Opposition Brief — National Federation of Federal Employees v. Cheney

Court, U8,

Finent

MAY 29 ie

No. 89-1501 JOSEPH F. SPanic

CLE “ .

Jn the Supreme Court of the Gnited States

OCTOBER TERM, 1989

~

NATIONAL FEDERATION OF FEDERAL EMPLOYEES, ET AL..

PETITIONER

RICHARD B. CHENEY, SECRETARY OF DEFENSE, ET AIL

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

WILLIAM C. BRYSON

Acting Solicitor General

STUART M. GERSON

Assistant Attorney General

LEONARD SCHAITMAN

THOMAS M. BONDY

Altorneys

Department of Justice

Washington, D.C. 20530

(202) 514-2217

BEST AVAILABLE COPY

QUESTION PRESENTED

Whether federal employees may obtain judicial review

of a claim that a Department of Defense decision to con-

tract Out certain services to a private contractor is based on

a cost comparison that is not in conformance with provi-

sions of OMB Circular A-76 and that employs costs that

are not “realistic and fair” within. the meaning of Section

1223(b) of the National Defense Authorization Act for

Fiscal Year 1987.

(1)

TABLE OF CONTENTS

Page

aa, or edeacwecewl veces ated aga l

Ee l

aR EE ec a 2

Dc da cae pace sevens cee wens 11

ee lease dececcedocccesees 24

TABLE OF AUTHORITIES

Cases:

American Fed’n of Gov’t Employees v. Brown, 680

F.2d (11th Cir. 1982), cert. denied, 459 U.S. 1104

eon inns can ceeeescechsesceves 17

American Fed’n of Gov’t Employees v. Dunn, 561

I, PO cae ccccnccceces 23

American Fed’n of Gov’t Employees v. Hoffman,

427 F. Supp. 1048 (N.D. Ala. 1976) ........... 17, 23

American Fed’n of Gov’t Employees, Local 1841 v.

United States Dep’t of Defense, 682 F. Supp.

ee ic caw e se teccercenevee 17

American Fed’n of Gov’t Employees v. Stetson, 86

Lab. Cas. (CCH) 4 33,819 (D.D.C. July 24,

ee oe cae yevsishoBoe se 17, 23

Arnold Tours, Inc. v. Camp, 400 U.S. 45 (1970) .. 21

Association of Data Processing Service Organiza-

tions, Inc. v. Camp, 397 U.S. 150 (1970) ....... 6, 21

CC Distributors, Inc. v. United States, 883 F.2d

i nc occccewenss 10, 11, 16, 20

Citizens to Preserve Overton Park, Inc. v. Volpe,

ERE en 12

Clarke v. Securities Industry Association, 479 U.S.

rs ce ek os chad ce eeeceeees 6, 21, 22

Defense Language Institute v. FLRA, 767 F.2d

1398 (9th Cir. 1985), cert. dismissed, 476 U.S.

ies oh ck cks és 17

lV

Cases — Continued: Page

Department of the Treasury, IRS v. FLRA, 110S.

Ct. 1623 (1990) ....... Saal ae cae 2, 10, 23

Department of the Treasury, IRS v. FLRA, 862

F.2d 880 (D.C. Cir. 1988) .. RAM oa Ne 10

Hazardous Waste Treatment Council v. EPA, 861

F.2d 277 (D.C. Cir. 1988), cert. denied, 109

Ge Bee i oxcddconeucudesuucace: Rae 9

Heckler v. Chaney, 470 U.S. 821 (1985) oy picid Nip eR 13

Investment Company Institute v. Camp, 401 U.S.

SGN asa ucu ee davececaresnen 21

Local 2855, AFGE v. United States, 602 F. 2d $74

(3d Cir. 1979), .... CRE Pree t S ey 17

Manhattan-Bronx Postal Union v. Gronouski, 350

F.3d 451 (D.C. Cir. 1965), cert. denied, 382 U.S.

EL ns ane el eee ee errs 15

National Maritime Union v. ‘Commander, Military

Sealift Command, 632 F. Supp. 409 (D.D.C.

1986), aff'd, 824 F.2d 1228 (D.C. Cir. 1987) 17, 23

NLRB vy. Bell Aerospace Co., 416 U.S. 267

.) aera - 19

Panama Canal Co. v. Grace Lines, Inc., 356 U.S.

309 (1958) ...... Ms 17

Scanwell Laboratories, Inc. v. Shaffer, 424 F.2d

859 (D.C. Cir. 1970) ..... ae 9

United States Dep’t of HHS v. FLRA, 844 F.2d

1087 (4th Cir. 1988) ..... er >

Valley Forge Christian College v. Americans

United For Separation of Church & State, Inc.,

454 U.S. 464 (1982) ....... 6

Constitution, statutes and regulation:

U.S. Const. Avi. Ge ..-.-. 6

Act of July 19, 1988, Pub. L. No. 100-370, 102

Stat. 840:

§ 2(a)(1), 102 Stat. 851 5

§ 2(c)(3), 102 Stat. 854 5

Vv

Statutes and regulation — Continued: Page

Administrative Procedure Act, 5 U.S.C. 701

et seq.:

ate MED in kd 9a 6d serve benstnee 13

PEO ME Ds Coches écdeeesee ce iwecilien 5

Budget and Accounting Act of 1921: 31 U.S.C.

PE aad cvovlod shee trade Cea edtoon 6

oT | rr one ene 13

31 U.S.C. 501 note (Reorganization Plan No.

BO See bis ke a cedae thee aw eke 7, 13

National Defense Authorization Act for Fiscal

Year 1987, Pub. L. No. 99-661, 100 Stat. 3977:

S ey CU Os DOOD so oivcccccccwevcscoses 5, 8, 10,

15, 16, 20, 21

§ 1223(b), 100 Stat. 3816 .................. 5

National Defense Authorization Act, Fiscal Year

1989, Pub. L. No. 100-456, § 331, 102 Stat.

