BNUMBER: B-270504
DATE: March 15, 1996
TITLE: Sea-Land Service, Inc.
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Matter of:Sea-Land Service, Inc.
File: B-270504
Date:March 15, 1996
Raymond S. E. Pushkar, Esq., and Michael A. Hopkins, Esq., McKenna &
Cuneo, for the protester.
Richard S. Haynes, Esq., E. Duncan Hamner, Esq., and Charna J.
Swedarsky, Esq., Military Sealift Command, for the agency.
Ralph O. White, Esq., and Christine S. Melody, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. Protest contention that a contract clause reflecting the statutory
mandate of the McCumber Amendment to the Cargo Preference Act of 1904,
10 U.S.C. sec. 2631 (1994)--restricting shippers dealing with the
Department of Defense to charges not higher than those charged private
persons--is ambiguous is denied where the clause at issue merely
establishes a price ceiling for such services, and shifts some of the
responsibility for assuring that this ceiling is not breached to the
potential offeror, who is in the best position to be aware of its own
commercially available tariffs for such services.
2. Liquidated damages provisions in a solicitation are
unobjectionable where the record shows that the stated amounts
represent a reasonable assessment of the damges to the government due
to the contractor's failure to perform, and thus are not punitive,
excessive, or otherwise unreasonable.
DECISION
Sea-Land Service, Inc. protests the terms of request for proposals
(RFP) No. N62387-95-R-8150 ("the Alaska RFP"), issued by the Military
Sealift Command (MSC) for ocean and intermodal transportation of
Department of Defense (DOD) breakbulk and containerized cargo between
specific points in the continental United States (CONUS) and points in
the state of Alaska from December 1, 1995, through November 30, 1996.
Sea-Land protests that the RFP: (1) is ambiguous in three areas, and
that the ambiguities prevent potential offerors from preparing a
reasonable, intelligent estimate of the government's requirements; and
(2) contains unenforceable penalties in the guise of liquidated
damages.
We deny the protest.
BACKGROUND
The RFP was issued on September 29, 1995, to obtain rates and services
for shipping cargo to and from Alaska. Carriers were invited to
provide shipping rates for government cargo on their regularly
scheduled commercial routes in the same vessels and at the same time
as they ship commercial cargo. In addition, carriers were invited to
provide rates for ancillary services, such as loading or unloading
containers, and equipment charges. The contracting scheme here
envisions that accepted rates and charges will be published in MSC's
"Alaska Container Agreement and Rate Guide." Using this guide, the
Army's Military Traffic Management Command books transportation of
cargo for individual DOD service components with the carrier, whose
rates offer the lowest overall cost to the government, and who can
meet the delivery requirements of the cargo.
The Alaska RFP anticipates multiple awards of fixed-rate, indefinite
quantity requirements contracts, which do not impose minimum transit
times, sailing frequencies, or cargo accommodation requirements.
Rather, the government's orders are placed using the carrier's
regularly scheduled commercial sailings. The carriers agree to
transport such cargo as the government might tender based upon the
carrier's accepted rates or, if applicable, its lower commercial
rates, but the RFP does not obligate the carrier to promise the
government a minimum amount of space in any vessel.
LIMITATION OF GOVERNMENT LIABILITY CLAUSE
One of Sea-Land's five specific challenges to the terms of the
RFP--i.e., its claim that the RFP's "Limitation of Government
Liability" clause is ambiguous because it vitiates the consideration
necessary to make enforceable any contract awarded under this RFP--was
recently considered and sustained by our Office in a protest brought
by Sea-Land against the same agency and the same contract clause. See
Sea-Land Serv., Inc., B-266238, Feb. 8, 1996, 96-1 CPD para. ___. In
response to our decision, the agency amended the RFP here to delete
the "Limitation of Government Liability" clause. Thus, this basis of
protest is academic.
