BNUMBER: B-262047
DATE: February 26, 1996
TITLE: Defense Commissary Agency--Request for Advance
Decision
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Matter of:Defense Commissary Agency--Request for Advance
Decision
File: B-262047
Date: February 26, 1996
Michael A. Hordell, Esq., and Laura L. Hoffman, Esq., Gadsby & Hannah,
for the United Services Organizations, Inc., UMEX Company, and
Federated Foods, Inc.; Christopher R. Brewster, Esq., Kaye, Scholer,
Fierman, Hays & Handler, for Kraft Foods, Inc.; C. Manly Molpus for
Grocery Manufacturers of America; John Ford for Kellogg Company;
Richard A. Rist for Dunham & Smith Agencies, Inc.; Jane Fawcett-Hoover
for Procter & Gamble, commentators.
William E. Sherman, Esq., Department of the Air Force, 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
The Defense Commissary Agency may noncompetitively procure items
bearing the USO Always Home brand-name for resale in military
commissary stores under the provision of the Competition in
Contracting Act of 1984, which permits the use of other than
competitive procedures when "the agency's need is for a brand-name
commercial item for authorized resale," 10 U.S.C. sec. 2305(c)(5) (1994),
where the USO Always Home items have been and are being sold
commercially albeit under other brand names.
DECISION
The Defense Commissary Agency (DeCA) requests an advance decision as
to whether it may use other than competitive procedures to procure USO
Always Home items for resale in military commissary stores. As
discussed below, we conclude that DeCA may use other than competitive
procedures to procure such items.
The Department of Defense (DOD) operates commissary stores on many of
its installations for the economic benefit of military personnel,
their families, and selected other individuals. Commissaries stock
and sell various grocery food products (e.g., baby foods, canned
goods, and soft drinks), nonfood products (e.g., household supplies),
and meat and fresh produce. In essence, commissaries are operated in
facilities and under standards similar to those of commercial
supermarkets, with the exception that commissary items are sold at the
lowest practical price. 10 U.S.C. sec. 2486 (1994). Commissaries sell
items at the cost of the item to the commissary plus a standard
surcharge to recover certain commissary operating costs. Id.
The commissary stores operated by the Army, Navy, Air Force, and
Marine Corps were consolidated into DeCA, a DOD agency, on October 1,
1991. 32 C.F.R. sec. 383a.4 (1995). DeCA procures items for resale in
the commissaries with funds from the Defense Business Operations Fund
(DBOF), a "working capital" fund maintained in the United States
Treasury, and reimburses the fund using the proceeds from sales to
commissary patrons. 10 U.S.C. sec. 2208 and 2486.
The items DeCA procures for the commissaries essentially fall into two
categories--items for which there is no demonstrated or anticipated
customer preference for specific brands (e.g., fresh meat or eggs) and
brand-name commercial items for which there is a demonstrated or
anticipated customer preference (e.g., Tide laundry detergent or Bayer
aspirin). DeCA procures items falling into the first category--items
for which there is no demonstrated or anticipated customer preference
for specific brands--in accordance with the competition provisions of
the Competition in Contracting Act of 1984 (CICA), 10 U.S.C. sec.
2304(a)(1), which require agencies in the procurement of property or
services to obtain full and open competition through the use of
competitive procedures. That is, for items for which there is no
demonstrated customer preference, such as "fresh chilled beef," the
agency issues solicitations under which responsible firms compete for
award in accordance with the terms of the solicitation.
Brand-name commercial items for which there is a demonstrated customer
preference are procured under 10 U.S.C. sec. 2304(c)(5), a CICA provision
which authorizes the use of other than competitive procedures when
"the agency's need is for a brand-name commercial item for authorized
resale." As explained by DeCA, it determines what brand-name
commercial items have sufficient demonstrated or anticipated customer
preference that they should be acquired under this exception, giving
due consideration to available shelf space, product quality, and
price. The agency and its suppliers negotiate basic ordering
agreements or blanket purchase agreements, which set forth the terms
and conditions applicable to the orders for the desired brand-name
commercial items when such orders are placed.
The United Service Organizations (USO), a private non-profit
corporation charged to "serve the religious, spiritual, social,
welfare, educational, and entertainment needs of the men and women in
the Armed Forces," 36 U.S.C. sec. 1301 et seq. (1994), has requested
that DeCA noncompetitively procure items bearing the USO Always Home
label for resale in commissaries. The USO advised DeCA that although
the items have been sold commercially under other brand names, the
items have not been sold commercially under the USO Always Home label,
and that the USO intends to sell USO Always Home items only to DeCA
for resale in the commissaries.
