BNUMBER:  B-278215.4 
DATE:  March 11, 1998
TITLE: Alamo Aircraft Supply, Inc.; Merchants World Surplus E, B-
278215.4, March 11, 1998
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Matter of:Alamo Aircraft Supply, Inc.; Merchants World Surplus 
          Enterprises, Inc.; Associated Aircraft Manufacturing & 
          Sales, Inc.; Blazer Surplus; Dixie Air Parts Supply, Inc.

File:     B-278215.4

Date:March 11, 1998

John J. Fausti, Esq., and Stephanie L. Buser, Esq., for the 
protesters.
Robin Walters, Esq., and Michael J. Malone, Esq., Defense 
Reutilization and Marketing Service, 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

Agency acted reasonably in amending a solicitation for the sale of 
surplus property, rather than canceling and reissuing the 
solicitation, where the nature and scope of the changes were not so 
substantial as to warrant the cancellation and reissuance of the 
solicitation.

DECISION

Alamo Aircraft Supply, Inc., Merchants World Surplus Enterprises, 
Inc., Associated Aircraft Manufacturing & Sales, Inc., Blazer Surplus, 
and Dixie Air Parts Supply, Inc. protest the decision of the Defense 
Reutilization and Marketing Service (DRMS), Defense Logistics Agency, 
to amend, rather than cancel, a solicitation for the sale of surplus 
property.  The protesters, none of whom had submitted proposals in 
response to the solicitation, assert that the changes made by the 
amendment are so substantial that the agency must cancel the 
solicitation and issue a new one to afford all potential bidders an 
opportunity to compete for the contract. 

We deny the protest.

The solicitation represents a pilot initiative under which DRMS will 
award a term sale contract, with a 5-year performance period, to the 
high bidder for five categories of surplus Department of Defense 
industrial property.  The solicitation provides for a two-step 
approach, under which firms were required to submit technical 
proposals by September 30, 1997, in response to request for technical 
proposals (RFTP) No. 99-7005.  Those bidders whose technical proposals 
are found by the agency to be technically acceptable, based upon the 
RFTP's evaluation criteria, will be invited to submit sealed bids in 
response to an invitation for bids, with award being made to the high 
bidder.  DRMS estimates that the surplus property that will be made 
available to the contractor during each year of the contract will have 
a market value of $30 million.
  
The successful bidder, or "purchaser," will have the right and 
obligation (with certain limited exceptions) to remove, upon payment 
of its bid price, certain surplus property generated by the agency 
within the designated federal supply classifications set forth in the 
solicitation.  The proposed contract provides that title to and risk 
of loss of the property will transfer from the government to the 
purchaser upon payment by the purchaser of its entire bid price for 
the property and the removal of the property from the agency 
installation.  The proposed contract requires, among other things, 
that 80 percent of the "net proceeds" the purchaser obtains by any 
means from the surplus property, including the purchaser's sale or 
lease of the property, be paid to the United States Treasury.[1]  
Because of this feature--which entitles the government to 80 percent 
of the net proceeds, if any, realized by the purchaser from the 
property (in addition to the amount paid for the purchase of the 
property from DRMS)--the proposed contract has been referred to by the 
agency as a "proceeds sharing sale."

Alamo Aircraft and Merchants World filed protests with our Office on 
September 29 and 30, 1997, respectively, contending that this 
"proceeds sharing sale" solicitation is actually a solicitation for 
property disposal services, and that the solicitation is therefore 
flawed because it does not contain provisions of the Federal 
Acquisition Regulation (FAR) associated with service contracts.  These 
protesters argued that because of the proposed contract's proceeds 
sharing feature and certain other provisions, DRMS will retain an 
ownership interest in the surplus property after its sale to the 
purchaser, and that the disposal of surplus property provisions of the 
Federal Property and Administrative Services Act of 1949, 40 U.S.C.  sec.  
484 (1994 and Supp. I 1995), and the Federal Property Management 
Regulations, 41 C.F.R. Part 101-45 (1997), will therefore be 
applicable to any resale of the surplus property by the purchaser.  
Additionally, the protesters asserted that any contract awarded under 
the solicitation would result in the unauthorized sale of the surplus 
property on credit.

