In- Or Out-: the Jurisdictional Confusion Over Challenges to Agency Decisions to In-Source

“In- or Out-:” The Jurisdictional Confusion Over Challenges to Agency Decisions to In-Source Contracted Work

By Gabriel D. Soll and Tara L. Ward*

“In-sourcing,” or the practice of moving functions performed by contractors back to federal employees,1 is a controversial yet critical topic as the federal government 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 * [Placeholder for brief author bios, still under review for appro val.]

1 Kate M. Manuel and Jack Maskell, Cong. Research Serv., R41810, I nsourcing Functions Performed by Federal Contractors: An Overvie w of the Legal Issues, Introduction (2011).

2 See National Defense Authorization Act for Fiscal Year 2006, Pub. L. No. 109-163 (Jan. 6, 2006). Section 343 required the Depart ment of Defense (“DoD”) to issue guidelines and procedures to en sure consideration was given to government personnel for work pe rformed under contracts. DoD subsequently issued guidance autho rizing conversion of contracted activities up to three percent o f a component’s spending and requiring independent review and au thorization if that threshold were to be exceeded, but the guida nce was later cancelled by National Defense Authorization Act fo r Fiscal Year 2008 § 324, Pub. L. No. 110-181 (Jan. 28, 2008).

3 See Presidential Memorandum on Government Contracting, 74 Fed. R eg. 9755 (Mar. 6, 2009); see also Omnibus Appropriations Act of 2009, Pub. L. No. 111-8 § 736 (Mar. 11, 2009) (requiring federal agencies, with the exception of the Department of Defense, to de velop and implement guidelines to govern in-sourcing decisions); Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 § 321, Pub. L. No. 110-417 (Oct. 14, 2008) (requiring the O ffice of Management and Budget to “review the definition of the term ‘inherently governmental function’ and develop a single con

1 promulgation of legislative and policy documents that pushed agencies to consider in-sourcing activities as a cost-saving measure. These initiatives represent a sea change to fifty years of contracting policy favoring procurement of commercial products and services.4

This change has already decreased the amount of work available to the government 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, agencies must not only devise methods of making in-sourcing decisions, but also manage the

“multi-sector workforces”—which includes supporting functions

sistent definition”).

4 Kate M. Manuel and Jack Maskell, Cong. Research Serv., R41810, I nsourcing Functions Performed by Federal Contractors: An Overvie w of the Legal Issues, 1-2 (2011) (comparing Bureau of the Budge t Bulletin No. 55-4 (Jan. 15, 1995) (“[The] Federal Government w ill not start or carry on any commercial activity to provide a s ervice or product for its own use if such product or service can be procured from private enterprise through ordinary business ch annels.”), with Bureau of the Budget Circular A-76 (Mar. 3, 196 6) (“The guidelines in this Circular are in furtherance of the G overnment’s general policy of relying on the private enterprise system to supply its needs.”), and Office of Management and Budg et Circular No. A-76 (Revised), May 29, 2003, at D-2 [hereinafte r “Circular A-76”] (“The longstanding policy of the federal gove rnment has been to reply on the private sector for needed commer cial services. To ensure that the American people receive maxim um value for their tax dollars, commercial activities should be subject to the forces of competition.”).

2 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

Amid this changing landscape, government contractors that are losing work to federal employees are searching 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 article explores the justiciability of in-sourcing determinations and highlights the tensions that exist in potential forums for resolving such disputes. Part One of this article 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. District Courts, and discusses the jurisdictional tension

5 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guideli nes, at 7 (2009).

6 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guideli nes, at 7 (2009); see also, Maj. Kevin P. Stiens and Lt. Col. (R et.) 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 hi ndered agencies from developing specific policies and procedures.

3 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 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 Einstein 8

4 Regardless of the term used or the method applied, for the last fifty-plus years the balance between paying contractors and paying Government 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 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 9 Some practitioners define “out-sourcing” narrowly, referring onl y to those contracts made outside of the Circular A-76 process. See Maj. Kevin P. Stiens and Lt. Col. (Ret.) Susan L. Turley, Un contracting: The Move Back to Performing In-House, 65 Air Force L. Rev. 145, 149 n. 20 (2009) (citing USLegal, Inc., Outsourcin g Law & Legal Definition, http://definitions.uslegal.com/o/outso urcing/ (last visited Sept. 20, 2011), and Bernard D. Rostker, A Call to Revitalize the Engines of Government 3 (2008)). This ar ticle uses the broader definition of out-sourcing.

10 11 National Defense Authorization Act for Fiscal Year 1990, Pub. L. No. 101-510, Nov. 5 1990.

5 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 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 12 10 U.S.C. § 129a.

13 U.S. Office of Management and Budget, Performance of Commercial Activities, 67 Fed. Reg. 69772 (Nov. 19, 2002) (identifying comp etitive sourcing, or “the process of opening the government’s co mmercial activities to the discipline of competition” as one of President Bush’s five main initiatives for improving the perform ance of Government).

6 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

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,

14 Kate M. Manuel and Jack Maskell, Cong. Research Serv., R41810, Insourcing Functions Performed by Federal Contractors: An Overvi ew of the Legal Issues 2 (2011) (citing U.S. Officer of Managem ent and Budget, Performance of Commercial Activities, 67 Fed. Re g. 69772 (Nov. 19, 2002); see also Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-sector Work force, July 29, 2009, available at http://www.whitehouse.gov/sit es/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) (Jan. 6, 2006).

16 National Defense Authorization Act for Fiscal Year 2006, Pub. L. No. 109-163 § 343 (Jan. 6, 2006) [hereinafter, FY2006 NDAA]. L eading up to the passage of FY2006 NDAA, however, were many year s of work and research. Notably, section 832 of the Floyd D. Sp ence National Defense Authorization Act of 2001, Pub. L. No. 10 6-398 (Oct. 30, 2000), mandated the Comptroller General to conv ene an expert panel to study “the policies and procedures govern ing the transfer of commercial activities for the Federal Govern ment 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 (Oct. 30, 2000). The st udy was to include the procedure governing which functions shoul d be considered, the economic analyses, DoD implementation of t he 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 “Comme rcial Activities Panel,” as came to be known, released its repor

7 required DoD guidelines to give “special consideration” to using

Government 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 t 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 “principle s” 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 a gency). 2) Utilize consistent human capital practices to attract and retain a federal workforce. 3) Recognize “inherently governmental functions” should be p erformed by federal personnel. 4) Develop practices to foster efficient and effective Gover nment organizations. 5) Make sourcing decisions based on a “clear, transparent, a nd consistently applied process.” 6) Avoid arbitrary or numerically-driven goals. 7) Establish processes to ensure that when work could be per formed 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 dec isions.

U.S. General Accounting Office: Commercial Activities Panel: Imp roving the Sourcing Decisions of the Federal Government, GAO-02- 866T, 46-5620-23 (Apr. 30June 26, 2002) (available at www.gao.go v/new.items/d02866t.pdf).

17 National Defense Authorization Act for Fiscal Year 2006, Pub. L. No. 109-163 § 343(a)(2)(A)-(D) (Jan. 6, 2006). In Section 343 (c), the FY06 NDAA linked the definition of “inherently governme

8 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

ntal function” to the Federal Activities Inventory Reform Act of 1998 (Pub. L. No. 105-270; codified at 31 U.S.C. § 501), which s tated that “‘inherently governmental function’ means a function that is so intimately related to the public interest as to requi re performance by Federal Government Employees.” 31 U.S.C § 501, (note (2006)).

18 Memorandum from the Under Secretary of Defense for Acquisition, Technology and Logistics to the Secretaries of the Military Depa rtments, et al., Implementation of Section 343 of the 2006 Natio nal Defense Authorization Act, July 27, 2007 (available at www.d odig.mil/audit/reports/fy08/08-111.pdf 19-20).

19 Id.Memorandum from the Under Secretary of Defense for Acquisiti on, Technology and Logistics to the Secretaries of the Military Departments, et al., Implementation of Section 343 of the 2006 N ational Defense Authorization Act, July 27, 2007 (available at w ww.dodig.mil/audit/reports/fy08/08-111.pdf 19-20).

20 Id.

9 Activities Inventory21 from the previous 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

21 Under the FAIR Act, Federal agencies are required to create an inventory of activities and not whether their function is “inher ently governmental,” “commercial exempt from private performanc e,” or commercial. The inventories include results of all publi c-private competitions under Circular A-76. See 10 U.S.C. § 246 2(b) (2006).

22 Implementation of Section 343 of the 2006 National Defense Auth orization Act, supra note Error: Reference source not found.Memo randum from the Under Secretary of Defense for Acquisition, Tech nology and Logistics to the Secretaries of the Military Departme nts, 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 (Jan. 28, 2008) [hereinafter FY2008 NDAA].

25 National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181 § 324 (Jan. 28, 2008) (codified at 10 U.S.C. § 246 3).

10 contracted work, but also to consider new functions as candidates for in-sourcing.26 The FY2008 NDAA also required that

“special 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

26 National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181 § 324(a) (Jan. 28, 2008); see also Kate M. Manuel a nd Jack Maskell, Cong. Research Serv., R41810, Insourcing Functi ons Performed by Federal Contractors: An Overview of the Legal I ssues 2 (2011).

27 National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181 § 324(b) (Jan. 28, 2008). Specifically, section 32 4(b) provided as follows:

(b) Special Consideration for Certain Functi ons.— The guidelines and procedures required under subsection (a) shall provide for speci al consideration to be given to using Depart ment of Defense civilian employees to perfor m any function that— (1) is performed by a contractor and— (A) has been performed by Department of Defe nse civilian employees at any time during th e previous 10 years; (B) is a function closely associated with th e performance of an inherently governmental function; (C) has been performed pursuant to a contrac t awarded on a non-competitive basis; or (D) has been performed poorly, as determined by a contracting officer during the 5-year p eriod preceding the date of such determinati on, because of excessive costs or inferior q uality; or (2) is a new requirement, with particular em phasis given to a new requirement that is si milar to a function previously performed by Department of Defense civilian employees or is a function closely associated with the pe rformance of an inherently governmental func tion.)

11 language prohibiting the use of public-private competition under

Circular A-76 for certain contracted functions unless additional 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

28 National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181 (Jan. 28, 2008) § 1676 (codified at 10 U.S.C. § 246 3(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. § 246 3(c)).

30 Valeria Bailey Grasso, R40854, Office of Management and Budget Circular A-76 and the Proposed Moratorium on Future DOD Competit ions: Background and Issues for Congress, 2. (2009), (citing , Dana Priest and Ann Hull, “Soldiers Face Neglect, Frustration at Army’s Top Medical Facility,” Washington Post, Feb. 18, 2007 at A1)..

12 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 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

31 Memorandum from the Under Secretary of Defense for Personnel an d Readiness to the Secretaries of the Military Departments, et a l., Implementation of Section 324 of the National Defense Author ization Act for Fiscal Year 2008 – Guidelines and Procedures on In-sourcing New and Contracted Out Functions, Apr. 4, 2008 (avai lable at http://prhome.defense.gov/RSI/REQUIREMENTS/docs/OSD%20I n-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 c ostly” means of staffing.

13 mission requirements.33 As required by the FY2008 NDAA,34 the

Inspector 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 33 Memorandum from the Under Secretary of Defense for Personnel an d Readiness to the Secretaries of the Military Departments, et a l., Implementation of Section 324 of the National Defense Author ization Act for Fiscal Year 2008 – Guidelines and Procedures on In-sourcing New and Contracted Out Functions, Attach. 2 at 2, A pr. 4, 2008 (available at supra note Error: Reference source not found (specifying that the economic analyses must include elemen ts to create a like comparison appropriate to the circumstances).

