted that SBAR could not have been prejudiced – a
fundamental requirement in bid protests – by any errors in the
Government’s decision because SBAR was not the intended
beneficiary of the statutes directing the in-sourcing decision.226
The Government thus argued that Galen required a protester not
only to be an “interested party,” but also to meet a prudential
standing requirement to maintain an action under § 1491(b)(1).227
In determining that SBAR did have standing to challenge the
Air Force’s decision, the court analyzed both “interested party”
and “prudential standing.” According to the court, whether SBAR
had standing to challenge the in-sourcing decision turned first
on whether the Government’s in-sourcing decision was made “in
connection with a procurement” within the meaning of § 1491(b)
(1).228 The second jurisdictional element the court considered
was whether SBAR was an “interested party” within the meaning of
CICA. With regard to the first issue, the court held that the
in-sourcing decision was made for the purpose of determining the
need for contract services and thus was made ‘in connection with
a procurement decision.’”229
2004)..
226 Santa Barbara Applied Research, Inc., 98 Fed. Cl. at 542.227 Id.228 Id.229 98 Fed. Cl.Id. at 543. Neither party disputed that the in-sourcing decision constituted a decision “in connection with a procurement.” Id. at 542.
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In holding that SBAR was an “interested party,” the court
looked to the Federal Circuit’s interpretation of the standing
requirements of CICA in American Federation of Government
Employees, AFL-CIO (“AFGE”) v. United States.230 In AFGE, the
Federal Circuit determined that federal employees likely to lose
their jobs based on a decision to out-source did not have
standing to challenge an out-sourcing decision on the grounds
that they were not eligible to bid on Government work.231 The
Santa Barbara cCourt distinguished AFGE on the ground that AFGE
featured plaintiffs who could not compete for a Government
contract by virtue of being federal employees.232 By contrast,
SBAR already had a Government contract and could have competed
for a future contract.233 In line with this reasoning, the court
determined that SBAR “has a track record of winning contracts for
the work that the Air Force is nowt in-sourcing” such that “the
economic impact to SBAR cannot be denied.”234
The Santa Barbara cCourt did not accept the Government’s
argument that § 1491(b)(1) applies only where a party can link a
“non-trivial competitive injury” to a violation of a statute or
230 98 Fed. Cl.Id. at 542-433 (citing 258 F.3d 1294 (Fed. Cir. 2001), and noting that the definition of “interested party” found in CICA was “engrafted onto section 1491(b)(1)”).
231 , 258 F.3d 1294,at 1295, 1302 (Fed. Cir. 2001).232 98 Fed. Cl. at 543.233 Id.234 98 Fed. Cl. at 543Id.
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regulation intended to promote competition, a test established in
Weeks Marine.235 The court acknowledged that the relevant
statutes and regulations at issue, namely 10 U.S.C. § 129a and 10
U.S.C. § 2463, did not mandate any kind of formal public-private
competition.236 However, the court was persuaded that the Air
Force’s decision to in-source the non-fuel MWLS services was
based on a comparison between using the contractors and switching
to civilian Air Force employees.237 According to the court,
“[w]here a protestor stands to lose future work for which it
likely would have competed because of alleged errors in the cost
comparison mandated by Congress, the protestor should have
standing to challenge the decision to in-source.”238 Like
challenges to in-sourcing decisions under Circular A-76, “this
case also involves the loss of future contract work by a
protestor with a direct and real economic interest in the
government’s decision.”239
After explaining its rationale for exercising jurisdiction
under the “interested party” provisions of the Tucker Act, the
court went on to reject the Government’s prudential standing 235 Id.; Weeks Marine, Inc. v. United States, 575 F.3d 1352, 1360-62 (Fed. Cir. 2009) (clarifying the harm necessary to demonstrate interested party status in the pre-award bid protest context).
236 98 Fed. Cl. at 543. 237 Id.238 98 Fed. Cl.Id. at 543.
239 98 Fed. Cl. atId. at 543-44.
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argument. First, the court reasoned that the concept of
“prudential standing” does not apply to bid protests under
section 1491(b)(1).240 As noted by the Santa Barbara cCourt,
“‘[p]rudential standing’ is typically applied to challenges under
the Administrative Procedure Act (“APA”), 5 U.S.C. § 500 et seq.,
which features more liberal standing criteria than those set
forth in section 1491(b)(1).”241 However, the court found that
the Federal Circuit had rejected the “less stringent” standing
requirements imposed under the APA in favor of the “interested
party” test in AFGE.242 Under AFGE, the court reasoned, once a
party satisfies the more stringent “interested party” test, it
establishes standing.243 Thus, because SBAR satisfied the
“interested party” test, the court held that SBAR was not
required to establish “prudential standing.”244 In so holding,
the court clarified that it did not read Galen as requiring
something more to establish standing than did AFGE.245
The court also analyzed, in dicta, the result if “prudential
standing” were required. The court found that the Ike Skelton
National Defense Authorization Act of 2011246 was enacted “at 240 Id. at 544.241 Id.242 98 Fed. Cl. at 544, (citing AFGE, 258 F.3d at 1302).
243 Id. Federat258 F.3d 1294, 1302 (Fed. Cir. 2001).244 Id.245 Id.246 Pub. L. No. 111-383, 124 Stat. 4137 (2011) [hereinafter FY2011 NDAA].
78
least in part, for the benefit of the contracting community” such
that it offered contractors a means of challenging in-sourcing
decisions.247 According to the court, the modifications to 10
U.S.C. § 2463 “clearly prohibit the DoD from arbitrarily removing
work from contractors without a solid analysis.”248 Thus, the
court found that mandates in the FY2011 NDAA were “sufficient to
provide grounds for review when potential contractors challenge a
procurement-related in this context, and thus SBAR has satisfied
any prudential standing requirement.”249 This finding would soon
be disputed, however, as the same court came to the opposite
conclusion only weeks later in the Hallmark-Phoenix case.250
B. Hallmark-Phoenix 3, LLC v. United States
Only three weeks later, the publication of Hallmark-Phoenix
3, LLC v. United States251 on May 24, 2011, threw the court’s
jurisdiction over in-sourcing decisions back in question. In
that opinion, the court held that a contractor did not have
standing to challenge an in-sourcing decision.252 Hallmark-
Phoenix also involved an Air Force small-business set-aside 247 98 Fed. Cl. at 544.
248 98 Fed. Cl. at 544Id.
249 98 Fed. Cl. at 544Id.
250 See supra note 167 .99 Fed. Cl. 65, 68 (2011).251 99 Fed. Cl. 65 (2011)Id.
252 Id. at 8068.
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contract for vehicle operations and maintenance services at the
U.S. Air Force Space Command and 45th Space Wing at Patrick Air
Force Base and Cape Canaveral Air Force Station.253 A few weeks
into the second option year, the Contracting Officer (“CO”)
advised Hallmark in writing that the Air Force had decided not to
exercise the two remaining years and would instead direct
civilian personnel to complete the work.254 Consequently, the
contract ended on September 30, 2011.255
Like in Santa Barbara, the Air Force’s decision to in-source
those services led to full-blown litigation of jurisdiction and
standing issues following the filing of a bid protest complaint.
The Government moved to dismiss the complaint on the ground that
Hallmark was not an “interested party” within the meaning of the
Tucker Act.256 First, the court dispensed with “interested party”
status, opining that Hallmark could – but should not – qualify as
an “interested party” under the Tucker Act.257 The Hallmark
cCourt acknowledged that unlike the individual employees in AFGE,
Hallmark was eligible to bid on a solicitation for the work the
Air Force decided to in-source.258 Though the court recognized 253 Id. at 66.254 Id. at 66-67.255 Id. at 67.99 Fed. Cl. 65 (2011). 256 99 Fed. Cl. . 67. Unlike in Santa Barbara, the Government did not seem to have raised the argument regarding prudential standing in its motion to dismiss. Id. at 68, n.6.