SGT Weacsueeeons eeaeleta cee tec creueceue. 18

Office of Federal Procurement Policy Act, Pub. L.

oe ee ee 8

Office of Federal Procurement Policy Act Amend-

ments of 1979, Pub. L. No. 96-83, 93 Stat. 648,

ke Fe een 8

Oe I ois oc sk cab eddeoeseeras 8, 15

ee I Sg ecirs ou 4 k-space os w ae 8

PE Soa ass urs sce eet ue encoun 12

Rtas PE i na dic Vdc va oes eee Oh eee arues 23

We Ses PIE wo hs hss ac idceweaeeaveweas 5

PURE ec Notte Gicdcusdceauadecdaa aes 5, 16

eG EE hoo. vccacvdcvucensceaseuutel 16

co ea ara nie om © 2 16

Sr RS le in Vc Vere ecedecceuuase on, 19

Se ns IE cea ss canes cope eens 18, 19

VI

Statutes and regulation — Continued: Page

ee ene ebess eves eeceseas 16

Es ci cc adevcerstuvetexeeeecenens 13

Miscellaneous:

H.R. 4015, 101st Cong., 2d Sess. (1990) ......... i2

H.R. Rep. No. 696, 100th Cong., 2d Sess.

Ay en at one eee eee ee 16

OMB Circular A-76 (1983) ......... 2. cece cece passim

S. Rep. No. 144, 96th Conz., Ist Sess. (1979) ..... 8, 20

S. Rep. No. 331, 99th Cong., 2d Sess. (1986) ..... 8, 21

Jn the Supreme Court of the United States

OCTOBER TERM, 1989

No. 89-1501

NATIONAL FEDERATION OF FEDERAL EMPLOYEES, ET AL.,

PETITIONER

v.

RICHARD B. CHENEY, SECRETARY OF DEFENSE, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

OPINIONS BELOW

The decision of the district court (Pet. App. 71) is

unreported. The decision of the panel of the court of ap-

peals (Pet. App. 1-61) is reported at 883 F.2d 1038. The

order of the court of appeals denying the petition for

rehearing (Pet. Supp. App. 1) is unreported. The order of

the court of appeals denying the suggestion for rehearing

en banc (Pet. App. 62-70) is reported at 892 F.2d 98.

JURISDICTION

The judgment of the court of appeals was entered on

August 25, 1989. A petition for rehearing was denied on

December 22, 1989 (Pet. Supp. App. 1). The petition for a

writ of certiorari was filed on March 19, 1990. The

jurisdiction of this Court is invoked under 28 U.S.C.

1254(1).

(1)

2

STATEMENT

1. Office of Management and Budget (OMB) Circular

A-76 sets forth the government’s policy regarding the con-

tracting out of commercial functions to the private sector.

Based on the recognition that “it has been and continues to

be the general policy of the Government to rely on com-

mercial sources to supply the products and services the

Government needs” (Circular, para. 4.a), the Circular

states that as a general principle commercial activities are

to be contracted out to the private sector unless it would be

more economical to perform the activity in-house. See

Department of the Treasury, IRS v. FLRA, 110 S.Ct.

1623, 1625-1626 (1990).

The central directive of the Circular is that “the Govern-

ment shall not start or carry on any activity to provide a

commercial product or service if tie product or service can

be procured more economically from a commercial

source.” Circular, para. 5.c. Thus, the Circular instructs

the heads of Executive Branch agencies that “[w]henever

commercial sector performance of a Government operated

commercial activity is permissible, * * * comparison of

the cost of contracting and the cost of in-house perform-

ance shall be performed to determine who will do the

work.” /d., para. 5.a. In general, “Government perform-

ance of a commercial activity is authorized [only] if a cost

comparison * * * demonstrates that the Government is

operating or can operate the activity on an ongoing basis

at an estimated lower cost than a qualified commercial

source.” Jd., para. 8.d.

A supplement to the Circular provides guidance to

agency management on how to conduct cost comparisons.

With respect to any particular commercial activity, agency

management officials are directed first to develop a per-

formance work statement (PWS) that specifies the nature

and mission of the activity. OMB Circular A-76, Supple-

3

plement at I-11; id., Pt. Il. The next step is to define the

most efficient and effective organization (MEO) of gov-

ernment employees and resources that would be able to

perform the activity. Supplement at I-12; see id., Pt. III. A

cost comparison handbook then provides guidelines on

how to compute the cost of government performance pur-

suant to the MEO. Supplement, Pt. IV. Finally, the in-

house cost is compared to the cost of private sector per-

formance. The private sector cost is measured according

to bids submitted by contractors, as adjusted to take into

account conversion and various other costs. See Supple-

ment at I-12.

The Circular requires each executive agency to establish

an administrative appeal procedure, pursuant to which

agency employees and their unions, as well as bidders on

the solicitation at issue, may challenge an A-76 determina-

tion on the ground that the decision failed to adhere to the

dictates of the cost comparison handbook. Circular, para.

6.g; Supplement at I-14. Appeals must be filed and de-

cided quickly; a party has 15 working days from receipt of

supporting documentation to file an appeal (Supplement

at I-15), and “[t]he appeals procedure must * * * provide

for a decision within 30 calendar days of receipt of the ap-

peal.” Jd. at I-14. “The original appeal decision shall be

final unless the agency procedures provide for further dis-

cretionary review within the agency.” /bid.

The Circular specifies that “[t}his Circular and its Sup-

plement shall not * * * [e]stablish and shall not be con-

strued to create any substantive or procedural basis for

anyone to challenge any agency action or inaction on the

basis that such action or inaction was not in accordance

with this Circular, except as specifically set forth in [the

Circular’s administrative appeals provisions].” Circular,

para. 7.c.(8). And the provision governing administrative

appeals explicitly states: “The [required administrative ap-

peal} procedure does not authorize an appeal outside the

agency or a judicial review.” Supplement at I-14.

4

2. In 1980, pursuant to OMB Circular A-76, the Army

decided to conduct a commercial activity review of the Di-

rectorate of Logistics at the Army’s installation at Fort

Sill, Oklahoma. Pet. App. 2. The Directorate of Logistics

provides support, maintenance, transportation, and sup-

ply functions for Fort Sill. /d. at 3. The Army identified

the Directorate’s commercial functions and developed per-

formance work statements for those functions. The Army

then devised the most efficient configuration of govern-

ment resources pursuant to which the functions could be

performed, and according to that configuration computed

the cost of performing the functions in-house. /bid.

