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).