BNUMBER:  B-278215; B-278215.2 
DATE:  January 7, 1998
TITLE: Alamo Aircraft Supply, Inc.; Merchants World Surplus E, B-
278215; B-278215.2, January 7, 1998
**********************************************************************

Matter of:Alamo Aircraft Supply, Inc.; Merchants World Surplus 
          Enterprises, Inc.

File:     B-278215; B-278215.2

Date:January 7, 1998

John J. Fausti, Esq., and Stephanie L. Buser, Esq., for the protester.
Robin Walters, Esq., and Michael 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

1.  Solicitation for the sale of surplus property under a term 
contract is not transformed into something other than a sale because 
of the inclusion of a provision requiring that the successful 
contractor pay the government 80 percent of the net proceeds, if any, 
it obtains from the property in addition to its bid price.

2.  Sale of surplus property is not an unauthorized sale on credit 
where at the time of the sale there is no credit extended or debt 
incurred; a provision which requires that the contractor pay the 
government 80 percent of the net proceeds, if any, the contractor 
obtains from the property does not render the transaction a credit 
sale.

3.  A solicitation for the sale of surplus property will not result in 
an illusory contract because of a termination clause, where the clause 
does not allow the parties to terminate at will, but rather allows the 
parties to terminate only if certain specified contract performance 
thresholds are not attained.

4.  Neither the financial requirements imposed by a solicitation which 
provides for the award of a term sale contract, nor the size, scope, 
or length of the contract contemplated by the solicitation, violates 
the requirement set forth in the Federal Property and Administrative 
Services Act of 1949 that solicitations for the disposal of property 
be "on such terms and conditions as shall permit that full and free 
competition which is consistent with the value and nature of the 
property involved," given the apparent reasonableness of the agency's 
explanation for the challenged provisions and the protesters' failure 
to substantively respond to the agency's position.    

DECISION

Alamo Aircraft Supply, Inc. and Merchants World Surplus Enterprises, 
Inc. protest the terms of a solicitation issued by the Defense 
Reutilization and Marketing Service (DRMS), Defense Logistics Agency 
(DLA), for the sale of surplus property.[1]

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 (DOD) 
industrial property.[2]  The solicitation provides for a "two-step 
approach," under which firms are first required to submit technical 
proposals in response to request for technical proposals (RFTP) No. 
99-7005.  The technical proposals are to include, among other things, 
an operational plan demonstrating the firm's "capability to market, 
transport, store and add value to the material," and a business plan 
describing the corporate and project organizations to be used in 
disposing of the property acquired under the sales contract, and 
evidencing that it had access to a $3 million line of credit.  
Technical proposals were submitted by September 30, 1997.[3]

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 (IFB).[4]  The bids are to be expressed as a percentage of the 
government's established acquisition value of each category of surplus 
property, with the high bid being determined by multiplying the 
acquisition value of each category by the appropriate percentage bid, 
and totaling these amounts.

The successful bidder will be required to establish and fund a "stand 
alone" entity that will be the actual purchaser of the surplus 
property from the agency, and whose single purpose will be to perform 
the proposed contract.  This entity, or purchaser, is required to 
provide DRMS with a performance bond of $1 million, or establish a 
fund to be held by DRMS, in which 10 percent of all contractor 
distributions will be deposited until a balance of $500,000 is 
reached.  The purchaser is also required to provide a $400,000 payment 
deposit, which, in addition to the contractor's $100,000 bid deposit, 
will be held by the agency until completion of the contract.

The purchaser will have the right and obligation (with certain limited 
exceptions) to remove, upon payment of its bid price,[5] all surplus 
property generated by the agency within the designated federal supply 
classifications set forth in the solicitation that remains after the 
agency's completion of the Reutilization/Transfer/Donation (R/T/D) 
process.[6]  

The proposed contract also 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 United States Treasury.  Specifically, 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).

