TITLE:   CW Government Travel, Inc. d/b/a Carlson Wagonlit Travel;, B-283408; B-283408.2, November 17, 1999
BNUMBER:  B-283408; B-283408.2
DATE:  November 17, 1999
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CW Government Travel, Inc. d/b/a Carlson Wagonlit Travel;, B-283408;
B-283408.2, November 17, 1999

Decision

Matter of: CW Government Travel, Inc. d/b/a Carlson Wagonlit Travel;

American Express Travel Related Services Company, Inc.

File: B-283408; B-283408.2

Date: November 17, 1999

Lars E. Anderson, Esq., Wm. Craig Dubishar, Esq., and Paul N. Wengert, Esq.,
Venable, Baetjer and Howard, for CW Government Travel, Inc. d/b/a Carlson
Wagonlit Travel; and Hamilton Loeb, Esq., and A. Jeff Ifrah, Esq., Paul,
Hastings, Janofsky & Walker, for American Express Travel Related Services
Company, Inc., the protesters.

Diane L. Celotto, Esq., Department of the Navy, for the agency.

Paul Jordan, Esq., Glenn G. Wolcott, Esq., and Paul Lieberman, Esq., Office
of the General Counsel, GAO, participated in the preparation of the
decision.

DIGEST

1. Protests that solicitation requirement for commission-based pricing of
travel services is impermissibly inconsistent with customary commercial
practice is denied where record, including documents submitted by the
protester, demonstrates that a significant portion of the travel service
industry continues to rely on commission revenues to fund performance of
travel services.

2. Where protesters have submitted declarations stating that they will not
respond to a solicitation unless the solicitation's commission-based pricing
provisions are removed, and protests challenging those pricing provisions
are denied, protesters are not interested parties to challenge other
solicitation terms.

DECISION

CW Government Travel, Inc. d/b/a Carlson Wagonlit Travel (Carlson) and
American Express Travel Related Services Company, Inc. (Amex) protest the
terms of request for proposals (RFP) No. N00140-99-R-M417, issued by the
Department of the Navy for travel management services in the Navy's Eastern
Region. [1] Carlson and Amex protest that the pricing provisions of the RFP
violate the requirements of the Federal Acquisition Regulation (FAR)
concerning the acquisition of commercial services, unreasonably restrict
competition, and provide an unfair competitive advantage to the incumbent
contractor. The protesters also challenge certain other RFP provisions as
exceeding the agency's minimum needs or as being otherwise inappropriate.

We deny the protests.

BACKGROUND

These protests flow from ongoing changes in the manner in which travel
agencies receive compensation for the services they provide, particularly
with regard to the sale of airline tickets. At the time of airline
deregulation in 1978, travel agencies sold about half of the airlines'
tickets, with the airlines themselves selling the other half; at that time,
airlines paid travel agencies commissions on the ticket sales that averaged
approximately 8 percent of the value of the tickets sold. Following
deregulation, the airlines sought to lower their marketing costs, shifting
more of their ticket sales to travel agencies and increasing the commissions
paid. Domestic Aviation: Effects of Changes in How Airline Tickets are Sold,
GAO/RCED-99-221, July 28,1999 at 3-7. Commission rates for domestic fares
peaked at about 10 percent in 1994. Since then, commission rates have
steadily declined. [2] Id.

As airline commissions increased, along with total travel agency revenues
due to the higher volume of sales, travel agencies competed for travel
service contracts by, among other things, offering to share a portion of the
airline commissions they received with the buyer for which the travel
services were being provided. Since 1995, as commissions have decreased, an
increasing number of travel agencies have begun to charge transaction or
service fees as compensation for the services they provide. Id. at 10.

With regard to the solicitation at issue here, the Navy contracting officer
states that she received a request to procure the travel services in
February 1999 and, thereafter, conducted market research to determine
whether the Navy's needs could

be met by acquiring "commercial items," as that term is defined in the FAR.
[3] Contracting Officer's Statement at 2. The Navy's market research
consisted of: reviewing past performance evaluations of offerors under prior
procurements for similar services; conducting discussions with the Navy's
current travel service provider; and conducting discussions with Navy
officials, as well as with officials from other government agencies. [4] Id.