During the course of this protest, amendment No. 4 to the solicitation 
was issued, which, as discussed below, modified the proposed contract.  
In Alamo Aircraft Supply, Inc.; Merchants World Surplus Enters., Inc., 
B-278215, B-278215.2, Jan. 7, 1998, 98-1 CPD  para.  5, we denied the 
protests, finding, among other things, that the proposed contract is 
one for sale, and that it would not result in the unauthorized sale of 
surplus property on credit.  This decision took into account the 
changes made by amendment No. 4, as well as the protesters' protests 
of the revised terms in the amendment.[2]

Meanwhile, on January 5, 1998, Alamo Aircraft, Merchants World, 
Associated Aircraft, Blazer Surplus, and Dixie Air filed this protest 
asserting that amendment No. 4 changes the terms of the solicitation 
to such an extent that the agency is required to reopen the 
competition and allow "potential bidders" to submit proposals.  Based 
on our review, we find no merit to this protest. 

As initially issued, the draft contract stated that the purchaser 
would be required to pay 20 percent of the purchase price it bid to 
the government for the property.  As explained by the agency in its 
October 31 report in response to the initial protests filed by Alamo 
Aircraft and Merchants World, the solicitation's reference to the 
payment by the purchaser of 20 percent of the purchase price was a 
misnomer because the solicitation did not require that the purchaser 
ever pay a remaining 80 percent of its purchase price to the 
government.  The agency explained that the reference to a required 
payment of 20 percent of the purchase price was intended to highlight 
the proposed contract's requirement that 80 percent of the net 
proceeds the purchaser obtains by any means from the property be paid 
to the U.S. Treasury.  
Amendment No. 4 deleted the reference to the purchaser's payment of 20 
percent of its purchase price to the government, and clarified that 
the purchase price (i.e., the amount of the successful bidder's high 
bid) paid to the government for the property was the only amount owed 
by the purchaser unless net proceeds were realized from the purchased 
property through its sale, lease, or by other means.

The second change made by amendment No. 4 involved the proposed 
contract's risk of loss provision.  As initially issued, the proposed 
contract's risk of loss provision specified that the "[p]urchaser 
bears the risk for loss, theft, destruction, or damage to [p]roperty" 
after the property has been purchased from the agency and removed from 
the relevant agency installation, and required that the purchaser "pay 
the Government the full [p]urchase [p]rice for any and all property 
that is lost, stolen, destroyed, or damaged."  To facilitate this, the 
draft contract required that the purchaser maintain insurance coverage 
for the property, that is, "'All-Risk' coverage for fire and other 
property perils for all property owned by [the] [p]urchaser with 
aggregate coverage of [$5 million]."

Amendment No. 4, while retaining the draft contract's language that 
the purchaser would bear the risk of loss of the property and the 
requirements pertaining to the insurance of the property, deleted the 
requirement that the purchaser make any payment directly to the 
government for any property that is lost, stolen, or destroyed.  As 
such, under amendment No. 4, the purchaser bears the risk of loss and 
must insure the property, and any recovery from insurance for lost, 
stolen, or destroyed property would be paid to the purchaser and would 
count as a gross proceed obtained from the property.[3] 

The third change made by amendment No. 4 involved the draft contract's 
wind-up provision.  As initially issued, the solicitation provided for 
a 6-month "wind-up" period to follow the contract's 5-year performance 
period.  The draft contract provided that during the wind-up period 
the agency would not make any surplus property available to the 
purchaser for purchase, and added that the agency, among other things, 
could in certain circumstances direct the disposition of the property.   

Amendment No. 4 to the solicitation deleted in total the specific 
draft contract provision detailing the parties' respective obligations 
during the wind-up period and the period's length, and substituted a 
new wind-up provision.  The new wind-up provision does not set forth 
any time period for the duration of the wind-up, and deletes any 
reference to the agency's ability to control the disposition of any of 
the purchaser's assets during the wind-up period.[4]

The magnitude of the changes made to a solicitation governs whether 
the solicitation should be amended (with only the firms whose 
proposals are under consideration entitled to receive the amendment 
and continue to compete for the contract), or canceled and reissued.  
See Afftrex, Ltd., B-231033, Aug. 12, 1988, 88-2 CPD  para.  143 at 10; 
Burroughs Corp., Inc., B-207660.3, May 16, 1983, 83-1 CPD  para.  508 at 4.  
Our review of agency decisions in this regard is limited to whether 
the decision to amend the solicitation, or cancel and reissue the 
solicitation, was reasonable.[5]  Burroughs Corp., Inc., supra. 