For example, should the purchaser purchase surplus property from DRMS 
for $5 million, incur $12 million in direct costs in managing, 
preserving, improving, and/or transporting the property, and realize 
$60 million in gross proceeds from the property, the purchaser would, 
upon realization of the $60 million, be required to pay to the U.S. 
Treasury $38.4 million, which equals 80 percent of the purchaser's net 
proceeds.[7]  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 contract has been referred to by the 
agency as a "proceeds sharing sale." 

The proposed contract also requires that the purchaser, beginning with 
the fourth quarter of contract performance, prepare "quarterly 
reports" setting forth "performance ratios" depicting the rate of 
return resulting from the contract, and provides both the agency and 
contractor with the right to terminate the contract after 15 months of 
performance should certain performance thresholds not be attained.   

The proposed contract provides for a "wind-up" period of unspecified 
length to follow either the contract's 5-year performance period or 
its termination by either party.  The proposed contract specifies that 
during the wind-up period the agency will not make any surplus 
property available to the purchaser for purchase, and requires that 
the contractor submit a "closing report" to DRMS within 120 days of 
the contractor's determination that the sale or disposition of all 
remaining assets has been completed and certain accounting and 
bookkeeping actions have been performed.[8] 

Alamo and Merchants World contend 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 
associated with service contracts.  The protesters also argue that, 
because of the proposed contract's proceeds sharing feature and 
certain other provisions, DRMS retains 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 (FPASA), 40 U.S.C.  sec.  484 (1994 and 
Supp. I 1995), and the Federal Property Management Regulations (FPMR), 
41 C.F.R. Part 101-45 (1997), are therefore applicable to any resale 
of the surplus property by the purchaser.  

In this regard, the protesters point to a number of the proposed 
contract's provisions which they argue are not consistent with a sales 
contract.  The most significant aspect of the proposed contract in the 
protesters' view, and the one on which the protesters mainly rely for 
their argument that the proposed contract cannot properly be 
considered a sales contract, is the proposed contract's requirement 
that the purchaser pay an amount equal to 80 percent of the net 
proceeds it obtains from the property to the U.S. Treasury.  The 
protesters point out that the proposed contract includes a number of 
provisions authorizing the agency to review the purchaser's accounts, 
and question the need for such provisions if the proposed contract is 
actually a sales contract.

The protesters also argue that any award under the solicitation will 
effectively create a "partnership" or "joint venture" composed of DRMS 
and the successful contractor, and conclude that "[t]he foremost legal 
flaw in DRMS' approach is that DRMS is attempting to do by contract 
that which it cannot do directly, i.e., circumvent applicable property 
disposal laws."

Neither the FPASA nor FPMR specifically defines the term "sale."  See 
40 U.S.C.  sec.  472 (1994) and 41 C.F.R. Part 101-45.  Because a "sale" is 
a common event, and is used in applicable statutes and regulations 
without a limiting definition and without legislative or regulatory 
history indicating a contrary result, the common and ordinary meaning 
of "sale" should be applied here.  Commissioner v. Brown, 380 U.S. 
563, 571 (1965).  That is, "[a] sale, in the ordinary sense of the 
word, is a transfer of property for a fixed price in money or its 
equivalent . . . ."[9]  Id. (citation omitted).  In determining 
whether a transaction is a sale or some other transaction, the 
"objective economic realities of a transaction rather than . . . the 
particular form the parties employed" should be considered.  Frank 
Lyon Co. v. United States, 435 U.S. 561, 573 (1977).   

The proposed contract will result in the transfer of property from the 
agency to the purchaser for a fixed price, and as such, is a sales 
contract.  As mentioned previously, the proposed contract provides 
that title to the property will transfer from the government to the 
purchaser upon payment by the purchaser of its entire bid price for 
the relevant property and the removal of the property from the 
relevant agency installation.  Specifically, the proposed contract 
provides: 

     Title to the Property shall vest in the Purchaser upon removal of 
     the Property . . . any subsequent resale transactions are between 
     the Purchaser and resale buyers, not between the Government and 
     resale buyers.  Any disputes or claims resulting from such 
     transactions are between Purchaser and resale buyers, not the 
     Government.