257 Id. at 67-68.258 Id.
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that “in such an instance, plaintiff would qualify as an
‘interested party’ under section 1491(b)(1),” it nevertheless
determined that Hallmark’s argument that it was a “prospective
bidder” and thus an “interested party” was based on a “pile of
assumptions.” 259 Accordingly, the court stated that it was
“debatable” whether Hallmark’s claim that it was a “prospective
bidder” within the meaning of an “interested party” met the legal
standard.260 Nevertheless, the court determined that it did not
need to decide whether Hallmark was an “interested party,”,
because Hallmark lacked standing on other grounds.261
Ultimately, the Hallmark cCourt declined to exercise
jurisdiction on the ground that the plaintiff did not satisfy the
requirements of “prudential standing.”262 This inquiry tests
259 99 Fed. Cl.Id. at 67-68 (citing Santa Barbara, 98 Fed. Cl. at 542-53; LABAT-Anderson, Inc. v. United States, 65 Fed. Cl. 570, 575-76 (2005), and Angelica Textile Servs., Inc. v. United States, 95 Fed. Cl. 208, 218 (2010)). The court distinguished this challenge from other in-sourcing challenges as on the ground that Hallmark was not challenging an existing solicitation and could not be guaranteed that there would be a solicitation for that work or that Hallmark would bid if there were. Id. at 68. Further, the court noted that even if the Air Force re-evaluated its decision to comply with the guidelines, it may reach the same conclusions. Id. Finally, the court distinguished this action from others based on the fact that it was a small business set-aside contract, and there would be no guarantee that any subsequent procurement would also be set aside for small businesses. 99 Fed. Cl.Id. at 68.
260 Id.261 Id.262 99 Fed. Cl. at 68. d Prudential standing is a “judicially self-imposed limit[] on the exercise of federal jurisdiction” borne out of “concern about the proper – and properly limited –
81
“whether the constitutional or statutory provision on which the
claim rests properly can be understood as granting persons in the
plaintiff's position a right to judicial relief.”263 While not
intended to be “especially demanding,”264 prudential standing is
lacking where a plaintiff is merely an “incidental beneficiar[y]”
of the statutory or constitutional provision at issue.265 The
Hallmark cCourt emphasized that enforcement of the prudential
standing requirement is “particularly important” in “assur[ing]
that the federal courts will not intrude into areas committed to
the other branches of government.”266 Thus, the court focused on
role of the courts in a democratic society.” Hallmark, 99 Fed. Cl. at 68 (citing Bennett v. Spear, 520 U.S. 154, 162 (1997); Elk Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1, 124 (2004); Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)). These requirements are distinct from the standing requirements dictated by Article III of the Constitution’s case or controversy requirement. 99 Fed. Hallmark, 99 Fed. Cl. at 68.
263 Hallmark, 99 Fed. Cl. at 68d. at 68-69 (citing oting Warth v. Seldin, 422 U.S. at 4 500 (1975)); see also Bennett v. Spear, 520 U.S. at 154,3 (“[A] plaintiff's grievance must arguably fall within the zone of interests protected or regulated by the statutory provision or constitutional guarantee invoked in the suit.”); Ass’n of Data Processing Serv. Orgs., Inc. v. Camp, 397 U.S. 150, 152-53 (1970). The prudential standing doctrine “applies unless it is expressly negated” by an act of Congress. Bennett, 520 U.S. at 163.
264 Hallmark, 99 Fed. Cl. at 698 (quoting Clarke v. Sec. Indus. Ass’n, 479 U.S. 388, 399 (1987)).
265 Id. at 69 (quoting Nat’l Credit Union Admin. v. Nat’l Bank & Trust Co., 522 U.S. 479, 494 n.7 (1998).
266 Hallmark , 99 Fed. Cl.Id at 68. (citing oting Flast v. Cohen, 392 U.S. 83, 95 (1968)).
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whether Hallmark was intended to be given the right to relief
under any of the statutes and guidelines cited in its
complaint.267
In determining that the prudential standing test was the
proper test to apply, the court reasoned that prudential standing
had not been negated by an act of Congress such that it was
proper to apply the test in Hallmark.268 The court turned to the
Bennett v. Spear, in which the Supreme Court stated that the
prudential standing doctrine “applies unless it is expressly
negated” by an act of Congress.269 In Bennett, the court held
that the Endangered Species Act (“ESA”), which contained a
citizen-suit provision, authorized “any person” to commence a
suit thereby negating the “zone of interests” test.270 Bennett 267 Id. at 68-69. Interestingly the cCourt noted that when the Court of Federal Claims and the U.S. district courts held concurrent jurisdiction over bid protest matters (prior to the sunset clause in the ADRA amendment to the Tucker Act), some district courts held the prudential standing requirement applied to bid protest cases. Hallmark, 99 Fed. Cl. at Id. at 68 (citing Am .Fed. of Gov’t. Emps., AFL-CIO v. United States, 2001 WL 262897, at *6-7 (W.D. Tex. Mar. 7, 2001); Am. Fed. Gov’t Empls., AFL-CIO v. Babbit, 143 F. Supp. 2d 927, 932-33 (S.D. Ohio 2001). The cCourt stated further that many cases which received appellate review found plaintiffs lacking prudential standard when challenging agency decisions to out-source functions to contractors. Hallmark, 99 Fed. Cl. at 68 at 71 (citing Courtney v. Smith, 297 F.3d 455, 460-61 (6th Cir. 2002)). The cCourt useds these prior cases to determine that the prudential standing requirement should apply to bid protest matters. 99 Fed. Cl
268 Id. at 70. at269 Id. (quoting Bennett, 520 U.S. at 163).
270 Bennett, 520 U.S. at 164.
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contrasted the ESA’s broad language with “more restrictive”
statutes that restricted standing to any person having an
interest adversely affected by environmental action or
inaction.271
The Hallmark cCourt then established that unlike in Bennett,
Congress had not expressly negated prudential standing limits
with regard to Hallmark’s complaint. Specifically, the court
held that the Tucker Act, which authorizes an “interested party”
to bring a challenge before the Court of Federal Claims, is more
like the “more restrictive formulations” in which the prudential
standing doctrine remains applicable than the broadly phrased
“any person” language discussed in Bennett.272
The court determined that Hallmark did not have prudential
standing to challenge the in-sourcing decision or any of the
provisions it asserted had been violated by the Air Force’s
decision to in-source.273 The court held that 10 U.S.C. § 129a,
which requires the Government to use “the least costly form of
personnel” and to justify conversions from one type of personnel
to another in the DoD’s manpower requirements report, did not
create a cause of action for a plaintiff whose work had been in-
271 Bennett, 520 U.S.Id. at 164 (citing 42 U.S. § 9124(a) (Ocean Thermal Energy Conversion Act); 33 U.S.C. § 1365(g) (Clean Water Act)).272 See 99 Fed. Cl. at 70.273 Id. at 68.
84
sourced.274 In the court’s view, Congress would not bury a
section intended to allow contractors to challenge decisions made
by the Secretary among mere reporting requirements.”275
Similarly, the court ruled that the plaintiff did not meet
the prudential standing requirements to challenge 10 U.S.C. §
2463(a).276 Like § 129a, the court found § 2463(a) to be merely a
legislative reporting requirement, which required the Under
Secretary for Defense to implement guidelines to “ensure that
consideration is given to using, on a regular basis, Department
of Defense civilian employees to perform . . . functions that are
performed by contractors.”277 A 2011 amendment to this statute
required the Secretary of Defense to “submit to the congressional
defense committees a report on the decisions with respect to the
conversion of functions to performance by Department of Defense
civilian employees made during fiscal year 2010;”; though the
statute explicitly does not create a requirement for a cost
274 Id. at 72. As noted supra, that statute requires the Secretary of Defense to consider “the advantages of converting from one form of personnel (military, civilian, or private contract) to another for the performance of a specified job” and to include a justification for converting from one type of personnel to another, among other requirements. 10 U.S.C. § 129a.
275 99 Fed. Cl. at 72-73.
276 Id. at 73.277 99 Fed. Cl. at 73Id. (citing 10 U.S.C. § 2463).
85
comparison.278 The Hallmark cCourt concluded that it was
“reasonable to assume that in not requiring agencies to conduct
formal competitions . . . . Congress intended to avoid the
protest litigation occasioned by such competitions.”279
The court concluded that the language of the statutes in
question clearly indicated that Congress intended that it alone
should be able to determine if DoD is properly in-sourcing tasks
278 99 Fed. Cl. at 74; Ike Skelton National Defense Authorization Act of 2011, Pub. L. No. 111–383, § 323(c), 124 Stat. 4137, 4184 (2011). In addition, the amendment required the Comptroller General to submit an “assessment of the report.” Pub. L. No. 111-383 § 323(c), 124 Stat. at 41844137 (2011). The amendment specifically stated that:
[n]othing in this section shall be construed . . . to require the Secretary of Defense to conduct a cost comparison before making a decision to convert any acquisition function or other critical function to performance by Department of Defense civilian employees, where factors other than cost serve as a basis for the Secretary's decision.
Id. § 323(d).