LOWEST PUBLISHED COST CLAUSE
Sea-Land challenges the inclusion of clause H-6.2, which, the
protester argues, makes uncertain the rates, terms, and conditions
which will apply to the transportation services ordered by the
government. Sea-Land also claims that the clause makes the contract
unenforceable for lack of consideration. We disagree on both counts.
Clause H-6.2 provides as follows:
"Shipment Under Public Tariff Terms and Conditions.
Notwithstanding the rates, terms and conditions stated herein,
the Government shall be provided transportation from the Carrier
on the routes covered herein under the rates, terms and
conditions set forth in public tariffs of the Carrier that are
available to the public, if such published tariffs provide lower
overall costs to the Government than rates, terms and conditions
under this contract for comparable commodities."
The issue of the applicable rate for transporting government cargo is
not a new one. The Cargo Preference Act of 1904, 10 U.S.C. sec. 2631
(1994), and specifically, the so-called McCumber Amendment thereto,
restricted American shippers dealing with DOD "to charges not higher
than those made for transporting like goods for private persons." See
United States Lines Co. v. United States, 223 F. Supp. 838, 844
(S.D.N.Y. 1963), aff'd on other grounds, 324 F.2d 97 (2d Cir. 1963);
Sea-Land Serv., Inc., Armed Services Board of Contract Appeals No.
46,608, Mar. 2, 1995, 95-1 BCA para. 27,539. Accordingly, clause H-6.2
merely reflects the government's statutory right to ship cargo at
rates no higher than the carrier's comparable commercial rates.
We also fail to see any connection between the presence of this clause
and a lack of consideration for the instant contract, as asserted by
the protester. This clause does not alter the underlying obligations
of the parties with respect to a requirements contract for the
shipping of cargo, see generally Torncello v. United States, 681 F.2d
756 (Ct. Cl. 1982); rather, it merely establishes a price ceiling that
will apply to this contract, even if the parties, through oversight or
omission, fail to set prices in accordance with the ceiling. Further,
since potential offerors are clearly in the best position to be aware
of their own commercially available tariffs for similar services,
Sea-Land cannot reasonably claim that this clause makes the terms of
the contract ambiguous.
LEASING CLAUSE
Sea-Land also challenges as ambiguous the RFP's leasing clause on the
grounds that the clause contradicts itself. Specifically, Sea-Land
complains that clause H-40 requires carriers to furnish containers,
flatcars, and chassis (and in the case of non-self-sustaining
refrigerated containers, a generator set) "for use in connection with
land and ocean transportation of [g]overnment cargo arranged under
this agreement." While the clause provides that "[e]quipment so
leased may be transported aboard any vessel designated by the
[g]overnment and may be transported inland by any means available to
the [g]overnment," it also prohibits the leasing of "containers for
storage or other purposes unrelated to the furnishing of
transportation pursuant to this contract, unless otherwise mutually
agreed between the [g]overnment and the [c]arrier." According to
Sea-Land, the provision permitting the agency to transport leased
equipment by any vessel designated by the government contradicts the
prohibition on leasing equipment for purposes unrelated to this
transportation contract.
As a general rule, a contracting agency must give offerors sufficient
detail in a solicitation to enable them to compete intelligently and
on a relatively equal basis. C3, Inc., B-241983.2, Mar. 13, 1991,
91-1 CPD para. 279. The mere allegation that a solicitation is ambiguous,
however, does not make it so. RMS Indus., B-248678, Aug. 14, 1992,
92-2 CPD para. 109. There is no requirement that a competition be based
on specifications drafted in such detail as to eliminate completely
any risk or remove every uncertainty from the mind of every
prospective offeror. A&C Bldg. and Indus. Maintenance Corp.,
B-230270, May 12, 1988, 88-1 CPD para. 451.
The agency explains that the purpose of the clause is to retain
flexibility to respond to ever-changing and expanding requirements.
While the agency states that it does not expect to use the clause
often, it wants to be able to transport a carrier's loaded or unloaded
container already in transit (or in place ready for transit) in
another agreement carrier's vessel, or in a government-controlled
vessel, when there is a need to do so.
