Agency Successfully In-Sources Work with Minimal Savings; Incumbent Contractor Loses Bid Protest

The concept of “timing is everything” applies to most things in life. With the rapid changes of government contracting law, the concept is particularly applicable to bid protests.

Dellew Corporation was a long-time incumbent contractor for the Air Force. It provided awards and decorations and personnel systems management support services at nine locations in the Pacific Air Forces Major Command. However, the Air Force terminated the contract in a “Termination for Convenience” as part of the federal government’s new policy of seeking in-sourcing opportunities where possible. In a nutshell, the government is supposed to have federal employees work on a project unless a government contractor can save the government money. For Dellew, the Air Force determined that it would save just under $1 million (7.9%) by in-sourcing the contracted work.

Dellew filed a post-award bid protest arguing that this savings was too minimal to justify in-sourcing. It cited the Ike Skelton NDAA amendments to 10 U.S.C. § 2463 which require a savings to the government of the lesser of 10% or $10 million in order to justify in-sourcing.

Alas, timing is everything. The Ike Skelton NDAA amendments went into effect December 31, 2011. The decision to in-source was made in July, 2010. However, Dellew complained that its contract was terminated in 2012, so that the decision was not finalized until March 2012, when the agency issued a memorandum that it wished to terminate Dellew’s contract because of Department of Defense policy to reduce costs. Dellew asked: how could the in-sourcing decision have been made prior 2012 when the agency was just getting around to terminating its contract in the first quarter of 2012?

The Court of Federal Claims held that the decision to in-source is different than a decision to terminate a contract related to that in-sourcing. The in-sourcing decision was made in 2010. At that time, there was no legal requirement that the savings be any more than minimal. The Ike Skelton amendments did not apply retroactively. Thus, the bid protest failed. Had the in-sourcing decision been made only 20 months later, Dellew would still be providing services to the Air Force.