279 99 Fed. Cl. at 75 (emphasis added). The court further explained this point by noting the requirements under the Circular A-76 guidelines require formal comparisons which have lead to notable bid protest decisions. Id. (citing LABAT-Anderson, 65 Fed. Cl. at 574-75; Space Mark, Inc. v. United States, 45 Fed. Cl. 267, 272-73 (1999)LABAT-Anderson); see also Space Mark, Inc., 45 Fed Cl. 267, 272-73 (1999)). The court viewed the absence of such a requirement as clear indication of Congress’ intent not to create similar jurisdiction for review. Id. In light of this reasoning, the Hallmark decision notes that the Santa Barbara decision was “simply wrong in asserting that a protest under the sections at issue ‘presents an analogous challenge’ to those made under Circular A-76.” 99 Fed. Cl.Id. at 75 n.ote 16.
86
and also to require change to DoD policy if not.280 The court
opined that “[t]o infer otherwise would risks triggering a wave
of cases brought by hopeful contractors each believing that they
have the likely prospect of receiving a contract if a particular
function is outsourced.”281 The court decried the disruption such
litigation would cause, suggesting that DoD would be unable to
establish personnel needs in authorization requests to
Congress.282 Moreover, the court reasoned that because Congress
promotes in-sourcing, it is reasonable to assume that it would
not expose those decisions to protests.283
Finally, the court held that Hallmark did not have standing
to challenge the in-sourcing decision under DoD guidelines that
were instituted in response to budgetary concerns.284 The court 280 Hallmark, 99 Fed. Cl. at 78-79. The court concluded:
[T]he text, structure and legislative history of these provisions all reveal that these statutes were not designed to confer benefits on outside contractors. And it is that negative intent, rather than the absence of an affirmative intent to confer standing on outside contractors, that ultimately dictates the conclusion that plaintiff here lacks the prudential standing to challenge the Air Force's in-sourcing decision.
Id.
281 Hallmark, 99 Fed. ClId. at 78.
282 Id.283 Id.Hallmark, 99 Fed. Cl. at 78.
284 Id. 99 Fed. Cl. at 74 (stating that “p[P]laintiff would have this court enforce the guidelines issued by the Secretary of Defense under these provisions, ignoring the limited budgetary context in which those guidelines arise.”). In that regard, the
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explained that the guidelines did not confer a right to judicial
review nor was there any “nontextual” indication that Congress
intended to create a right of action through Department of
Defense guidelines.285 The court found persuasive the fact that
in passing FY2006 NDAA, the House of Representatives declined to
adopt provisions in an earlier version of the bill that would
have required the Secretary of Defense to conduct a formal
public-private competition before deciding to in-source a
requirement.286 The version that became law simply required that
the Secretary “prescribe guidelines and procedures to ensure that
consideration is given to using federal government employees for
work that would otherwise be performed under DoD Department of
court noted that the DoD guidelines are like FAR guidelines and other internal agency guidance that are unenforceable in the courts. Id. (citing Carolina Tobacco Co. v. United States, 402 F.3d 1345, 1349 (Fed. Cir. 2005)). The court also noted that the GAO has similarly refused to enforce decisions based on such policy guidance. Id. (citing Triad Logistics Serv. Corp., B-403726, 2010 CPD ¶ 279, at 2-3 (Comp. Gen. Nov. 24, 2010) (“[S]ince the cited guidance issued pursuant to section 2463 was only internal DoD policy, the assertion that the agency did not adhere to that policy guidance is not a basis for challenging the agency’s action.”); Aleut Facilities Support Servs.,B-401929, 2009 CPD ¶ 209 (Comp. Gen. Oct. 13, 2009)); see discussion infra Sec. IV.a.
285 99 Fed. Cl. at 754.286 Id. at 75. (referencingSee H.R. 1815, 109th Cong. (2005)). According to the Conference Committee Report, conferees expected guidelines “to provide for the assignment of work to federal government employees . . . in appropriate circumstances, without the requirement to perform public-private competition under Office of Management and Budget Circular A–76 or any other provision of law or regulation.” Id. (emphasis added).
88
Defense contracts, but could be performed by federal government
employees.”287
In holding that Hallmark did not have prudential standing to
challenge the agency’s decision to in-source, the court rebutted
the Santa Barbara cCourt’s determination that prudential standing
does not apply to bid protests brought under the Tucker Act.
According to the Hallmark cCourt, the Santa Barbara cCourt “was
swayed by the fact that ‘prudential standing is typically applied
to challenges under the [APA].’”288 In Santa Barbara, the court
interpreted the Federal Circuit’s decision in AFGE to mean that
that the “interested party” standard was a more stringent test
than prudential standing such that once it is met, standing is
established.289 The Hallmark cCourt flatly disagreed.290
On the contrary, the court held that Congress had not
specifically authorized the Court of Federal Claims to hear
challenges to in-sourcing decisions.291 By way of example, the 287 H.R. REP. NO. 109-360, at 672 (2005).H.R. Conf. Rep. 109-360 at 672 (2005).
288 9 Fed. Cl. at 69.289 98 Fed. Cl. at 544. 290 99 Fed. Cl. at 69. The Hallmark cCourt noted that in AFGE, the Federal Circuit did not address this prudential standing issue, but rather affirmed this court’s dismissal on alternate jurisdictional grounds. Id. at 71 (citing AFGE, 258 F.3d at 1304). Specifically, the Federal Circuit found that the plaintiffs were not “interested parties” under § 1491(b)(1) such that it had no reason to reach the question whether prudential standing considerations required the court to abstain from exercising jurisdiction. 9. at 72.
291 99 at 77.
89
court observed that several circuit courts relied on the doctrine
of prudential standing in determining that Government employees
could not challenge agency decisions to out-source before
Congress Acted to specifically allow such actions.292 According
to Hallmark, “[t]here is no comparable provision authorizing the
suit by plaintiff here.”293
Though both decisions shed shone light on the complexities
of jurisdiction over in-sourcing challenges, the takeaway lessons
are unclear. Where Santa Barbara found that the plaintiff was an
interested party that had standing to challenge the agency’s in-
sourcing decision, the Hallmark cCourt concluded that too many
assumptions lay between the contractor and the coveted interested
party status. Where Santa Barbara determined that prudential
standing does not apply in the bid protest context, the Hallmark
cCourt based its entire decision on its analysis of whether any
of the statutes and provisions at issue provided a right of
action to challenge in-sourcing decisions. At bottom, one
contractor had standing, the other did not. Thus, whether the
Court of Federal Claims has jurisdiction over such challenges
remains an open – and complicated – issue.
292 Id. at 78 n.22.
293 Id.99 Fed. Cl. at 78 n.22.
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IV. TRUTHS FROM ERROR RATHER THAN CONFUSION - SIMILAR ISSUES CHALLENGES
“Truth emerges more readily from error than from confusion.” –
Sir Francis Bacon294
In light of the apparent confusion regarding potential
challenges to in-sourcing decisions, this Aarticle now turns to
other attempts at challenging in-sourcing decisions, as well as
analogous challenges. The aim is to illuminate arguments which
may be successful when combined with other aspects of successful
challenges, while also highlighting the missteps to avoid in
future litigation.
A. GAO Protests
The Government Accountability Office (“GAO”) has published
opinions on two bid protests challenging in-sourcing decisions
which reflect the current debate. Although both protests were
dismissed, the arguments, precedents, and discussions shed some
light on the means by which industry is trying to attack these
decisions. Given the changing landscape regarding in-sourcing
decisions, it would not be surprising to see the GAO either
accepting jurisdiction over these matters or receiving direct
authority/instruction to do so from Congress.
294
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In the first decision, Aleut Facilities Support Services,
LLC,295 the protester (“Aleut”) challenged an Air Force decision
to cancel a solicitation for the supply of fuels and
transportation services at Tyndall Air Force Base in Florida
after receiving proposals but before they were opened or
evaluated.296 The Air Force cancelled the solicitation after
determining that it could save money by doing the work in-
house.297 Aleut argued that the decision was not reasonable
because the solicitation should not have been given “priority
consideration” under the statute, and the economic analysis was
improper because it did not adhere to agency policy surrounding
such analyses.298
The statute at issue was 10 U.S.C. § 2463, requiring
“special consideration” when deciding which functions to consider
for in-sourcing.299 Aleut contended that because the solicitation
did not fall under one of the enumerated aspects in the statute,
295 Aleut Facilities Support Services, LLC, B-4019259, 2009 CPD ¶ 202 (Comp. Gen. Oct. 13, 2009).
296 Aleut Facilities Support Services, LLC, B-401929, 2009 CPD ¶ 202, at *1 (Comp. Gen. Oct. 13, 2009)Id. at 1.
297 Aleut Facilities Support Services, LLC, B-401929, 2009 CPD ¶ 202, at *1 (Comp. Gen. Oct. 13, 2009)Id.
298 Aleut Facilities Support Services, LLC, B-401929, 2009 CPD ¶ 202, at *1-2 (Comp. Gen. Oct. 13, 2009)Id. at 2-3.
299 10 U.S.C. § 2463 (2006)See supra note 21.