Based on the research conducted, the contracting officer determined that the
services required by the Navy under this procurement fall outside the FAR
definition of commercial services; that is, that portions of the travel
service requirements were not sold in substantial quantities in the
commercial marketplace based on established catalog or market prices
performed under standard terms and conditions. See FAR sect. 2.101(f).
Specifically, the contracting officer identified several mandatory tasking
requirements that she believed precluded the procurement from being
considered an acquisition of commercial services, including: required
contractor response to mobilization, contingency operations, and
evacuations; mandatory booking of lodging in government bachelor quarters;
and required contractor reconciliation of the centrally billed accounts of
the Navy's charge card contractor. See Envirocare of Utah, Inc. v. United
States, 44 Fed. Cl. 474 (1999) (procurement for removal of five different
types of waste was not acquisition of commercial services where there was no
established catalog or market price for one of the five items).

Consistent with the determination that the services were not commercial
items, the Navy published a procurement synopsis in the Commerce Business
Daily (CBD) incorporating note 26, which states:

Based upon market research, the Government is not using the policies
contained in Part 12, Acquisition of Commercial Items, in its solicitation
for the described supplies or services. However, interested persons may
identify to the contracting officer their interest and capability to satisfy
the Government's requirements with a commercial item within 15 days of this
notice.

No one contacted the contracting officer to identify its interest in and
capability of satisfying the Navy's requirements with a commercial item
within the 15 day period specified in the CBD notice.

On March 12, 1999, the Navy issued this RFP, seeking proposals to provide
travel services during a base-year performance period with eight 6-month
option periods. As the Navy had done under its prior travel service
procurements, the solicitation contemplated award of a "no-cost" contract;
that is, a contract in which the Navy is not billed for the contractor's
performance, but rather the contractor's performance is funded by the
commissions paid by airlines and other transportation providers, along with
commissions paid by hotels and car rental agencies. As in the past, the RFP
also provided for offerors to propose to share a portion of the airline
commissions with the Navy. As amended, the RFP provided:

Discount for Official Air Travel. The Contractor shall propose a percentage
of commissions earned on official air travel sales . . . . The proposed
percentage of commissions shall be provided to the Government in the form of
airfare discounts on domestic airfare sales, with non-air rebates and/or
discounts (for example, bus, rail, water, lodging and car rental) considered
in the proposed percentage of commissions.

RFP amend. 12, at 3.

In May, both Carlson and Amex filed agency-level protests challenging, among
other things, the commission-based pricing provisions in the solicitation.
In response to these protests, and in recognition of the possibility that
airline commissions could decrease, the agency amended the RFP to include a
provision which reduced contractor risk by automatically decreasing the
Navy's portion of the shared commission if the airlines decreased their
standard commissions. Specifically, as amended, the RFP stated:

[I]f the current Airline industry standard commission of 8% declines and/or
the current commission cap . . . declines, the Government's portion of
shared commissions shall be adjusted to account for this decline. The
Contractor's portion of shared commissions will not be adjusted.

Id. at 4.

The RFP was also amended to provide that if airline commissions decline
beyond the Navy's portion of the commission, the contract would be
renegotiated or terminated. Id. at 5.

Prior to Amex and Carlson filing these protests with our Office, the closing
date for submission of proposals had been August 20, 1999. Carlson and Amex
filed these protests on August 9, and the closing date has been postponed
pending resolution of the protests.

DISCUSSION

Both Carlson and Amex challenge the commission-based pricing provisions of
the RFP, arguing that requiring travel agencies to rely on commissions paid
by airlines and other service providers is no longer consistent with
customary commercial practice. In making this argument, the protesters first
assert that the travel services here should be considered "commercial items"
for purposes of triggering the requirements of FAR Part 12--and then refer
to FAR sect. 12.301, which states:

[C]ontracts for the acquisition of commercial items shall, to the maximum
extent practicable, include only those clauses- . . . . (2) Determined to be
consistent with customary commercial practice.

As noted above, the Navy responds that certain portions of its requirements
are not sold in substantial quantities in the commercial marketplace based
on established catalog or market prices and, therefore, the services being
acquired do not meet the definition of commercial items. See FAR sect. 2.101(f).

Determining whether a product or service is a commercial item is largely
within the discretion of the contracting agency, and such a determination
will not be disturbed by our Office unless it is shown to be unreasonable.
Aalco Forwarding, Inc. et al., B-277241.8, B-277241.9, Oct. 21, 1997, 97-2
CPD para. 110 at 11. However, here we need not resolve whether the Navy
reasonably determined that the services being acquired are not commercial
items, since, even if the services are considered commercial items, the
record clearly establishes that a significant portion of travel service
providers in the marketplace continue to rely on the type of
commission-based funding which the protesters are challenging in this
solicitation.