34 National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181 § 324 (Jan. 28, 2008) (codified at 10 U.S.C. § 2463 (b)) (requiring a report from the Department of Defense Inspecto r General within 180 days after enactment).

35 DoD IG Report to Congress on Section 324 of the National Defens e Authorization Act for Fiscal Year 2008 – Review of DoD Guideli nes on Considering Civilians for New and Contracted Functions, R eport No. D-2008-111 at 7, July 23, 2008, (available at www.doed ig.mil/audit/reports/fy08/08-111.pdf).

14 functions,” historically immune from out-sourcing. Indeed, by

2009, the definition of “inherently governmental” had become

“blurred.”36

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 36 See Presidential Memorandum on Government Contracting, 74 Fed. Reg. 9755 (Mar. 6, 2009); see also OMB 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. 9755 (Mar. 6, 2009).

38 Presidential Memorandum on Government Contracting, 74 Fed. Reg. 9755 (Mar. 6, 2009).

15 “line between inherently governmental . . . and commercial activities . . . has been blurred and inadequately defined.”39

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 39 Presidential Memorandum on Government Contracting, 74 Fed. Reg. 9755, 9756 (Mar. 6, 2009).

40 Duncan Hunter National Defense Authorization Act for Fiscal Yea r 2009, Pub. L. No. 110-417 § 321, (Oct. 14, 2008) [hereinafter FY2009 NDAA].

41 Duncan Hunter National Defense Authorization Act for Fiscal Yea r 2009, Pub. L. No. 110-417 § 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) (Mar. 9, 2009). But see supra note

16 inherently governmental functions, it does not provide a 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

27. FAR Subpart 7.5 points to a definition of “inherently gover nmental” that is intended to assist in policy creation rather th an legal distinction.

43 FAR 7.503(c)(1)-(20). The functions listed relate primarily to investigation and prosecution of individuals, control of militar y and foreign policy, determination of agency policy or the dire ction of federal employees, Freedom of Information Act determina tions, and financial functions such as control of treasury accou nts 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 bor derline functions include further reaching activities such as ac quisition planning, analyses and/or conduct of studies to assist in policy determinations, contractor evaluations, provision of s urveillance, and other functions specifically left to the agenci es to determine. FAR 7.503(d).

17 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 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 government.47 To clarify the process with regard to civilian agencies, the Omnibus Appropriations Act of 2009

45 46 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 (Mar. 9, 2009) (effectively prohibiting any f unds from being used to begin or announce an A-76 competition).

18 required non-DoD agencies subject to the FAIR Act to develop guidelines to aid 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, the 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

48 Omnibus Appropriations Act of 2009, Pub. L. No. 111-8, Division D, Title VII § 736 (Mar. 9, 2009).

49 50 Omnibus Appropriations Act of 2009, Pub. L. No. 111-8, Division D, Title VII § 736 (b)(4) (Mar. 9, 2009).

51 Memorandum from the Deputy Secretary of Defense for Personnel a nd 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/REQUIR EMENTS/docs/DepSecDef%20Memo%20In-sourcing%20Contracted%20Servic es-Implementation%20Guidance%20(28%20May%2009)%20(OSD%2005339-0 9).pdf).

19 for new civilian hires.52 The guidance was intended to help DoD components 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

52 Memorandum from the Deputy Secretary of Defense for Personnel a nd 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/REQUIRE MENTS/docs/DepSecDef%20Memo%20In-sourcing%20Contracted%20Service s-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. RMD 802 included a realig nment plan for FY2010-2014 which included increased funding for civilian manpower and overall decrease in funding for contracted support.

53 Memorandum from the Deputy Secretary of Defense for Personnel a nd 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/REQUIRE MENTS/docs/DepSecDef%20Memo%20In-sourcing%20Contracted%20Service s-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 a nd 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.defe nse.gov/RSI/REQUIREMENTS/docs/DepSecDef%20Memo%20In-sourcing%20C ontracted%20Services-Id. at Atachment 1 at 4.Implementation%20Gu idance%20(28%20May%2009)%20(OSD%2005339-09).pdf).

20 required evaluation of current contracts and concluded by identifying five 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 a nd Readiness to the Secretaries of the Military Departments, et al., In-sourcing Contracted Services - Implementation Guidance, May 28, 2009,Id. at Attachment 1 at 7-86-7 (noting that if a fun ction were to become “inherently governmental” by virtue of a ch ange 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://prho me.defense.gov/RSI/REQUIREMENTS/docs/DepSecDef%20Memo%20In-sourc ing%20Contracted%20Services-Implementation%20Guidance%20(28%20Ma

21 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 the 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

y%2009)%20(OSD%2005339-09).pdf)

56 Presidential Memorandum on Government Contracting, 74 Fed. Reg. 9755, 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 Sep tember 30, 2009).

58 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/memoran da_fy2009/m-09-26.pdf

22 is essential to effective Government performance.”59 The memorandum opined that “[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, the 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 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/memoran da_fy2009/m-09-26.pdf

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/memoran da_fy2009/m-09-26.pdf

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.pdf. The framework begins from the premise that agencies should not base their decisions on a d esired outcome (to in-source or out-source), but rather on missi on and full programmatic considerations. As such, the framework considers workforce planning, whether a function can be contract ed out, cost analysis, required management, and organizational c ohesion. The guidelines suggest, but do not specify, that the p rocess should be “reasonable and impartial.”

62 Peter R. Orzag, Director, U.S. Office of Management and Budget, Managing the Multi-Sector Workforce, Attachment 2, July 29, 2009,

23 and (3) follow specific guidelines when considering in- sourcing.63 The guidelines also provided separated 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 available at http://www.whitehouse.gov/sites/default/files/omb/ assets/memoranda_fy2009/m-09-26.pdf. The program to be analyzed was to be identified to the Office of Management and Budget by O ctober 1, 2009, with a full report on the analysis to be submitt ed by April 30, 2010.

63 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 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

24 programs at risk of 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

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.pdf. A “personal services contr act” is defined by the Federal Acquisition Regulation as one cha racterized by an employer-employee relationship between the Gove rnment and contractor personnel. 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 serv ices.

25 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, tThe memorandum recognized, however, 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

71 72 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.

26 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 Omnibus Appropriations Act of 2009, Pub. L. No. 111-8, Division D, Title VII § 736 (Mar. 9, 2009). Special consideration was to be given for functions that: (1) had been performed by Governmen t employees since late 1980; (2) were closely associated with th e 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 conside ration noted above is that agencies are required to give the con sideration prior to “pursuit or non-pursuit of a contract actio n.” Peter R. Orzag, Director, U.S. Office of Management and Bud get, Managing the Multi-Sector Workforce, Attachment 3, July 29, 2009, available at, http://www.whitehouse.gov/sites/default/file s/omb/assets/memoranda_fy2009/m-09-26.pdf.

75 If the answer to this question was “yes,” the agency was direct ed to “develop and execute hiring and/or development plans and s ecure the necessary funding to support the needed in-house capac ity.” If “no,” the agency was to proceed to question two.

76 If the answer to this question was “yes,” the agency was instru cted to commence more detailed analysis of in-sourcing options t hat reflects the complexity and importance of the identified fun ction to the agency’s mission. If “no,” the agency could not co nsider in-sourcing options unless performance risks outweighed t he cost considerations.

27 The Government Accountability Office (“GAO”) analyzed the actions taken by the 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 The GAO’s report concluded that the 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

The report noted several challenges identified by the civilian agencies in approaching the development of in-sourcing 77 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidel ines, Introduction (2009).

78 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidel ines, at 4 (2009).

79 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidel ines, at 6 (2009). The civilian agencies chosen for review were the Department of State, General Services Administration, Depart ment of Health and Human Services, Department of Homeland Securi ty, Department of Justice, NASA, Department of Energy, Departmen t of Transportation, and the Department of Veterans Affairs, as they accounted for more than 80% of civilian spending. Accordin g to the report the agencies offered the following excuses for t he delay: waiting to ensure compliance with the July Office of M anagement and Budget memorandum; awaiting additional guidance re garding the definition of “inherently governmental;” awaiting th e results of pilot program studies and intending to use those re sults to better-inform the decision making process; and stressin g that these are difficult guidelines and decisions and that to do them properly takes time.

28 guidelines. Agency officials stated that there had to 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 pointed to limited budget and resources as constraining the development of in-sourcing efforts and policies.84

80 81 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidel ines, at 7 (2009).

82 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidel ines, at 7 (2009). According to the report, agencies disagreed a s 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.

83 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidel ines, at 7-8 (2009).

84 U.S. Gov’t Accountability Office, GAO-10-58R, Insourcing Guidel ines, at 8 (2009).

29 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 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, the 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 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, the DoD submitted its report to the GAO as a step in attempting to have the prohibition lifted. 87 The GAO found the report complied with the statutory

85 FY2010 NDAA, Pub. L. No, 111-84 § 325 (2009).

86 FY2010 NDAA, Pub. L. No, 111-84Id. at § 325(b) (2009).

30 requirements, but no action to lift the moratorium has been taken as of the time of this writing.88

In March 2010, 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, the OFPP issued Policy Letter

11-01 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 the definition of

“inherently governmental.” The OFPP opted to adopt the

88 GAO-11-923R; DOD Public-Private Competitions 11, Sept. 26, 2011.

89 Work Reserved for Performance by Federal Government Employees, 75 Fed. Reg. 16,188-97 (Mar. 31, 2010).

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. 56,227-28 (Sept. 12, 2011).

31 definition given in the FAIR Act, which defined an “inherently governmental function” as “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 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

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, at 56,236 (Sept. 12, 20 11).

93 According to the Policy Letter, these function include: (1) the binding of the Federal Government through contract, policy, regu lation, authorization, order, or otherwise to take or not to tak e a particular action; (2) undertaking military, diplomatic, civ il or criminal judicial proceedings, managing contracts or other wise taking actions which determine, protect or advance the inte rests of the United States; (3) functions which interpret or exe cute laws which “significantly” affect life, liberty, or propert y of private persons; ( 4) commissioning, appointing, hiring or directing employees of the United States; and (5) exercising “ul timate control” over United States property by acquisition, use, or disposal thereof, include the appropriation or disbursement o f funds in support of such activities. Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Perfor mance of Inherently Governmental and Critical Functions, 76 Fed. Reg. 56,227, at 56,236 (Sept. 12, 2011) (supplemented by Appendi x A, 76 Fed. Reg. 56,240-41). This list expands, in number and d etail, the list in FAR Subpart 7.503(c).

32 officials, and functions considered which are “internal and ministerial” 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 agencies to give “special consideration” to the use of

Federal 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

94 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, 20 11) (giving examples such as building maintenance and security, cafeteria and mail operations, motor vehicle fleet management, e tc.).

95 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, 20 11) (supplemented by Appendix B, 76 Fed. Reg. 56,241). Appendix B provides examples of functions which are “generally not consid ered to be inherently government but are closely associated” to such functions. A note indicates that this list does not includ e specific positions, but rather that a particular description m ay encompass multiple activities. The listed functional areas l argely consist of supporting activities but also encompass certa in services including some areas requiring differentiation from inherently governmental functions (i.e., “non-law-enforcement se curity activities that do not directly involve criminal investig ations”).