The protesters contend that the solicitation must be canceled and 
reissued because the purchaser's obligations "regarding up-front 
payment" have changed, and the requirement that insurance proceeds for 
lost, destroyed, or damaged property be paid directly to the agency 
has been eliminated.  The protesters contend that because of the 
changes made to the solicitation's "purchase price" and "risk of loss" 
provisions, "it is logical to assume that there will be wide variation 
as to costs due to insurance, since although all offerors must provide 
the minimum required amount, many offerors may reasonably elect to 
purchase insurance levels above and beyond the minimum."

The protesters fail to provide any support for their arguments.  They 
do not, for example, explain how the purchaser's obligations 
"regarding up-front payment" have changed to such an extent as to 
require cancellation, rather than amendment, of the solicitation.  To 
the extent the protesters are referring here to the deletion of the 
reference in the solicitation to the purchaser's payment of 20 percent 
of its purchase price, it is clear from the solicitation that this 
reference was a misnomer, and considered in the context of the 
solicitation, would have no practical effect on bid prices because, as 
explained previously, the solicitation never required that the 
purchaser pay the remaining 80 percent of its purchase price.  

Nor do the protesters explain why the changes to the solicitation's 
provision regarding the payment of insurance proceeds are so 
substantial as to require the cancellation and reissuance of the 
solicitation, or provide any support for this argument.  As noted, the 
draft contract has always required substantial insurance to be 
provided on the property, and the only real difference made by 
amendment No. 4 that would affect this coverage is that the purchaser 
is now only obligated to pay the government 80 percent of the net 
proceeds obtained from insurance payments rather than the "full 
purchase price."  The protesters have not provided any analysis or 
data as to what insurance levels (above the minimum required levels) 
may be reasonable, or the increase in costs (and presumed decrease in 
bid prices) associated with obtaining such additional coverage.[6]  
Given the size of the contract to be awarded under the solicitation in 
terms of dollar amount--the agency estimates that the surplus property 
that will be made available to the contractor during each year of the 
contract will have a market value of $30 million--and the significant 
insurance requirements that continue to be imposed by the 
solicitation, we fail to see how the changes to the solicitation's 
"purchase price" and "risk of loss" provisions are so substantial with 
regard to their effect on the prospective insurance costs that the 
agency's decision to amend the solicitation (as opposed to 
cancellation and reissuance) was unreasonable.   

The protesters also argue that the amended wind-up provision allows 
the
purchaser "to keep property that remains unsold at wind-up . . . 
essentially handing the [purchaser] a 'license to steal.'"  The 
protesters argue that because of this, "the amended solicitation 
should at least be re-opened to allow all--dare we say 
it--'potentially unscrupulous opportunists' with the opportunity to 
bid."  The protesters argue that, in any event, the obligations of the 
purchaser have been "substantially changed" such that the cancellation 
and reissuance of the solicitation is required.   

This aspect of the protest is based upon, among other things, the 
protesters' misunderstanding of the solicitation's provisions.  
Contrary to the protesters' assertion, and as explained in our prior 
decision, the amended wind-up provision does not allow the purchaser 
to keep the property after wind-up; no property will remain unsold at 
completion of wind-up because wind-up is completed only after it has 
been determined that all property has been sold or disposed of.  In 
this regard, although the agency has no input into the manner in which 
the purchaser operates during the contract's wind-up period, the 
agency believes that its interests in sharing in the proceeds obtained 
from such property and a timely wind-up will be protected by the 
purchaser's incentive to maximize its investment.  That is, because 
the purchaser will continue to incur costs in maintaining and storing 
property remaining after the contract's performance period, and will 
only make money if it obtains net proceeds from the remaining 
property, the purchaser has economic incentives to dispose of the 
property promptly and in a manner that maximizes net proceeds.

The agency adds that "throughout the pre-proposal process, no bidder 
ever brought up any question suggesting that [6] months would be too 
short or otherwise problematic," and that the agency's initial 
decision to specify a wind-up period of 6 months was based upon a 
"pre-marketing analysis . . . that [6] months would be more than 
sufficient for the [p]urchaser to wind up its operations."  