Specifically, in pursuing this protest the protesters provided various
documents regarding existing practices in the marketplace. For example,
Carlson submitted a June 11, 1998 news item, printed from the Internet site
of the American Society of Travel Agents (ASTA), [5] http://www.astanet.com,
which states:

Today, the American Society of Travel Agents (ASTA) released the results of
its 1998 ASTA Agency Service Fees Report, which scientifically surveyed ASTA
member travel agencies on their implementation of client services fees. The
survey showed that nearly two-thirds (64%) of responding agencies now charge
service fees in their agencies.[ [6]]

Additionally, Carlson submitted an article reporting on a survey conducted
by the travel industry publication Travel Weekly, [7] which surveyed travel
service users rather than travel service providers, stating:

The study found that 80% of respondents do not currently pay a service fee
to their retail agent. Twelve percent of respondents said they do pay a fee,
and 8% were not sure if they are assessed a fee.

. . . . .

On average, respondents who pay service fees said they began paying 11
months ago.

Travel Weekly, Jan. 28, 1999, at 1, 4.

Based on the record, and in particular the protester's own submissions, it
is clear that, while there is a current trend in the industry toward
increased use of service fees by travel agencies, a significant portion of
the industry continues to rely on commission revenues to fund performance of
travel services. Thus, assuming arguendo that this procurement should have
been conducted as an acquisition of commercial services pursuant to FAR Part
12, there is still no merit in the protesters' assertions that the
commission-based pricing provisions in the Navy's RFP are not "consistent
with customary commercial practice." Rather, the record clearly establishes
that, notwithstanding the relatively recent trend towards use by the travel
industry of service fees, the challenged commission-based provisions are
customary for from 25 percent to as much as 80 percent of the marketplace.
Accordingly, to the extent the protesters rely on the FAR Part 12
requirements regarding consistency with customary commercial practice as a
basis to challenge the RFP's commission-based pricing provisions, the
protests are denied.

Carlson also protests that the commission-based pricing provisions impose an
unreasonable level of risk for new contractors and, thereby, unduly restrict
competition.

A procuring agency is not required to eliminate all contract risk. On the
contrary, it is within the ambit of administrative discretion to offer to
competition a proposed contract imposing maximum risks upon the selected
contractor. Argus Servs., Inc., B-234016.2, B-234017.2, Sept. 12, 1989, 89-2
CPD para. 227 at 3.

Here, the RFP contains specific and effective provisions to minimize
contractor risk, in particular by providing for the automatic downward
adjustment of the Navy's portion of the airline commissions in the event
airlines decrease their standard commissions. Further, the RFP provides for
renegotiation or termination of the contract if the commissions decline by a
greater amount than the Navy can absorb. Accordingly, we find without merit
the assertion that the RFP creates unreasonable risks for a new contractor.

Carlson also protests that the commission-based pricing structure creates an
unfair competitive advantage for the incumbent contractor, Scheduled Airline
Travel Offices, Inc. (SATO), complaining that "SATO apparently still has a
‘sweetheart' arrangement with the airlines." [8] Carlson's Protest at
12-13.

In seeking competition, an agency is not required to structure its
procurements in a manner that neutralizes the competitive advantage that
some potential offerors (including incumbent contractors) may have over
others by virtue of their own particular circumstances where the advantages
did not result from unfair action on the part of the government. Group
Techs. Corp.; Electrospace Sys., Inc., B-250699 et al., Feb. 17, 1993, 93-1
CPD para. 150 at 13.

Here, the record is devoid of any indication of unfair action by the Navy
causing SATO to be more competitive than Carlson and, while complaining
about an allegedly improper "sweetheart" relationship between SATO and the
airlines, Carlson has presented no supporting evidence which would provide
our Office a basis to sustain this protest allegation. Accordingly, we
conclude that this portion of Carlson's protest reflects nothing more than
Carlson's dissatisfaction with SATO's relative competitiveness in the
current marketplace and is without merit.

In sum, upon reviewing all of the protesters' bases for challenging the
commission-based pricing provisions of this RFP-specifically, that these
provisions violate the FAR requirements concerning the acquisition of
commercial services, create unreasonable contractor risk, and are unfairly
advantageous to the incumbent--we find no basis to conclude that these
provisions violate any procurement law or regulation, or are otherwise
prohibited. The determination of a contracting agency's needs and the best
method for accommodating them are matters primarily within the agency's
discretion. Tucson Mobilephone, Inc., B-250389, Jan. 29, 1993, 93-1 CPD para. 79
at 2, aff'd, B-250389.2, June 21, 1993, 93-1 CPD para. 472. Accordingly, the
protesters' challenges to the commission-based pricing provisions of the
RFP, which the agency concluded are best suited to satisfy its travel
support services needs, are denied.

