BNUMBER:  B-261329
DATE:  September 14, 1995
TITLE:  Navajo Nation Oil & Gas Company

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Matter of:     Navajo Nation Oil & Gas Company

File:          B-261329

Date:          September 14, 1995
                                                           
Thomas M. Barba, Esq., and Clifford E. Greenblatt, Esq., Steptoe & 
Johnson, for the protester.
David R. Kohler, Esq., and Timothy C. Treanor, Esq., for the Small 
Business Administration.
Howard M. Kaufer, Esq., Defense Logistics Agency, for the agency.
John L. Formica, Esq., and James A. Spangenberg, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.
                                                           
DIGEST

Clause in a solicitation for the supply of jet and diesel fuel, which 
sets forth specific experience requirements applicable only to 
offerors who are dealers and not refiner/manufacturer offerors, unduly 
restricts competition, where the record does not provide a reasonable 
basis for the agency's determination that the restrictive experience 
requirements reflect the agency's minimum needs.
                                                           
DECISION

Navajo Nation Oil & Gas Company (NNOGC) protests the terms of request 
for proposals (RFP) No. SPO600-95-R-0161, issued by the Defense Fuel 
Supply Center (DFSC), Defense Logistics Agency, for jet and diesel 
fuel.  The solicitation includes a clause establishing special 
standards of responsibility, which the protester challenges as being 
unduly restrictive of competition.

We sustain the protest.

The RFP, issued on March 31, 1995, as a partial set-aside for small 
businesses, provides for multiple awards of fixed-price, indefinite 
quantity contracts with economic price adjustments for the supply of 
approximately 1.6 billion gallons of fuel for nearly 200 using 
activities.[1]  The solicitation contained an evaluation preference 
for small disadvantaged businesses (SDB) applicable to various items 
in the solicitation.  The RFP also included at section L2.07 DFSC's 
standard "Evidence of Responsibility" clause, which provides in 
pertinent part that:

     "[i]f the offeror's source of supply is a firm or refinery 
     independent of the offeror, the offeror shall submit evidence of 
     a supply commitment from such source(s) when submitting its offer 
     under this solicitation.
     
                  .     .     .     .     .
     
     "Such evidence may be in the form of a signed copy of the 
     contract between the offeror and its supplier or in the form of a 
     contingency letter from the supplier or other satisfactory 
     documentation."

Amendment No. 0002 to the RFP, issued on April 24, 1995, added the 
following clause, relating to the responsibility of 
non-refiner/manufacturer offerors, which DFSC intends to include as a 
standard clause in future procurements for its Bulk Fuels program.

     "Clause L2.07-1  EVIDENCE OF RESPONSIBILITY - ADDITIONAL CRITERIA 
     (DFSC APR 1995)" 

     "(a) To be determined responsible, an offeror that is not 
     performing a significant portion of the contract with its own 
     facilities and personnel must meet the following criteria in 
     addition to meeting the requirements of Clause L2.07, EVIDENCE OF 
     RESPONSIBILITY:

          "(1)  The offeror must purchase and sell petroleum products 
          of the same general specification, quantity, and use as 
          those offered.  For products to be considered of the same 
          general specification and use, they must be either 
          identical, or be items for which firms in the same line of 
          business would be an obvious source.  For example, jet fuels 
          are considered to be of the same general specification, and 
          marine fuels are considered to be of the same general 
          specification;

          "(2)  The offeror must make ongoing and substantial sales to 
          the public of petroleum products which are of the same 
          general specification, quantity, and use as those offered 
          (where the business would be of the same nature without any 
          Government sales);

          "(3)  The offeror must have at least one year of experience 
          in the purchase and sale of petroleum products which are of 
          the same general specification, quantity, and use as those 
          offered; and

          "(4)  The offeror itself must satisfy the above criteria.

     "(b)  The evidence of responsibility required by this provision 
     is in addition to the responsibility criteria set forth in FAR 
     [Federal Acquisition Regulation ] 9.104."