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it should not have been given “priority consideration.”300 The
GAO dismissed the protest without considering the merits of the
contention that the cost analysis was improper, finding the
decision was an agency decision which the GAO will generally not
“review . . . when the work in question is to be performed in-
house because such decisions are generally a matter of executive
branch policy.”301 The GAO dismissed, finding the protester
failed to state a valid basis of protest because 10 U.S.C. § 2463
does not require a cost comparison.302 In stating this policy,
the GAO acknowledged several exceptions to this rule, referencing
earlier cases.303 Though GAO’s examples are readily
distinguishable from current in-sourcing challenges, the analysis
is instructive.
An early matter alleging an improper move to in-house
performance revealed an exception to the rule that GAO will not
review policy decisions. In Griffin Services, Inc.,304 the 300 Aleut,, 2009 CPD ¶ 202supra note 274,at 2-3.301 Aleut Facilities Support Services, LLC, B-401929, 2009 CPD ¶ 202, at *2 (Comp. Gen. Oct. 13, 2009)Id. at 3 (citing General Services. Administration Admin. – Reconsideration, B-237268.3, et al., 90-2 CPD ¶ 369, at 2 (Comp. Gen. Nov. 7, 1990)).
302 Aleut Facilities Support Services, LLC, B-401929, 2009 CPD ¶ 202, at *3 (Comp. Gen. Oct. 13, 2009)Id. As discussed below, such a requirement may have provided a basis for the GAO to consider the protest.
303 Id.304 Griffin Services, Inc., B-237272268,2, et al., 90-1 CPD ¶ 558 (Comp. Gen. June 14, 1990), reconsideration denied, General Services. AdministrationAdmin. — Reconsideration, B-237272237268.3, et al., 90-2 CPD ¶ 369 (Comp. Gen. Nov. 7, 1990).
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protester challenged the cancellation of four General Services
Administration (“GSA”) solicitations for the operation and
maintenance of various systems at the Denver Federal Center.305
The solicitations provided that the GSA “would only award one
contract to any one contractor resulting from these four
solicitations.”306 After the four solicitations were cancelled,
Griffin Services asserted that the GSA made an improper
determination of non-responsibility by failing to submit the
matter to the Small Business Administration under the Certificate
of Competency program and by masking that improper action in a
decision to perform the work in-house.307 Carving out an
exception to the rule that the GAO will not review decisions to
perform work in-house because they are matters of executive
policy, GAO confirmed that it will examine the reasonableness of
an agency’s justification when a protest alleges that the
“agency’s actual motivation was to avoid awarding [the protester]
a contract.”308
305 Griffin Services, Inc., B-237272, et al., 90-1 CPD ¶ 558, at *1 (Comp. Gen. June 14, 1990)Id. at 1.
306 Id. at 2.307 Griffin Services, Inc., B-237272, et al., 90-1 CPD ¶ 558, at *1 (Comp. Gen. June 14, 1990)Id.
308 Griffin Services, Inc., B-237272, et al., 90-1 CPD ¶ 558, at *2 (Comp. Gen. June 14, 1990)Id. at 3 (citing H. David Feltoon, B-232418, 89-1 CPD ¶ 10 (Comp. Gen. Jan. 5, 1989); Judith White, B-233853.2, 89-1 CPD ¶ 544 (Comp. Gen. June 9, 1989)). GSA argued in its request for reconsideration of this ruling that these two cases should stand for the proposition that the pretext
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Another line of cases created an exception to the non-review
rule where the agency is required to conduct a cost comparison.
The 1994 matter of Digicon, CorpInc.309 involved a Department of
the Treasury solicitation that was cancelled during negotiations
resulting in partial performance by the agency and partial
purchase of software from the Federal Supply Schedule. Digicon
protested the cancellation of the solicitation, arguing that the
Treasury failed to conduct an adequate cost comparison as
required by Circular A-76.310 GAO denied the protest, noting that
the solicitation was cancelled because it no longer reflected the
agency’s need.311 In addition, GAO declined to review the cost
comparison because it constituted an unreviewable exercise of
executive branch policy.312 However, GAO indicated that it would
to cancel needs to have been proven to be in bad faith in order for the GAO to sustain a protest. The GAO rejected this reading as too narrow and stated that bad faith need not be alleged in order to prompt a review when pretext is alleged for cancellation. General Services. AdministrationAdmin. — Reconsideration, B-237268272.3, et al., 90-2 CPD ¶ 369, at 2*1 (Comp. Gen. Nov. 7, 1990).
309 Digicon, Inc., B-256620, 94-2 CPD ¶ 12 (Comp. Gen. July 7, 1994).
310 Digicon, Inc., B-256620, 94-2 CPD ¶ 12, at *1 (Comp. Gen. July 7, 1994).Id. at 1--2
311 Id. at 3.
312 Digicon, Inc., B-256620, 94-2 CPD ¶ 12, at *2 (Comp. Gen. July 7, 1994)Id. at 2.
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have reviewed the action if there had been a provision in the
solicitation requiring a comparison of costs.313
Building on this decision, in Imaging Systems Technology,314
GAO considered an incumbent contractor’s protest of a cancelled
solicitation when the Government determined that it would be less
costly to perform the work in-house.315 The Air Force
solicitation was set aside for small businesses and sought
proposals to provide logistics and support services for an air
traffic control and landing system.316 Independent of the
solicitation, however, the Air Force concluded that the services
sought could be performed for less money by Air Force personnel
already engaged in similar activities and cancelled the
solicitation.317 Imaging Systems Technology (“IST”) protested
that decision, alleging that the cost comparison was not
realistic and violated the statutory requirement.318
313 Digicon, Inc., B-256620, 94-2 CPD ¶ 12, at *2 (Comp. Gen. July 7, 1994)Id. (specifically referring to cost comparisons mandated under Office of Management and Budget Circular A-76). Such determinations are discussed in greater detail below.
314 Imaging Systems Technology, B-283817.3, 2001 CPD ¶ 2 (Comp. Gen. Dec. 19, 2000).
315 Id. at 1. 316 Id. at 1.317 Imaging Systems Technology, B-283817.3, 2001 CPD ¶ 2 at *1 (Comp. Gen. Dec. 19, 2000).d. at 2.
318 Imaging Systems Technology, B-283817.3, 2001 CPD ¶ 2 at *2 (Comp. Gen. Dec. 19, 2000)Id. at 1. The statute at issue was 10 U.S.C. § 2462 (1994), which has since been superseded by legislative change. At the time, however, it required the Department of Defense components to procure items and services
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GAO determined that it had jurisdiction to hear the protest
under CICA.319 Ultimately, GAO sustained the protest on the
ground that the cost comparison conducted did not meet the
requirements of the statute.320 This case is often cited as
providing an exception to the general rule that GAO will not
review policy decisions –- potentially including decisions
whether to in-source an activity -- when those decisions are
from the private sector only when it was determined to be less costly to do so. Section (b) of the article detailed the methods for comparing costs as follows:
[T]he basis of a comparison of the costs of procuring supplies or services from such a source with the costs of providing the same supplies or services by the Department of Defense, the Secretary of Defense shall ensure that all costs considered (including the costs of quality assurance, technical monitoring of the performance of such function, liability insurance, employee retirement and disability benefits, and all other overhead costs) are realistic and fair.
This statute was amended by FY06 NDAA § 341(c)(i) to only require reports on public-private competitions, rather than to be a statute requiring procurements to be conducted in any particular manner. 10 U.S.C. § 2462 (2006). See also Aleut Facilities Support Services., LLC, B-4019259, 2009 CPD ¶ 202, at *3at 3 n.1 (Comp. Gen. Oct. 13, 2009).
319 Imaging Syst. Tech.ems Technology, B-283817.3, 2001 CPD ¶ 2, at *3 (Comp. Gen. Dec. 19, 2000)3-4.
320 Imaging Systems Technology, B-283817.3, 2001 CPD ¶ 2, at *4-8 (Comp. Gen. Dec. 19, 2000)Id. at 6-11 (discussing that the comparison did not consider a realistic cost of contractor performance, that the compared cost for in-house personnel did not consider factors such as leave and other benefits, did not accurately assess the number of labor hours need and therefore the comparison was not fair and in violation of the statute).