Our review of the clause reveals nothing contradictory. As quoted
above, the clause begins by acknowledging that there will be a need to
lease equipment--identified as containers, flatcars, chassis, and in
some cases, generator sets--in connection with the contract's
requirement to transport cargo. Attached to this basic requirement is
the proviso that, if necessary, the government reserves the right to
transport a carrier's leased equipment on another carrier's vessel, or
transport the equipment by some other means selected by the
government. A more narrowly drawn provision--addressing storage
containers only--bars the government from leasing storage containers
for purposes unrelated to the transportation of cargo pursuant to this
contract (unless mutually agreed between the parties). Sea-Land's
conclusion that the reserved right to use leased equipment to
transport cargo on another carrier's vessel (or by some other means)
runs afoul of the more narrowly drawn bar regarding the unrelated
lease of storage containers, except by mutual agreement, is
contradicted by the clause itself, which, as indicated, clearly
defines the respective rights of the parties.
Sea-Land also asserts that the leasing clause violates Federal
Acquisition Regulation (FAR) sec. 15.802(c),[1] which bars contracting
officers from including in a contract price "any amount for a
specified contingency to the extent that the contract provides for
price adjustment based upon the occurrence of that contingency." We
need not address whether this provision applies under the
circumstances here since, even assuming that it does, Sea-Land's
argument is both speculative and premature. First, we see no basis in
this record to accept the premise of Sea-Land's argument--that the
leasing rates are not adequate to compensate the carrier. The agency
points out that the leasing rates are based on daily rental charges
paid under other contracts. Other than its general assertion to the
contrary, Sea-Land has not shown that the rates are inadequate.
Second, it is premature to conclude that carriers will improperly
inflate their proposed rates to reflect the financial risk allegedly
imposed by the leasing clause, or that the contracting officer, at
whom FAR sec. 15.802(c) is directed, will accept contract prices in
contravention of that provision. In sum, we see no basis to conclude
that inclusion of the leasing rates in the RFP will necessarily lead
to the submission, and acceptance by the contracting officer, of
prices in contravention of the FAR.
LIQUIDATED DAMAGES
Under the terms of the Alaska RFP, numerous liquidated damages
provisions attach to the solicitation's performance requirements. For
example, the solicitation stipulates payment of damages when a carrier
fails to use government-provided automobile interior protection
devices when shipping service members' privately-owned vehicles (POV),
RFP sec. C-3.3.8.3, or when the carrier fails to ship a POV within 9
calendar days of receipt of the POV. RFP sec. C-3.7.2.1.[2] According
to Sea-Land, the liquidated damages provisions set forth in the RFP
are punitive, are not warranted in this solicitation, are unreasonably
linked to interim steps within the transportation process, and are
unrelated to any actual damages the agency will incur. Hence,
Sea-Land contends the liquidated damages provisions of the RFP are
unenforceable.
FAR sec. 12.202 specifically authorizes the use of liquidated damages
provisions where the government reasonably expects to suffer damages
if the contract is improperly performed and the extent of such damages
would be difficult to ascertain. Integrity Management Int'l, Inc.,
B-260595; B-260595.2, June 27, 1995, 95-2 CPD para. 126. We review
allegations that a solicitation's liquidated damages provisions impose
a penalty because any solicitation providing penalties for inadequate
performance, in addition to violating applicable procurement
regulations, could adversely affect competition and unnecessarily
raise the government's costs. Environmental Aseptic Servs. Admin. and
Larson Bldg. Care, Inc., 62 Comp. Gen. 219 (1983), 83-1 CPD para. 194;
Aquasis Servs., Inc., B-229723, Feb. 16, 1988, 88-1 CPD para. 154. Before
we will rule that a liquidated damages provision imposes a penalty,
however, the protester must show that there is no possible
relationship between the amounts stipulated for liquidated damages and
losses which are contemplated by the parties. Integrity Management
Int'l, Inc., supra.
