BNUMBER: B-278215.4
DATE: March 11, 1998
TITLE: Alamo Aircraft Supply, Inc.; Merchants World Surplus E, B-
278215.4, March 11, 1998
**********************************************************************
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."