NNOGC, an Indian Tribal Corporation owned and controlled by the Navajo 
Nation (a federally recognized Native American tribe),[2] protests 
that the agency has no reasonable bases for any of the requirements 
set forth in the Evidence of Responsibility - Additional Criteria 
clause, and that the protested clause is thus unduly restrictive of 
competition.[3]

Under CICA, an agency is required to specify its needs and solicit 
offers in a manner designed to achieve full and open competition, so 
that all responsible sources are permitted to compete.  10 U.S.C.  
2305(a)(1)(A)(i).  A contracting agency may include restrictive 
provisions or conditions only to the extent necessary to satisfy the 
agency's needs.  10 U.S.C.  2305(a)(1)(B)(ii).  In this regard, an 
agency may reasonably restrict competition through the use of 
standards of responsibility in addition to the general standards set 
forth in FAR  9.104-1, so long as these special standards of 
responsibility are needed to meet the agency's minimum needs, that is, 
to provide assurance that the contract will be adequately performed.  
FAR  9.104-2;  JT Constr. Co., Inc., B-244404.2, Jan. 2, 1992, 92-1 
CPD  1; Military Servs., Inc. of Georgia, B-221384, Apr. 30, 1986, 
86-1 CPD  423.

Where a solicitation provision is challenged as restrictive, the 
procuring agency must provide support for its belief that the 
challenged provision is necessary to satisfy its needs.  The adequacy 
of the agency's justification is ascertained through examining whether 
the agency's explanation is reasonable, that is, whether the 
explanation can withstand logical scrutiny.  Keeson, Inc.; Ingram 
Demolition, Inc., B-245625; B-245655, Jan. 24, 1992, 92-1 CPD  108.  
If an agency's explanation is inadequate, or does not respond to the 
issue raised, our Office has no basis for concluding that the 
challenged provision is reasonably related to the agency's minimum 
needs.  Nat'l Customer Eng'g, 72 Comp. Gen. 132 (1993), 93-1 CPD  
225; Keeson, Inc.; Ingram Demolition, Inc., supra.

The agency explains by way of background that "[b]ecause of the nature 
of the petroleum industry [DFSC] primarily does business with 
manufacturers, not dealers," and that "it is unusual for a dealer to 
add value to the program."[4]  The agency states that the protested 
clause was intended to ensure that the adequate performance of 
contracts awarded to dealers would not be compromised "in the event of 
a supply contingency" should the refiner, from which the dealer has 
obtained a supply commitment, "cut off the dealer, leaving DFSC short 
of fuel."  DFSC concedes that the protested clause "may limit 
competition to some extent," but claims that the protested clause will 
"help insure that the dealers DFSC does business with are the type 
that can add value to the program" and "have proven track records in 
the type of petroleum business associated with the Bulk Fuels 
program."

Specifically, with regard to the requirement in paragraph 1 of the 
protested clause that dealers have experience in the type and volume 
of fuel offered, DFSC contends that the market for jet fuel is 
different from the market for "ground fuels such as gasoline and 
heating fuel," and that experience in the ground fuels market "does 
not translate into experience in the petroleum market DFSC requires" 
for this procurement.  DFSC does not provide any documentation or 
further explanation in support of its position here.

DFSC claims that paragraph 2 of the protested clause, which requires 
that dealers have "ongoing and substantial sales to the public [as 
opposed to the government] of petroleum products which are of the same 
general specification, quantity, and use as those offered," is 
intended to minimize the risk that the dealer "will be unable to 
perform in the event of a supply interruption from their proposed 
source."  The agency does not explain this statement further, but adds 
that a dealer with a "proven track record" is less likely to have "a 
supply disruption problem" because the track record "shows its 
reliability, that is, that firms are willing to engage in major 
business transactions with the dealer."  DFSC further asserts that 
dealers with "proven track records" are more likely to have the skills 
necessary to perform the contracts to be awarded here.  Again, the 
agency does not furnish any empirical or other evidence in support of 
its claims here.

DFSC states that paragraph 3 of the protested clause requires that 
"[t]he offeror must have at least one year experience in the purchase 
and sale of petroleum products which are of the same general 
specification, quantity and use as those offered," because, in its 
view, "a dealer with at least one year experience in the specific type 
of product the [g]overnment is seeking is more likely to be able to 
continue supplying through an alternate source in the event its 
primary source becomes unavailable."  DFSC does not explain this 
statement further, but states that "[s]uch a firm is also more likely 
to be able to add some value to the process."

The protested clause's requirement that the offeror itself satisfy 
each of the requirements set forth in the protested clause is, 
according to DFSC, consistent with the purpose of the other provisions 
of the protested clause.  The agency explains here that in its view it 
would be inconsistent with the agency's desire to "minimiz[e] supply 
disruption in the event of a subcontractor default, if the offeror 
could rely on the experience of the proposed subcontractor."