DeCA and the USO contend that items bearing the USO Always Home label
are "brand-name commercial items," and can be procured
noncompetitively in accordance with 10 U.S.C. sec. 2304(c)(5). In this
regard, they assert that USO Always Home is a brand name and that the
items, which will bear the USO Always Home label, are commercial items
because many of the items are made by manufacturers who produce "like
products" or products that "are essentially the same as those
distributed" under "the brand-names of national companies, such as
Keebler, Bristol Meyers and Procter & Gamble, in supermarkets across
the nation."
Certain suppliers of "brand name commercial items" currently stocked
in commissaries contend that USO Always Home items cannot be
considered "brand-name commercial items" and thus cannot be procured
noncompetitively under 10 U.S.C. sec. 2304(c)(5). These firms
primarily argue that in order for items to properly be considered
"brand-name commercial items," as that term is used in CICA, the items
must be sold commercially under the same brand name as they will be
sold to DeCA for resale in the commissaries.
The parties generally agree that USO Always Home, in and of itself,
constitutes a brand name, and that a commercial item is an item that
has been sold or offered for sale to the general public.[1] In
essence, while the commentators generally agree that a "brand-name
commercial item" is an item that bears a brand name and is
commercially available, they disagree as to whether the brand-name
item must have been offered for sale or sold commercially under the
same brand name as it is to be sold to DeCA for resale in the
commissaries. The commentators opposed to the noncompetitive
procurement of items bearing the USO Always Home label contend in part
that the purpose of the "brand-name commercial item" exception is to
enable DeCA to procure items for the commissaries where there is a
demonstrated customer preference, and assert that it is improbable, if
not impossible, for there to be a customer preference for an item
which has never been sold commercially or, for that matter,
noncommercially, under the particular brand name that it will bear at
the commissaries.
Although CICA specifically excepts procurements for "brand-name
commercial item[s] for authorized resale" from the act's full and open
competition requirements, there is no statutory or regulatory
definition of the term "brand-name commercial item" applicable to CICA
specifically or federal procurement law as a whole and the Federal
Acquisition Regulation (FAR) provisions implementing this exception do
not define the term "brand-name commercial item." Also, as discussed
below, the legislative history for this exception provides no guidance
as to its meaning or scope in this context.
Prior to the enactment of CICA, federal procurement law generally
required that all purchases and contracts for property or services be
made by formal advertising. See 10 U.S.C. sec. 2304 (1982). There were,
however, seventeen exceptions which permitted agencies to negotiate
purchases and contracts, with one of these exceptions being "for
property for authorized resale."[2] Id.
CICA was enacted to address the "two primary shortcomings" of the
statutory framework applicable to federal procurement law, the first
being that the applicable statutes "did not give proper accordance to
negotiation as a legitimate competitive procurement procedure," and
the second being that the statutes did "not adequately restrict the
use of noncompetitive negotiation." S. Rep. No. 50, 98th Cong., 1st
Sess. 9 (1983). With regard to the use of noncompetitive procedures,
Congress found that because of "the lack of direct restrictions on
noncompetitive contracting, the exceptions to formal advertising are
often applied inappropriately to justify the use of sole-source
procurement." Id. at 11. Senate Bill 338 (S. 338), from which much
of CICA was derived, thus included only "six exceptions to the
competitive procedures which parallel the conditions under which the
Comptroller General has historically permitted agencies to award on a
sole-source basis."[3] S. Rep. No. 50, 98th Cong. 1st Sess. 21
(1983), reprinted in 1984 U.S.C.C.A.N. 2174, 2194. An exception for
the authorized resale of brand-name commercial items was not
originally included in S. 338.
During hearings before the Senate Armed Services Committee, the Deputy
Under Secretary of Defense for Research and Engineering (Acquisition
Management) testified, in response to a question from the Chairman of
the Committee as to whether there should be an exception for items
purchased for resale in commissaries, that:
"Brand name items for commissary resale are not susceptible to
competition to any great extent. Where it is possible to compete
effectively between distributors and manufacturers, it is done.
However, to satisfy customer preferences [for that brand name
item], almost all brand name products must be acquired
noncompetitively." Hearings, supra note 5, at 140.
The Senate Armed Services Committee subsequently added the "brand-name
commercial item" exception to the proposed legislation, explaining
that:
"The [Senate] Committee on Governmental Affairs also would permit
the use of noncompetitive procedures when a statute provided that
the procurement be made through another agency or a specified
source. The Committee on Armed Services expanded this authority
to apply to those cases in which the need is for a brand-name
commercial item for authorized resale. This addition recognizes
that in some situations, such as soft drink bottling, there may
be only one source of supply. Current law permits resale
situations as one exception to the preference for formal
advertising. 10 U.S.C. sec. 2304(a)(8)." S. Rep. No. 297, 98th
Cong., 1st Sess. 6, reprinted in 1984 U.S.C.C.A.N. 2213, 2216.