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required by statute or regulation to have been subject to a cost
comparison.321
The most recent GAO protest regarding an in-sourcing
decision considered a challenge to an Air Force determination
that in-sourcing would provide a less costly means of receiving
the subject services.322 There, Triad Logistics Services
Corporation (“Triad”) protested the Agency’s decision to in-
source operation and maintenance services at Columbus Air Force
Base in Mississippi on the ground that the cost comparison
performed was “inconsistent” with Agency directives.323 Like
Aleut Facilities Support Services, LLC, this protest was also
dismissed for failure to state a valid basis of protest.324
The specific grounds for Triad’s protest differed from prior
cases and thus invoked different jurisdictional issues.
Specifically, the protester argued that that the cost analysis
was inconsistent with the guidance issued by the DoD.325 In 321 Aleut Facilities Support Services, LLC, B-401929, 2009 CPD ¶ 202, at *2 (Comp. Gen. Oct. 13, 2009).
322 Triad Logistics Servs. Corp., B-403726, 2010 CPD ¶ 279, at 2 (Comp. Gen. Nov. 24, 2010).Triad Logistics Services Corporation, B-403726, 2010 CPD ¶ 279 (Comp. Gen. Nov. 24, 2010).
323 Id.Triad Logistics Services Corporation, B-403726, 2010 CPD ¶ 279, at *2 (Comp. Gen. Nov. 24, 2010).
324 Id.Triad Logistics Services Corporation, B-403726, 2010 CPD ¶ 279, at *2 (Comp. Gen. Nov. 24, 2010).
325 Id. Triad Logistics Services Corporation, B-403726, 2010 CPD ¶ 279, at *2 (Comp. Gen. Nov. 24, 2010). Specifically, Triad attempted to argue that “Directive-Type Memorandum (“DTM”) 09-008
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addition, the protester asserted that 10 U.S.C. §129a required
the use of the “least costly form of personnel,” such that a cost
analysis that did not end with this result should be
reviewable.326 GAO rejected this argument finding that 10 U.S.C.
§ 129a is not a “procurement statute” because it does not govern
procurements or “bear directly on federal agency procurements.”327
Instead, the GAO reasoned that this was a statement of policy and
does not require a cost comparison.328 This built on the decision
in Aleut Facilities Support Services, LLC that 10 U.S.C. §
2463(b) also did not require a cost comparison that could be
reviewed.
The current state of GAO’s decisions on in-sourcing does not
present it as a likely forum for review of in-sourcing decisions.
However, despite the strong language of Aleut Facilities Support
Services, LLC and Triad Logistics Services Corporation, there may
still be a possibility that the GAO would exercise jurisdiction
issued on Jan. 29, 2010 regarding “Estimating and Comparing the Full Costs of Civilian and Military Manpower and Contract Support” required specific types of comparisons which were not followed. Id.
326 Id. at 3.Triad Logistics Services Corporation, B-403726, 2010 CPD ¶ 279, at *3 (Comp. Gen. Nov. 24, 2010).
327 Id. Triad Logistics Services Corporation, B-403726, 2010 CPD ¶ 279, at *3 (Comp. Gen. Nov. 24, 2010) (citing Veolia Water N.orth Am. Operating Servs.ices, LLC, B-291307.5, B-298017, 2006 CPD ¶ 86, at 18 (Comp. Gen. May 19, 2006)).
328 Triad Logistics Services. Corp.oration, 2010 CPD ¶ 279 B-403726, 2010 CPD ¶ 279, at *3 (Comp. Gen. Nov. 24, 2010).
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over a protested in-sourcing decision. The cases clearly
establish that in-sourcing decisions may be reviewable when they
are made in an effort to avoid award of a contract, even without
an allegation of bad faith, and also when a statute requires a
cost comparison. As the impact of the agency-specific guidelines
on in-sourcing develops, as discussed in the district court and
Court of Federal Claims matters above, GAO may yet take
jurisdiction over these important decisions.
B. A-76 Challenges
The debate over the extent to which a decision to in- or
out-source may be challenged in a bid protest forum is not new.
Challenges to in-sourcing decisions — and associated challenges
to standing and jurisdiction — find their roots in challenges to
agency action under decades-old executive policy related to
federal-private competition. Broadly, for over 50 years, the
Federal Government has worked to ensure that federal departments
and agencies do not compete with the private sector. Since 1966,
this policy has been articulated in the Office of Management and
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Budget’s (“OMB”) Circular A-76.329 The most recent version,
issued in 2003, stated:
The longstanding policy of the [F]federal [G]government has been to rely on the private sector for needed commercial services. To ensure that the American people receive maximum value for their tax dollars, commercial activities should be subject to the forces of competition.330
Accordingly, the Circular provided guidelines and procedures for
agencies to determine whether to contract out for certain
activities or whether to perform them in-house.
329 The Government first stated this policy in a 1955 Bureau of the Budget directive, a directive that was later amended in 1957 and 1960. Bureau of the Budget, Budget Bulletin 55-4 (Jan. 15, 1955) BOB Bulletin 55-4, Jan. 15, 1955. The Circular, in turn, was revised in 1967, 1979, 1983, 1991, 1999, and 2003. Authority for issuing the Circular can be found in the Budget and Accounting Act of 1921, 31 U.S.C. §§ 501, 50-2, the Office of Federal Procurement Policy (“OFPP”) Act, 41 U.S.C. § 405, and the Federal Activities Inventory Reform (“FAIR”) Act of 1998, Pub. L. No. 105-270, 31 U.S.C. § 501 note.
330 , OMB CIRCULAR NO. A-76,ER http://www.dni.gov/electronic_reading_room/OMB_Circular_A_Circular A-76 ¶ 4.
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In relevant part,331 Circular A-76 required an agency to use
either a streamlined or standard competition to determine whether
a commercial activity should be performed in-house.332 These
public-private competitions were subject to several separate
guidelines and procedures. As a general matter, agencies were
331 OMB Circular A-76 also directed agencies to identify “all activities performed by government personnel as either commercial or inherently governmental” through an inventory process. See id. ¶ 4(a); Attach. A. Part of that process involved categorizing activities performed by Government personnel as “inherently governmental” or “commercial.” Id. ¶ 4(a). This ion was agin critical, as OMB Circular A-76 required agencies to perform “inherently governmental activities” using agency personnel. Id. ¶ 4(b). The 2003 OMB Circular offered several criteria for an inherently governmental activity. Such activities were “so intimately related to the public interest as to mandate performance by government personnel,” requiring the use of “substantial discretion” in applying government authority or making decisions. Id. at Attach. A at A-2. According to the Circular, “[i]nherently governmental activities normally fall into two categories: the exercise of sovereign government authority or the establishment or procedures and processes related to the oversight of monetary transactions or entitlements.” Id. For further information on the definition of “inherently governmental,” see OMB Circular A-76 at Attach.ment A ¶ B at A-2.Circular A-76 also directed agencies to identify “all activities performed by government personnel as either commercial or inherently governmental” through an inventory process. See Circular A-76 ¶ 4(a); Attach. A. Part of that process involved categorizing activities performed by Government personnel as “inherently governmental” or “commercial.” This distinction was again critical, as Circular A-76 required agencies to perform “inherently governmental activities” using agency personnel. Circular A-76 ¶ 4(b). The 2003 Circular offered several criteria for an inherently governmental activity. Such activities were “so intimately related to the public interest as to mandate performance by government personnel,” requiring the use of “substantial discretion” in applying government authority or making decisions. According to the Circular, “[i]nherently governmental activities normally fall into two categories: the exercise of sovereign government authority or the establishment or procedures and processes related to the oversight of monetary
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required to comply with procurement integrity, ethics, and
standards of conduct when conducting standard or streamlined
competition.333 The Circular emphasized transparency and
consistency in the competition process and recommended
transactions or entitlements.” For further information on the definition of “inherently governmental,” see Circular A-76; Attach. A ¶ B at A-2.
332 See generally OMB Circular A-76 at Attach. B (establishing steps an agency must complete prior to the public announcement of a streamlined or standard competition). Of note, a competition was not required for private sector performance of a new requirement, “a segregable expansion to an existing commercial activity” performed in-house, or continued performance of a commercial activity. Id. ¶ 5(d). However, competition was required before an agency may perform a new requirement, an expanded existing commercial activity, or any activity being performed by the private sector. Id.See generally Circular A-76; Attach. B (establishing steps an agency must complete prior to the public announcement of a streamlined or standard competition). Of note, a competition was not required for private sector performance of a new requirement, “a segregable expansion to an existing commercial activity” performed in-house, or continued performance of a commercial activity. Circular A-76 ¶ 5(d). However, competition was required before an agency may perform a new requirement, an expanded existing commercial activity, or any activity being performed by the private sector. Circular A-76 ¶ 5(d).