To determine whether the Directorate’s commercial ac-

tivities should be contracted out to the private sector, the

Army solicited and received bids tor the work specified in

the performance work statements. The Army ultimately

concluded that the work should be contracted to Northrup

Worldwide Aircraft Services, Inc., which had bid 53.2

million dollars. Pet. App. 4. The in-house cost, as com-

puted in the MEO, was estimated at 61.4 million dollars.

Ibid.

Petitioner National Federation ot Federal Employees

(NFFE), a union representing employees whose jobs alleg-

edly would be affected by the decision to contract out,

submitted an administrative appeal to the Army challeng-

ing that decision. Essentially, the union contended that the

Army had improperly relied on inflated in-house costs and

at the same time had erroneously discounted various costs

associated with contractor performance. Pet. App. 4-5.

The Army’s administrative review board rejected the

union’s challenge. /d. at 5. In a lengthy written decision,

the review board found that although four of the union’s

59 allegations had some merit, the union had not shown

that the ultimate determination —that the cost of the con-

tractor’s performance would be less than the cost of in-

house performance — was incol/ect.

3. NEFE and one of its locals, also a petitioner here,

tiled this action in district court, seeking injunctive and

declaratory relief. Petitioners alleged that the Army’s cost

comparison was not in conformance with the directives set

forth in A-76’s cost comparison handbook. Petitioners

also alleged that the costs used were not “realistic and fair”

within the meaning of Section 1223 of the National De-

tense Authorization Act tor Fiscal Year 1987, Pub. L. No.

99-661, 100 Stat. 3977.

The district court granted the government’s motion to

dismiss. Pet. App. 71. In a ruling trom the bench, the

court reasoned that judicial review was unavailable, be-

cause agency compliance with the cost comparison provi-

sions of OMB Circular A-76 is “committed to unreview-

able agency discretion” (Pet. App. 73), and because the

“realistic and tair” clause in Section 1223(b) does not pro-

vide “ascertainable standards or any law to apply.” Pet.

App. 73. In the alternative, the district court ruled that pe-

tiioners lacked standing. The court explained that

“{a]lthough there is injury in fact, the [petitioners] are not

within the zone of interest and do not meet the zone of in-

terest test.” Jd. at 73-74.

4. <A divided panel of the court of appeals, agreeing

with the district court’s conclusion that petitioners lacked

standing, affirmed the judgment of the district court. The

court of appeals held that, because they failed to meet the

requirements of the “prudential zone of interest test,” peti-

tioners lacked standing under the Administrative Pro-

cedure Act, 5 U.S.C. 702; the court therefore did not ad-

Ihe complete text of Section 1223 of the National Detense Au

thorization Act For Fiscal Year 1987 appears at Pet. App. 75-76. Sec

tion 1223 was originally coditied at 10 U.S.C. 2304 note. In 1988, the

provision was repealed and recoditied at 10 U.S.C. 2462. See Act of

July 19, 1988, Pub. L. No. 100-370, $§ 2(a)(1) and 2(c)(3), 102 Stat

S51, 854

6

dress the question whether petitioners had standing under

Article III of the Constitution. Pet. App. 7-8 n.8.

The court of appeals began its analysis by quoting this

Court’s observation that prudential standing requires that

the “plaintiff's complaint fall within ‘the zone of interests

to be protected or regulated by the statute * * * in ques-

tion’.” Valley Forge Christian College v. Americans

United for Separation of Church & State, Inc., 454 U.S.

464, 474-475 (1982) (quoting Association of Data Process-

ing Service Organizations, Inc. v. Camp, 397 U.S. 150,

153 (1970)). Pet. App. 8. Referring to the decision in

Clarke v. Securities Industry Association, 479 U.S. 388

(1987), which it described as “the most recent and leading

Supreme Court statement on the zone of interest test”

(Pet. App. 9), the court of appeals reiterated this Court’s

statement that “the test is not meant to be especially de-

manding; in particular, there need be no indication of con-

gressional purpose to benefit the would-be plaintiff.” Pet.

App. 10 (quoting Clarke, 479 U.S. at 399-400).

The court recognized that, at bottom, the prudential

standing inquiry turns on congressional intent (see Clarke,

479 U.S. at 394): the zone of interest test “denies a right of

review if the plaintiffs interests are so marginally related

tO or inconsistent with the purposes implicit in the [rele-

vant] statute that it cannot reasonably be assumed that

Congress intended to permit suit.” Pet. App. 10 (quoting

Clarke, 479 U.S. at 399). Thus, showing that a plaintiff is

within the zone of interest of a statute “requires less than a

showing of congressional intent to benefit but more than a

‘marginal[ ] rela{tionship]’ to the statutory purposes.” Pet.

App. 24.

Applying these principles, the court found that neither

ot the two statutes cited by OMB Circular A-76 as author-

ity tor its promulgation —the Budget and Accounting Act

ot 1921, 31 U.S.C. S01 et seqg., and the Office of Federal

Procurement Policy Act Amendments of 1979, 41 U.S.C.

401 ef seq. (the OFPPAA)—permits a reasonable infer-

ence that federal employees or their unions should be al-

lowed to seek judicial review of a cost comparison per-

formed under the Circular. ?

Turning first to the Budget and Accounting Act of 1921,

the court noted that the main effect of that statute was to

create two government agencies, the General Accounting

Office (GAO) and the Bureau of the Budget, OMB’s pre-

decessor agency. Pet. App. 16-17. The purpose of these

agencies was “to increase efficiency in government opera-

tions” and to “centralize the budgeting system under a sin-

gle office in each of the two political branches.” /d. at 16.

The GAO was to participate in the budget process as rep-

resentative of the Legislative Branch, and the Bureau of

the Budget was to oversee the formulation of the budget

within the Executive Branch. Noting that “[n]Jothing in the

legislative history of the i921 Act [as amended] suggests

that Congress contemplated the protection of employment

of federal employees” (/d. at 20), the court concluded that

petitioners’ interest in preserving government jobs did not

fall within the zone of interests protected by the statute.

The court reached the same conclusion with respect to

the OFPPAA. Pet. App. 26-29. As the court noted (id. at

26), in 1974 Congress enacted the Office of Federal Pro-

> Paragraph 3 of OMB Circular A-76 provides:

Authority. The Budget and Accounting Act of 1921 (31 U.S.C. 1

et seq.), and The Office of Federal Procurement Policy Act

Amendments of 1979 (41 U.S.C. 401 ef seq.).

