LBM, Inc., B-291775, March 21, 2003

B-291775 Mar 21, 2003 Jump To VIEW DECISION RELATED PAGES GAO CONTACTS Highlights Protest that agency miscalculated in-house performance costs (associated with federal pay raise assumptions) in Office of Management and Budget Circular A-76 cost study is denied where record shows that agency's calculations were in accordance with policy guidelines. Calculations reflect actual costs agency will experience during first period of performance. 2. Protest that agency improperly failed to include certain direct costs in preparing agency in-house cost estimate is denied where record shows that agency properly treated costs as "wash" costs. Protest allegations that involve dollar amount insufficient to change outcome of Office of Management and Budget Circular A-76 cost study are denied where. View Decision LBM, Inc., B-291775, March 21, 2003 DIGEST Attorneys DECISION LBM, Inc. protests the Department of the Navy's determination, pursuant to Office of Management and Budget (OMB) Circular A-76, that in-house performance of motor transportation operation and maintenance services at the Marine Corps Recruiting Depot at Parris Island, South Carolina, would be more economical than awarding a contract under request for proposals (RFP) No. N62467-02-R-0333. LBM maintains that the agency made several errors in calculating the cost of in-house performance. We deny the protest. The RFP sought fixed-price offers for a base year with four 1-year options. After a competition among private sector offerors, LBM was selected as the concern offering the best overall value to the government. After making certain adjustments to LBM's proposed price called for by Circular A-76 (such as application of the 10 percent one-time conversion cost (Circular A-76 Revised Supplemental Handbook at 26)) the agency compared LBM's price to the government's in-house cost estimate (IHCE) for performance by the most efficient organization (MEO); based on this comparison, the agency concluded that it would be less expensive to retain the requirement in-house. Specifically, the agency determined that the cost of in-house performance would be $13,747,300, whereas converting to performance by LBM would cost $14,047,332, for a difference of $300,032 in favor of in-house performance. /1/ In response to this protest, the agency has conceded errors in its calculations that resulted in understating the IHCE by $123,089.87, AR at 14-17; correcting these errors reduces the price difference to $176,942.83. LBM still takes issue with five elements of the cost comparison. /2/ FEDERAL PAY RAISE ASSUMPTION LBM contends that the IHCE understates the costs of direct labor for federal wage system (FWS) employees by $241,722, due to the agency's failure to apply appropriate inflation factors. In this respect, the protester relies on language found in section C.1.2.4. of the Department of Defense (DOD) A-76 Costing Manual (Interim Guidance, Mar. 14, 2001), which provides: "Positions subject to an [economic price adjustment provision] are inflated using inflation factors applicable to (and through) the first performance period only." The inflation factors to which this guidance refers are percentages by which a baseline salary figure must be increased to arrive at a current year wage rate for the employees in question. OMB publishes the inflation factors for use by agencies in preparing A-76 cost studies; for purposes of this protest, OMB Transmittal Memorandum No. 24 (which provides updated information for calculating current year wage rates) includes the inflation factors applicable from 2001 through 2012 and specifies January of each year as the effective date for each inflation factor. AR, exh. 12. The base period of performance for this requirement runs from March 1, 2003 through February 29, 2004. The record shows that, for purposes of calculating FWS employee costs, the agency used baseline wage rates established in September 2001. The agency then applied the inflation factors for 2002 and 2003 to update the FWS wages. Citing the language of the DOD A-76 Costing Manual quoted above, LBM contends that, since the base period of performance runs "to and through" February 2004, the agency also was required to apply the 2004 inflation factor in updating FWS wages because it is designated in Transmittal Memorandum No. 24 as "effective" in January 2004. The Navy maintains that it properly omitted the 2004 inflation factor from its calculations. /3/ It states that, since the FWS employees at issue are governed by wage determinations that are issued in September of each year and remain valid for 12 months, the employees will be governed by the September 2003 wage determination during January and February of 2004 (the period during which LBM claims the 2004 inflation factor applies).