Further, under the proposed contract, the purchaser, not the 
government, assumes the ownership obligation of risk of loss when 
property is removed from the site.[10]  See Federal Data Corp., 60 
Comp. Gen. 584, 588 (1981), 81-2 CPD  para.  28 at 6 (risk of loss is 
evidence of ownership in government contracts).

The solicitation also specifies that "there are no requirements for 
including DRMS in any way in [the contractor's or purchaser's] 
operational decision-making."  That is, once the purchaser pays its 
bid price for the property and removes it from the relevant 
installation, thereby obtaining title to the property in accordance 
with the terms of the proposed contract, the agency has no input into 
the manner in which the purchaser operates during the performance of 
the contract or during the contract's wind-up period, including its 
decisions regarding whether to sell or lease the surplus property, or 
in what manner to sell or lease the surplus property (so long as the 
purchase does not commit one of the enumerated prohibited 
activities).[11]  

Finally, the language of the proposed contract, which includes many of 
the standard provisions common to all DRMS sales solicitations and 
contracts, evidences the intent that it constitute a sales contract.  
The proposed contract expressly states:

     Contract for Sale.  This contract is an agreement for the 
     proceeds-sharing sale of the Property by DRMS as seller to 
     Purchaser as buyer.  Contractor and DRMS expressly disavow the 
     creation of any relationship, including without limitation 
     principal-agent, master-servant, employer-employee, general or 
     limited partnership, or joint venture, between DRMS and either 
     Contractor or Purchaser.

In sum, under the proposed contract, there will be a transfer of goods 
from the agency to the purchaser for a price, with the purchaser 
obtaining title to the goods by the proposed contract's express terms; 
the proposed contract is thus one for sale.

Contrary to the protesters' view, the proposed contract's inclusion of 
the "proceeds sharing" provisions does not transform the proposed 
contract into something other than a sales contract.  A contract for 
sale may provide that the seller receive payment of a certain 
percentage of the purchaser's net profits as consideration, or as 
here, partial consideration, for the property sold.  In re Sitkin 
Smelting & Refining, Inc., 648 F.2d 252, 254 (5th Cir. 1981) 
(transaction where the processor of scrap materials obtained scrap 
from a seller and was required to process the scrap, with the purchase 
price for the scrap being determined by an agreed-upon formula 
dependent upon the outcome of the processing, was a contract for sale 
with the processor obtaining title to the scrap upon its receipt from 
the seller); see Commissioner v. Celanese Corp. of America, 140 F.2d 
339, 340 (D.C. Cir. 1944) (transaction where the purchaser obtained 
exclusive use of the seller's patent was a sale, where the purchase 
price for the patent was a fixed amount plus a fixed percentage of the 
purchaser's future profits, and the seller had the right to cancel the 
agreement and terminate the purchaser's rights to the patent, if 
within 10 years of the date of the agreement the purchaser dissolved).  

The protesters contend that the amended wind-up provisions require 
that the purchaser sell the property and therefore show that the 
solicitation is actually a solicitation for property disposal 
services.  The protesters argue that if the wind-up provisions do not 
require that the purchaser sell the property, they allow the purchaser 
"to keep property that remains unsold at wind-up . . . essentially 
handing the [purchaser] a 'license to steal.'"  These assertions are 
based upon the protesters' misunderstanding of the requirements of the 
proposed contract's wind-up provisions.  As indicated previously, the 
wind-up provisions simply do not require the sale or other disposition 
of property purchased by the purchaser during the contract's 
performance period.  Contrary to the protesters' assertion, this does 
not mean that the purchaser will be allowed 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.[12]  

Also, the provisions in the contract which are designed to protect the 
rights of the parties under the contract, including the agency's 
access to the purchaser's books and records, do not alter the 
fundamental nature of the transaction from that of a contract for 
sale; such precautionary provisions do not affect the intent and 
purpose of the contract to vest title in the purchaser upon payment of 
the purchase price and removal of the property from the agency 
installation.[13]  See Commissioner of Internal Revenue v. Celanese 
Corp., 140 F.2d at 341.   

