BNUMBER: B-274781; B-275081
DATE: January 6, 1997
TITLE: Lankford-Sysco Food Services, Inc.; Sysco Food Services of
Arizona, Inc.
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Matter of:Lankford-Sysco Food Services, Inc.; Sysco Food Services of
Arizona, Inc.
File: B-274781; B-275081
Date:January 6, 1997
Richard B. Oliver, Esq., and Laura O. Doyle, Esq., McKenna & Cuneo,
for the protester.
Steve B. Hilkowitz, Esq., Defense Logistics Agency, for the agency.
Henry J. Gorczycki, Esq., and James A. Spangenberg, Esq., Office of
the General Counsel, GAO, participated in the preparation of the
decision.
DIGEST
Solicitations for acquisition of commercial food distribution services
are neither ambiguous nor inconsistent with customary commercial
practice where the protested terms of the solicitation considered as a
whole have only one reasonable interpretation, which is not
inconsistent with customary commercial practice.
DECISION
Lankford-Sysco Food Services, Inc. and Sysco Food Services of Arizona,
Inc.[1] protest the terms of request for proposals (RFP) No.
SPO300-96-R-4025 and SPO300-96-R-4016, respectively, issued by the
Defense Logistics Agency, Defense Personnel Support Center (DPSC), for
full service food distribution support for Navy ships at Norfolk
Station, Virginia, and for military installations, hospitals and Job
Corps centers in Arizona.
We deny the protests.
The terms of the RFPs, as relevant to these protests, are identical.
The RFPs contemplate award of firm, fixed-price with economic price
adjustment, indefinite quantity/indefinite-delivery contracts for a
base year with 3 option years. The RFPs list the commercial food
items to be supplied under the contracts and the estimated quantity of
each item, and require offerors to provide the "delivered price,"
"distribution price," and "unit price" for each item. These terms are
defined in the RFPs. The RFPs also include a price changes clause
allowing for changes in the delivered price on a weekly basis,
inasmuch as this component of the unit price may fluctuate as a result
of "commercial market forces, such as supply and demand, and
competition among suppliers." This clause further stated that:
"The offeror also warrants that its unit prices are equal to or
lower than those offered its most favored customer for similar
quantities under comparable terms and conditions while taking
into account the requirements of the price adjustment schedule of
this clause."
The RFPs also included the following price-related provision:
"III. REBATES/DISCOUNTS
(1) Rebates and discounts are to be returned to DPSC when they
are directly attributable to sales resulting from orders
exclusively submitted by DPSC or its customers. Additionally any
rebates and discounts offered to any commercial customer or to
other Governmental organizations shall be returned to the DPSC or
its customers in the form of an up-front price reduction and/or
lump sum reimbursement. Additional rebates over and above those
cited above may be offered to the DPSC to enhance one's proposal
but will not be mandated for return to the DPSC or its customers.
(2) The Prime Vendor shall be as aggressive as possible in
pursuing all rebates and discounts for the customers supported
under this contract. Notwithstanding the requirements included
herein, the offeror warrants, at a minimum, that the DPSC and its
customers will receive rebates and discounts equal to or better
than the offeror's most favored commercial or other Governmental
customer. The offeror will provide a description of those
rebates and discounts meeting the requirements herein as part of
their offer in accordance with the provisions outlined [in this
solicitation]. The rebates and discounts proposal will be
reviewed and if found acceptable, shall become part of the
resulting contract(s). A rebate report shall be provided to the
Contracting Officer on a quarterly basis as a minimum. . . ."
The RFPs require offerors to propose procurement/pricing plans
explaining the offerors' purchasing methods and pricing methodology,
including an explanation of the proposed discounts and rebates.[2]
The protesters allege that the Rebates/Discounts provision in the RFPs
contains insufficient detail and is ambiguous and contrary to
customary commercial practice. In particular, the protesters are
concerned that this provision could be interpreted to include a firm's
"earned income" generated by the firm's performance of merchandising
services for its suppliers as a rebate or discount payable to the
government. The protesters explain that while it is customary in the
industry for distributors to pass discounts and rebates from suppliers
on to the customer, it is not customary to pass earned income through
to the customer nor practical to account for earned income related to
specific customer accounts, and that to require such accounting would
be unduly burdensome on the contractor and inconsistent with customary
commercial practice. The protesters also allege that the solicitation
language is otherwise ambiguous as to the meaning of a variety of RFP
terms: discounts, rebates, and related terms (e.g., "directly
attributable to sales" and "most favored customer").