Carlson and Amex also challenge various other RFP provisions. However, in
pursuing these protests both Carlson and Amex have categorically stated that
they will not submit proposals in response to this solicitation unless the
commission-based pricing provisions are removed. Specifically, Carlson
submitted a declaration by its Director of Business Development, stating:
"If a government travel services contract is structured as a no cost
contract, making the contractor dependent upon commission revenue from the
airlines, Carlson Wagonlit Travel will not respond to such a procurement."
Carlson's Comments, Sept. 30, 1999, attach. 1, at 12. Similarly, Amex
submitted a declaration by its Director of Account Development, stating:
"Amex . . . will not submit a proposal for the Navy East RFP, so long as
that RFP contains a commission based pricing structure." Amex's Comments,
Sept. 30, 1999, attach. B, at 7.

Under the Competition in Contracting Act of 1984, 31 U.S.C. sect. 3551(2)
(1994), and our Bid Protest Regulations, 4 C.F.R. sect. 21.0(a) (1999), a
protest may be filed only by an "interested party," defined as an actual or
prospective offeror whose direct economic interest would be affected by the
award of a contract or the failure to award a contract. Determining whether
a party is sufficiently interested involves consideration of a party's
status vis-ï¿½-vis the procurement and the nature of the issues protested.
Free State Reporting, Inc. et al., B-225531 et al., Jan. 13, 1987, 87-1 CPD
para. 54 at 2-3.

Here, since Carlson and Amex both stated that they would submit proposals if
the commission-based pricing provisions of the solicitation were removed,
they are

interested parties to challenge those provisions. However, in light of our
denial of their protests regarding the pricing provisions--along with
Carlson's and Amex's unequivocal statements that they will not participate
if the challenged pricing provisions remain in the solicitation--Carlson and
Amex are not interested parties to challenge any other terms of the
solicitation. 4 C.F.R. sect. 21.0(a); Loral Fairchild Corp., B-242957, June 24,
1991, 91-1 CPD para. 594 at 5-6.

The protests are denied.

Comptroller General
of the United States

Notes

1. The Navy's Eastern Region includes seventeen states in the eastern part
of the United States and extends to the Caribbean Sea area, South America,
and Europe.

2. In 1995 the airlines capped commissions at $25 for one way domestic
tickets and $50 for round trip domestic tickets. In 1997, the standard
commission was reduced from 10 percent to 8 percent. In 1998, caps were
imposed for international travel. In October 1999, while these protests were
being considered, most of the airlines reduced the commission paid from 8
percent to 5 percent.

3. The FAR defines a "commercial item" as including "services of a type
offered and sold competitively in substantial quantities in the commercial
marketplace based on established catalog or market prices for specific tasks
performed under standard commercial terms and conditions." FAR sect. 2.101(f). A
determination that services to be acquired are "commercial items" generally
requires an agency to conduct the procurement following the procedures
contained in FAR Part 12, "Acquisition of Commercial Items."

4. The contracting officer also notes that she has been the contracting
officer for three similar Navy travel service contracts awarded during the
past 6 years, and that, "by virtue of the continuous nature of [the Navy's
travel management program] and its procurement cycle, I am continually
reviewing the Navy's travel management services needs." Contracting
Officer's Statement at 10.

5. The ASTA characterizes itself, at http.www.astanet.com/pub, as "the
world's largest travel trade association," stating that "we serve the public
and the travel industry by championing the rights of travelers and the
industry."

6. The ASTA subsequently reported that the portion of travel agencies
charging service fees has increased to 75 percent. The July 28, 1999 GAO
Report, cited above, references the 1998 survey, and elaborates as follows:

Between 1995 and 1997, the percentage of agencies charging service fees for
processing airline tickets increased from 19 percent to 42 percent for
leisure travel and from 10 percent to 38 percent for business travel.

Domestic Aviation: Effects of Changes in How Airline Tickets are Sold,
supra, at 10.

7. Amex refers to Travel Weekly as "one of the travel industry's leading
publications." Protester's Comments, Sept. 30, 1999, at 4.

8. Until recently, SATO was owned by several of the major airlines.