Agency: Defense Logistics Agency
Disposition: Protest sustained.
- Agency properly issued waiver in accordance with Federal AcquisitionRegulation § 12.302(c), for commercial item solicitation requirements that may be inconsistent with customary commercial practice, where agency reasonably found that requirements subject to waiver were legitimate agency needs.
- Solicitation is defective for failure to adequately identify bases for proposal evaluation, as required by Competition in Contracting Act of 1984, 10 U.S.C. 2305(a), where the solicitation divides requirement for food distribution into two geographic zones, with estimated value of one nearly five times that of the other, expresses intent to award each zone to different offeror, but fails to state factors that will be applied to determine which zone will be awarded to offeror whose proposal is found most advantageous for both zones.
General Counsel P.C. Highlight:
PWC generally asserts that several of the RFP provisions are inconsistent with commercial practice, and therefore improper: (1) FOB Origin/Point of Manufacture pricing; (2) providing for DSCP to negotiate prices directly with food manufacturers under the mandatory MPA program; (3) the discount passthrough requirement; (4) the requirement that the prime vendor furnish invoices, quotes, and other documentation of manufacturers’ and growers’ prices; and (5) the requirement that the prime vendor use DTS for shipment overseas. PWC claims that these provisions, considered together, transform the requested services into something other than commercial food distribution services and thus are impermissible. GAO states that it will review challenges to waivers under this provision for reasonableness. GAO finds that PWC has provided no basis for questioning the reasonableness of the waiver here.
The record includes both documentation of DSCP’s market research into commercial practices and the waiver itself, signed by the supervisor (DSCP Integrated Supply Team (IST) Supervisor) of the contracting officer listed in the RFP. The waiver represents that the agency has determined that the use of other than commercial clauses was necessary to protect the government’s interest in avoiding fraud and otherwise ensuring fair pricing. In this regard, the waiver cites a number of problems that have arisen under DSCP’s subsistence prime vendor contracts, under which the government is obligated to pay the actual cost of the food (plus a distribution price), including: the government has found that industry rebates, discounts, allowances or similar economic incentives are often hidden from the government in private agreements between manufacturers and distributors; there are no standard definitions of many pricing terms; and the price paid by the prime vendor may be layered with excessive fees imposed by numerous dealers/ distributors/consolidators.
Further, it appears that the cited problems may have resulted in significant overcharges to the government. In this regard, the record shows that the U.S. Attorney’s Office for the Northern District of Georgia has opened a civil fraud investigation into PWC’s actions in connection with its incumbent prime vendor contracts to purchase food to support operations in Iraq, Kuwait, and Jordan, investigating whether PWC overcharged the government hundreds of millions of dollars. The record indicates that one focus of the investigation is PWC’s retention of certain rebates and discounts from its suppliers (including possibly excessive claimed prompt payment discounts), while another focus is on whether PWC is using other companies, such as distributors and consolidators, to inflate the product prices charged to the government. In addition, the record indicates that the investigation into whether the charges to the government for food were proper has been hampered by a failure by PWC to furnish requested invoices from manufacturers, growers and suppliers. Against this background, the waiver addendum explains that such pricing provisions as FOB Origin/Point of Manufacturer pricing, requirements and restrictions regarding rebates and discounts, and documentation requirements are necessary to avoid excessive passthrough charges at multiple points along the supply chain and to ensure pricing transparency and integrity.
In summary, the record indicates that DSCP, faced with possible overcharges to the government under PWC’s current contract, has adopted a series of pricing provisions intended to safeguard the government from excessive charges and to ensure pricing transparency and integrity. In addition, DSCP is implementing the mandatory MPA program, under which DSCP negotiates prices directly with food manufacturers, and the use of which was likewise approved in the waiver addendum, in an attempt to maximize the leverage of DSCP’s purchasing power and obtain fair and reasonable product pricing. PWC has not shown, nor does the record otherwise indicate, that the agency’s objectives with these provisions could be accomplished by the use of commercial clauses. Under these circumstances, the waiver is unobjectionable.
PWC asserts that the solicitation does not adequately describe the basis for award. The solicitation divided the requirement into two zones–Zone 1 with an estimated total value of $7.85 billion and Zone 2 with an estimated value of $1.58 billion–with the stated intent to award each zone to a different contractor. Specifically, the RFP provided as follows:
The Government intends to make two awards, one per zone. The intent is to have two different contractors, one for each of the separate zones. In order to ensure that two sources are available and to ensure the continuous availability of reliable sources of supplies, the Government reserves the right to exclude, under the authority of FAR 6.202, the awardee under one of these zones from being eligible for award under the other zone. However, [the] Government reserves the right to make one award for both zones, as necessary to support both zones if it is in the government’s best interest.
PWC asserts that the solicitation improperly fails to set forth the basis for determining which zone an offeror will be awarded in the event that its proposal is found to be most advantageous for both zones. GAO states that the Competition in Contracting Act of 1984 (CICA) requires that solicitations “at a minimum” include “a statement of–(i) all significant factors and significant subfactors which the head of the agency reasonably expects to consider . . . ; [and] (ii) the relative importance assigned to each of those factors and subfactors . . . .” Here, the solicitation generally provides that the agency will “award a contract resulting from this solicitation to the responsible offeror whose offer conforming to the solicitation will be most advantageous to the Government, price and other factors considered”; lists the six technical and two price evaluation factors that will be considered in determining the “most advantageous” proposal; and lists the considerations–to “ensure that two sources are available and to ensure the continuous availability of reliable sources of supplies”–warranting excluding the offeror selected for award for one zone from award for the other zone. As noted by the protester, however, the solicitation is silent as to the basis for determining which zone an offeror will be awarded where its proposal is found to be most advantageous for both zones. GAO finds this omission is especially significant here, since the estimated value of one zone is nearly five times greater than the value of the other. In GAO’s view, this failure to advise offerors of the factors the agency will apply is inconsistent with the requirement in CICA that agencies identify the bases upon which offerors’ proposals will be evaluated. Accordingly, GAO sustains the protest on this ground.