A solicitation must contain sufficient information to enable offerors
to compete intelligently and on a relatively equal basis. Pacific
Consol. Indus., B-250136.5, Mar. 22, 1994, 94-1 CPD para. 206; Tucson
Mobilephone, Inc., B-250389, Jan. 29, 1993, 93-1 CPD para. 79. There is
no legal requirement that a solicitation be drafted so as to eliminate
all performance uncertainties; the mere presence of risk does not
render a solicitation improper. Pacific Consol. Indus., supra; J&J
Maintenance, Inc., B-248915, Oct. 8, 1992, 92-2 CPD para. 232. Agencies
may properly impose substantial risk upon the contractor, even where
the risk in question is financial in nature. Tucson Mobilephone,
Inc., supra. In procurements involving the acquisition of commercial
items, such as here, Federal Acquisition Regulation sec. 12.301(a)(2)
(FAC 90-32) requires that the contracts "shall, to the maximum extent
practicable, include only those clauses . . . [d]etermined to be
consistent with customary commercial practice."
Moreover, an allegation that a solicitation is ambiguous does not make
it so. A solicitation term is only ambiguous if it is susceptible to
more than one reasonable interpretation when read in the context of
the solicitation as a whole. Canadian Commercial Corp./Ballard
Battery Sys. Corp., B-255642, Mar. 18, 1994, 94-1 CPD para. 202. Where a
dispute exists as to the actual meaning of the terms of a
solicitation, we will resolve the matter by reading the solicitation
as a whole and in a manner that gives effect to all of its provisions.
Id.; Zeta Constr. Co., Inc., B-244672, Nov. 5, 1991, 91-2 CPD para. 428.
The agency states that it is aware of, and took into account, the
customary commercial practice that discounts and rebates are
considered distinct from compensation earned by distributors for
performing actual services for suppliers and that such compensation
generally is not passed on to customers in the form of discounts or
rebates. The agency asserts that no provision in the RFP could
reasonably be interpreted as requiring such "earned income" to be
passed through to the government. We agree.
Here, the RFPs as a whole unambiguously require that a minimally
acceptable proposal offer DPSC discounts and rebates which are
"directly attributable to sales resulting from orders exclusively
submitted by DPSC or its customers," which must result in "unit prices
[that] are equal to or lower than those offered [to] its most favored
customer for similar quantities under comparable terms and
conditions." To accomplish this, an offeror, "at a minimum," must
propose "rebates and discounts equal to or better than [those of] the
offeror's most favored" customer. Since compensation earned for
services performed results from a contractor's performance of those
services for a particular supplier, not from orders placed by a
customer, such compensation cannot be said to be "directly
attributable to sales resulting from orders exclusively placed by DPSC
or its customers." In other words, nothing in the RFPs requires a
firm to alter its customary commercial practice by mandating the
passing on of "earned income" to the government where the firm does
not already do so or offer to do so.[3]
Nor does the RFP require reporting on compensation which is earned
from services performed and which is uniformly retained by the
contractor. The RFP only requires offerors to propose a "process for
tracking and reporting rebates/discounts." Since compensation earned
for services performed which is not passed on to any customer is
neither a discount nor rebate under these RFPs, there is no
requirement for tracking and reporting of such compensation.
While the protester alleges that the agency failed to conduct adequate
market research to verify the consistency of discount/rebate clauses
with customary commercial practice, as discussed above, the RFP has
not been shown to be inconsistent with such practice. In any case,
the record confirms that the agency did research the commercial
practices of this industry and obtained input from the industry in
drafting this provision.