33 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, by nature exercised the sovereign powers of the United States or requires the exercise of discretion 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

The significance of the Policy Letter should not be overlooked in discussing jurisdiction over challenges to in- sourcing decisions. As this construct has been chosen to draw the lines around which functions can and cannot be contracted out, it is critical to the understanding of the policies and 97 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, 20 11). “Critical functions” are defined by the Policy Letter as a function “that is necessary to the agency being able to effectiv ely perform and maintain control of its mission and operations. Typically, critical functions are recurring and long-term in dur ation.” To assist in the identification of “critical function s,” the Policy Letter outlines the considerations an agency shou ld take into account and notes that each agency will need to exe rcise informed judgment to make these determinations. 76 Fed. R eg. 56,238.

98 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 56,237-38 (Sept. 12, 2011).

34 regulations which must flow from that point. Primarily, this 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.99 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.100

That said, the Policy Letter specifically noted that it was intended only as policy guidance to agencies.101 In particular, 99 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).

100 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 56,239-40 (Sept. 12, 2011) (stating that work which has been performed by small busin esses that is not inherently governmental and does not threaten a loss of agency control or operations should take lower priorit y 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 instru cts that Far Subpart 19.5 should govern any decision to set asid e the work for small businesses.

101 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, 201 1).

35 the letter expressly denied that it creates any substantive or procedural rights that could be enforced.102 As the policies and decisions made pursuant to this guidance decrease the availability of federal contracting opportunities, there will have to 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

“Do I contradict myself? Very well then, I contradict myself. I am large; I contain multitudes.”

— Walt Whitman 103

It should not be surprising that businesses have attempted to challenge in-sourcing decisions that affect the contracts

102 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 bee n issued pursuant to Congressional grant of authority and contai n 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 S ervices 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).

36 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 Federal district courts or the Appellate Circuits regarding whether district courts may hear such matters.

a. Legal Background

U.S. Districts Courts enjoy general jurisdiction over questions of federal law, including matters brought under the

APA.104 The APA permits challenges to federal agencies’ actions and defines the standards by which they are judged.105 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.106

Additionally, the APA gives courts authority to review agency 104 28 U.S.C. § 1331.

105 See generally 5 U.S.C. § 706.

106 5 U.S.C. § 706(2)(A).

37 actions which are unconstitutional,107 in excess of statutory authority,108 unsupported by substantial evidence with regards to rule-making or adjudications,109 or do not comport with the facts to the extent that those facts are reviewable by the court.110

Finally, the APA requires a reviewing court to overturn an agency action that is “without observance of procedure required by law.”111

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 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.”112

107 5 U.S.C. § 706(2)(B).

108 5 U.S.C. § 706(2)(C).

109 5 U.S.C. § 706(2)(E).

110 5 U.S.C. § 706(2)(F).

111 5 U.S.C. § 706(2)(D).

38 However, oOther, more recent cases, however, distinguish between a substantive rule (i.e., one that must be published in the Federal Register as a regulation113) and an interpretive rule

(e.g. guidance, statements, and other internal procedures). 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.114 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 opposed to interpretive rule, policy statements, or rules of agency organization, procedure or practice); and (2) did the regulation conform to certain procedural requirements.115

The first step in this analysis is to decide if the promulgation is a “substantive rule.” Building on long-standing

112 Pacific Pac. Molasses Co. v. Fed. Trade Comm’n., 356 F.2d 386, 389-90 (5th Cir. 1966).

113 See Nat’l Org. of Veterans’ Advocates, Inc. v. Sec’y of Veteran s Affairs, 260 F.3d 1365, 1374-75 (Fed. Cir. 2001).

114 See generally Farrell v. Dep’t of the Interior, 314 F.3d 584, 5 90-91 (Fed. Cir. 2002).

115 United States v. Alameda Gateway, Ltd., 213 F.3d 1161, 1168 (9t h Cir. 2000) (citing United States v. Fifty-Three Eclectus Parro ts, 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).

39 precedent, the Ninth Circuit determined that substantive rules are “legislative in nature, affecting individual rights and obligations.”116 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.”117 Because of their ability to determine the rights of individuals, manuals delineating entitlement to government benefits118 and procedures for grant-funding119 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

116 James v. United States Parole Comm’n, 159 F.3d 1200, 1206 (9th Cir. 1998) (quoting Fifty-Three Eclectus Parrots, 685 F.2d at 1136)..

117 Service v. Dulles, et al., 354 U.S. 363, 376 (1957); see also V itarelli v. Seaton, 359 U.S. 535, 539 (1959).

118 See Morton v. Ruiz, 415 U.S. 199, 235 (1974).

119 See Massachusetts Fair Share v. Law Enforcement Assistance Admi n., 758 F.2d 708, 711 (D.C. Cir. 1985).

40 they tend to interpret rather than create rights.120 This principle derives from case law governing challenges to decisions allegedly not in compliance with published manuals.121

The APA is significant as it is one of few statutes that expressly waives the Government’s sovereign immunity from

120 United States v. Alameda Gateway, Ltd., 213 F.3d 1161,at 1168 (9th Cir. 2000) (citing James v. United States Parole Comm’n, 15 9 F.3d 1200,at 1206; (9th Cir. 1998) and Western W. Radio Servic e Serv. CompanyCo., Inc. v. Espy, 79 F.3d 986, 901 (9th Cir. 199 6)).

121 For example, the Ninth Circuit found that a U.S. Army Corps of Engineers “Engineering Regulation” regarding the exercise of “fe deral authorities” to remove private property was non-binding as a regulation because it merely provided guidance, essentially “m emorializing the agency’s general policy.” United States v. Ala meda Gateway, Ltd., 213 F.3d 1161, at1168 (9th Cir. 2000) (citin g James v. United States Parole Comm’n, 159 F.3d 1200,at 1206 (9 th Cir. 1998); Western W. Radio Service Co.. v. Espy., 79 F.3d 9 86,at 901 (9th Cir. 1996)). Similarly, the Court of Appeals for the District of Columbia Circuit found that a National Transport ation Safety Board pronouncement regarding its investigative pro cess was not binding on the agency because there was no intent t o be bound nor a creation of private rights. Chiron Corp. & Per ceptive Biosystems, Inc. v. Nat’l Trans. Safety Board, et al., 1 98 F.3d 935, 943-44 (D.C. Cir. 1999) (discussing the Board’s “In formation for the Guidance of Parties to Safety Board Investigat ions of Accident” and considering whether petitioners suffered a n “informational injury” by virtue of not being given informatio n as a part of the Board’s investigation). Finally, federal cou rts routinely find that sentencing guidelines, penalty matrices, and other such tables are not usually binding as law because the y often demonstrate guidance for a range of offenses and still r equire judgment on the part of the agency official. See Farrell v. Dep’tt. of the Interior, 314 F.3d 584, 5910-92 (Fed. Cir. 200 2) (ruling that a National Park Service manual entitled “Discipl ine 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 applic ation one need only determine whether a given case is within the

41 lawsuits.122 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.”123 With regard to government procurements and contracts, the Tucker Act,124 as amended by ADRA,125 waives immunity from suits, but reserves rule’s criteria.” Farrell v. Dept. of the Interior, 314 F.3d 584, 590-92Id. at 592 (Fed. Cir. 2002) (quoting Ryder Truck Lines, I nc. v. United States, 716 F.2d 1369, 1377 (11th Cir. 1983);(quot ing Prof’ls & Patients for Customized Care v. Shalala; 56 F.3d 5 92, 597 (5th Cir. 1995) see also Rapp v. U.S. Dept. of Treasury Office of Thrift Supervision, 52 F.3d 1510, 1522 (10th Cir. 199 5) (finding that the agency could vary from a penalty matrix tha t was published in the Federal Register to impose a more severe sentence when the publication noted that it was intended for gui dance and not a “substitution for sound supervisory judgment”).

122 5 U.S.C. § 702; see United States v. Dalm, 494 U.S. 596, 608 5 48 (1990) (the doctrine of federal sovereign immunity is often d ebated as a jurisprudential question, but “is in no danger of fa lling out of official favor” in the law); Gregory C. Sisk, The C ontinuing Drift of Federal Sovereign Immunity Jurisprudence, 50 Wm. & Mary L. Rev. 517, 528 (2009) (citing Laurence H. Tribe, Am erican Constitutional Law § 3-25 at 520 (3d ed. 2000)).

123 5 U.S.C. § 702; see also Ruckelshaus v. Sierra Club, 463 U.S. 6 80, 685 (1983) (holding that s“[s]uch a waiver of sovereign immu nity must be strictly construed in favor of the sovereign and ma y not be extended beyond the explicit language of the statute”).

124 Originally, the Tucker Act of 1887 (24 Stat. 505) was enacted t o alleviate some of the burden on Congress to hear claims arisin g from the Civil War (and beyond) by creating jurisdiction in th e Court of Claims (later renamed the Court of Federal Claims) fo r all claim against the Federal Government. See Floyd D. Shimom ura, The History of Claims Against the United States: The Evolu tion 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.

125 Administrative Dispute Resolution Act of 1996, Pub. L. No. 104- 320, § 12, 110 Stat. 3870, 3874 (codified at 28 U.S.C. § 1491(b)

42 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.”126 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 amendment, however, officially removed this jurisdictional arrangement.127 (1)). (1996).

126 Id. 28 U.S.C. § 1491(b)(1).

127 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 Court bid protest jurisdiction base d on an “implied-in-fact” theory. Info.rmation Sciencesence Corp. poration v. United States, 85 Fed. Cl. 195 (2008) (citing Southf ork Sys.tems, Inc. v. United States, 141 F.3d 1124, 1132 (Fed. C ir. 1998). Prior to amendment, the Tucker Act’s grant of jurisd iction in this regard extended only to an alleged breach of “an implied contract to have the involved bids fairly and honestly c onsidered” 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 an d provided no standing to aggrieved bidders wishing to protest). ADRA sought to “unify bid protest law under one standard.” Emer y Worldwide Airlines, Inc. v. United States, 264 F.3d 1071, 1084 (Fed. Cir. 2001) (noting that a purpose of ADRA was to prevent

43 The question of how to classify in-sourcing decisions is plaguing the federal courts as more decisions are questioned.128

As discussed below, the U.S. district courts are reaching 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 “forum shopping and to promote uniformity in government procurem ent award law”). However, the Court of Federal Claims has conti nued to wrestle with the question of whether or not the implied- in-fact jurisdiction survived ADRA. See L-3 Communications Inte grates Systems, L.P. v United States, 92 Fed. Cl. 232, 249-50 (2 010) (recognizing jurisdiction over a bid protest matter invokin g both types of jurisdiction rather than implying repeal). Foll owing the passage of ADRA, the APA’s “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” st andard governs. Castle-Rose, Inc. v. United States; -- Fed. Cl. -- , 2011 WL 2550871 (June 23, 2011). Prior to that, if a matte r was heard under pre-ADRA Tucker Act jurisdiction, such protest would be decided under a “fairly and honestly” standard announce d in the statute. Heyer Products Co. v. United States, 140 F. Su pp. 409, 412 (1956).

128 See Robert Brodsky, Tell it To The Judge, Government Executive, Nov. 1, 2010 (available at http://www/govexec.com/features/1110- 01/1110-01na2.mth).

44 decision under the APA.129 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. 130 K-Mar alleged that the Army did not comply with in-sourcing procedures. 131

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

U.S.C. § 1331, a statute conferring jurisdiction over questions of federal law to the federal courts.132 The court reasoned that the APA demonstrated the consent to suit, waiving the United

States’ sovereign immunity.133

Noting the APA’s jurisdictional bar where another statute

“expressly or impliedly forbids the relief,”134 the court then directed its attention to the strain between the Tucker Act (as

129 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207 (W.D. Okla. Nov. 4, 2010).

130 131 132 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207, 1210 (W.D.Okla. Nov. 4, 2010).