333 Id. ¶ 4(e). Agencies were specifically required to comply with 18 U.S.C. § 208 – a basic Government ethics statute that prohibits executive branch employees from participating “personally and substantially” in a matter that will impact them, or close familiar relations, financially – when conducting a competition. Id.Agencies were specifically required to comply with 18 U.S.C. § 208 – a basic Government ethics statute that prohibits executive branch employees from participating “personally and substantially” in a matter that will impact them, or close familiar relations, financially – when conducting a competition.
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centralizing oversight responsibility and using lessons learned
and best practices to achieve that end.334
The Circular described the two types of competition
procedures at length in Circular Attachment B, paragraphs C and
D.335 Prior to issuing a public announcement of a competition,
an agency was required to determine the activities and full time
equivalent (“FTE”) positions necessary, then to conduct
preliminary research to determine the baseline costs as performed
by the incumbent.336 In a public-private competition, the Agency
Tender Official (“ATO”) would designate the most efficient
organization (“MEO”) team, which, along with the human resource
334 Id. ¶ 4(h).335 Id. at Attach. B at B-4, B-6. Whether the agency used a streamlined or a standard competition depended on the number of FTEs used or proposed by the agency. Specifically, if the agency previously performed, or planned to offer to perform, a commercial activity using 65 or more FTEs, the agency was required to use a standard competition. Id. at Attach. B at B-1. If the agency previously performed, or planned to offer to perform, a commercial activity with 65 or fewer FTEs, the agency could use either a streamlined or standard competition. Id. For more specifics on the criteria for both types of competitions, see OMB Circular A-76 at Attach. B at B-1.Whether the agency used a streamlined or a standard competition depended on the number of FTEs used or proposed by the agency. Specifically, if the agency previously performed, or planned to offer to perform, a commercial activity using 65 or more FTEs, the agency was required to use a standard competition. If the agency previously performed, or planned to offer to perform, a commercial activity with 65 or fewer FTEs, the agency could use either a streamlined or standard competition. For more specifics on the criteria for both types of competitions, see Circular at Attachment B at B-1.
336 Id. at Attach. B at B-1.Circular A-76 at Attach. B at B-1.
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advisor (“HRA”) would be primarily responsible for developing the
agency tender.337 This agency tender was then evaluated along
with proposals from the private sector.338
Briefly, in a streamlined competition, following public
announcement of the competition, the agency was required to
calculate, compare, and certify costs using the Streamlined
Competition Form (“SLCF”) to determine whether it would be more
cost-effective to contract out or perform the activity in-
house.339 The agency could base its own cost estimate on the
incumbent activity but “is encouraged to develop a more efficient
organization, which may be an MEO.”340 With regard to the
estimated price for private sector performance, the agency could 337 Id. at Attach. B at B-2, B-10. The agency would describe its staffing plan – the MEO – in its tender. According to the Circular, the MEO was “not usually a representation of the incumbent organization, but [was] the product of management analyses that include[d] . . . activity based costing, business case analysis, consolidation, functionality assessment, industrial engineering, market research, productivity assessment, reengineering, reinvention, utilization studies, and value engineering.” Id. at Attach. B at B-10.Circular A-76 at Attach. B at B-2, B-10. The agency would describe its staffing plan – the MEO – in its tender. According to the Circular, the MEO was “not usually a representation of the incumbent organization, but [was] the product of management analyses that include[d] . . . activity based costing, business case analysis, consolidation, functionality assessment, industrial engineering, market research, productivity assessment, reengineering, reinvention, utilization studies, and value engineering.” Circular A-76 at Attach. B at B-10.
338 OMB Circular A-76, atAttach. B at B-12.339 Id. at Attach. B at B-4.340 Circular A-76 at Attach. B at B-4Id..
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either use documented market research or solicit cost proposals
in accordance with the FAR.341 If the agency selected a private
sector provider, the CO awarded the contract in accordance with
the FAR.342 If the agency selected the agency’s tender, the CO
simply executed a letter of obligation.343
The standard competition process involved considerably more
steps, and could take up to 12 months from the date of public
announcement to obtain a performance decision.344 The CO was
required to state in the solicitation whether the acquisition
would use sealed bid or negotiated procedures.345 If using
negotiated procedures, the solicitation was required to identify
the source selection basis, e.g., lowest price technically
acceptable, tradeoff, etc.346 Similarly, as in traditional
procurements, the agency was required to clearly identify
evaluation factors in the solicitation.347 After the agency
evaluated offerors and made its decision, the agency was required
to make a formal public announcement via FedBizOpps of the 341 Id.Circular A-76 at Attach. B at B-4.
342 Id. Circular A-76 at Attach. B at B-5.
343 Id.Circular A-76 at Attach. B at B-5.
344 OMB Circular A-76, dCircular A-76 at Attach. B at B-6.
345 Id. Circular A-76 at Attach. B at B-8.
346 Id.Circular A-76 at Attach. B at B-8.
347 Id.Circular A-76 at Attach. B at B-8.
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performance decision.348 The agency was also required to offer a
debriefing to all private sector offerors, the ATO, and “directly
affected government personnel.”349
Competitions conducted and decided pursuant to Circular A-76
have always been wrought with complicated jurisdictional issues.
First, when confronted with a protest of an A-76 decision, GAO
had to grapple with the executive nature of the Circular before
it could exercise jurisdiction. Broadly stated, a dispute over
an agency decision to perform work in-house appears to involve a
matter of executive branch policy that GAO does not review, and
indeed, GAO has declined to exercise jurisdiction over an in-
sourcing decision on that basis.350 However, where a contracting 348 Id. at Attach. B at B-17.349 Id. at Circular A-76 at Attach. B at B-18.
350 See Dynateria, Inc., B-222581.3, 87-1 CPD ¶ 30, at 2 (Comp. Gen. Jan. 8, 1987) (“[W]e recognize that the underlying determination involved in cost comparisons – whether work should be performed in-house by government personnel or performed by a contractor — is one which is a matter of executive branch policy and not within [GAO’s] protest function.”); see Gen. Tel. Co. of Cal., B-189430,78-2 CPD ¶ 9, at 4-5 (Comp. Gen. July 6, 1978) (“We have previously stated that we do not consider it our function, under our bid protest procedures, 4 C.F.R. Part 20 (1977), to review determinations made pursuant to OMB Circular A-76. On the contrary, we regard the directives contained in Circular A-76 as matters of Executive policy, rather than of statutory or regulatory requirements, which are not within the decision functions of [GAO].”) (citations omitted); see also Am. Fed’n of Gov’t Emps. Local No. 3347, AFL-CIO, B-183487, 75-2 CPD ¶ 12, at 2 (Comp. Gen. July 3, 1975);See Dynateria, Inc., B-222581, 87-1 CPD ¶ 30 (Comp. Gen. Jan. 8, 1987) (“[W]e recognize that the underlying determination involved in cost comparisons – whether work should be performed in-house by government personnel or performed by a contractor—is one which is a matter of executive branch policy and not within [GAO’s] protest
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agency utilized the procurement system to aid in its
determination of whether to perform the work in-house or whether
to contract out, Circular A-76 did not preclude protest.351 In
particular, where an agency endeavored to evaluate cost by
issuing a solicitation, developing a cost estimate, and basing
its decision on that evaluation, GAO would adjudicate a challenge
to those processes.352
As directed by statute, between May 2001 and March 2002, the
Comptroller General convened a special panel to study “the
policies and procedures governing the transfer of commercial
activities for the Federal Government from [g]Government
function.”); see Gen. Telephone Co. of Calif., B-189430,78-2 CPD ¶ 9 (Comp. Gen. July 6, 1978) (“We have previously stated that we do not consider it our function, under our bid protest procedures, 4 C.F.R. Part 20 (1977), to review determinations made pursuant to OMB Circular A-76. On the contrary, we regard the directives contained in Circular A-76 as matters of executive policy, rather than of statutory or regulatory requirements, which are not within the decision functions of [GAO].”) (internal citations omitted); see also Am. Fed. of Gov’t Employees Local No. 3347, AFL-CIO, B-183487,75-2 CPD ¶ 12 (Comp. Gen. July 3, 1975); Am. Telephone & Telegraph Co., B-179285, 74-1 CPD ¶ 72 (Comp. Gen. Feb. 14, 1974).
351 Dynateria, Inc., 87-1 CPD ¶ 30, at 2 (GAO will review a protest challenging the agency’s cost comparison “to determine if the agency conducted the cost comparison in accordance with applicable procedures.”).Dynateria, Inc., B-222581, 87-1 CPD ¶ 30 (Comp. Gen. Jan. 8, 1987) (GAO will review a protest challenging the agency’s cost comparison “to determine if the agency conducted the cost comparison in accordance with applicable procedures”).