While specific experience requirements may be imposed on prospective 
contractors where necessary to meet an agency's minimum needs, see, 
e.g., Brevco, Inc., B-232388, Dec. 29, 1988, 88-2 CPD  634, in this 
case DFSC has not justified their imposition.  DFSC's justification 
for the protested clause's experience requirements is comprised of 
unsubstantiated factual assertions followed, at times, by conclusory 
statements as to the reasonableness of the requirement.  Specifically, 
DFSC's basic justification is predicated on its assertion that a 
dealer meeting the protested clause's experience requirements will be 
more likely to fulfill its contractual obligations in the event the 
dealer's source of supply for fuel decides not to honor the supply 
commitment because of a "supply contingency" than a dealer which also 
has a supply commitment from its source of supply but does not meet 
the protested clause's experience requirements.[5]  However, despite 
the protester's specific request for all documentation "relating to 
the creation of the [protested clause] or DFSC's decision to include 
the [protested clause] in this [s]olicitation," the agency has not 
provided any empirical, historical, or other evidence that its 
concerns with regard to the occurrence of "supply contingencies," or 
their effect on a dealer's ability to perform, are reasonable or based 
on fact.  DFSC has made no showing that dealers, with the required 
supply commitments in place when submitting their proposals but 
without the experience requirements set forth in the protested clause, 
have been or will be unable to fulfill their contractual obligations 
to DFSC.

The agency's assertions in support of the protested clause's 
experience requirements do not withstand logical scrutiny.  For 
example, as indicated previously, DFSC asserts that the experience 
requirements in the protested clause are reasonable because it wants 
to award contracts to only those dealers who "add value," that is, to 
those dealers who do "a lot of business in the type of fuel DFSC seeks 
and ha[ve] refinery connections to which DFSC would not otherwise have 
access."  However, DFSC has not explained why dealers who do not "add 
value" lack the requisite capability to successfully perform contracts 
for jet fuel where, as here, the dealers have provided firm supply 
commitments from refiners.[6]  We are unaware of any provision in 
statute or regulation that would permit an agency to reject an offeror 
as not responsible simply because it does not "add value" as 
contemplated by the agency.

DFSC has not explained, nor does its appear logical to assume, why 
only a "dealer [with] ongoing commercial sales and purchase experience 
in the type of fuels offered to the [g]overnment . . . has the skills 
necessary to perform a major contract" or to adequately respond in a 
"supply contingency" situation, whereas a dealer which does not have 
"ongoing commercial sales" experience, but rather has government sales 
experience, would be more of a performance risk and less reliable or 
likely to possess the skills necessary for adequate performance of a 
DFSC contract.  Indeed, the protested clause's "commercial sales" 
experience requirement would render ineligible a dealer with a history 
of adequate, or, for that matter, excellent performance on government 
contracts, but without ongoing commercial sales of the same quantity 
of jet fuel.

Where, as here, an agency fails to establish rational support for the 
factual assertions purporting to establish the reasonableness of the 
experience requirements set forth in a protested clause, the record 
provides no basis to conclude that the protested clause is reasonably 
related to the agency's minimum needs.  Nat'l Custom Eng'g, supra; 
Keeson, Inc.; Ingram Demolition, Inc., supra; Military Servs., Inc. of 
Georgia, supra.  While we agree with DFSC that experience in supplying 
fuels could legitimately be a factor in a "best value" award 
evaluation process, the agency has failed to establish that an 
offeror's failure to possess the specified experience is a reasonable 
basis for concluding that the offeror cannot perform a contract and 
automatically eliminating that offeror from the competition.  Military 
Servs., Inc. of Georgia, supra.  We sustain the protest.

We recommend that the agency determine from the protester which of the 
numerous line items the protester is interested in competing for under 
an amended solicitation, refrain from ordering under the existing 
contracts for these line items any more fuel than is required, 
resolicit for these line items without the protested clause and in a 
manner consistent with this decision, and terminate the contracts if 
the current contractor is not the successful offeror under the 
resolicitation.[7]  We also find the protester is entitled to the 
reasonable costs of filing and pursuing its protest.  4 C.F.R.  
21.6(d)(1).  The protester should submit its certified claim for costs 
directly to the agency within 60 working days of its receipt of this 
decision.  4 C.F.R.  21.6(f)(1).

The protest is sustained.