133 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 A partments Ltd., v. U.S. Department of Housing & Urban Developmen t, 554 F.3d 1290, 1295 (10th Cir. 2009) and 5 U.S.C. § 702).

134 5 U.S.C. § 702.

45 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 Court 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 ADRA135 and a Federal Circuit decision, the court stated that an interested party is an

“actual or prospective bidder or offeror whose direct economic interests would be affected by the award of the contract or by failure to award the contract.”136 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.137 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.138 Instead, the district court ruled that K-Mar had 135 ADRA borrows its definition of “interested party” from the Comp etition in Contracting Act (“CICA”) at 31 U.S.C. §3551(2).

136 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207, 1211 (W.D. Okla. Nov. 4, 2010) (quoting American Federation of Government Employees, AFL-CIO v. United States, 25 8 F.3d 1294, 1302 (Fed. Cir. 2001) (emphasis in original).

137 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207, 1211 (W.D. Okla. Nov. 4, 2010).

138 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207, 1211 (W.D. Okla. Nov. 4, 2010) (citing American F ederation of Government Employees, AFL-CIO v. United States, 258

46 “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.”139

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 procurement or proposed procurement,” focusing on the definition of “procurement” as a determinant of subject matter jurisdiction.140 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.”141

The court did not accept the Government’s position that this definition included the decision “whether there is a need” F.3d 1294, 1302 (Fed. Cir. 2001)).

139 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).

140 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207, 1211 (W.D. Okla. Nov. 4, 2010) (citing 28 U.S.C. § 1491(b)(1)) (emphasis added).

141 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207, 1212 (W.D. Okla. Nov. 4, 2010) (quoting Distribut ed Solutions, Inc. v. United States, 539 F.2d 1340, 1345 (Fed. C ir. 2008)).

47 for the property and services, thus implicating the Tucker Act’s exclusive jurisdiction in the Court of Federal Claims.142

Specifically, the court found that the matter was limited in scope to the procedural questions and did not involve a contract dispute.143 As there was no implication of a bar to jurisdiction that would prevent the court from undertaking an APA review, the court denied the Motion to Dismiss on that ground.144

143 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207, 1214 (W.D. Okla. Nov. 4, 2010);

144 K-Mar Industries v. U.S. Department of Defense, et al., 752 F. Supp. 2d 1207, 1214 (W.D Okla. Nov. 4, 2010). While not germane to the subject of this article, the K-Mar decision also denied t wo other theories of the Motion to Dismiss, the first relating t o the applicability of the Contract Disputes Act (“CDA”), and th e second relating to a Freedom of Information Act (“FOIA”) claim raised in the complaint. In denying the former, the Court found that there was no action relating to a government contract which would invoke the CDA, 41 U.S.C. §7105(a). In addition, the Sixt h Circuit had previously held that when a claim is “essentially contractual in nature,” the CDA confers exclusive jurisdiction t o 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-M ar Court ruled that the classification of whether or not an acti on is “essentially contractual” rests “on both the source of the rights upon which the plaintiff bases its claim, and upon the ty pe of relief sought or appropriate,” not on how the issue is cha racterized by the plaintiff. Id. The court found that the righ ts asserted by the plaintiff were not grounded in contract, nor was the requested relief contractual in nature. With these conc lusions, the court denied the Government’s motion because the ac tion was not within the scope of the CDA. In denying the latter theory of the motion relating to the FOIA request, the Court hel d that K-Mar had pursued its request diligently enough so as to consider the administrative remedies to have been exhausted.

48 The K-Mar Court 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”).145 There, Normandy Apartments sought 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.146

The district court dismissed both the regulatory and contractual claims.147

On appeal, the Circuit determined that the district court did not have jurisdiction over the breach of contract claim.148

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

145 Normandy Apartments, Ltd. v. U.S. Department of Housing and Urb an Development, et al., 554 F.3d 1290 (10th Cir. 2009).

146 Normandy Apartments, Ltd. v. U.S. Department of Housing and Urb an Development, et al., 554 F.3d 1290, 1297-98 (10th Cir. 2009).

147 Normandy Apartments, Ltd. v. U.S. Department of Housing and Urb an Development, et al., No. CIV-07-1161-R, 2007 WL 3232610 (W.D. Okla., Nov. 1, 2007).

148 Normandy Apartments, Ltd. v. U.S. Department of Housing and Urb an Development, et al., 554 F.3d 1290, 1300-01 (10th Cir. 2009).

49 plaintiff bases its claims, and upon the relief sought.”149

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 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.” 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.”150

The K-Mar Court relied on this reasoning to find that it had jurisdiction over a challenge to the Government’s compliance with its own in-sourcing procedures.151 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.

149 Normandy Apartments, Ltd. v. U.S. Department of Housing and Urb an Development, et al., 554 F.3d 1290, 1299 (10th Cir. 2009).

150 Normandy Apartments, Ltd. v. U.S. Department of Housing & Urban Development, et al., 554 F.3d 1290, 1299-1300 (10th Cir. 2009) (quoting Megapulse, Inc. v. Lewis, 672 F.2d 959, 968 (D.C.Cir. 1 982); Robbins v. U.S. Bureau of Land Management, 438 F.2d 1074, 1083-04 (10th Cir. 2006)).

50 c. Federal Courts Denying Jurisdiction

In stark contrast to the K-Mar decision, other U.S. district courts have explicitly declined to exercise jurisdiction. In Vero Technical Support, Inc. v. U.S.

Department of Defense,152 and Rothe Development, Inc. v. U.S.

Department of Defense,153 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.154

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.155

152 Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d 1336 (S.D. Fl. 2010), aff’d 2011 WL 3501843 (11th Ci r Aug. 10, 2011).

153 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824 (W.D. Tx. Nov. 3, 2010).

154 Vero Technical Support, 733 F. Supp. 2d at 1338-39.Vero Technic al Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d 1336, 1139 (S.D.Fl. Aug. 18, 2010).

155 Vero Technical Support, 733 F. Supp. 2d at 1339. Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d 133 6, 1339 (S.D.Fl. Aug. 18, 2010).

51 Vero Tech. filed its suit seeking injunctive relief,

“carefully defin[ing] its cause of action” in an attempt to invoke the general jurisdiction of the U.S. district court.156

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.157 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.158 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. 159

The court agreed, focusing on the language granting jurisdiction to the Court of Federal Claims, and the surrounding 156 Vero Technical Support, 733 F. Supp. 2d at 1340.Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d 133 6, 1340 (S.D.Fl. Aug. 18, 2010).

157 Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d 1336, 1340 (S.D.Fl. Aug. 18, 2010).Id.

158 Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d 1336, 1340 (S.D. Fl. 2010)Id. (alleging that the Gov ernment failed to account for the costs of benefits to personnel, the costs for using government vehicles in the performance of t he work, that it “misclassified” the personnel needed, and final ly, that the estimated cost of contractor performance was grossl y disparate from actual costs).

159 Id.

52 interpretations thereof. In particular, the court quoted CICA,

41 U.S.C. § 1491, noting that the Court of Federal Claims must hear cases of “alleged violation of statute or regulation in connection with a procurement or proposed procurement.” 160

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.”161 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.”162

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 offeror.”163 Agreeing with the Government, the court

160 Vero Technical Support, 733 F. Supp. 2d at 1340-41. 161 Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d at1336, 1342 (S.D. Fl. 2010) (citing Resource Conser vation Group, LLC v. United States, 597 F.3d 1238, 1244 (Fed. Ci r. 2010) (challenge to a Government decision to lease land that it already owned ruled to be “not procurement related”)).

162 Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d at1336, 1342.0 (S.D. Fl. Aug. 18, 2010).

163Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d at 1336, 1342-433 (S.D. Fl. Aug. 18, 2010).

53 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.”164

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. 165 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. 166 Without resolving the question, the court allayed that fear by noting the Government had taken an official position for that Court’s jurisdiction which could be used against it, if such an argument were presented.167 Second, the court indicated a tension regarding the proper form of

164 Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d at1336, 1343 (S.D. Fl. 2010) (citing Roxco, Ltd. v. United States, 1999 WL 160609 (Fed. Cir. 1999), for the proposit ion that a plaintiff can be an “interested party” when there is a possibility of a later solicitation for the same work).

165 Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d at 1343. 166 Id. 167 Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d at1336, 1343 (S.D. Fl. Aug. 18, 2010).

54 action. Specifically, would a challenge to an in-sourcing 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.168 Again, the district court did not resolve these questions.169

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

168 Vero Technical Support, Inc. v. U.S. Department of Defense, 733 F. Supp. 2d at 1336, 1343-44 (S.D. Fl. Aug. 18, 2010).

169 Following this decision, Vero Tech. appealed to the Eleventh Ci rcuit Court of Appeals. In Vero Technical Support, Inc. v. U.S. Department of Defense, No. 10-14889, 2011 WL 3501843 (11th Cir. Aug. 10, 2011), the Eleventh Circuit affirmed the district cour t’s rulings. Vero Tech argued that jurisdiction should not fall within the Tucker Act because the claim did not involve a violat ion of statute or regulation, was not “in connection with a pro curement,” and Vero Tech was not an “interested party” as requir ed by the law. The appellate court disagreed with all three poi nts. First, the court found that the allegations that the Agenc y violated its internal in-sourcing procedures amounted to a vio lation of law or regulation. Relying on the precedent set in Di stributed Solutions, Inc. v. United States, 539 F.3d 1340 (Fed. Cir. 2008), the court found that matter did involve a “procureme nt” because it dealt with the determination of a need for proper ty or services. Finally, relying on Vero Tech.’s own characteri zation that it would be “injured under its contract by not havin g an option extended due to the in-sourcing decision,” the Court of Appeals was able to rule that Vero Tech. was an “interested p arty” for the purpose of the jurisdictional analysis. The Eleve nth Circuit also declined to analyze whether or not an in-sourci ng decisions should fall under the CDA’s jurisdictional grant to the Court of Federal Claims.

55 performing under contract at the Minneapolis-St. Paul Air

Reserve Station since 1987.170 The complaint alleged that the decision to in-source the work violated 10 U.S.C. § 2463171 and the internal regulations and in-sourcing procedures.172

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.’”173

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.174 170 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824 at *1 (W.D. Tx. Nov. 3, 2010).

171 See, infra Sec. I.a. At the time, 10 U.S.C. § 2463 required th e Department of Defense to develop in-sourcing policy guidelines and to give “special consideration” to certain functions as a po tential requirement to in-source.

172 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824, at *1 (W.D. Tx. Nov. 3, 2010).

173 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824, at *1 (W.D. Tx. Nov. 3, 2010). RDI also alleged that t he Air Force unlawfully withheld materials requested through the Freedom of Information Act (“FOIA”). This article will not disc uss the FOIA request as it is not directly pertinent to the juri sdictional topic.

56 In dismissing the matter, the Rothe Court picked up the same line of reason as the Vero Tech. Court, 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.175 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.”176 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,177 the

175 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824, at *3 (W.D. Tx. Nov. 3, 2010) (citing Resource Conserva tion Group, LLC v. United States, 597 F.3d 1238, 1244 (Fed. Cir. 2010)).

176 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824, at *3 (W.D. Tx. Nov. 3, 2010) (citing Distributed Solut ions, Inc. v. United States, 539 F.3d 1340 (Fed. Cir. 2008) and RAMCOR Services Group, Inc. v. United States, 185 F.3d 1286, 128 9 (Fed. Cir. 1999)).