As indicated, the protester contends that a variety of terms in the
solicitation are not specifically defined and are ambiguous, in
particular the terms "discount" and "rebate" because they are not
specifically defined and thus could be interpreted to include "earned
income" for services rendered. Our discussion above demonstrates
that, considering the solicitation as a whole, this is not a
reasonable interpretation. To the extent these terms are not
specifically defined, the agency states that these terms are
reasonably understood to be price reductions which differ only in
terms of timing (i.e., discounts are price reductions applied to
current prices and rebates are price reductions applicable to prices
which have been previously accounted for and thus require
reimbursements) and need no specific definition. The protesters have
not provided a contrary definition, and we are aware of no other
reasonable interpretation of these terms.
In their remaining allegations of ambiguity, the protesters
essentially dismantle the solicitation into isolated words and
phrases, and offer various "possible" interpretations of these
isolated component parts.[4] We have reviewed all of these
alternative interpretations and, giving effect to all of the relevant
portions of the solicitation, we find none of these alternative
interpretations to be reasonable.
For example, the protesters allege that the rebate and discounts
provision phrase "directly attributable to sales resulting from orders
exclusively submitted by DPSC" is ambiguous. We disagree and do not
find the agency had any obligation to further clarify. The protesters
hypothecate that some vendors could narrowly interpret "directly
attributable" to mean this phrase is applicable only to rebates
subject to a prior agreement between the agency and the supplier,
while other vendors could broadly interpret the phrase as including
rebates obtained by a contractor for recruiting a stated number of new
customers for a supplier, of which DPSC was one. These
interpretations either impose conditions not stated in the
solicitation--i.e., that discounts and rebates may only be established
where there are prior agreements--or fail to consider the full meaning
of the term in the context of other relevant terms and provisions of
the solicitations--i.e., directly attributable to sales resulting from
orders exclusively submitted by DPSC, as opposed to a rebate
attributable to sales accounts in addition to the sales to DPSC, such
as the second example advanced by the protesters. In sum, the
protesters' various alternative interpretations of the terms of the
solicitation are not reasonable because they do not give effect to all
relevant terms of the solicitations. See Canadian Commercial
Corp./Ballard Battery Sys., Corp., supra.
Finally, the protesters allege that, because the RFP provides that the
terms of each offeror's discounts and rebates proposal will be
incorporated into any resulting contract, offerors will not be
competing on an equal basis. We disagree.
Here, the RFPs state that the "rebates and discounts proposal will be
reviewed and if found acceptable, shall become part of the resulting"
contract. The RFPs state what discounts and rebates are required to
be minimally acceptable. Thus, proposals failing to satisfy these
minimum requirements cannot be found technically acceptable under the
RFP. The solicitation therefore provides adequate information for
offerors to compete intelligently and on a relatively equal basis.
The fact that offerors may individually propose terms more attractive
than the minimum requirements which the agency may consider in making
award is fully disclosed in the RFPs. In contracts such as those
contemplated here, the price competition is largely dependent on
variations in the proposed discounts and rebates, and the format of
this solicitation is sufficiently flexible to allow fair competition
on a relatively equal basis. See Pacific Consol. Indus., supra;
Tucson Mobilephone, Inc., supra.
The protests are denied.
Comptroller General
of the United States
1. The protesters are operating subsidiary companies of Sysco
Corporation, a national food service distributor.
2. The RFPs state a best value evaluation scheme. The
procurement/pricing plan is a subfactor under both the technical and
price factors.
3. The agency's survey of the industry found the term "earned income"
to have many different meanings, including the compensation earned for
performing services for a supplier--a finding which the protesters do
not dispute. As noted by the agency, merely labeling something
"earned income" does not make it other than a rebate or discount, and
some distributors in fact pass earned income, including compensation
earned, on to the customer. In our view, under the RFPs, if a
contractor in fact passes on "earned income" to other customers--which
the protesters assert is not their customary commercial practice--such
payment could be considered a rebate or discount to a "most favored
customer." In addition, since the RFPs allow offerors to voluntarily
propose and commit to terms that are more advantageous to the
government, a firm could commit to pass on "earned income" to the
government.
4. In some cases, Sysco agrees the agency's interpretation is the
appropriate one, but argues that other vendors may be confused.