Challenging Government Decisions to Insource Procurements

In procurement parlance, insourcing refers to an organizational decision to perform the work internally instead of procuring it from outside sources. As procuring entities, government agencies may, from time to time, decide to internally perform work that was previously contracted out via competitive procedures or otherwise choose to perform new work using agency employees and resources. While such occasions are relatively rare, contractors may need to challenge such government decisions to insource work. A potential example of such a scenario could involve a contractor challenging an agency’s decision not to issue a follow-on contract on which the contractor is the incumbent due to the agency’s decision to perform the work internally using government employees.

Protesting such insourcing decisions involves a situation in which choosing one protest forum over another may prove advantageous for prospective protestors. This is because when reviewing insourcing decisions, the Government Accountability Office’s (GAO) bid protest jurisdiction may be somewhat limited compared to that of the Court of Federal Claims (COFC). For instance, while the GAO routinely reviews agency decisions to cancel procurements to determine whether the cancellations were reasonable, it has been reticent to review such cancellations under its bid protest function when the work under canceled procurement is to be performed by government employees. This is because the GAO, a part of the legislative branch of the government, considers such insourcing decisions to be within the purview of government discretion and a matter of executive branch policy.

The distinctions between the adjudicative forums in handling bid protests challenging agency insourcing decisions are best demonstrated through an example of a single bid protest filed at both forums. In Loomacres, Inc. v. United States, 134 Fed. Cl. 779 (2017), the COFC was presented with a bid protest by an incumbent contractor challenging the Air Force’s decision to insource previously competed program services work at the Cannon Airforce Base in New Mexico. Notably, before filing this protest at the COFC, the protestor had filed the same protest at the GAO. The GAO dismissed the protest for being untimely and lacking standing. Specifically, in addition to untimeliness, the GAO dismissed the protest because of the protestor’s failure to establish how an agency action or inaction violated procurement requirements or procurement-related statutes and regulations.

At the COFC, among other allegations, the protestor alleged that the Air Force had violated the Competition in Contracting Act (CICA) by insourcing the services instead of competing them. The Government filed a motion to dismiss the protest for lack of standing. In the decision, the COFC noted that the Federal Circuit had not yet addressed the precise issue of a prospective bidder’s standing to challenge an insourcing decision. The COFC compared the present bid protest to a previous Federal Circuit decision in which prospective bidders were deprived an opportunity to compete. That Federal Circuit case involved a protest challenging the government’s decision to acquire software through the issuance of subcontracts by one of its current contractors instead of conducting a competitive procurement. In that case, the Federal Circuit had determined that the plaintiffs were prospective bidders that had already submitted qualifying proposals in response to a government Request for Information (RFI). Therefore, the Federal Circuit granted plaintiffs standing as they demonstrated their preparedness to submit bids in response to the anticipated Request for Quotation (RFQ). The COFC found the facts of the present case analogous to the Federal Circuit’s decision and denied the Government’s motion to dismiss for lack of standing.

Notably, while the plaintiff met the threshold for standing to challenge the Government’s insourcing decision, the COFC subsequently granted the Government’s motion for judgment on the administrative record in Loomacres, Inc. v. United States, 136 Fed. Cl. 331 (2018). In that decision, the COFC found that the Air Force did not violate the CICA because an exception to full and open competition permitted the Government’s insourcing decision. Specifically, the COFC decided that the Air Force reasonably insourced the requirement instead of conducting a full and open competition because CICA was not applicable when a statute expressly authorized a procurement procedure other than full and open competition. Since the Sikes Act expressly authorized the procurement of the services at issue through a government agency, the insourcing decision was reasonable, and the Government’s motion for judgment on the administrative record was granted.

More recently, in 2021, the COFC again reiterated the availability of protestor standing to challenge an insourcing decision, at least in the context of a violation of a procurement statute in Mail Transportation, Inc. v. United States, 153 Fed. Cl. 205 (2021). In that case, the COFC resolved a mootness issue by citing its decision in Loomacres and stating that the protestor had met its standing requirement by challenging the United States Postal Service (USPS) insourcing decision as a violation of a procurement statute applicable whenever the USPS had to determine whether to obtain mail transportation by contract or insourcing.

Protesting government insourcing decisions presents a relatively rare forum selection proposition for protestors where selecting one protest forum over another is seemingly far more advantageous. While the GAO generally considers insourcing protests as outside the purview of its bid protest function, protests at COFC have a better chance of meeting the threshold for standing. Still, since the facts and circumstances surrounding each protest are different, prospective protestors should carefully evaluate their options before selecting an appropriate forum to challenge an agency’s decision to insource a requirement. Additionally, while it may prove challenging, protestors should be generally prepared to demonstrate the unreasonableness of the agency’s decision to insource the requirement.

This Bid Protests Insight provides a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.