177 Supra note Error: Reference source not found20. The Memorandum stated:

DoD Components shall perform an economic analysis to d etermine whether DoD civilians or private sector conta ctors are the low cost provider and should perform the

57 court 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.”178 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.”179

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. 180 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 work. Qualified cost analysts/experts shall perform t he analyses using cost factors/models that account for the full costs of manpower, as appropriate, and make “like comparisons” of all relevant costs. Decisions o n which costs to include (e.g., overhead, facilities, equipment, suppliedsupplies, health and retirement ben efits) shall depend on what is needed to achieve “like comparisons” and whether the costs are of sufficient m agnitude to influence the final decision.

180 Rothe Development, Inc. v. United States Department of Defense, No. SA-10-CV-743-XR, order at 9 (W.D. Tx. Nov. 3, 2010).

58 the 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.181 In so reasoning, the court undertook a “zone of injury” 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.182

The district court dismissed the action finding that it lacked jurisdiction. 183 RDI moved the court to alter or amend its judgment in light of the recently available K-Mar decision.184

The court denied this motion, noting that the mere fact that two courts came to opposite conclusions does not automatically

181 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824, at *5 (W.D. Tx. Nov. 3, 2010) (emphasis added).

182 Rothe Development, Inc. v. U.S. Department of Defense, 2010 WL 4595824, at *5 (W.D. Tx. Nov. 3, 2010) (the “zone of interest” a nalysis notes that to have standing to bring an action under the APA a plaintiff must have been cause an injury in fact by the ag ency which is within the “zone of interest” sought to be protect ed or regulated. See 5 U.S.C. § 702; see also Lujan v. National Wildlife Federation, 497 U.S. 781, 883 (1990). The Rothe Court notes that the only zone of interest is whether or not the Depar tment of Defense’s guidelines seek to ensure in-sourcing decisio ns are made only when cost-effective, and that to be injured by this decision a party would have to be a potential bidder or off eror in order to suffer injury by this decision.)

183 Rothe Development, Inc. v. United States Department of Defense, No. SA-10-CV-743-XR, order at 16 (W.D. Tx. Nov. 3, 2010). 184 Rothe Development, Inc. v. U.S. Department of Defense, 2011 WL 196926, at *2 (W.D. Tx. Jan. 19, 2011).

59 create a “manifest error,” but indicates a lack of controlling case law.185

III. Trials Toward Progress? - Court of Federal Claims Cases

“History and experience tell us that moral progress comes not in comfortable and complacent times, but out of trial and confusion.” – Pres. Gerald R. Ford 186

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

States187 and Hallmark-Phoenix 3, LLC v. United States,188 the court considered complex issues of standing and jurisdiction.

Indicative of the confusion surrounding in-sourcing decision challenges, the court came to opposite conclusions.189 The Court in Santa Barbara determined that a plaintiff that had lost a contract due to an agency’s decision to in-source the activity 185 Rothe Development, Inc. v. U.S. Department of Defense, 2011 WL 196926, at *2-3 (W.D. Tx. Jan. 19, 2011).

186 187 98 Fed. Cl. 536 (2011).

188 99 Fed. Cl. 65 (2011).

189 In the absence of Supreme Court or Federal Circuit precedent th at would dictate an outcome, judges on the Court of Federal Clai ms may come to differing conclusions about identical questions o f law. Here, for example, Judges Firestone and Allegra came to opposite conclusions as to whether the Court of Federal Claims h as jurisdiction over in-sourcing decisions.

60 was an “interested party” under the Tucker Act, thereby authorizing the Court to exercise jurisdiction over the complaint.190 In so doing, the Court rejected the government’s argument that the plaintiff’s lack of “prudential standing” precluded the Court from exercising jurisdiction. 191 The

Hallmark-Phoenix Court 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. 192 Ultimately, the court based its determination that it did not have jurisdiction over the plaintiff’s challenge to the in-sourcing decision on its analysis of prudential standing, not “interested party” standing.193 190 Under the Tucker Act, the court’s jurisdiction is limited to cl aims brought by “interested parties” as defined in CICA. 31 U.S. C. §§ 3551-3556; see also American Federation of Government Empl oyees, AFL-CIO (“AFGE”) v. United States, 258 F.3d 1294 (Fed. Ci r. 2001). CICA, in turn, defines “interested parties” as “actua l or prospective bidders and offerors whose direct economic inte rest would be affected by the award of the contract or the failu re to award the contract.” AFGE, 258 F.3d at 1302.

191 192 99 Fed. Cl. at 68. 193 Id. Hallmark initially appealed the Court of Federal Claims’ d ecision to the Federal Circuit, but later withdrew its appeal. It is also worth noting that at the time of this writing, a thir d challenge to an agency decision to in-source is pending befor e Judge Horn on the Court of Federal Claims. See Triad Logistic s Servs. Corp. v. United States, No. 11-43C. In March of 2011, i.e., prior to issuance of the Santa Barbara and Hallmark decisi ons, the Government moved to dismiss the action for lack of juri sdiction. Following their publication, both parties briefed the Court on what, if any, impact these decisions should have on the pending motion.

61 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 Court 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.194 SBAR held an indefinite quantity contract for multi-wing logistics support

(“MWLS”)195 for nine locations within Air Force Space Command

(“AFSPC”). 196 However, new DoD policies197 and budgetary concerns

194 98 Fed. Cl. 536 (2011).

195 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.

196 197 Memorandum from the Deputy Secretary of Defense for Personnel a nd Readiness to the Secretaries of the Military Departments, et al., supra note 51, at Atachment 1 at 6-7. In-sourcing Contract ed Services - Implementation Guidance, May 28, 2009, Attach. 1 a t 4 (available at http://prhome.defense.gov/RSI/REQUIREMENTS/doc s/DepSecDef%20Memo%20In-sourcing%20Contracted%20Services-Impleme ntation%20Guidance%20(28%20May%2009)%20(OSD%2005339-09).pdf). A s noted above, this memorandum advised that when making a decisi on whether to in-source a particular activity, DoD components sh ould consider whether: (1) the function is inherently government al; the function is exempt from private sector performance; (3) the contract is for unauthorized personal services; (4) there we re problems with contract administration on the contract; and/or (5) a cost analysis shows that in-house performance would be mor e cost effective than contractor performance.

62 led AFSPC to start identifying contracts for in-sourcing in

2009.198 Ultimately, in June of 2010, the Air Force notified SBAR that the Air Force was in-sourcing functions under the MWLS contract. 199

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.200 The

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.201 The 198 Though the AFSPC originally targeted only “inherently governmen tal activities,” due to budgetary concerns, the agency began to consider in-sourcing “contracts that were common across the AFSP C and contracts that posed the least risk to AFSPC’s mission.” 98 Fed. Cl. at 539. With regard to the MWLS contract, cost ana lyses performed on each of the locations showed a cost savings o f more than $31 million contract-wide.

199 200 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 the non-fuels portion of the MWLS contract. Thus, on April 5, 2011, the Air Force affirmed its decision to in-source the non-fuels portion of the MWLS contract.

201 The Government also argued that SBAR failed to state a claim fo r which relief can be granted because the decision to in-source is committed to agency discretion as a matter of law such that t here were no standards applicable. On that issue, the court hel d that the decision to in-source work was subject to judicial re view. With regard to the merits, the court also considered the

63 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. 202 Consequently, the Government argued SBAR could not claim it suffered the “competitive injury” necessary for standing under § 1491(b)(1). 203

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.204 Specifically, the 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. 205

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). 206 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.

202 203 204 369 F.3d 1324, 1330-31 (Fed. Cir. 2004) (requiring a protestor to show that it had been prejudiced by an error in the Governmen t’s decision); Santa Barbara Applied Research, Inc. v. United St ates, 98 Fed.Cl. 536, 542 (2011)..

205 206

64 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). 207 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.’”208

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.209 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

207 208 98 Fed. Cl. at 543. Neither party disputed that the in-sourcin g decision constituted a decision “in connection with a procurem ent.”

209 98 Fed. Cl. at 543 (citing 258 F.3d 1294 (Fed. Cir. 2001), and noting that the definition of “interested party” found in CICA w as “engrafted onto section 1491(b)(1)”).

65 that they were not eligible to bid on Government work. 210 The

Santa Barbara Court distinguished AFGE on the ground that AFGE featured plaintiffs who could not compete for a Government contract by virtue of being federal employees. 211 By contrast,

SBAR already had a Government contract and could have competed for a future contract. 212 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 not in-sourcing” such that

“the economic impact to SBAR cannot be denied.”213

The Santa Barbara Court 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 regulation intended to promote competition, a test established in Weeks Marine.214 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. 215 However, the court was persuaded that the

Air Force’s decision to in-source the non-fuel MWLS services was

210 American Federation of Government Employees v. United States, 2 58 F.3d 1294, 1295, 1302 (Fed. Cir. 2001). 211 212 213 98 Fed. Cl. at 543.

214 Weeks Marine, Inc. v. United States, 575 F.3d 1352, 1360-62 (Fe d. Cir. 2009) (clarifying the harm necessary to demonstrate inte rested party status in the pre-award bid protest context).

66 based on a comparison between using the contractors and switching to civilian Air Force employees. 216 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.”217 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.”218

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 argument. First, the court reasoned that the concept of

“prudential standing” does not apply to bid protests under section 1491(b)(1). 219 As noted by the Santa Barbara Court, prudential 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). 220 However, the court found that the

216 217 98 Fed. Cl. at 543.

218 98 Fed. Cl. at 543-44.

219 220

67 Federal Circuit had rejected the “less stringent” standing requirements imposed under the APA in favor of the “interested party” test in AFGE.221 Under AFGE, the court reasoned, once a party satisfies the more stringent “interested party” test, it establishes standing. 222 Thus, because SBAR satisfied the

“interested party” test, the court held that SBAR was not required to establish “prudential standing.” 223 In so holding, the court clarified that it did not read Galen as requiring something more to establish standing than did AFGE. 224

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 2011225 was enacted “at least in part, for the benefit of the contracting community” such that it offered contractors a means of challenging in-sourcing decisions.226 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.”227 Thus, the court found that mandates in the FY2011

221 AFGE, 258 F.3d at 1302.

222 American Federation of Government Employees v. United States, 2 58 F.3d 1294, 1302 (Fed. Cir. 2001). 223 224 225 Pub. L. No. 111-383 [hereinafter FY2011 NDAA].

226 98 Fed. Cl. at 544.

227 98 Fed. Cl. at 544.

68 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.”228 This finding would soon be disputed, however, as the same court came to the opposite conclusion only weeks later in the Hallmark-Phoenix case.229

b. Hallmark-Phoenix 3, LLC v. United States

Only three weeks later, the publication of Hallmark-Phoenix

3, LLC v. United States230 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 an in-sourcing decision. 231 Hallmark-Phoenix also involved an Air Force small-business set-aside 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. 232 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

228 98 Fed. Cl. at 544.

229 See supra note 167.99 Fed. Cl. 65, 68 (2011). 230 99 Fed. Cl. 65 (2011).

231 Id. at 68. 232 Id. at 66.

69 civilian personnel to complete the work. 233 Consequently, the contract ended on September 30, 2011.234

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.235 First, the court dispensed with “interested party” status, opining that Hallmark could – but should not – qualify as an “interested party” under the Tucker Act. 236 The Hallmark Court 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. 237 Though the court recognized that “in such an instance, plaintiff would qualify as an ‘interested party’ under section

1491(b)(1),” it concluded that Hallmark’s argument that it was a

“prospective bidder” and thus an “interested party” was based on a “pile of assumptions.” 238 Thus, the court concluded that

233 Id. at 66-67. 234 Id. at 67.99 Fed. Cl. 65 (2011).

235 Id. at 67. Unlike in Santa Barbara, the Government did not see m to have raised the argument regarding prudential standing in i ts motion to dismiss. Id. at 68, n.6.