Accordingly, because the protesters' argument here is based upon their 
misunderstanding of the solicitation, and the record demonstrates that 
the wind-up provision as amended (which does not require that the 
wind-up be completed in 6 months or permit the agency to direct the 
disposition of the property) will have little practical effect on the 
manner in which the purchaser will operate during the wind-up, the 
changes to the wind-up provision cannot be considered so substantial 
as to render the agency's decision to amend the solicitation, rather 
than cancel and reissue it, unreasonable. 

In sum, although we agree with the protesters that the amendment made 
changes to the solicitation with regard to the obligations of the 
contracting parties, the protesters have failed to explain why the 
changes were so substantial, individually or in total, as to render 
the agency's determination to amend the solicitation, rather than 
cancel and reissue it, unreasonable.  The protesters' assertion that 
cancellation is appropriate because this is a pilot project provides 
no reasonable basis to cancel and resolicit the requirement.

The protest is denied.[7]

Comptroller General
of the United States

1. The proposed contract defines "net proceeds" as the purchaser's 
"gross proceeds" minus its "direct costs."  "Gross proceeds" are 
defined as all proceeds obtained by the purchaser from the property, 
by sale, rental, or other means; "direct costs" are essentially all 
costs actually incurred by the purchaser solely for the management, 
preservation, improvement, and transportation of the property (not 
including the amount paid to DRMS for the purchase of the property).

2. Some protests of these terms were dismissed because they failed to 
state a basis for protest.

3. As mentioned previously, the proposed contract requires that 80 
percent of the "net proceeds" the purchaser obtains by any means from 
the surplus property, including the purchaser's sale or lease of the 
property, be paid to the U.S. Treasury.

4. Amendment No. 4 also provided additional detail regarding the 
amount of property that the agency estimates will be made available to 
the purchaser under the contract resulting from the solicitation, and 
clarified that the solicitation's reference to a dispute resolution 
panel to resolve any disputes which may arise during contract 
performance was "intended to be elective and not supplant any Contract 
Disputes Act rights of any party."  The protesters did not assert in 
their protest that these changes are so substantial as to require that 
the solicitation be canceled and reissued.

5. The protesters cite FAR  sec.  15.206(e) (FAC 97-02), which is only 
applicable to procurement solicitations issued on or after January 1, 
1998, as the appropriate provision that should govern in deciding 
whether this amendment requires resolicitation.  Cf. FAR  sec.  
15.606(b)(4) (June 1997) (predecessor provision).  Section 15.206(e) 
provides:

            If, in the judgment of the contracting officer, based on 
            market research or otherwise, an amendment proposed for 
            issuance after offers have been received is so substantial 
            as to exceed what prospective offerors reasonably could 
            have anticipated, so that additional sources likely would 
            have submitted offers had the substance of the amendment 
            been known to them, the contracting officer shall cancel 
            the original solicitation and issue a new one, regardless 
            of the stage of the acquisition.

Although the FAR is not applicable to sales contracts, Sandia Die and 
Cartridge Co., B-218011, Mar. 13, 1985, 85-1 CPD  para.  308 at 2-3, our 
Office, where appropriate, will refer to it for guidance in reviewing 
protests involving sales contracts.  See B-164851, Oct. 17, 1968 at 3.  
As indicated by our discussion below, even assuming FAR  sec.  15.206(e) 
(FAC 97-02) were applicable, we do not believe that the amendment is 
so substantial as to require resolicitation. 

6. The protesters' position regarding the amount of insurance required 
is also somewhat unclear, given that they asserted in their protest 
that because of the changes to the solicitation made by amendment No. 
4, the purchase of "additional insurance is no longer necessary," and 
then apparently abandoned this argument without explanation in their 
comments by asserting that "many offerors may reasonably elect to 
purchase insurance levels above and beyond the minimum." 

7. It is not clear, in any event, that the agency's actions prejudiced 
the protesters, since the protesters never state in any of their 
submissions that any intend to submit a proposal if the solicitation 
were canceled and reissued.  The protesters only state, for example, 
that "potential bidders--such as the five protesters--should all be 
afforded the opportunity to submit proposals by requiring DRMS to 
cancel the pending solicitation and issue a new one to which all 
prospective bidders might submit technical proposals."