The court of appeals seems to have assumed that petitioners asserted

standing under both of these statutes. See Pet. App. 9. But as petition-

ers point out (Pet. 18 n.5}, they did not assert standing under the Bud-

get and Accounting Act of 1921.

’ Various Bureau of the Budget tunctions were transterred to OMB

under Reorganization Plan No. 2 of 1970, see 31 U.S.C. S501 note

curement Policy Act, Pub. L. No. 93-400, 88 Stat. 796, a

central feature of which was to create within OMB an Of-

fice of Federal Procurement Policy charged with provid-

ing executive agencies with overall direction on matters of

procurement policy. See 41 U.S.C. 402(b), 404(a). The

OFPPAA, enacted in 1979, amended the Office of Federal

Procurement Policy Act in certain respects, and extended

the life of the Office of Federal Procurement Policy. Of-

fice of Federal Procurement Policy Act Amendments of

1979, Pub. L. No. 96-83, 93 Stat. 648.

The court stated that, “[a]fter a thorough review of the

OFPPAA and its legislative history, we have found noth-

ing to suggest a congressional purpose more than margin-

ally related to the interests of federal employees vis-a-vis

procurement policy.” Pet. App. 26. Citing and quoting

congressional committee reports,* the court observed that

enactment of the OFPPAA reflected Congress’s explicit

endorsement of the contracting-out policy set forth in

OMB Circular A-76. Pet. App. 26-28. The court con-

cluded that since federal employees’ “real interest of job

protection flies in the tace of a policy that federal depart-

ments and agencies, through OMB Circular A-76, should

rely on the private sector” (Pet. App. 28-29), the OFPPAA

does not provide a basis for inferring that unions or em-

ployees should be able to bring suit in district court to

challenge a cost comparison conducted under the Circular.

Next, the court held that petitioners lacked standing to

argue that the Army’s cost figures were not “realistic and

tair” within the meaning of Section 1223 of the National

Defense Authorization Act for Fiscal Year 1987. Pet.

App. 29-34. The court noted that Section 1223 is essen-

tially a mandatory contracting-out provision, command-

ing that a commercial tunction “shall” be contracted out if

*F.g., S. Rep. No. 144, 96th Cong., Ist Sess. (1979)

9

in-house performance would not be economical, unless

under the circumstances contracting out is prohibited by

law or the Secretary of Defense determines that the activ-

ity In question must be performed by governmental or

military personnel. See Pet. App. 64. Moreover, the court

observed, the legislative history shows that the “realistic

and fair” requirement was intended to rectify a bias against

private contractors in the existing cost comparison proc-

ess. /d. at 30-31 (citing S. Rep. No. 331, 99th Cong., 2d

Sess. (1986)). “It follows,” the court concluded, “that ap-

pellants’ interests [in maintaining in-house performance]

are not within the zone of interests of the Authorization

Act of 1987.” Pet. App. 31-32.

Judge Mikva dissented. In his view, the zone of interest

issue turned on the question whether “the plaintiff is a pe-

culiarly suitable challenger of administrative neglect.” Pet.

App. 48 (quoting Hazardous Waste Treatment Council v.

EPA, 861 F.2d 277, 283 (D.C. Cir. 1988) (per curiam),

cert. denied, 109 S. Ct. 3157 (1989)). He concluded that

petitioners satisfied that test because he believed that fed-

eral employees would likely be the only plaintiffs who

could challenge mistaken decisions to contract out.® Pet.

App. 48-50. In the absence of a statute indicating “a con-

gressional intent to preclude reliance on this particular

class of plaintiffs” (/d. at 50), Judge Mikva found no basis

> In addition to denying standing under the Budget and Accounting

Act of 1921, the OFPPAA, and the 1987 DoD Act, the court of ap-

peals also held that petitioners did not qualify under the doctrine ot

disappointed bidder standing discussed in Scanwell Laboratories, Inc.

\. Shaffer, 424 F.2d 859 (D.C. Cir. 1970). Pet. App. 34-39. Peti-

tioners do not take issue with this aspect of the court’s decision.

* In contrast, the majority said that, since the parties had not ad-

dressed the question, “we are unable to hold with any degree of conti-

dence that no such plainutt lurks in the background.” Pet. App. 32

n.26.

10

for inferring that Congress would not have wanted federal

employees or their unions to obtain judicial review of con-

tracting out decisions, as in this case. /d. at 39-61.’

5. The court of appeals denied petitioners’ petition for

rehearing with suggestion for rehearing en banc. Pet. App.

62-66. Judge D.H. Ginsburg, joined by Judges Silberman,

Williams and Sentelle, filed a statement concurring in the

denial of rehearing en banc (id. at 63),§ and Judge

’ Relying in part on the D.C. Circuit’s decision in Department of

the Treasury, IRS v. FLRA, 862 F.2d 880 (1988), Judge Mikva also

stated that, in his view, the district court erred in holding that the

agency action at issue in this case is not subject to judicial review. Pet

App. 60. In Department of Treasury, IRS v. FLRA, the court ot ap-

peals had upheld the Federal Labor Relations Authority’s determina-

tion that a union’s complaint alleging that an agency contracting-out

decision was in violation uf OMB Circular A-76 is subject to the

grievance and arbitration machinery ot the tederal labor relations

statute. Department of Treasury, IRS y. FLRA has since been re-

versed by this Court. Department of the Treasury, IRS v. FLRA, 110

S. Ct. 1623 (1990).

* In his statement, Judge Ginsburg explained why, in his view, the

panel decision was not in tension with the decision of another panel of

the D.C. Circuit in CC Distributors, Inc.v. United States, 883 F.2d

146 (1989). In CC Distributors, contractors had challenged the deci-

sion of the Air Force to perform a tunction in-house on the ground

that the Air Force had not conducted any cost comparison at all. The

contractors relied, infer alia, on the requirement of Section 1223 of the

National Defense Authorization Act for Fiscal Year 1987 that the

Secretary of Detense “shall procure” those supplies or services not

necessary tor inherently governmental tunctions trom private con-

tractors if such contractors could provide the service or supply at

lower cost than could the government. CC Distributors, 883 F.2d at

152. The court of appeals held (1) that the requirements tor constitu-

tional standing were satistied (id. at 149-151); (2) that the contractors

had prudential standing under Section 1223 to challenge the Arr

Force’s determination to convert to in-house performance without

conducting a cost comparison (883 F.2d at 151-153); and (3) that,

1]

Mikva, joined by Judges Wald and Edwards, filed a dis-

sent. /d. at 66-70.

