DATE: April 20, 2004

SUBJECT: General Accounting Office (GAO) Decides Federal Employees Have No Right to Protest Under OMB Circular A-76 Procedures

SOURCE: GAO Decision B-293590.2; B-293590.3; B-293883; B-293887; Dan Duefrene; Kelley Dull; Brenda Neuerburg; Gabrielle Martin; April 19, 2004


ACTION: Decision

SYNOPSIS: GAO dismisses four protests filed by federal employee unions against agencies' decisions made during public/private competitions conducted under Office of Management and Budget (OMB) Circular A-76, Performance of Commercial Activities, because individuals and organizations representing in-house competitors are not "interested parties" who are eligible to protest to the GAO under the Competition in Contracting Act of 1984 (CICA).

EDITOR'S NOTE: OMB Circular No. A-76 is available at http://www.whitehouse.gov/omb/circulars/a076/a76_rev2003.pdf.

For more on the revisions to OMB Circular No. A-76, see the May 29, 2003, FEDERAL CONTRACTS DISPATCH "Office of Management and Budget (OMB); Revision of OMB Circular No. A-76, Performance of Commercial Activities."

For more on another recent GAO decision addressing a protest filed by a federal employee against a decision made under OMB Circular A-76, see the April 1, 2004, FEDERAL CONTRACTS DISPATCH "General Accounting Office Decides Federal Employees Have No Right to Protest Under OMB Circular A-76 Streamlined Competition Procedures."

SUPPLEMENTAL INFORMATION: On May 29, 2003, OMB revised OMB Circular No. A-76 to expand the use of public-private competitions to improve performance of commercial activities, and to incorporate the principles of Federal Acquisition Regulation (FAR) Part 15, Contracting by Negotiation, into the public-private competition process.

Paragraph F of A-76 Attachment B provides that "a directly interested party" may contest certain agency actions "taken in connection with the standard competition," and the pursuit of such protest "shall be governed by the procedures of FAR 33.103 [Protests to the Agency]." The definition of a "directly interested party" in A-76 Attachment D includes "a single individual appointed by a majority of directly affected employees as their agent."

On June 13, 2003, GAO published a request for comments on whether the revisions to A-76 affect the standing of an in-house entity to file a protest with GAO (see the June 13, 2003, FEDERAL CONTRACTS DISPATCH "General Accounting Office; Protests Under OMB Circular A-76." In the request for comments, GAO noted that CICA grants it the authority to hear protests, and that CICA states a protest may be filed by an "interested party," which CICA defines as "an actual or prospective bidder or offeror whose direct economic interest would be affected by the award of the contract or by failure to award the contract."

Subsequently, four protests were filed against agencies' decisions under the A-76 standard competition procedures that "contracting-out" the services would be more economical to the government. The four protests were:

In each case, the party bringing the protest was "the individual selected by a majority vote of affected employees to represent them on an OMB Circular A-76 competitive sourcing matter."

In all four cases, GAO dismissed the protest. "Our Office's statutory authority to hear bid protests is found in CICA, which establishes the standard for standing to file a protest by allowing a protest to be filed only by an 'interested party' with respect to a contract or a solicitation or other request for offers," wrote GAO. "We have consistently found that federal employees and their unions could not protest any aspect of an A-76 cost comparison under the prior Circular. We concluded that they did not meet CICA's definition of an 'interested party' and, therefore, as a matter of law, we lacked authority to consider their protests."

GAO points out that it had decided, under the previous A-76 version, that "neither individual federal employees, nor the in-house plan (the 'Most Efficient Organization' or MEO), nor the employees' union representatives was an offeror. In addition, we found that the MEO plan submitted in an A-76 cost comparison under the prior Circular was not an offer as defined under the (FAR) because the MEO was not responding to a solicitation (under the prior Circular, the solicitation applied only to private-sector competitors), nor would the MEO, if adopted, lead to the formation of a contract, which is a mutually binding legal relationship to perform the services. Indeed...no contract is awarded where the MEO prevails in the cost comparison."

GAO further explains that "the new Circular is more than a mere revision to the earlier one; it is essentially a new document that establishes new FAR-based ground rules for conducting A-76 competitions," and these significant changes caused GAO to reconsider the question of whether it should reach a different conclusion regarding the in-house entity's standing to file a protest at GAO.

GAO received 71 sets of comments in response to its June 13, 2003, request for comments: from members of Congress, agencies, unions, associations, federal employees, and private-sector lawyers -- some in favor, some against. Nevertheless, GAO concludes that CICA overrides the revised A-76: "The distinctions between the two versions of the Circular cannot properly make a difference in our position that, under the current statutory language in CICA -- which is the language we must look to in determining whether a party has standing to protest to our Office -- the in-house entity lacks standing to protest."

GAO concludes the decision by taking a most unusual action: "We recognize the concerns of fairness that weigh in favor of correcting the current situation, where an unsuccessful private-sector offeror has the right to protest to our Office, while an unsuccessful public sector competitor does not. As a result, consistent with the principles adopted unanimously by the Commercial Activities Panel in its April 2002 report, we are recommending that Congress consider amending CICA to allow protests to be brought on behalf of MEOs. Accordingly, by letter of today to the Chairman and Ranking Minority Member of the House Committee on Government Reform, the Senate Committee on Governmental Affairs, and the Senate and House Committees on Armed Services, we are transmitting a copy of this decision, with the suggestion that Congress may wish to consider amending CICA to provide for MEO standing." (EDITOR'S NOTE: The letter to Congress, which follows the decision, was signed by Daniel M. Walker, Comptroller General of the United States (the head of GAO). Mr. Walker chaired the Commercial Activities Panel, which studied the transfer of commercial activities performed by government employees to federal contractors and made several recommendations that became the basis for the revised A-76. For more on the Commercial Activities Panel principles and recommendations, see the May 1, 2002, FEDERAL CONTRACTS DISPATCH "General Accounting Office; Commercial Activities Panel Final Report.")

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