352 See id. at 1-2
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personnel to a [f]Federal contractor.”353 This panel, later known
as the “Commercial Activities Panel,” presented a report to
Congress in April 2002 entitled “Improving the Sourcing Decisions
of the Federal Government.”354 The panel made ten specific
recommendations (see supra note 14), based on its reviews and
hearings concerning the Circular A-76 process.355 The report
discussed jurisdictional concerns in a section entitled,
“Standing to Challenge Public-Private Cost ComparisonsSourcing
Principles.”356 The Panel concluded that the current structure of
the laws and regulations was unbalanced and permitted challenges
by the private sector, without a similar right by the public
entities.357
353 Floyd D. Spence National Defense Authorization Act of 2001, § 832, Pub. L. No. 106-398, § 832, 114 Stat. 1654A-221 (2000); GAO-COMMERCIAL ACTIVITIES PANEL , supra note , atU.S. Gov’t AccountabiliError: Reference source not foundty Oties Panel: Improving the Sourcing De of the
354 COMMERCIAL ACTIVITIES PANEL, IMPROVING THE SOURCING DECISIONS OF THE GOVERNMENT (2002), available at http://comptrollerlegal2002.tpub.com/a03209/index.htm , supra note , at 6.Id.U.S. General AccoError: Reference source not foundunting Office: Commercial Activities Panel: Improving the Sourcing Decisions of the Governmentote ., GAO-02-866T (April 30, 2002) (available aError: Reference source not foundt www.gao.gov/new.items/d02866t.pdf).
355 Id at 6-9. 356 Id. at 86.U.S. General Accounting Office: Commercial Activities Panel: Improving the Sourcing Decisions of the Government, GAO-02-866T, Appendix C, at 86-89 (April 30, 2002) (available at www.gao.gov/new.items/d02866t.pdf).
357 Id. at 89. Dan Duefrene, et al., B-293590.2, et al., 2004 CPD ¶ 82 (Comp. Gen. Apr. 19, 2004) (holding that an in-house
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Congress responded by amending CICA to expand the definition
of an “interested party” to include an agency official that has
lost a competition to a private entity under an A-76 competition.
Specifically, the Ronald W. Reagan National Defense Authorization
Act for Fiscal Year 2005 (“FY2005 NDAA”)358 defined an “interested
party” to include “the official responsible for submitting the
Federal agency tender in a public-private competition conducted
under Office of Management and Budget Circular A-76 regarding an
activity or function of a Federal agency performed by more than
65 full-time equivalent employees of the Federal agency.” 359
The statute limited the amendments’ applicability to competitions
conducted 90 days after enactment of the act.360
Following the enactment of FY2005 NDAA on October 28, 2004,
GAO amended its Bid Protest Regulations to conform to the Act on
competitor in an A-76 competition did not meet the statutory definition of an “interested party”).
358 Pub. L. No. 108-375 § 326(a)(2), 118 Stat. 1811, 1848 (2004), codified at 31 U.S.C. § 3551 (Supp. IV 2004).
359 Pub. L. No. 108-375, § 326(a)(2), 118 Stat. 1811, 1848 (2004), (codified at 31 U.S.C. § 3551 (Supp. IV 2004)).360 Pub. L. No. 108-375Id. at § 326(d). The conference report accompanying the FY2005 NDAA further restricted the amendments’ applicability by denying a person “representing a majority of the employees” standing to protest. H.R. CONF. REP. NO. 108-767, at 648 (Conf. Rep.), reprinted in 2004 U.S.C.C.A.N. 1961, 2003. Such individuals, however, were provided the right to intervene in a protest filed by an interested party. H.R. Conf. Rep. No. 108-767, at 648, reprinted in 2004 U.S.C.C.A.N. 1961, 2003Id.
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April 14, 2005.361 GAO’s amended regulations added an ATO to the
definition of an interested party and set the effective date of
the amendments as January 26, 2005.362 Some recent cases from the
GAO and Court of Federal Claims, however, indicate that the
discussion of A-76 challenges may bear some resemblance to a
successful protest of an in-sourcing decision.
Even prior to the legislative change, GAO had extended the
rationale to exercise jurisdiction over protests of streamlined
competitions notwithstanding the Circular’s clear edict that
contests of those competitions are not allowed. In Vallie Bray,
GAO held that “while it is true that the revised Circular states
that no party may contest any aspect of a streamlined
competition, this language does not preclude a protest to our
Office because CICA, not the revised Circular, provides the basis
for our bid protest authority.”363 Thus, GAO reasoned that an
“interested party” as defined by CICA and GAO’s Bid Protest
Regulations, may protest a streamlined competition where “the
agency elects to use the procurement system and conducts a
competition by issuing a solicitation to determine whether a 361 Administrative Practice and Procedure, Bid Protest Regulations, Government Contracts, 70 Fed. Reg. 19679 (Apr. 14, 2005)(to be codified at C.F.R. pt. 21).362 70 Fed. Reg. 19679 (daily ed. Apr. 14, 2005)Id. (explaining that because the date of enactment was October 28, 2004, therefore the end of the 90-day period was January 26, 2005).
363 Vallie Bray, B-293840 et. al, 2004 CPD ¶ 52, at 2 (Comp. Gen. Mar. 30, 2004).
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private-sector entity can perform the work more cost
effectively.”364
The question of who may protest a determination made under
the Circular A-76 process also reached the federal courts. Prior
to the FY 2005 NDAA, the Court of Federal Claims held that under
the Tucker Act, fFederal employees and their unions were not
“interested parties” with standing to challenge an A-76
determination.365 This decision was upheld by the Federal Circuit
on other grounds; the decision specifically found that the term
“interested party” was the same as that of CICA, and therefore
includes decisions made under Circular A-76 as part of an
“alleged violation of statute or regulation in connection with a
procurement.”366
This principle was later applied in a Court of Federal
Claims case in which a contractor sought to enjoin the Government
from performing services in-house without a public-private
competition.367 The plaintiff, LABAT-Anderson (“LABAT”), had 364 Vallie Bray, B-293840 et. al, 2004 CPD ¶ 52 (Comp. Gen. Mar. 30, 2004)Id. at 2-3 (finding that GAO did not have jurisdiction because the agency used streamlined procedures, but did not issue a solicitation to conduct a procurement to determine whether to perform the work in-house).
365 See Am.erican Fed.eration of Gov’vernment Employees, AFL-CIO v. United States, 46 Fed. Cl. 586, 600 (2000).
366 American Federation of Government Employees, AFL-CIO v. United States, 258 F.3d 1294, 1299, 1302 (Fed. Cir. 2001).
367 LABAT-Anderson, Inc. v. United States, 65 Fed. Cl. 570, 572 (2005).
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provided distribution services to the Defense Logistics Agency
and alleged that when its contract expired the agency improperly
decided to perform the work in-house.368 LABAT sought an
injunction to prohibit this and require a public-private
competition under Circular A-76 and other agency regulations.369
While the court ultimately dismissed the matter, it first found
that LABAT had standing to protest as failure to follow A-76
guidelines “deprive[d] the plaintiff of an opportunity to compete
for the work in a fair competition.”370
Though these similar issues have been litigated in the
context of GAO bid protests and Circular A-76 challenges, the
precedents set are neither direct nor controlling. As the law
continues to develop regarding challenges to in-sourcing
decisions, these earlier cases may yet prove instructive both to
practitioners and courts alike in providing a legal basis to
establish jurisdiction in one adjudicative body.
V. UNDERSTANDING THE CONFUSION – CONCLUSIONS
368 Id. at 572.369 Id. at 576..370 See id. at 575-76 LABAT-Anderson, Inc. v. United States, 65 Fed. Cl. 570, 575-76 (2005) (concluding that this reasoning is not inconsistent with AFGE or other precedent merely because there is no “recent or on-going solicitation”).
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“Confusion is a word we have invented for an order which is not
yet understood.” – Henry Miller371
At the heart of the jurisdictional debate on in-sourcing are
questions of fairness: are contractors entitled to a review of
decisions that might strip them of contracts which support their
business? Should Government agencies be allowed to make these
decisions without the specter of judicial review to ensure that
processes are followed and politics kept at bay? While others
continue to debate whether in-sourcing could still be a money-
saving and efficient way for the Government to acquire the goods
and services it needs, especially in light of recent budget
concerns, what is clear is that in-sourcing remains relevant as
one of many of the Government’s procurement options. As agencies
develop and promulgate internal rules and processes pursuant to
the FY2009 NDAA and Omnibus Appropriations Act of 2009, it is
essential that there be a common understanding of whether
decisions made under those rules will be reviewed when
challenged. As this Aarticle notes, there is no neither clear
judicial consensus nor a clear legislative grant regarding
jurisdiction over such challenges.