We turn first to Sea-Land's contention that the liquidated damages
provisions in this solicitation are punitive, unwarranted, and
unreasonably linked to interim steps in transportation process. For
example, Sea-Land highlights clause C-6 (as modified by amendments
0002 and 0006) which sets a $30 per day late fee for transportation
reports required by the solicitation. According to Sea-Land, the
agency conceded that this provision was punitive when the contracting
officer advised potential offerors that a penalty was necessary to
incentivize carriers to submit these reports in a timely fashion.
While Sea-Land is correct in its claim that the contracting officer
used the term "penalty" in discussing this clause, she did so in
response to a written question from a potential offeror, which
described the late fee as a penalty. In addition, the contracting
officer's mere use of the word "penalty" is not dispositive of whether
these fees are impermissibly punitive. The agency explains that the
reports at issue here are necessary to keep track of and transport a
large amount of cargo safely and effectively, maintain visibility of
the cargo, control cargo inventories, and pay carriers in a timely
manner without disputes. In addition, in response to the offerors'
questions, the agency agreed to lower the late fee from $50 to $30 per
day in amendment 0006. Given the importance of these reports, the
clear damage that arises from a carrier's failure to provide them in a
timely manner, and the relatively minimal amount of the late fee
involved, we conclude that the fee in this respect is not punitive.
Similarly, with respect to Sea-Land's complaint that some of the
liquidated damage provisions are unreasonably linked to interim steps
in the transportation process, the agency explains that its concern is
not just the final delivery of cargo, but the continued movement of an
entire cargo transportation system. As a representative example, we
see nothing unreasonable about the requirement at clause H-17
assessing damages against a carrier which fails to load cargo in time
for a scheduled departure where the government provided the cargo
within the time constraints set by the carrier. While Sea-Land
complains that even if it misses the loading date it might still
deliver the cargo more quickly than certain other carriers (such as
barges that have longer transit times), its complaint misses the
point. Once a carrier has been selected, the government's interest is
in knowing that the cargo will be on its way as scheduled. Given this
interest, we see nothing unreasonable about the use of liquidated
damages to ensure that carriers perform as offered.
Finally, we conclude there is nothing unreasonable about the amount of
damages envisioned by the solicitation, or the relationship between
the stipulated damages and any actual damages that might be incurred
by the agency. For example, the solicitation includes detention rates
the government must pay for each day it delays a carrier's container
or equipment beyond the time allowable. Detention rates are not
intended to represent a rental or lease rate--rental or lease rates
for such equipment are lower--but are a form of liquidated damages to
compensate the carrier for the loss of use of the equipment. Compare
RFP sec. H-25 with RFP sec. H-40 as modified by amendment 0005. In
recognition of the role of detention rates in compensating carriers
for their inability to ship cargo in equipment that has been tied up
by the government, the agency adopted them as a reasonable assessment
of damages to the government for the unknown actual value of each day
that delivery of a container is delayed. In our view, the agency's
argument that detention rates are appropriate estimates of damages for
delay is buttressed by the fact that the actual damages for delayed
shipment of a service member's possessions differ from one case to the
next, and cannot be predicted with any certainty. Given the
long-standing use of these charges by the carriers against the
government, we see nothing unreasonable in their use in the opposite
direction; in both cases, detention rates reduce the potential for
disputes and permit the cargo shipping system to go forward smoothly
and without delay.
The protest is denied.
Comptroller General
of the United States
1. Sea-Land's protest cites FAR sec. 15.802(b)(3), however, the
referenced language is now set forth at FAR sec. 15.802(c), pursuant to
changes published in Federal Acquisition Circular No. 90-32, Sept. 18,
1995.
2. Other RFP requirements covered by liquidated damages provisions are
found at clauses H-13, H-14, H-17, H-20, H-25.4, and C-6.