ARGUMENT

The decision of the court of appeals is correct, and its

result is in full accord with the decision of every other

court that has considered whether federal employees — re-

lying on a variety of grounds— may bring suit for judicial

review of the cost comparisons underlying decisions to

contract out. Two separate, but closely related, grounds

support the court’s result. First, the decision of a federal

agency to contract out a function previously pertormed in-

house is committed to the discretion of the Executive

Branch, and is therefore not subject to judicial review. Al-

though this ground was not reached by the court of ap-

peals (see Pet. App. 39),° it is the underlying question in

the case; only if some judicial review were appropriate

would petitioners’ claim to standing become an issue. In-

deed, the issue of reviewability may be viewed as raising

the question whether anyone has standing to mount a judi-

cial challenge to a particular decision. Second, even as-

suming that judicial review of decisions to contract out

may be appropriate in some circumstances, the court of

appeals correctly held that federal employees and their

unions do not have standing to seek review of the cost

comparisons underlying a particular decision to contract

out.

1. An agency evaluation of the relative costs involved

in performing a given function in-house or contracting out

although Section 1223 provided “no law to apply,” Department ot

Detense regulations provided standards to guide review of the Air

Force’s determination that the function at issue Was an inherently

governmental function (883 F.2d at 153-156)

* This ground was relied on by the district court (Pet. App. 73) and

discussed by Judge Mikva in his dissent (see note 7, supru)

12

that function is not subject to judicial review because there

is no legally enforceable requirement that governs the va-

lidity of the agency’s evaluation. The evaluation of costs,

and the consequent decision concerning whether to con-

tract Out, is governed by internal executive branch policy —

as stated in Circular A-76—and by executive decisions. '!°

In particular, because Circular A-76 is simply an internal

management directive articulating the President’s policy

concerning contracting Out, it is not itself a source of

“law to apply.” Cf. Citizens to Preserve Overton Park,

Inc. v. Volpe, 401 U.S. 402 (1971). And since the other

sources of “law to apply’ that petitioners invoke similarly

fail to provide “judicially manageable standards * * * for

‘© Legislation concerning contracting out is presently pending

betore Congress. H.R. 4015, 101st Cong., 2d Sess. (1990) (“Commer-

cial Activities Contracting Procedures Act ot 1990”). To the extent

that this bill, if enacted, would alter the legal landscape bearing upon

the issues presented in this case, the pendency ot the legislation before

Congress gives added force to our position that turther review of the

court of appeals’ decision is not warranted.

The bill seeks to “[e]stablish uniform standards tor Federal agency

determinations of the most economical and etticient method for ac-

quiring performance of commercial services” ($ 2(1)), and to “[e]nsure

fair Competitions tor contracts for the procurement of commercial ac-

tivities and meaningtul opportunities tor individuals, organizations,

and commercial sources affected by those procurements to participate

tairly in the process” (§ 2(3)). Among other things, the bill would re-

quire the Federal Acquisition Regulatory Council (see 41 U.S.C. 421)

to amend the Federal Acquisition Regulation to establish detailed re-

quirements tor conducting cost comparison analyses. § 7(b). The bill

would require each executive agency to establish a review board, one

ot whose functions would be to review the adequacy of cost compani-

son analyses. $$ 7(c), 9. Interested parties, including agency employ-

ees and their unions, would be entitled to seek review by this board,

and also to appeal board decisions to the head of the agency. § 7(c)(3).

Employees and their unions would also have the right to examine ard

comment upon the agency’s performance work statements, and to ap-

peal a decision not to take their comments into account. § &8(c).

13

judging how and when an agency should exercise its dis-

cretion,” Heckler v. Chaney, 470 U.S. 821, 830 (1985), the

cost comparison challenged by petitioners is “committed

to agency discretion by law,” 5 U.S.C. 70i(a)(2), and not

subject to judicial review.

a. Neither Circular A-76 itself, nor the statutes creating

OMB and its component, the Office of Federal Procure-

ment Policy (OFPP), impose legally binding obligations on

federal agencies with regard to cost comparisons that were

intended to be—or are—enforceable by the courts. The

Budget and Accounting Act of 1921, as amended, creates

OMB as “an office in the Executive Office of the

President.” 31 U.S.C. 501. OMB serves as “the President’s

principal arm for the exercise of his managerial functions.”

Reorganization Plan No. 2 of 1970, see 31 U.S.C. 501 note.

“In carrying out its responsibilities, [OMB] issues policy

guidelines to Federal agencies to promote efficiency and

uniformity in Government activities. These guidelines are

normally in the form of circulars.” 5 C.F.R. 1310.1.

OMB Circular A-76 is such a policy guideline. By its

terms, its purpose is to “establish[ ] Federal policy regard-

ing the performance of commercial activities.” Circular,

para. | (“Purpose.”). Thus, the Circular is an internal pol-

icy directive from the President to guide agency officials in

deciding whether certain services can be contracted out.

As the en banc Fourth Circuit recently concluded:

A Presidential order may have the force and effect of

law when it is issued pursuant to statutory mandate or

a delegation from Congress of lawmaking authority

** * but Circular A-76 was issued pursuant to no

such authority. It was issued pursuant to the executive

branch’s budget and management authority, by the

Ottice of Management and Budget, “the President’s

principal arm tor the exercise of his managerial func-

tions.”

United States Dep’t of HHS v. FLRA, 844 F.2d 1087, 1096

(1988) (quoting Reorganization Plan No. 2 of 1970).