The conferees, in commenting on the proposed exceptions to the
competitive acquisition of supplies and services, including the
"brand-name commercial item" exception, noted that the "exceptions are
considerably more restrictive than the present exceptions to formal
advertising which are used inappropriately, in many cases, to justify
going sole-source." H.R. Conf. Rep. No. 861, 98th Cong., 2d Sess.
1425 (1984), reprinted in 1984 U.S.C.C.A.N. 1445, 2113.
As indicated, although CICA specifically excepts procurements for
"brand-name commercial item[s] for authorized resale" from the act's
full and open competition requirements, there is no statutory
definition of the term "brand-name commercial item" applicable to CICA
specifically or federal procurement law as a whole. While the
legislative history suggests that Congress intended this exception to
the competition requirements to be narrow in focus, it does not
delineate the precise meaning and scope of the exception in question
here. Moreover, as indicated, the pertinent FAR provisions
implementing this exception generally mirror the statutory language
and do not address the meaning or scope of this exception.
Given this lack of statutory or regulatory guidance, the question is
simply whether DeCA's determination that the USO Always Home items can
be noncompetitively procured under this section can be viewed as
contrary to the language of the law itself. In this regard, the USO
Always Home items bear that brand name, and thus are "brand-name"
items. Further, the items that will bear this brand name have been,
and are being, sold commercially, and thus in a broad sense at least
are "commercial" items. Because the USO Always Home items bear a
brand name and are commercial items, the "brand-name commercial item"
exception would seem to encompass them and permit DeCA to obtain them
noncompetitively.
The commentators opposed to DeCA's intended procurement argue that in
order for items to properly be considered "brand-name commercial
items" under CICA, the items must be sold commercially under the same
brand name as they are sold to DeCA for resale in the commissaries.
There is simply nothing in the language of CICA, its legislative
history, or the implementing regulations that mandates this
interpretation. The fact that the items are sold commercially under
different brand names does not negate the fact that the items
themselves have been and are being sold commercially.
The opposing commentators also argue that various other manufacturers
"might well have been willing to compete for the right to sell a
generic line of goods to the commissaries if given the opportunity to
do so. But they had no such opportunity." This argument has no merit.
There is nothing that would preclude other manufacturers from
developing and marketing to DeCA their own brand-name products for
resale in the commissaries, so long as the products have previously
been sold commercially (even if under a different brand name).
In sum, in light of the lack of statutory or regulatory guidance or
helpful legislative history as to the precise meaning of the term
"brand-name commercial item," we cannot object to DeCA's position that
the exception permits it to noncompetitively procure items bearing the
USO Always Home label.
Comptroller General
of the United States
1. The Federal Acquisition Streamlining Act of 1994 (FASA), 41 U.S.C. sec.
403(12) (1994), and FAR sec. 2.101 (FAC 90-32), define "commercial item,"
in part, as:
"[a]ny item, other than real property, that is of a type
customarily used by the general public or by
non-governmental entities for purposes other than
governmental purposes, and that . . . has been sold,
leased or licensed to the general public . . . or . . .
has been offered for sale, lease, or license to the
general public."
2. The Armed Services Procurement Act of 1947 (ASPA), Pub. L. No.
80-413, ch. 65, sec. 2, 62 Stat. 21 (1948), provided that "supplies
purchased for authorized resale" may be procured through negotiated
procedures rather than formal advertising. The Senate Committee on
Armed Services, in reporting favorably on this exception, recognized
that:
"[p]urchases for ships' stores, and commissaries, and
other similar activities using appropriated funds are
generally not made by specifications but by brand names,
with a view toward accommodating the brand preference of
persons authorized to use such facilities." S. Rep. No.
571, 80th Cong., 1st Sess. 7 (1947).
The Act of August 10, 1956, Pub. L. No. 84-1028, ch. 1041, sec. 1, 70A
Stat. 1, 128 (1956), recodified and revised the ASPA, and, in doing
so, amended the language of the "supplies purchased for authorized
resale" exception to provide that negotiated procedures may be used if
the procurement is "for property for authorized resale."
3. S. 338, 98th Cong., 1st Sess. (1983), was added with some
modification to H.R. 4170, 98th Cong., 2d Sess. (1984), which was
signed into law as the Deficit Reduction Act of 1984 (DRA), Pub. L.
No. 98-369, 98 Stat. 494 (1984); CICA is Title VII of the DRA.