Out of concern for fundamental fairness, these important
decisions should be subject to review. The unifying purpose
371
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behind ADRA implies that the Court of Federal Claims would be a
natural fit for exercising jurisdiction over challenges to in-
sourcing decisions. The court already possesses broad
jurisdiction over matters related to a federal government
contract. True, as noted by the Hallmark cCourt, none of the
statutes typically at issue in an in-sourcing challenge expressly
creates a cause of action. However, these statutes need not
establish a cause of action, as the Tucker Act already authorizes
challenges to “any alleged violation of statute or regulation in
connection with a procurement or a proposed procurement to be
brought by an interested party.”
The court’s broad jurisdiction over claims brought by an
“interested party” provides a perfect avenue for a challenge to
an in-sourcing decision. Most such challenges are brought by the
incumbent contractor, which likely could provide a competitive
solution to any request for proposal. Such an experienced
contractor could easily be considered an “actual or prospective
bidder[] . . . whose direct economic interest would be affected
by the award or failure to award the contract.”372 As noted by the
Santa Barbara cCourt, the economic impact to the contractor of
losing work to gGovernment employees “cannot be denied,” a
conclusion that would bring a plaintiff challenging an in-
372 28 U.S.C. 1491(b)(1)31 U.S.C. § 3551(2)(A) (emphasis added).
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sourcing decision squarely within the court’s jurisdiction.373 The
Fifth Circuit agreed, noting that to find otherwise would be to
“betray[] the obvious meaning of ‘interested party.’”374
The court’s jurisprudence also supports the exercise of
jurisdiction over in-sourcing challenges. In Distributed
Solutions, the Court of Appeals for the Federal Circuit held that
the Court of Federal Claims had exercised jurisdiction over a
protest challenging an agency decision under a “request for
information,” focusing on the statutory language authorizing
challenges to actions “in connection with a procurement or
proposed procurement.” 375 Though some have suggested that the
decision to in-source, i.e., not to award to a private
contractor, cannot be related to procurement (as it is by
definition, a decision not to award a contract),376 the broad view
of the cCourt’s jurisdiction articulated in Distributed Solutions
373 98 Fed. Cl. at 543. 374 Rothe Development, Inc. v. U.S. Department of Defense, No. 11-50101, slip op. at 3 (5th Cir. Dec. 29, 2011); see supra Sec. II.c. The Fifth Circuit also recognized that without this interest, a challenger would likely lack standing before the U.S. district courts under Article III of the Constitution. Rothe Development, Inc., No. 11-50101, slip op. at 3. 375 Distributed Solutions, Inc. v. United States, 539 F.3d 1340, 1346 (Fed. Cir. 2008). The Federal Circuit held that “the phrase, ‘in connection with a procurement or proposed procurement,’ by definition involves a connection with any stage of the federal contracting acquisition process, including ‘the process for determining a need for property or services.’” Id. (emphasis added). 376 See LABAT-Anderson, Inc. v. United States, 65 Fed. Cl. 570, 575-76 (2005)supra note 273.
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suggests a different conclusion more in line with GAO’s analysis
of its jurisdiction over Circular A-76 challenges. Indeed, by
undertaking a cost analysis, an agency looking to in-source takes
advantage of the “federal contracting acquisition process” such
that the agency’s decision should be subject to review.377
Lastly, the Court of Federal Claims remains the sole
judicial forum that has comprehensive review over procurement
decisions. The court’s government contracts expertise,
particularly as compared to the experience of district courts, is
undeniable. Indeed, the court has been said to adjudicate
contract actions with an “eye towards the overall government
contracting process.”378 Indeed, Aas several scholars have noted,
the court is uniquely situated to handle intricate government
contract cases, such as challenges to in-sourcing decisions, with
expertise and efficiency.379
Another route to the Court of Federal Claims’ jurisdiction
may be through the CDA. It is, however, not without its own set 377 Distributed Solutions, Inc., 539 F.3d at 13465.378 BLR Group of Am., Inc. v. United States, 84 Fed. Cl. 634, 646 (2008). 379
See Robert S. Metzger & Daniel A. Lyons, A Critical Reassessment of the GAO Bid-Protest Mechanism, 2007 WIS is. L. Rev. 1225, 1237; Joshua I. Schwartz, Public Contracts Specialization as a Rationale for the Court of Federal Claims, 71 GEO. WASH. L. REV. 863, 870 (2003); see also Matthew Chow et al., Court of Federal Claims Task Order Bid Protest Jurisdiction and Expectation Damages: The 2009 McKenna Long & Aldridge “Gilbert A. Cuneo” Government Contracts Moot Court Competition, 38 PUB. CONT. L. J. 975, 10261025 (2009).
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of potentially confusing issues. As noted by the Eleventh
Circuit in the Vero Tech. appeal, “the Tucker Act, in conjunction
with the CDA ‘purports to make the [Court of Federal Claims] the
exclusive trial court for hearing disputes over government
contract that fall under the CDA.’”380 A contractor requesting
that the Court of Federal Claims review a challenge to an in-
sourcing decision could add an alternative argument to its
complaint alleging that the in-sourcing agency somehow violated a
right guaranteed under a contract, thereby implicating the
cCourt’s CDA jurisdiction. That said, to be successful, the
contractor would not only have to be a discharged incumbent
contractor, but would also have to hold a contract under which a
related (and viable) right could be enforced. This theory is
untested before the Court of Federal Claims, but may muddy the
waters even further, as CDA jurisdiction would likely invoke the
Boards of Contract Appeals’ jurisdiction as well.
In addition to the Court of Federal Claims, GAO could also
be called to help decide the propriety of in-sourcing decisions
if Congress were to alter GAO’s mandate to expand its bid protest
jurisdiction. However, given the current political climate, in
which agencies are reducing their in-sourcing efforts,
380 Vero Technical Support, Inc. v. U.S. Department Dep’t of Defense, 437 Fed.Appx. 766, 771 No. 10-14889, 2011 WL 3501843 (11th Cir. Aug. 10, 2011) (quoting Tex. Health Choice, L.C. v. Office of Personnel Pers. Mgmt., 400 F.3d 895, 899 (Fed. Cir. 2005)) (internal citations omitted).
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Congressional interest is likely too low to spark such an effort.
. Just as with GAO’s current bid protest jurisdiction,
jurisdiction over challenges to in-sourcing decisions would not
supplant the Court of Federal Claims’ review. Because the
decisions and analyses are similar to those made in a typical
procurement decision, it would make sense for the GAO to be
involved should in-sources practices ever regain prominence.
While the APA appears to provide some grounds for
jurisdiction in the U.S. dDistrict cCourts, they are the least
attractive forum for reviewing in-sourcing decisions. Allowing
the district courts to review in-sourcing decisions would likely
result in even more inconsistent decisions across several
circuits, whereas the current inconsistency in Court of Federal
Claims case law could be resolved by one appellate court – the
Federal Circuit. In addition, in-sourcing law and policy may be
unfamiliar to many federal judges who have not considered bid
protests since the end of district courts’ Scanwell jurisdiction.
Assuming no other forum is available, to convince a district
court to accept jurisdiction, a plaintiff would need to narrowly
tailor its complaint so as to implicate rights created by statute
or regulation, not rights imbued by the contract. This strategy,
which draws on the logic of K-Mar and Normandy Apartments, would
require the issuance of relevant agency-specific regulations to
provide a basis on which a contractor could make this argument.
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However, given the growing disinterest in in-sourcing, the
Government is not likely to do so such that this is not likely a
promising alternative.
The lack of review of in-sourcing decisions -- regardless of
the popularity of in-sourcing -- renders the confusion of the
status quo fundamentally unfair, untenable, and unpalatable. The
sheer complexity of the decision making process, which includes
the need to determine whether the private or public sector would
provide the most cost efficient solution, begs for judicial
oversight. As discussed above, expansion of GAO and/or district
court jurisdiction is unlikely given the current political and
budgetary climate, but regardless, neither forum is as well-
equipped as the Court of Federal Claims to handle these issues.
Not only does the cCourt already have broad protest jurisdiction
under the Tucker Act, but its unique institutional knowledge of
procurement law makes it the most logical place for in-sourcing
decisions to be challenged. Ultimately, the confusion over in-
sourcing jurisdiction may remain unresolved unless and until in-
sourcing is returned to favor, Congress acts, or the courts come
together to achieve consistency in assessing jurisdiction.
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