14

The conclusion that Circular A-76 does not itself create

any legally enforceable obligations is supported by its own

terms, which state that it “shall not * * * [e]stablish and

shall not be construed to create any substantive or proce-

dural basis tor anyone to challenge any agency action or

inaction on the basis that such action or inaction was not

in accordance with this Circular.” Para. 7.c.(8).'' The Cir-

cular is, in essence, the method the President has utilized

to provide agency management officials with guidance on

how they should exercise their authority to make contract-

ing-out determinations. As such, it has precisely the same

Status as would an oral directive issued, in a simpler day,

by the President to his agency heads. Rather than impos-

ing an enforceable legal obligation, it is binding only in the

same sense that any managerial directive is binding on sub-

ordinate officials; compliance with the directive is satisfac-

tory only if and to the extent that the ultimate source of

authority —in this case, the President — says it Is. ;

b. To be sure, the Circular cites as “Authority” the

Budget and Accounting Act of 1921 and the OFPPAA.

Circular, para. 3. As noted above, the Budget and Ac-

counting Act constitutes OMB as an agency within the

Executive Branch charged with assisting the President in

executing his managerial functions. Although Congress no

doubt intended that OMB should advance the goal, inter

The tact that Circular A-76 permits tederal employees to partici-

pate in an internal appeals process relating to a decision to contract

out does not alter this conclusion. The appeal procedures are internal

to the agency and its expert personnel; they serve the agency’s pur-

poses by assuring it that it has had access to all possibly relevant infor-

mation betore making a decision to contract out. The procedures ex-

plicitly preclude “appeal outside the agency or a judicial review”

(OMB Circular No. A-76, Supplement at I-14). Thus, the existence of

these procedures does not suggest that the Circular’s guidelines are in-

tended to impose legally entorceable standards on agencies conducting

LOST COMPA#§lsons.

15

alia, of “procurement efficiency” (Pet. 18 n.5), nothing in

the statute charges OMB with advancing this goal only by

imposing legally enforceable regulations on executive

branch agencies. To the contrary, OMB might well con-

clude, consistent with its statutory charter, that the costs

and delays attendant on judicial enforceability would, on

balance, retard the goal of procurement efficiency. There-

fore, the Budget and Accounting Act, which plainly does

not itself provide “law to apply” to govern agency con-

tracting out decisions, also does not render Circular A-76

a source of judicially enforceable legal obligations.

Nor does the OFPPAA provide “law to apply” to peti-

tioners’ claim. Although that Act does “establish [the

OFPP] in the Office of Management and Budget to pro-

vide overall direction of procurement policies, regulations,

procedures, and forms for executive agencies,” 41 U.S.C.

402(b), it does not mention the issue of contracting out,

and includes no legal standard to govern agency cost com-

parisons. Nor does it limit OFPP to accomplishing its task

by promulgating legally binding, judicially enforceable

regulations. In short, the fact that Congress has enacted

statutes creating OMB and the OFPP and entrusted those

agencies with the task of assisting the President does not

mean that every detailed statement of Executive Branch

policy issued by OMB and OFPP in the form of a Circular

is a congressionally authorized regulation compliance with

which is to be enforced in the district courts. Cf. Man-

hattan-Bronx Postal Union v. Gronouski, 350 F.2d 451,

456-457 (D.C. Cir. 1965), cert. denied, 382 U.S. 978

(1966).

c. Similarly, reviewability is not afforded by Section

1223 of the National Defense Authorization Act for Fiscal

Year 1987. Section 1223 provides that the DoD must pro-

cure services or supplies from a source in the private sector

“if such a source can provide such supply or service to the

Department at a cost that is lower * * * than the cost at

16

which the Department can supply the same supply or ser-

vice.” 10 U.S.C. 2462(a). It also provides that the cost

comparison must be “realistic and fair.” 10 U.S.C.

2462(b). Even if these provisions, read together, could be

said to address a DoD decision in favor of contracting out,

neither of them creates a judicially manageable standard

to govern petitioners’ complaint. !?

It is undisputed that a cost comparison was performed

in this case; the gravamen of petitioners’ complaint is pre-

cisely that such a comparison was done, albeit incorrectly.

Section 1223 therefore supports petitioners’ complaint, if

at all, only if the terms “realistic and fair” provide, in this

context, a judicially manageable standard. We submit that

they do not. Whatever may be the case when broad terms

comparable to “realistic and fair” are used in a statute

granting a regulatory agency authority over private con-

duct,'? the statute involved here — Section 1223 — grants no

such regulatory power to any executive branch agency. Cf.

note 10, supra (discussing pending legislative proposal).

The statute concerns not the regulation of any private con-

duct, but rather, as noted above, the internal management

ot the federal government. !*

'2 Section 1223 was repealed in 1988, and recoditied at 10 U.S.C.

2462. The recodification was not intended to have any substantive et-

fect. H.R. Rep. No. 696, 100th Cong., 2d Sess. 1 (1988); see also id.

at 9.

3S F.g., 1S U.S.C. 78) (SEC rulemaking “as necessary or appropri-

ate in the public interest or tor the protection of investors”); 16 U.S.C.

S824d(a) (FERC rules and regulations atfecting or pertaining to rates

“shall be just and reasonable”).

'* The tact that this case involves tunctions related to national secu-

rity considerations suggests that close judicial review of the decision to

contract Out here is particularly inappropriate. Ct. CC Distributors,

Inc. v. United States, 883 F.2d 146, 1$1-153 (D.C. Cir. 1989),

17

d. Over the years, federal employees and their unions

have attempted to mount a wide variety of judicial chal-

lenges to agency cost estimates made pursuant to the

evolving Circular A-76 policy guidelines. Every court to

decide the issue has determined that the validity of those

estimates is not judicially reviewable.'* These courts have

recognized that the “managerial decision and the studies

and evaluations” that underlie the decision to contract out

“involve[ ] ‘questions of judgment requiring close analysis

and nice choices.’ ” Local 2855, AFGE v. United States,

602 F.2d 574, 580-581 (3d Cir. 1979) (quoting Panama

Canal Co. v. Grace Line, Inc., 356 U.S. 309, 318 (1958)).

Because the ultimate decision “is necessarily a matter of

judgment and managerial discretion,” it is unsuitable for

judicial review. Local 2855, 602 F.2d at 583.'® Nothing in

any statute cited by petitioners casts doubt on the results

‘> See, e.y., American Fed’n of Gov't Employees v. Brown, 680

F.2d 722 (11th Cir. 1982), cert. denied, 459 U.S. 1104 (1983); Local

2855, AFGE vy. United States, 602 F.2d 574, 577-583 (3d Cir. 1979);

American Fed’n of Gov't Employees, Local 1841 v. United States

Dep't of Defense, 682 F. Supp. 479 (D. Nev. 1988); National Maritime

Union v. Commander, Military Sealift Command, 632 F. Supp. 409,

417 (D.D.C. 1986) (Circular A-76 “provides no judicially enforceable

substantive rights”), afd on other grounds, 824 F.2d 1228 (D.C. Cir.