236 Id. at 67-68. 237 Id. 238 99 Fed. Cl.Id. at 67-68 (citing Santa Barbara, 98 Fed. Cl. at 5 42-53; LABAT-Anderson, Inc. v. United States, 65 Fed. Cl. 570, 5 75-76 (2005), and Angelica Textile Servs., Inc. v. United States,

70 Hallmark’s claim that it was a “prospective bidder” within the meaning of an “interested party” did not meet the legal standard. 239 Nevertheless, the court determined that it need not decide whether Hallmark met that standard, because Hallmark lacked prudential standing. 240

Ultimately, the Hallmark Court declined to exercise jurisdiction on the ground that the plaintiff did not satisfy the requirements of “prudential standing.”241 This inquiry tests

“whether the constitutional or statutory provision on which the claim rests properly can be understood as granting persons in

95 Fed. Cl. 208, 218 (2010)). The court distinguished this cha llenge from other in-sourcing challenges as Hallmark was not cha llenging an existing solicitation and could not be guaranteed th at there would be a solicitation for that work or that Hallmark would bid if there were. Further, the court noted that even if the Air Force re-evaluated its decision to comply with the guide lines, it may reach the same conclusions. Finally, the court di stinguished this action from others based on the fact that it wa s a small business set-aside contract, and there would be no gua rantee that any subsequent procurement would also be set aside f or small businesses. 99 Fed. Cl.Id. at 68.

239 Id. 240 Id. 241 Id. Prudential standing is a “judicially self-imposed limit[] on the exercise of federal jurisdiction” borne out of “concern about the proper – and properly limited – role of the courts in a democratic society.” Hallmark, 99 Fed. Cl. at 68Id. (citing Bennett v. Spear, 520 U.S. 154, 162 (1997); Elk Grove Unified, 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. Cl. at 68 Hallmark, 99 Fed. Cl. at 68.

71 the plaintiff's position a right to judicial relief.”242 While not intended to be “especially demanding,”243 prudential standing is lacking where a plaintiff is merely an “incidental beneficiar[y]” of the statutory or constitutional provision at issue.244 The Hallmark Court 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.”245 Thus, the court focused on whether Hallmark was intended to be given the right to relief under any of the statutes and guidelines cited in its complaint.246 242 Hallmark, 99 Fed. Cl. at 68Id. (citing Warth, 422 U.S. at 50 0); see also Bennett v. Spear, 520 U.S. at 154 (“[A] plaintiff's grievance must arguably fall within the zone of interests protec ted or regulated by the statutory provision or constitutional gu arantee invoked in the suit.”); Ass’n of Data Processing Serv. O rgs., 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.

243 Hallmark, 99 Fed. Cl. at 698 (quoting Clarke v. Sec. Indus. As s’n, 479 U.S. 388, 399 (1987)).

244 99 Fed. Cl. at 69 (quoting Nat’l Credit Union Admin. v. Nat’l B ank & Trust Co., 522 U.S. 479, 494 n.7 (1998).

245 Hallmark , 99 Fed. Cl. at 698. (citing Flast v. Cohen, 392 U.S. 83, 95 (1968)).

246 Interestingly the Court noted that when the Court of Federal Cl aims and the U.S. district courts held concurrent jurisdiction o ver bid protest matters (prior to the sunset clause in the ADRA amendment to the Tucker Act), some district courts held the prud ential standing requirement applied to bid protest cases. Hallm ark, 99 Fed. Cl. at 68 71 (citing Am .Fed. of Gov’t. Emps., AF L-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.

72 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. 247 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.248 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. 249 Bennett 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.250

The Hallmark Court then established that unlike in Bennett,

Congress had not expressly negated prudential standing limits 2d 927, 932-33 (S.D. Ohio 2001). The Court stated further that many cases which received appellate review found plaintiffs lack ing prudential standard when challenging agency decisions to ou t-source functions to contractors. Hallmark, 99 Fed. Cl. at 68 71 (citing Courtney v. Smith, 297 F.3d 455, 460-61 (6th Cir. 20 02)). The Court uses these prior cases to determine that the pr udential standing requirement should apply to bid protest matter s. 99 Fed. Cl. at 71.

247 Id. at 70. 248 Bennett, 520 U.S. at 163.

249 250 Bennett, 520 U.S. at 164 (citing 42 U.S. § 9124(a) (Ocean Therm al Energy Conversion Act); 33 U.S.C. § 1365(g) (Clean Water Ac t)).

73 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. 251

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. 252 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- sourced.253 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.”254

251 252 99 Fed. Cl. at 68. 253 Id. at 72. As noted supra, that statute requires the Secretary of Defense to consider “the advantages of converting from one fo rm of personnel (military, civilian, or private contract) to ano ther for the performance of a specified job” and to include a ju stification for converting from one type of personnel to another, among other requirements. 10 U.S.C. § 129a.

254 99 Fed. Cl. at 72-73.

74 Similarly, the court ruled that the plaintiff did not meet the prudential standing requirements to challenge 10 U.S.C. §

2463(a). 255 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.”256 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 comparison.257 The Hallmark Court

255 Id. at 73. 256 99 Fed. Cl. at 73Id. (citing 10 U.S.C. § 2463).

257 99 Fed. Cl. at 74; 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. 4137 (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).

75 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.”258

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 and also to require change to DoD policy if not.259 The court opined that “[t]o infer otherwise would risk triggering a wave of cases brought by hopeful contractors each believing that they have the likely prospect of receiving a contract if a particular 258 99 Fed. Cl. at 75 (emphasis added). The court further explained this point by noting the requirements under the Circular A-76 gu idelines require formal comparisons which have lead to notable b id protest decisions. Id. (citing LABAT-Anderson); see also Spa ce Mark, Inc., 45 Fed Cl. 267, 272-73 (1999)). The court viewed the absence of such a requirement as clear indication of Congres s’ intent not to create similar jurisdiction for review. In lig ht of this reasoning, the Hallmark decision notes that the Santa Barbara decision was “simply wrong in asserting that a protest u nder the sections at issue ‘presents an analogous challenge’ to those made under Circular A-76.” 99 Fed. Cl. at n.ote 16.

259 Hallmark, 99 Fed. Cl. at 778. 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. at 78-79

76 function is outsourced.”260 The court decried the disruption such litigation would cause, suggesting that the DoD would be unable to establish personnel needs in authorization requests to

Congress. 261 Moreover, the court reasoned that because Congress promotes in-sourcing, it is reasonable to assume that it would not expose those decisions to protests.262

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.263 The court 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

260 Hallmark, 99 Fed. ClId. at 78.

261 Id. 262 Id.Hallmark, 99 Fed. Cl. at 78.

263 Id. 99 Fed. Cl. at 74 (“[P]laintiff would have this court enfor ce the guidelines issued by the Secretary of Defense under these provisions, ignoring the limited budgetary context in which thos e guidelines arise.”). In that regard, the court noted that the DoD guidelines are like FAR guidelines and other internal agency guidance that are unenforceable in the courts. Id. (citing Caro lina Tobacco Co. v. United States, 402 F.3d 1345, 1349 (Fed. Cir. 2005)). The court also noted that the GAO has similarly refuse d to enforce decisions based on such policy guidance. Id. (citi ng Triad Logistics Serv. Corp., B-403726, 2010 CPD ¶ 279 (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.

77 Defense guidelines. 264 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.265 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 Defense contracts, but could be performed by federal government employees.”266

In holding that Hallmark did not have prudential standing to challenge the agency’s decision to in-source, the court rebutted the Santa Barbara Court’s determination that prudential standing does not apply to bid protests brought under the Tucker

Act. According to the Hallmark Court, the Santa Barbara Court

“was swayed by the fact that ‘prudential standing is typically

264 99 Fed. Cl. at 74. 265 Id. at 75. (referencingSee H.R. 1815, 109th Cong. (2005)). Acc ording to the Conference Committee Report, conferees expected gu idelines “to provide for the assignment of work to federal gover nment employees . . . in appropriate circumstances, without the requirement to perform public-private competition under Office o f Management and Budget Circular A–76 or any other provision of law or regulation.” Id. (emphasis added).

266 H.R. REP. NO. 109-360, at 672 (2005) (Conf. Rep.).H.R. Conf. Re p. 109-360 at 672 (2005).

78 applied to challenges under the [APA].’” 267 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. 268 The Hallmark Court flatly disagreed.269

On the contrary, the court held that Congress had not specifically authorized the Court of Federal Claims to hear challenges to in-sourcing decisions. 270 By way of example, the 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. 271

According to Hallmark, “[t]here is no comparable provision authorizing the suit by plaintiff here.”272

Though both decisions shone light on the complexities of jurisdiction over in-sourcing challenges, the takeaway lessons

267 99 Fed. Cl. at 69. 268 269 99 Fed. Cl. at 69. The Hallmark Court 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. 99 Fed. Cl. at 72.

270 99 Fed. Cl. at 77. 271 Id. at 78 n.22. 272 Id.99 Fed. Cl. at 78 n.22.

79 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 Court 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 Court 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.

IV. Truths from Error Rather than Confusion - Similar Issues

Challenges

“Truth emerges more readily from error than from confusion.” –

Sir Francis Bacon 273

In light of the apparent confusion regarding potential challenges to in-sourcing decisions, this article 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

80 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.

In the first decision, Aleut Facilities Support Services,

LLC,274 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.275 The Air Force cancelled the solicitation after determining that it could save money by doing the work in- house.276 Aleut argued that the decision was not reasonable 274 Aleut Facilities Support Services, LLC, B-4019259, 2009 CPD ¶ 2 02 (Comp. Gen. Oct. 13, 2009).

275 Aleut Facilities Support Services, LLC, B-401929, 2009 CPD ¶ 20 2, at *1 (Comp. Gen. Oct. 13, 2009)Id. at 1.

276 Aleut Facilities Support Services, LLC, B-401929, 2009 CPD ¶ 20 2, at *1 (Comp. Gen. Oct. 13, 2009)Id.

81 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.277

The statute at issue was 10 U.S.C. § 2463, requiring

“special consideration” when deciding which functions to consider for in-sourcing.278 Aleut contended that because the solicitation did not fall under one of the enumerated aspects in the statute, it should not have been given “priority consideration.” 279 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.”280 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

277 Aleut Facilities Support Services, LLC, B-401929, 2009 CPD ¶ 20 2, at *1-2 (Comp. Gen. Oct. 13, 2009)Id. at 2-3.

278 10 U.S.C. § 2463 (2006)See supra note 21.

279 Aleut,, 2009 CPD ¶ 202supra note 274,at 2-3.

280 Aleut Facilities Support Services, LLC, B-401929, 2009 CPD ¶ 20 2, at *2 (Comp. Gen. Oct. 13, 2009)Id. at 3 (citing General Serv ices. Administration Admin. – Reconsideration, B-237268.3, et al., 90-2 CPD ¶ 369, at 2 (Comp. Gen. Nov. 7, 1990)).

82 comparison.281 In stating this policy, the GAO acknowledged several exceptions to this rule, referencing earlier cases. 282

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.,283 the protester challenged the cancellation of four General Services

Administration (“GSA”) solicitations for the operation and maintenance of various systems at the Denver Federal Center.284

The solicitations provided that the GSA “would only award one contract to any one contractor resulting from these four solicitations.” 285 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

281 Aleut Facilities Support Services, LLC, B-401929, 2009 CPD ¶ 20 2, 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.

