Link: GAO Opinion
Agency: Defense Logistics Agency
Disposition: Protest denied.
Keywords: Terms of a Solicitation; Commercial Item Acquisition
General Counsel P.C. Highlight: FAR § 12.302(c) bars the tailoring of solicitations for commercial items in a manner inconsistent with customary commercial practice unless a waiver is approved in accordance with agency procedures. The request for waiver must describe the customary commercial practice found in the marketplace, support the need to include a term or condition that is inconsistent with that practice, and include a determination that the use of the customary commercial practice is inconsistent with the needs of the government.
U.S. Foodservice, Inc. (US) and Labatt Food Services, LP protest the terms of a request for proposals (RFP), issued by the Defense Logistics Agency (DLA) Troop Support, for subsistence prime vendor support for various customers in the Texas and New Mexico area.
The RFP contemplated the award of an indefinite-delivery/indefinite-quantity (ID/IQ), fixed-price contract with an economic price adjustment for a two-month implementation period, followed by a 12-month performance period, and one 12-month option period. The procurement was conducted pursuant to the commercial item acquisition procedures of Part 12 of the Federal Acquisition Regulations (FAR). The RFP stated that award would be made to the lowest-priced, technically acceptable offer, considering the following technical evaluation factors: experience, past performance, quality control and quality assurance procedures, and food defense.
For the price evaluation, offerors were to provide a unit price, which consisted of the sum of an offerors’ delivered price plus distribution price, for items in the RFP’s market basket. The distribution price was weighted by multiplying the aggregate distribution prices for all market basket items by 20. Each offeror’s total evaluated price was calculated by adding this weighted aggregate distribution price to the aggregate delivered price to arrive at a weighted aggregate unit price. This weighted aggregate unit price was used to determine the lowest-priced offer.
DLA Troop Support subsequently executed a class waiver to include provisions in the solicitation that are inconsistent with customary commercial practice. The waiver justified modifications to commercial practices involving economic price adjustments; rebates, discounts, and other price-related items; unilateral changes to the contract; and most favored customer warranties.
The protesters contend that solicitation provisions are inconsistent with commercial practice, are unduly restrictive or onerous, and are ambiguous. GAO states that the Federal Acquisition Streamlining Act of 1994 (FASA), 10 U.S.C. sect. 2377 (2000), established a preference and specific requirements for acquiring commercial items that meet the needs of an agency. FAR Part 12 implements this Act by allowing agencies to use solicitation terms–and to make other adjustments in the areas of acquisition planning, evaluation, and award–that more closely resemble the commercial marketplace when procuring commercial items. Consistent with this approach, FAR sect. 12.302(c) bars the tailoring of solicitations for commercial items in a manner inconsistent with customary commercial practice unless a waiver is approved in accordance with agency procedures. The request for waiver must describe the customary commercial practice found in the marketplace, support the need to include a term or condition that is inconsistent with that practice, and include a determination that the use of the customary commercial practice is inconsistent with the needs of the government. GAO will review challenges to waivers under this provision for reasonableness.
The waiver here identified several terms that are inconsistent with commercial practice, including (among others): (1) the inclusion of a tailored economic price adjustment provision, (2) modifications to rebate, discounts, and other price-related provisions, and (3) the inclusion of a unilateral changes clause. The waiver explained that commercial contracts often include economic price adjustment clauses to cope with inflation. However, the waiver justified the need for a more limited, tailored economic price adjustment clause on the basis that it “would not be practical or possible to adjust the prices of food service delivery suppliers in a changing marketplace via the use of a single index.” The waiver explained that customary commercial practice includes rebates, discounts, earned income allowances, freight allowances, and other provisions as economic incentives or benefits between manufacturers and distributors. However, the waiver justified changes to these provisions on the grounds that the agency wanted to avoid excessive pass through charges from multiple sources along the supply chain, promote transparency in pricing, and insert integrity into commercial pricing practice. The waiver further stated that various price provisions, including a most favored customer warranty, are necessary to ensure that the delivered price charged to the government only includes the price of the product delivered to the initial entry point of the contractor’s distribution network, and to ensure that the contractors’ delivered price is equal to or lower than the price provided to commercial customers. The waiver explained that customary commercial practice usually involves bilateral changes. However, the waiver justified the inclusion of a unilateral waiver provision because the government needs the right to make unilateral changes in delivery and shipment requirements in order to be able to supply food on a daily basis to its military customers, whose needs may change over the course of the contract.
GAO finds, based on this record, that the waiver satisfies the requirements of the FAR and supports the agency’s decision to deviate from commercial practice. GAO will not find unreasonable the agency’s decision–when faced with possible overcharges to the government–to adopt a series of pricing provisions intended to safeguard the government from excessive charges and to ensure pricing transparency and integrity. GAO finds that the protesters’ arguments amount to mere disagreement with the agency’s rationale, which does not provide a basis to sustain the protest.
The protesters’ arguments that the solicitation terms are unreasonable, too onerous or unfair to distributors, or are ambiguous are variations of their protests that the solicitation deviates from commercial practice. GAO has reviewed all of the protesters’ alternative arguments and find them to be without merit. The protests are denied.