1987); American Fed’n of Gov’t Employees v. Stetson, 86 Lab. Cas.

(CCH) 4 33,819, at 48,852 (D.D.C. July 24, 1979); American Fed’n of

Gov't Employees v. Hoffman, 427 F. Supp. 1048, 1079-1082 (N.D.

Ala. 1976). See also United States Dep’t of HHS vy. FLRA, 844 F.2d at

1096 (“The current version of the Circular * * * provide[s}] no basis for

third party review.”).

‘© Cf. United States Dep't of HHS v. FLRA, 844 F.2d at 1092

(“Reliance on agency judgment is a recurring theme ot the Circular

and its accompanying Supplement.”); Defense Language Institute v.

FiRA, 767 F.2d 1398, 1401 (9th Cir. 1985) (holding that decision to

contract out is managerial decision and not subject to collective

bargaining), cert. dismissed, 476 U.S. 1110 (1976).

18

or reasoning of this consistent line of cases. In light of the

unanimity in the lower courts, turther review of this issue

is unwarranted.

2. The standing issue in this case is closely tied to the

reviewability issue; the question whether Congress in-

tended a government agency’s detailed cost comparisons

to be subject to judicial review at all is only slightly distinct

trom the question whether Congress intended such com-

parisons to be judicially reviewed at the behest of a federal

employee or his representative. The result reached by the

court Of appeals with respect to this issue is correct and

does not conflict with the decision of any other court.

a. Petitioners make little if any etfori to show that el-

ther the Budget and Accounting Act or the OFPPAA pro-

vides a plausible basis for permitting tederal employees or

their unions to seek judicial review of A-76 cost compari-

sons. Instead, petitioners lead off their discussion with an

argument based on 10 U.S.C. 2467(b).'’ Pet. 20-22; see

also Pet. 9-11 (aiso discussing Section 2467(b)). Petition-

ers’ reliance On this provision is misplaced tor two reasons.

First, they did not rely on the provision in the court below,

and for that reason the decision o! the court of appeals

Section 2467(b)— which was enacted in 1Y88 as part of the Na-

uonal Detense Authorization Act, Fiscal Year 1989, Pub. L. No.

100-456, § 331, 102 Stat. 1957 —states in pertinent part that “[eJach

otticer or employee of the Department of Detense responsible tor de-

termining under Ottice of Management and Budget Circular A-76

whether to convert to contractor performance any commercial activity

ot the Department * * * shall * * * during the development and prep-

aration ot the pertormance work statement and the management etti-

ciency study used in making that determination, consuli with civilian

employees who will be attected by that determination and consider the

views Of such employees on the development and preparation of that

seew”v

statement and that studs

19

does not refer to it.'® There is no merit to the suggestion

that this Court should grant certiorari in order to consider

an argument that petitioners did not advance below, and

that neither the court below nor any other court has ad-

dressed.

Second, petitioners’ contention is wrong on its merits.

One cannot reasonably conclude that, vy requiring DoD

to consult with employees during development of the PWS

and MEO, Congress signaled an intent to provide employ-

ees and their unions with a right to judicial review of the

ultimate cost comparison decision. Section 2467(b) does

refer to OMB Circular A-76, but a central element of the

Circular is its provision specifying that it is not intended to

create any substantive or procedural basis for judicial re-

view. Circular, para. 7.c.(8); Supplement at I-14. Thus by

simply referring to the Circular, Congress cannot have

meant to override the clear provisions of the Circular

itself.'? “If Congress intended a result so drastic, it is not

unreasonable to expect that it would have said so ex-

pressly.” NLRB v. Bell Aerospace Co., 416 U.S. 267, 285

n.13 (1974).

b. Petitioners’ second argument is that employees and

unions should be deemed to have standing to contest cost

comparisons under the Circular because, in petitioners’

words, “|t}here are no advocates in the process other than

‘> Section 2467 was enacted in September 1988. Petitioners’ opening

brief in the court of appeals does not cite it at all. Their reply briet re-

ters to it Once in passing (Pet. C.A. Reply Br. 7; see also id. at 2).

‘Y If petitioners’ contentions concerning the meaning of Section

2467(b) were correct, Congress would not only have intended to mod-

ity the terms of Circular A-76 simply by making a reterence to the Cir-

cular, but also to overrule the consistent line of judicial decisions

holding that cost comparisons under Circular A-76 are unreviewable

(see note 15, supra) and that, as the court of appeals held in this case,

tederal employees have no standing to challenge such cost compari-

sons (see note 21, wifra).

20

the tederal employees who have an interest in ensuring

comphance with the regulatory procedures that prohibit

an underestimate of contractor costs.” Pet. 23. This is es-

senuially the position adopted by Judge Mikva in his dis-

sent below. Whatever force this argument might have in

another context, it has no force in the context of OMB

Circular A-76. Indeed, the argument is tully countered by

the district court’s correct determination that decisions

made pursuant to the Circular are not subject to judicial

review.?!”

Circular A-76 constitutes intra-Executive Branch policy.

See, e.g., S. Rep. No. 144, 96th Cong., Ist Sess. 4 (1979)

(referring to Circular A-76 as “executive branch policy”).

And as Judge Mikva’s dissent itselt recognizes, “{t}he zone

Of interest inquiry is at base an inquiry into Congress’ in-

tent.” Pet. App. 47. Neither the Budget and Accounting

Act ot 1921 nor the OFPPAA can reasonably be construed

to enable government employees and their unions to pur-

sue Judicial review of a Presidential management directive.