282 Id. 283 Griffin Services, Inc., B-237272268,2, et al., 90-1 CPD ¶ 558 (Comp. Gen. June 14, 1990), reconsideration denied, General Serv ices. AdministrationAdmin. — Reconsideration, B-237272237268.3, et al., 90-2 CPD ¶ 369 (Comp. Gen. Nov. 7, 1990).

284 Griffin Services, Inc., B-237272, et al., 90-1 CPD ¶ 558, at *1 (Comp. Gen. June 14, 1990)Id. at 1.

285 Id. at 2.

83 Certificate of Competency program and by masking that improper action in a decision to perform the work in-house.286 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, the 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.”287

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.288 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

286 Griffin Services, Inc., B-237272, et al., 90-1 CPD ¶ 558, at *1 (Comp. Gen. June 14, 1990)Id.

287 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-2 32418, 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 to cance l 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. Gener al Services. AdministrationAdmin. — Reconsideration, B-237268272. 3, et al., 90-2 CPD ¶ 369, at 2*1 (Comp. Gen. Nov. 7, 1990).

288 Digicon, Inc., B-256620, 94-2 CPD ¶ 12 (Comp. Gen. July 7, 199 4).

84 Schedule. Digicon protested the cancellation of the solicitation, arguing that the Treasury failed to conduct an adequate cost comparison as required by Circular A-76.289 GAO denied the protest, noting that the solicitation was cancelled because it no longer reflected the agency’s need. 290 In addition,

GAO declined to review the cost comparison because it constituted an unreviewable exercise of executive branch policy.291 However, The GAO, however, indicated that it would have reviewed the action if there had been a provision in the solicitation requiring a comparison of costs.292

Building on this decision, in Imaging Systems Technology,293

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. The Air Force solicitation was set aside for small businesses and sought proposals to provide logistics and support services for an air

289 Digicon, Inc., B-256620, 94-2 CPD ¶ 12, at *1 (Comp. Gen. July 7, 1994).Id. at 1, 2.

290 Id. at 3. 291 Digicon, Inc., B-256620, 94-2 CPD ¶ 12, at *2 (Comp. Gen. July 7, 1994)Id. at 2.

292 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 dete rminations are discussed in greater detail below.

293 Imaging Systems Technology, B-283817.3, 2001 CPD ¶ 2 (Comp. Gen. Dec. 19, 2000).

85 traffic control and landing system. 294 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.295 Imaging Systems Technology (“IST”) protested that decision, alleging that the cost comparison was not realistic and violated the statutory requirement.296

294 Id. at 1.

295 Imaging Systems Technology, B-283817.3, 2001 CPD ¶ 2 at *1 (Com p. Gen. Dec. 19, 2000).d. at 2.

296 Imaging Systems Technology, B-283817.3, 2001 CPD ¶ 2 at *2 (Com p. Gen. Dec. 19, 2000)Id. at 1. The statute at issue was 10 U. S.C. § 2462 (1994), which has since been superseded by legislati ve change. At the time, however, it required the Department of Defense components to procure items and services from the privat e sector only when it was determined to be less costly to do so. Section (b) of the article detailed the methods for comparing co sts as follows:

[T]he basis of a comparison of the costs of procuring supplies or services from such a s ource with the costs of providing the same s upplies or services by the Department of Def ense, the Secretary of Defense shall ensure that all costs considered (including the cos ts of quality assurance, technical monitorin g of the performance of such function, liabi lity insurance, employee retirement and disa bility benefits, and all other overhead cost s) are realistic and fair.

This statute was amended by FY06 NDAA § 341(c)(i) to only requi re reports on public-private competitions, rather than to be a s tatute requiring procurements to be conducted in any particular manner. 10 U.S.C. § 2462 (2006). See also Aleut Facilities Sup port Services., LLC, B-4019259, 2009 CPD ¶ 202, at *3at 3 n.1 (C omp. Gen. Oct. 13, 2009).

86 The GAO determined that it had jurisdiction to hear the protest under CICA.297 Ultimately, the GAO sustained the protest on the ground that the cost comparison conducted did not meet the requirements of the statute.298 This case is often cited as providing an exception to the general rule that the GAO will not review policy decisions –- potentially including decisions whether to in-source an activity -- when those decisions are required by statute or regulation to have been subject to a cost comparison.299

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.300 There, Triad Logistics Services

Corporation (“Triad”) protested the Agency’s decision to in- source operation and maintenance services at Columbus Air Force 297 Imaging Syst.ems Technology, B-283817.3, 2001 CPD ¶ 2, at *3 (C omp. Gen. Dec. 19, 2000)3-4.

298 Imaging Systems Technology, B-283817.3, 2001 CPD ¶ 2, at *4-8 (Comp. Gen. Dec. 19, 2000)Id. at 6-11 (discussing that the compa rison did not consider a realistic cost of contractor performanc e, that the compared cost for in-house personnel did not conside r factors such as leave and other benefits, did not accurately a ssess the number of labor hours need and therefore the compariso n was not fair and in violation of the statute).

299 Aleut Facilities Support Services, LLC, B-401929, 2009 CPD ¶ 20 2, at *2 (Comp. Gen. Oct. 13, 2009).

300 Triad Logistics Servs. Corp., B-403726, 2010 CPD ¶ 279, at 2 (C omp. Gen. Nov. 24, 2010).Triad Logistics Services Corporation, B-403726, 2010 CPD ¶ 279 (Comp. Gen. Nov. 24, 2010).

87 Base in Mississippi on the ground that the cost comparison performed was “inconsistent” with Agency directives.301 Like

Aleut Facilities Support Services, LLC, this protest was also dismissed for failure to state a valid basis of protest.302

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.303 In 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.304 The 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.”305 Instead, the GAO reasoned that this was a 301 Id.Triad Logistics Services Corporation, B-403726, 2010 CPD ¶ 2 79, at *2 (Comp. Gen. Nov. 24, 2010).

302 Id.Triad Logistics Services Corporation, B-403726, 2010 CPD ¶ 2 79, at *2 (Comp. Gen. Nov. 24, 2010).

303 Id. Triad Logistics Services Corporation, B-403726, 2010 CPD ¶ 279, at *2 (Comp. Gen. Nov. 24, 2010). Specifically, Triad atte mpted to argue that “Directive-Type Memorandum (“DTM”) 09-008 is sued on Jan. 29, 2010 regarding “Estimating and Comparing the Fu ll Costs of Civilian and Military Manpower and Contract Support” required specific types of comparisons which were not followed.

304 Id. at 3.Triad Logistics Services Corporation, B-403726, 2010 C PD ¶ 279, at *3 (Comp. Gen. Nov. 24, 2010).

305 Id. Triad Logistics Services Corporation, B-403726, 2010 CPD ¶ 279, at *3 (Comp. Gen. Nov. 24, 2010) (citing Veolia Water N.ort

88 statement of policy and does not require a cost comparison.306

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 the 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 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, the 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 h Am. Operating Servs.ices, LLC, B-291307.5, B-298017, 2006 CPD ¶ 86 (Comp. Gen. May 19, 2006)).

306 Id.Triad Logistics Services Corporation, B-403726, 2010 CPD ¶ 2 79, at *3 (Comp. Gen. Nov. 24, 2010).

89 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 Budget’s (“OMB”) Circular A-76.307 The most recent version, issued in 2003, stated:

The longstanding policy of the federal 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.308

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.

307 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.

308 OFFICE OF MGMT. & BUDGET , OMB CIRCULAR NO. A-76, PERFORMANCE OF COMMERCIAL ACTIVITIES , ¶ 4 (2003), available at http://www.dni.gov/electronic_reading_room/OMB_Circular_A_76.pdf [hereinafter OMB Circular A-76].Circular A-76 ¶ 4.

90 In relevant part,309 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.310

These public-private competitions were subject to several separate guidelines and procedures. As a general matter,

309 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 OMB Circular A-76 ¶ 4(a); Attach. A. Part of that process involved categorizing activities performed by Government personnel as “inherently governmental” or “commercial.” Id. ¶ 4(a). This distinction was again 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 Attachment 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

91 agencies were required to comply with procurement integrity, ethics, and standards of conduct when conducting standard or streamlined competition.311 The Circular emphasized transparency and consistency in the competition process and recommended

or procedures and processes related to the oversight of monetary transactions or entitlements.” For further information on the definition of “inherently governmental,” see Circular A-76; Attach. A ¶ B at A-2.

310 See generally OMB Circular A-76 at Attach. B (establishing step s an agency must complete prior to the public announcement of a streamlined or standard competition). Of note, a competition wa s not required for private sector performance of a new requireme nt, “a segregable expansion to an existing commercial activity” performed in-house, or continued performance of a commercial act ivity. Id. ¶ 5(d). However, competition was required before an agency may perform a new requirement, an expanded existing comme rcial activity, or any activity being performed by the private s ector. Id.See generally Circular A-76; Attach. B (establishing steps an agency must complete prior to the public announcement o f a streamlined or standard competition). Of note, a competitio n was not required for private sector performance of a new requi rement, “a segregable expansion to an existing commercial activi ty” performed in-house, or continued performance of a commercial activity. Circular A-76 ¶ 5(d). However, competition was requi red 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).

311 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.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.

92 centralizing oversight responsibility and using lessons learned and best practices to achieve that end. 312

The Circular described the two types of competition procedures at length in Circular Attachment B, paragraphs C and

D.313 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.314 In a public-private competition, the Agency Tender Official (“ATO”) would designate the most efficient organization (“MEO”) team, which, along with the human resource advisor (“HRA”) would be primarily responsible for

312 Id. ¶ 4(h). 313 Id. at Attach. B at B-4, B-6. Whether the agency used a stream lined or a standard competition depended on the number of FTEs u sed or proposed by the agency. Specifically, if the agency prev iously performed, or planned to offer to perform, a commercial a ctivity using 65 or more FTEs, the agency was required to use a standard competition. If the agency previously performed, or pl anned to offer to perform, a commercial activity with 65 or fewe r FTEs, the agency could use either a streamlined or standard co mpetition. For more specifics on the criteria for both types of competitions, see OMB Circular A-76 at Attachment B at B-1.Wheth er the agency used a streamlined or a standard competition depen ded on the number of FTEs used or proposed by the agency. Speci fically, if the agency previously performed, or planned to offer to perform, a commercial activity using 65 or more FTEs, the age ncy was required to use a standard competition. If the agency p reviously performed, or planned to offer to perform, a commercia l 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 Attachm ent B at B-1.

314 Id. at Attach. B at B-1.Circular A-76 at Attach. B at B-1.

93 developing the agency tender.315 This agency tender was then evaluated along with proposals from the private sector. 316

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. 317 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.”318 With regard to the estimated price for private sector performance, the agency could either use documented market research or solicit cost

315 Id. at Attach. B at B-2, B-10. The agency would describe its s taffing plan – the MEO – in its tender. According to the Circul ar, the MEO was “not usually a representation of the incumbent o rganization, but [was] the product of management analyses that i nclude[d] . . . activity based costing, business case analysis, consolidation, functionality assessment, industrial engineering, market research, productivity assessment, reengineering, reinven tion, utilization studies, and value engineering.” Id. at Attac h. B at B-10.Circular A-76 at Attach. B at B-2, B-10. The agen cy would describe its staffing plan – the MEO – in its tender. According to the Circular, the MEO was “not usually a representa tion of the incumbent organization, but [was] the product of man agement analyses that include[d] . . . activity based costing, b usiness case analysis, consolidation, functionality assessment, industrial engineering, market research, productivity assessment, reengineering, reinvention, utilization studies, and value engi neering.” Circular A-76 at Attach. B at B-10.