The protesters next argue that because of the proceeds sharing aspect 
of the proposed contract, which requires that 80 percent of the net 
proceeds the purchaser obtains from the purchased property be paid to 
the U.S. Treasury, the contract will result in the unauthorized sale 
of the surplus property on credit.  Although the FPASA specifically 
authorizes the sale of surplus property on credit, 40 U.S.C.  sec.  484(c) 
(1994), its implementing regulations, the FPMR, provide in relevant 
part that "personal property shall not be offered for sale or sold on 
credit without the prior approval of the Administrator of General 
Services or his designee."[14]  41 C.F.R.  sec.  101-45.304-9.

Neither the FPASA nor the FPMR define the phrase "sale on credit" or 
the term "credit."  Because like the term "sale," the phrase "sale on 
credit" (or credit sale) refers to a common event, and is used in the 
FPASA and FPMR, without a limiting definition, and without legislative 
or regulatory history indicating a contrary result, the common and 
ordinary meaning of "sale on credit" should be applied here.  
Commissioner v. Brown, 380 U.S. at 571.  In ordinary usage, "sale on 
credit" or "credit sale" means "[a] sale in which the buyer is 
permitted to pay for the goods at a later time, as contrasted with a 
cash sale."  Black's Law Dictionary 369-370 (6th ed. 1990).  A sale on 
credit necessarily involves the extension of credit, which in turn 
requires a debtor and creditor relationship.  In re Ford, 14 F.2d 848, 
849 (W.D. Wash., N.D. 1926).

Under the proposed contract, there is no credit extended nor debt 
incurred at the time of DRMS' sale of the surplus property to the 
purchaser because the purchaser is required to pay DRMS its full bid 
price for the relevant property.  Although the purchaser must also pay 
80 percent of the net proceeds, if any, that it obtains from the 
property purchased from DRMS, this payment is necessarily contingent 
upon the purchaser obtaining net proceeds, that is, gross proceeds 
exceeding the purchaser's direct costs, through, for example, the sale 
or lease of the property.  In other words, not only is the 
distribution of such net proceeds to the government dependent upon 
some future event, it is unclear whether any such distribution will 
occur, since, as explained earlier, there is no guarantee, contractual 
or otherwise, that net proceeds will be realized by the purchaser and 
thus owed to the government.  Accordingly, because the concept of 
indebtedness requires an unconditional obligation to pay and because 
at the time of the sales under this contract any debt is contingent or 
inchoate, see C.L. Downey Co. v. Commissioner, 172 F.2d 810, 812 (8th 
Cir. 1949), there simply is no credit extended nor debt incurred at 
the time of the sale, and the sale is therefore not a sale on credit.  
The fact that the purchaser may become liable under the contract to 
pay the government further sums does not make the prior sales "on 
credit."

The protesters argue that the provision in the proposed contract which 
allow either DRMS or the contractor to terminate the contract, should 
certain performance thresholds not be met, "may make the contract an 
illusory one because neither party is legally bound to continue."  The 
protesters explain that the proposed contract may be illusory because 
"the rate of return under the contract could be manipulated by the 
Purchaser should it determine, for whatever reason, that it wishes to 
get out of the contract."      

The proposed contract includes specific, objective measurements to 
determine whether the performance thresholds are met, and expressly 
requires that the "Contractor and Purchaser carry out their 
responsibilities under the contract with honesty, good faith and 
fairness towards DRMS."  That is, neither party can terminate the 
contract, should the proposed contract's performance thresholds be met 
or exceeded.  Given that neither party can terminate the contract at 
will, and that the protesters' argument that the contract is illusory 
is predicated upon the purchaser deliberately attempting to manipulate 
the proceeds it obtains from the property in a manner that ensures the 
performance thresholds will not be met--conduct which under the terms 
of the contract places the purchaser in material breach--we fail to 
see why the proposed contract can properly be considered illusory.