Petitioners are mistaken in characterizing (Pet. 15, 17) the deei-

sion of the court of appeals as anomalous in light of the decision ot

the same court of appeals in CC Distributors, supra. Contrary to pet-

lioners’ suggestion (Pet. 15), CC Distributors does not hold that con-

tractors have sanding to challenge an A-76 cost comparison. Indeed,

the alleged impropriety in the Air Force’s conversion decision in CC

Distributors was precisely that no cost Comparison at all had been con-

ducted. The court of appeals held that the contractors had standing

(under Section 1223) to contest the Air Force's decision to convert to

ii-house performance without conducting a@ Cost comparison. This

holding dees not conthet with the court’s decision here that petitioners

did not hase standing to challenge the substance of the cost compart-

son that was admittedly conducted in this case. In any event, even il

the D.C. Circuit’s decision in this case and its decision in CO Distribu

fors Were In some tension, review by this Court would not be war-

ranted merely to resolve an imtra-circuil ditticults

21

c. Petitioners’ third argument is that the court of ap-

peals erred in concluding that government employees and

their unions lack standing to argue that the DoD’s cost tig-

ures are not “realistic and fair” within the meaning of Sec-

tion 1223 of the National Defense Authorization Act for

Fiscal Year 1987. Pet. 23-24. The court of appeals’ deter-

mination on this issue is correct.

As the court explained, the “realistic and fair” provision

was enacted in order to overcome a perceived bias against

private contractors in the cost comparison process. Pet.

App. 30-31. The Senate Report refers to the clause as a

“mandatory contracting out provision,” and states that

“realistic and fair cost comparisons” are required in order

to eliminate various “handicaps” that impede contractors

from bidding on an equal footing against in-house per-

formance. S. Rep. No. 331, 99th Cong., 2d Sess. 277-278

(1986). According to the Senate Report, “[a]gency cost

comparisons must be made more equal” because “DoD

handicaps contractors’ bidding on services and supplies

during cost comparisons against retaining these functions

in-house.” /d. at 278. In light of this history, the court of

appeals correctly held that unions’ interest in retaining in-

house performance does not fall within the zone of inter-

ests to be protected by Section 1223. That holding, like the

court’s holding regarding the Budget and Accounting Act

1921 and the OFPPAA, is not in conflict with the holding

of any other court.

d. Petitioners’ fourth and final argument (Pet. 24-25)

is that the decision of the court of appeals contravenes

four decisions of this Court: (1) Association of Data

Processing Service Organizations, Inc. vy. Camp, 397 U.S.

150 (1970); (2) Arnold Tours, Inc. v. Camp, 400 U.S. 45

(1970); (3) Investment Company Institute v. Camp, 401

U.S. 617 (1971); and (4) Clarke v. Securities Industry

Association, 479 U.S. 388 (1987). This argument too ts

without merit.

22

In each of these tour cases, the Court held that the

plaintiffs had standing to challenge a determination by the

Comptroller of the Currency allowing banks to engage in

certain non-banking activities. In Data Processing, the

Court held that companies in the business of selling data

processing services had standing to challenge a ruling by

the Comptroller of the Currency that national banks, as

an incident to their banking services, could provide data

processing services to their customers. Similarly, in Ar-

nold Tours, the Court indicated that travel agencies would

have standing to contest a determination by the Comptrol-

ler allowing banks to provide travel services. In /nvest-

ment Company Institute, the Court held that investment

companies had standing to seek judicial review of a deci-

sion by the Comptroller of the Currency authorizing

banks to operate collective investment funds. And in

Clarke, the Court held that a trade association represent-

ing securities brokers had standing to bring suit alleging

that the Comptroller of the Currency exceeded his author-

ity in approving the applications of two national banks to

establish discount brokerage subsidiaries. These decisions

reflect a determination by this Court that, in enacting the

Statutory framework governing the banking industry,

Congress may well have been concerned at least in part

with protecting non-bank businesses trom competition by

national banks. See, e.g., Clarke, 479 U.S. at 397.

The decision of the court of appeals in the present case

obviously is not in conflict with the specific holding of any

'f the four cases. Nor does the court of appeals’ decision

« sntradict the more general principles of standing embod-

-d in those cases. Indeed, the court of appeals specifically

cited Clarke as “the most recent and leading Supreme

Court statement on the zone of interest test” (Pet. App. 9),

and the court rendered its decision “{o]bedient to the

teachings of Clarke.” Id. at 31. The court simply held that

23

unlike the banking laws— which this Court has found at

least implicitly to embody a congressional concern to pro-

tect non-bank businesses from unwarranted competition

by banks—the assortment of statutes cited by petitioners

are, if anything, inconsistent with the interest of federal

employees in preventing the contracting out of certain

functions. The court of appeals’ application of the zone of

interest test to the specific context at issue in this case is

sound and does not conflict with the holding of any other

court.?' Accordingly, it does not warrant further review. 2?

?! To the contrary, it is consistent with the decision of every other

court to consider the question of standing. See, e.g., American Fed'n

of Gov't Employees v. Dunn, 561 F.2d 1310, 1315 (9th Cir. 1977); Na-

ional Maritime Union v. Commander, Military Sealift Command,

632 F. Supp. 409, 416, 417 (D.D.C. 1986), aff'd on other grounds, 824

F.2d 1228 (D.C. Cir. 1987); American Fed’n of Gov't Employees

\. Stetson, 86 Lab. Cas. (CCH) § 33,819, at 48,851-48,852 (D.D.C.

July 24, 1979); American Fed’n of Gov't Employees v. Hoffman, 427

F. Supp. 1048, 1083-1084 (N.D. Ala. 1976).

72 In its recent decision in Department of the Treasury, IRS vy.

FLRA, 110 S. Ct. 1623 (1990), this Court reversed a decision of the

D.C. Circuit that had effectively held, under the federal labor rela-

tions statute, that government employees and their unions are entitled

to demand third-party arbitration of challenges to certain A-76 deter-

minauons. The case was remanded tor consideration of certain ques-

tions, including the question whether Circular A-76 is an “applicable

law” within the meaning of the management rights provision of that

statute, 5 U.S.C. 7106(a)(2). The matter is now pending before the

Federal Labor Relations Authority. Although § U.S.C. 7106(a)(2) is

not involved in the present case, the issues in the two cases are not

unrelated.

24

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

WiLL IANEC. BRYSON

Acune Solicitor General*

STL ART M. GERSON

Assistant Attorney General

LEONARD SCHALTMAN

THOMAS M. BONDY

{fiforneys

\lay 1990