316 Id. at Attach. B at B-12. 317 Id. at Attach. B at B-4. 318 Circular A-76 at Attach. B at B-4Id..

94 proposals in accordance with the FAR.319 If the agency selected a private sector provider, the CO awarded the contract in accordance with the FAR.320 If the agency selected the agency’s tender, the CO simply executed a letter of obligation.321

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.322 The CO was required to state in the solicitation whether the acquisition would use sealed bid or negotiated procedures.323 If using negotiated procedures, the solicitation was required to identify the source selection basis, e.g., lowest price technically acceptable, tradeoff, etc.324 Similarly, as in traditional procurements, the agency was required to clearly identify evaluation factors in the solicitation.325 After the agency evaluated offerors and made its decision, the agency was required to make a formal public announcement via FedBizOpps of

319 Id.Circular A-76 at Attach. B at B-4.

320 Id. Circular A-76 at Attach. B at B-5.

95 the performance decision. 326 The agency was also required to offer a debriefing to all private sector offerors, the ATO, and

“directly affected government personnel.”327

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.328 326 Id. at Attach. B at B-17. 327 Id. at Circular A-76 at Attach. B at B-18.

328 See Dynateria, Inc., B-222581, 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 function.”); see

96 However, where a contracting 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.329 In particular, where an agency endeavored to evaluate cost by issuing a solicitation, developing a cost estimate, and basing its decision on that evaluation, the GAO would adjudicate a challenge to those processes. 330

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 Government personnel to a Federal contractor.”331 This panel, later known as the 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).

329 Dynateria, Inc., 87-1 CPD ¶ 30, at 2 (GAO will review a protest challenging the agency’s cost comparison “to determine if the ag ency conducted the cost comparison in accordance with applicable procedures.”).Dynateria, Inc., B-222581, 87-1 CPD ¶ 30 (Comp. Ge n. Jan. 8, 1987) (GAO will review a protest challenging the agen cy’s cost comparison “to determine if the agency conducted the c ost comparison in accordance with applicable procedures”).

330 331 Floyd D. Spence National Defense Authorization Act of 2001, supra note Error: Reference source not found. § 832, Pub. L. No.

97 “Commercial Activities Panel,” presented a report to Congress in

April 2002 entitled “Improving the Sourcing Decisions of the

Federal Government.”332 The panel made ten specific recommendations (see supra note 14), based on its reviews and hearings concerning the Circular A-76 process. 333 The report discussed jurisdictional concerns in a section entitled,

“Standing to Challenge Public-Private Cost Comparisons.”334 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.335

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 106-398

332 U.S. General Accounting Office: Commercial Activities Panel: Im proving the Sourcing Decisions of the Federal Government, supra note Error: Reference source not found., GAO-02-866T (April 30, 2002) (available at www.gao.gov/new.items/d02866t.pdf).

333 Id. 334 U.S. General Accounting Office: Commercial Activities Panel: Im proving the Sourcing Decisions of the Government, GAO-02-866T, A ppendix C, at 86-89 (April 30, 2002) (available at www.gao.gov/n ew.items/d02866t.pdf).

335 Dan Duefrene, et al., B-293590.2, et al., 2004 CPD ¶ 82 (Comp. Gen. Apr. 19, 2004) (holding that an in-house competitor in an A-76 competition did not meet the statutory definition of an “in terested party”).

98 NDAA”)336 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.” 337 The statute limited the amendments’ applicability to competitions conducted 90 days after enactment of the act.338

Following the enactment of FY2005 NDAA on October 28, 2004, the GAO amended its Bid Protest Regulations to conform to the

Act on April 14, 2005. 339 The 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, 2005.340 Some recent cases from the GAO and Court of Federal Claims, however, 336 Pub. L. No. 108-375 § 326(a)(2), 118 Stat. 1811, 1848 (2004), c odified at 31 U.S.C. § 3551 (Supp. IV 2004).

337 Pub. L. No. 108-375 § 326(a)(2), 118 Stat. 1811, 1848 (2004), c odified at 31 U.S.C. § 3551 (Supp. IV 2004).

338 Pub. L. No. 108-375 § 326(d). The conference report accompanyi ng the FY2005 NDAA further restricted the amendments’ applicabil ity by denying a person “representing a majority of the employee s” standing to protest. H.R. Conf. Rep. No. 108-767, at 648, r eprinted in 2004 U.S.C.C.A.N. 1961, 2003. Such individuals, how ever, were provided the right to intervene in a protest filed by an interested party. H.R. Conf. Rep. No. 108-767, at 648, repri nted in 2004 U.S.C.C.A.N. 1961, 2003.

339 340 70 Fed. Reg. 19679 (daily ed. Apr. 14, 2005) (explaining that b ecause the date of enactment was October 28, 2004, therefore the end of the 90-day period was January 26, 2005).

99 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, the 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, the 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.”341 Thus, the

GAO reasoned that an “interested party” as defined by CICA and the 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 private-sector entity can perform the work more cost effectively.”342

The question of who may protest a determination made under the Circular A-76 process also reached the federal courts.

341 Vallie Bray, B-293840 et. al, 2004 CPD ¶ 52 (Comp. Gen. Mar. 30, 2004).

342 Vallie Bray, B-293840 et. al, 2004 CPD ¶ 52 (Comp. Gen. Mar. 30, 2004) (finding that GAO did not have jurisdiction because the a gency used streamlined procedures, but did not issue a solicitat ion to conduct a procurement to determine whether to perform the work in-house).

100 Prior to the FY 2005 NDAA, the Court of Federal Claims held that under the Tucker Act, Federal employees and their unions were not “interested parties” with standing to challenge an A-76 determination.343 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.”344

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.345 The plaintiff, LABAT-Anderson (“LABAT”), had 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. 346 LABAT sought an injunction to prohibit this and required a public-private competition under Circular A-76 and other agency regulations. 347

343 See American Federation of Government Employees, AFL-CIO v. Uni ted States, 46 Fed. Cl. 586, 600 (2000).

344 See American Federation of Government Employees, AFL-CIO v. Uni ted States, 258 F.3d 1294, 1302 (Fed. Cir. 2001).

345 LABAT-Anderson, Inc. v. United States, 65 Fed. Cl. 570, 572 (2 005).

346 Id. at 573. 347 Id. at 576..

101 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.”348

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

“Confusion is a word we have invented for an order which is not

yet understood.” – Henry Miller 349

At the heart of the jurisdictional debate on in-sourcing are questions of fundamental 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 348 See id. at 575-76.LABAT-Anderson, Inc. v. United States, 65 Fed. Cl. 570, 575-76 (2005) (concluding that this reasoning is not i nconsistent with AFGE or other precedent merely because there is no “recent or on-going solicitation”).

102 review to ensure that processes are followed and politics kept at bay? While others will debate the question of whether in- sourcing is a money-saving and efficient way for the Government to acquire the goods and services it needs, what is clear is that the tide has shifted in favor of in-sourcing. 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 the discussions in this Aarticle note, there is no clear judicial consensus nor a clear legislative grant.

Out of concern for fundamental fairness, such important decisions should be subject to review. Review of in-sourcing decisions will help prevent decisions made without regard for process, based on improper analyses, or for reasons not related to the cost or quality of the goods and services. Below are various suggestions regarding the exercise of jurisdiction over in-sourcing decisions.

The unifying purpose behind ADRA implies a natural fit for jurisdiction before the Court of Federal Claims. First, the court already has broad jurisdiction over matters related to a federal government contract. True, as noted by the Hallmark

Court, none of the statutes typically at issue in an in-sourcing challenge expressly creates a cause of action. However, these

103 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.”350 As noted by the Santa Barbara Court, the economic impact to the contractor of losing work to Government employees “cannot be denied,” a conclusion that would bring a plaintiff challenging an in-sourcing decision squarely within the court’s jurisdiction. 351

The court’s jurisprudence also supports the exercise of jurisdiction over in-sourcing challenges. In Distributed

Solutions, the Court of Federal Claims 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 350 28 U.S.C. 1491(b)(1) (emphasis added). 351

104 proposed procurement.” 352 Though some have suggested that the decision not to award cannot be related to procurement (as it is by definition, a decision not to award a contract),353 the court’s rationale in Distributed Solutions suggests a different conclusion more in line with GAO’s Circular A-76 challenges.

Specifically, by undertaking a cost analysis, the agency elected to take advantage of the procurement processes such that it should be subject to review. 354

Lastly, the Court of Federal Claims remains the sole 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.”355

Indeed, as 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.356

352 See Distributed Solutions, Inc. v. United States, 539 F.2d 1340, 1345-46 (Fed. Cir. 2008). 353 See supra note 273.

354 Santa Barbara Applied Research, Inc. v. United States, 98 Fed. Cl. 536, 544 (2011). 355 BLR Group of Am., Inc. v. United States, 84 Fed. Cl. 634, 646 (2008) (citing Robert S. Metzger & Daniel A. Lyons, A Critical R eassessment of the GAO Bid-Protest Mechanism, 2007 WIS. L. REV. 1225, 1245).

105 Another route to the Court of Federal Claims’ jurisdiction may be through the CDA. It is, however, not without its own set 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.’”357 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 Court’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

356 See Robert S. Metzger & Daniel A. Lyons, A Critical Reassessm ent of the GAO Bid-Protest Mechanism, 2007 WIS. 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 Expect ation Damages: The 2009 McKenna Long & Aldridge “Gilbert A. C uneo” Government Contracts Moot Court Competition, 38 Pub. Co nt. L. J. 975, 10261025 (2009).

357 Vero Technical Support, Inc. v. U.S. Department Dep’t of Defens e, No. 10-14889, 2011 WL 3501843 (11th Cir. Aug. 10, 2011) (quot ing Tex. Health Choice, L.C. v. Office of Personnel Pers. Mgmt., 400 F.3d 895, 899 (Fed. Cir. 2005)) (internal citations omitted).

106 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 exercising judicial review, the GAO could also be called to help decide the propriety of in-sourcing decisions if Congress were to alter its mandate. 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. Instead, as the number of in-sourcing decisions grows and the number of challenges grows with it, the Court may find itself overloaded and unable to keep pace with the needs of the Government.

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. Of course, only an expansion of GAO’s bid protest jurisdiction could achieve this end

While the APA appears to provide some grounds for jurisdiction in the U.S. District Courts, they are the least attractive forum for reviewing in-sourcing decisions. Allowing the district courts to review in-sourcing decisions would likely result in inconsistent decisions, lengthy litigation that is outside the interests of either the Government or a protester, and subject matter that is unfamiliar (at best) to many federal judges. Assuming that the Court of Federal Claims does not

107 exercise jurisdiction and no other statutory or regulatory change permits a challenge in another forum, to convince a district court to accept jurisdiction, a plaintiff will need to narrowly tailor its complaint so as to implicate rights created by statute or regulation regardless of the existence of a contract which may be at the heart of the question. This strategy draws on the logic of K-Mar and Normandy Apartments and will require the issuance of agency-specific regulations or guidance that intends to bind an agency in order to be an effective argument.

As noted above, the benefit of the district courts having jurisdiction to hear protests of in-sourcing decisions is that those decisions are reviewed somewhere. As argued herein, the lack of review of in-sourcing decisions renders the status quo fundamentally unfair, untenable, and unpalatable, at best.

Jurisdiction before the district courts is the least preferable forum for these challenges as decisions may contain varied holdings interpreting non-related aspects of procurement law or differing interpretations of the statutes or regulations at issue. Indeed, the Court of Federal Claims’ unique institutional knowledge of procurement law makes it the most logical place for in-sourcing decisions to be challenged.