On January 29th, the Office of the Assistant Secretary of Defense issued a memorandum requiring agencies to “determine and document final decisions to in-source” and requiring contracting officers to notify their affected incumbent contractors within 20 days of receipt of such in-sourcing decisions.
The memorandum, titled “Private Sector Notification Requirements in Support of In-Sourcing Actions,” comes amidst a series of Court of Federal Claims (COFC) decisions dismissing and denying contractor protests of agency in-sourcing decisions. Most recently, in December, Judge Christine Miller held that a protester had standing to pursue an in-sourcing protest but failed to demonstrate entitlement to injunctive relief. See Dellew Corp. v. United States, -- Fed. Cl. -- , No. 12-627C, 2012 WL 6690092, (Dec. 20, 2012). Prior COFC decisions had held that an incumbent contractor lacks standing to protest an agency in-sourcing decision where the incumbent’s contract has expired and agency personnel have already assumed performance. See, e.g., Elmendorf Support Servs. Joint Venture v. United States (Elmendorf II), -- Fed. Cl. -- , No. 12-346C, 2012 WL 3932774 (Sept. 10, 2012) (dismissing protest for lack of standing even though incumbent contract expired after contractor filed protest). One decision went so far as to hold that an incumbent contractor challenging an agency in-sourcing decision lacked “prudential standing” because the personnel regulations alleged to be violated, 10 U.S.C. § 129a and 10 U.S.C. § 2463, were not intended to protect contractors adversely affected by in-sourcing decisions and had too tenuous a relationship to 28 U.S.C. § 1491(b)’s “in connection with a procurement or proposed procurement.” See Hallmark-Phoenix 3, LLC v. United States, 99 Fed. Cl. 65 (2011); but see Elmendorf Support Servs. Joint Venture v. United States (Elmendorf I), 105 Fed. Cl. 203 (2012) (explicitly disagreeing with Hallmark-Phoenix and holding that incumbent contractor challenges to agency in-sourcing decisions do not fail for lack of prudential standing).
The new memorandum may aid contractors in their challenges to agency in-sourcing decisions. The memorandum provides that “No formal hiring or contract related actions may be initiated prior to such notification, except for preliminary internal actions associated with hiring or contract modification.” Additionally, it explains that “Notifications . . . may summarize . . . the requiring official’s final determination as to why the service is being in-sourced and shall be coordinated with the Component’s in-sourcing program official.” The memorandum will be incorporated into the Defense Federal Acquisition Regulation Supplement (DFAR), will be incorporated into a future DoD issuance on in-sourcing, and may spur supplemental agency guidance on in-sourcing and/or related notification requirements.
Delaying agency assumption of performance and notifying contractors of the rationale behind in-sourcing decisions may provide contractors more solid grounds for protests before the COFC. To the extent that the memorandum requires agencies to delay transitioning to their own personnel, affected incumbent contractors may have more time to pursue a COFC protest before the issue is moot. And added transparency regarding the reasoning behind the in-sourcing decision may provide contractors more specific and concrete bases for challenging agency decisions.
Additionally, the memorandum’s incorporation into the DFAR should eliminate any debate over whether incumbent contractors maintain “prudential standing” to challenge agency in-sourcing decisions. 28 U.S.C. § 1491(b)(1) grants the COFC jurisdiction over “any alleged violation of statute or regulation in connection with a procurement or a proposed procurement” (emphasis added). Whether in-sourcing protests are founded on the memorandum’s DFAR provision itself or still pursued under agency personnel statutes, the existence of the new provision should alleviate any potential concerns regarding the viability and reviewability of such protests. Nevertheless, it remains to be seen exactly how agencies will implement the new memorandum and whether it will provide any actual assistance in light of the COFC’s thus far burdensome requirements for in-sourcing protests.