 /s/ James F. Hinchman
 for Comptroller General
     of the United States

1. This procurement is part of DFSC's Bulk Fuels program, whereunder 
DFSC procures large quantities of fuel for use at numerous Department 
of Defense (DOD) installations.

2. DFSC initially argues that, despite NNOGC's representation that it 
is a potential dealer of fuel for this procurement,  NNOGC should not 
be considered an interested party eligible to maintain this protest 
under our Bid Protest Regulations, and the protest should therefore be 
dismissed.  4 C.F.R.  21.0(a); 21.l(a) (1995).  DFSC points out that 
NNOGC did not submit a proposal in response to this RFP, and argues 
that in any event, NNOGC "is unlikely" to qualify as a regular dealer 
or manufacturer within the meaning of the Walsh-Healey Act, 41 U.S.C.  
35-45 (1988), thus rendering the firm ineligible for any award.  Based 
upon our review of the record, including the respective evidence 
proffered by DFSC and NNOGC, we conclude that NNOGC--which asserts 
that it would have submitted an offer absent the allegedly restrictive 
clause and that it would qualify as a regular dealer as that term is 
defined in the Walsh-Healey Act--is a prospective offeror whose direct 
economic interest would be affected by the award or failure to award a 
contract here, and we therefore decline to dismiss the protest.  
Courtney Contracting Corp., B-242945, June 24, 1991, 91-1 CPD  593 
(protester is an interested party to protest the terms of a 
solicitation, despite the fact that it did not submit a bid, where the 
relief the protester seeks is the opportunity to compete under a 
revised solicitation).

3. The protester also argues that the protested clause violates 
section 8(b)(7) of the Small Business Act, 15 U.S.C.  637(b)(7) 
(1994), which gives the Small Business Administration (SBA) the 
conclusive authority to determine the responsibility of a small 
business and its legal status as a regular dealer under the 
Walsh-Healey Act; the Walsh-Healey Act, 41 U.S.C.  35-45 (1988), 
which gives the Department of Labor and the SBA exclusive authority to 
administer the Act and promulgate regulations defining "regular 
dealer" as that term is used in that Act; and section 8012 of the 
Department of Defense Appropriations Act, 1995, Pub. L. No. 103-335, 
108 Stat. 2599, 2619 (1994), which states:

     "Notwithstanding any other provision of law, a qualified Indian 
     Tribal corporation or Alaska Native Corporation furnishing the 
     product of a responsible small business shall not be denied the 
     opportunity to compete for and be awarded a procurement contract 
     pursuant to section 2323 of title 10, United States Code, solely 
     because the Indian Tribal corporation or Alaska Native 
     Corporation is not the actual manufacturer or processor of the 
     product to be supplied under the contract."

Because we find that the protested clause unreasonably restricts 
competition, and the agency has therefore failed to comply with the 
mandate in the Competition in Contracting Act of 1984 (CICA) that 
agencies obtain full and open competition, 10 U.S.C.  
2305(a)(1)(A)(i) (1994), we need not consider these other bases of 
protest.

4. DFSC consistently refers to its desire to award contracts only to 
fuel dealers that "add value" to the government.  According to DFSC, a 
dealer "adds value" if it "does a lot of business in the type of fuel 
DFSC seeks and has refinery connections to which DFSC would not 
otherwise have access."  In DFSC's view, absent the protested clause, 
it may be in the position of "paying out millions of dollars in SDB 
premiums each year to firms that provide no value to the [g]overnment 
and would not exist but for the SDB premium program."  Presuming NNOGC 
was determined to be otherwise responsible, NNOGC, an Indian-owned 
firm, would be entitled to an SDB preference if it offered to supply 
the product of a small business refiner as it stated it planned on 
doing.

5. As indicated above, DFSC's standard Evidence of Responsibility 
clause requires that dealer offerors submit with their proposals 
supply commitments from their sources of supply.

6. To the extent that DFSC justifies the clause on the basis that SDB 
dealers, who are in line for award as a result of the application of 
an SDB preference, should "add value" to justify the associated cost 
premium, such justification is inconsistent with the statute and 
regulations governing the SDB program.  See 10 U.S.C.  2323 (1994); 
Defense Federal Acquisition Regulation Supplement subpart 219.70; 
DynaLantic Corp., B-256425, May 24, 1994.

7. On August 25, 1995, the agency informed our Office that it was 
proceeding with contract award and performance based upon a written 
determination that urgent and compelling circumstances will not permit 
waiting for our decision.  See 31 U.S.C.  3553(d)(2) (1988).