The protesters argue that "[t]he solicitation violates the antitrust 
approval requirements set forth in the [FPMR]."  The FPASA, 40 U.S.C.  sec.  
488 (1994) and the FPMR, 41 C.F.R.  sec.  101-45.310, require that the 
Attorney General of the United States be notified whenever an award is 
proposed to be made to any private interest of personal property with 
an estimated fair market value of $3,000,000 or more.  In this regard, 
the FPMR requires that the agency provide the Attorney General with 
considerable information regarding both the property to be sold and 
the proposed purchaser, including, for example, the proposed 
purchaser's name, address, trade name, sales volume as of the latest 
fiscal or calendar year, and nature of business.  41 C.F.R.  sec.  
101-45.310.  There is no requirement in the applicable statute or 
regulation that a solicitation for the sale of surplus property 
expressly inform bidders that the terms of the sale, including the 
identity of the proposed awardee, may be referred to the Attorney 
General.  Moreover, as pointed out by the agency, the record reflects 
that DRMS advised bidders regarding the applicability of antitrust 
laws to this sale.[15]  As such, we see no basis to find that the 
solicitation violates either 40 U.S.C.  sec.  488 or 41 C.F.R.  sec.  
101-45.310.

The protesters contend that the sheer size of the contract in terms of 
dollar amount and length of contract as well as the requirements for 
up-front financial commitments, that is, the submission of a $100,000 
bid bond, a $400,000 payment bond, and access to a $3 million line of 
credit, unduly restrict competition because prospective bidders, such 
as the protesters, may not be able to perform a contract of this size 
or comply with the required financial commitments.

The FPASA provides that solicitations for the disposal of property be 
"on such terms and conditions as shall permit that full and free 
competition which is consistent with the value and nature of the 
property involved."  40 U.S.C.  sec.  484(e)(2)(A) (1994); see William D. 
Garrett, B-192592, Nov. 16, 1978, 78-2 CPD  para.  350 at 2.  The 
determination of the agency's needs in this regard and the best method 
of accommodating them are primarily within the agency's discretion 
and, therefore, we will not question such a determination unless the 
record clearly shows that it was without a reasonable basis.  Resource 
Recovery Int'l Group, Inc., B-265880, Dec. 19, 1995, 95-2 CPD  para.  277 at 
3.

The agency contends that this pilot solicitation is intended to allow 
DRMS to get out of the business of conducting local and national sales 
by combining certain categories of surplus property into proceeds 
sharing term sales.  Such sales are designed to enhance DRMS' rate of 
return by enlisting the marketing abilities of the private sector.  
This is necessary because DRMS is scheduled to have its work force 
drastically reduced, and the previous methods of disposing of surplus 
property had not been profitable overall to the government.  

DRMS adds that the size, scope, and term of this contract are 
"designed to attract the best bidders and to achieve the greatest cost 
efficiencies and revenue enhancements possible."  The agency states 
that because the successful purchaser will be required to pay for and 
remove considerable amounts of surplus property from the relevant 
government installations shortly after contract award, and the 
immediate generation of revenues from these properties by the 
purchaser is unlikely, it determined that requiring the purchaser to 
have access to a $3 million line of credit was reasonable to ensure 
that the purchaser was able to adequately finance its initial costs.  
The agency also points out that the $500,000 payment deposit 
(comprised of the initial $100,000 bid deposit and additional $400,000 
required after award) is relatively small in light of the agency's 
estimate 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.

Given the apparent reasonableness of the agency's explanation, and the 
protesters' failure to substantively respond to it, we have no basis 
to determine that the financial requirements imposed by the 
solicitation or the size, scope, or length of the contract 
contemplated by the solicitation are unreasonable.  Resource Recovery 
Int'l Group, Inc., supra; see Aalco Forwarding, Inc., et al., 
B-277242.12, B-277241.13, Dec. 29, 1997, 97-2 CPD  para.  __ at 6-8. 

