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.