## Facts

- The United States Air Force issued a public-private solicitation for communications services at Los Angeles Air Force Base under an OMB Circular A-76–type process.
- The solicitation used a two-step method: (1) select the lowest-priced, technically acceptable private-sector proposal; then (2) compare that proposal to the Air Force’s in-house “most efficient organization” (MEO) cost estimate.
- Space Mark, Inc. (SMI) submitted the lowest-priced, technically acceptable private proposal.
- The Air Force provided SMI an initial version of the MEO, then later revised the MEO, but did not provide the revised MEO to SMI.
- During the cost-comparison phase, the Air Force adjusted SMI’s proposal (as part of A-76 cost-comparison adjustments) to include: (a) the cost of three quality-assurance evaluators (QAEs), who would perform both quality-assurance and contract-administration functions; and (b) the cost to relocate 13 Air Force employees.
- After adding those costs to SMI’s side of the comparison, the Air Force concluded the MEO was more economical and decided to keep performance in-house rather than award a contract to SMI.
- SMI filed administrative challenges to the cost comparison, appealing to the contracting officer and then to Air Force Materiel Command (AFMC), arguing that the Air Force violated A-76 requirements by placing the QAE and relocation costs on the private-sector side; SMI’s appeals were denied.
- SMI then filed suit in the United States Court of Federal Claims seeking emergency equitable relief, including a temporary restraining order (TRO) to bar the Air Force from implementing the in-house MEO decision.

## Issues

1. Whether the Court of Federal Claims had jurisdiction to review an Air Force A-76 cost-comparison decision that resulted in retaining performance in-house, and whether SMI had standing to bring the challenge.
2. Whether the Air Force’s cost-comparison actions were arbitrary, capricious, or contrary to law under the governing A-76 framework.
3. Whether the Air Force improperly added to SMI’s proposal (rather than accounting for them on the government/MEO side as required) the costs of (a) three QAEs performing quality assurance and contract administration and (b) relocation of 13 Air Force employees.
4. Whether SMI was entitled to interim equitable relief (such as a TRO or preliminary injunction) preventing implementation of the MEO pending correction of the cost comparison.

## Decision

- The Court of Federal Claims treated the dispute as reviewable within its bid-protest authority and considered SMI’s request for emergency injunctive relief directed at the Air Force’s A-76 cost-comparison outcome.
- The court concluded that SMI raised meritorious challenges to the Air Force’s cost-comparison methodology, focusing on the contested cost additions (QAE and relocation costs) and the fairness of the process given the revised MEO was not provided to SMI.
- The court granted equitable relief blocking implementation of the in-house MEO decision pending correction of the cost comparison consistent with applicable A-76 requirements.

## Legal Principles

- The Court of Federal Claims may review procurement-related agency actions under an APA-like standard, asking whether the decision was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.
- A-76 public-private competitions can be subject to judicial review where the challenged actions are part of the government’s decision-making process for obtaining services through contract versus in-house performance and where the protester has a direct economic interest.
- In an A-76 cost comparison, the agency must apply the prescribed cost-accounting rules in a consistent manner so the private-sector proposal and the MEO are compared on a fair basis.
- Costs associated with government oversight and contract-administration functions, and conversion-related expenses such as relocation, must be allocated as A-76 directs; misallocating such costs can materially skew the comparison and render the decision unlawful.
- Interim injunctive relief in a bid protest generally turns on likelihood of success on the merits, irreparable harm, the balance of hardships, and the public interest in lawful procurement conduct.

## Conclusion

*Space Mark, Inc. v. United States* involved an Air Force A-76 public-private competition in which SMI submitted the lowest-priced, technically acceptable proposal but lost after the Air Force added QAE and employee-relocation costs to SMI’s side of the cost comparison and relied on a revised MEO not provided to SMI; after unsuccessful administrative appeals, SMI sought emergency relief in the Court of Federal Claims, which reviewed the A-76 decision and granted equitable relief to prevent implementation of the in-house MEO pending a lawful cost comparison.


Space Mark, Inc. v. United States, 45 Fed. Cl. 267 (1999)