The protesters finally question the propriety of the "two-step 
approach" set forth in the solicitation.  Our Bid Protest Regulations 
require that protests based upon improprieties apparent from the face 
of the solicitation be filed prior to its closing date.  4 C.F.R.  sec.  
21.2(a)(1) (1997).  Where a protester supplements its protest with new 
and independent allegations, those allegations must independently 
satisfy our timeliness requirements; our Bid Protest Regulations do 
not contemplate the unwarranted piecemeal presentation of protest 
issues.  PCB Piezotronics, Inc., B-254046, Nov. 17, 1993, 93-2 CPD  para.  
286 at 4-5.  The protesters' challenge to the agency's use of a 
"two-step" solicitation approach is untimely and will not be 
considered because it was raised for the first time in the protesters' 
comments on the agency report, which were filed with our Office on 
November 17, approximately 7 weeks after the solicitation's September 
30 closing date.
        
The protest is denied.  

Comptroller General 
of the United States

1. We consider this protest under 4 C.F.R.  sec.  21.13 (1997).  DLA, by 
letter dated January 13, 1987, has agreed to our considering bid 
protests involving its surplus property sales.  See Consolidated 
Aeronautics, B-225337, Mar. 27, 1987, 87-1 CPD  para.  353 at 1 n.1. 

2. 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.  

3. Neither Alamo nor Merchants World submitted a proposal.

4. While the protesters initially contended that if the IFB is 
materially changed the competition may need to be reopened, they now 
agree that this contention is premature.

5. As initially issued, the draft IFB stated that the purchaser would 
be required to pay 20 percent of the purchase price it bid to the 
government for the property.  The agency amended the solicitation to 
clarify that the purchaser will be required to pay its total bid 
purchase price to the government for the property.

6. DLA's disposition priorities are to (1) reutilize property within 
DOD, (2) transfer items to other federal agencies and organizations 
with equivalent priority for the purpose of obtaining excess property 
and (3) donate the remaining items to eligible entities such as state 
and local governments, among many others.  This process is generally 
referred to as the R/T/D process.  Items that remain after these 
priorities are served are sold to the general public, as contemplated 
here, or otherwise disposed of. Federal Property Disposal:  
Information on DOD's Personal Property Disposal Process, 
GAO/NSIAD-97-155BR, July 8, 1997. 

7. This figure results from the following calculation:  $60 million in 
gross proceeds minus $12 million in direct costs equals $48 million in 
net proceeds, 80 percent of which is $38.4 million. 

8. The wind-up provisions described here reflect amendments made 
during the course of this protest. 

9. The Uniform Commercial Code (UCC) sets forth a similar definition 
of the term "sale," stating that "[a] sale consists in the passing of 
title from the seller to the buyer for a price."  UCC  sec.  2-106(1);  see 
Manheim Pattern Works, B-186837, July 30, 1976, 76-2 CPD  para.  103 at 1-2 
(our Office may refer to the UCC for guidance).  

10. The risk of loss provision was also modified during the course of 
the protest.  

11. The enumerated prohibited activities include such things as sales 
to affiliates.

12. 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.  

13. Since the solicitation will result in a contract for the sale of 
surplus government property, it does not result in the creation of a 
"partnership" between the agency and the contractor/purchaser, as 
alleged by the protesters.  Moreover, because we conclude that the 
transaction is a sale, rather than a procurement of services, we need 
not address the protest contentions that "if the transaction is 
properly considered a procurement transaction, then the contract 
violates at least the spirit of the statutory restrictions on fee 
percentages that are included in 10 U.S.C.  sec.  2306(d)" and "the 
statutory prohibition against cost-plus-percentage-of-cost contracts 
at 10 U.S.C.  sec.  2306(a)."

14. No such approval has been granted in this case.

15. Amendment No. 2 to the solicitation, which among other things sets 
forth certain questions and answers, includes the following:

            [Question] 85.  Is the contract exempt from the Sherman 
            Anti-Trust Act?
            
            ANSWER:  No.