TITLE:  N&N Travel & Tours, Inc., B-283731.2, December 21, 1999
BNUMBER:  B-283731.2
DATE:  December 21, 1999
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N&N Travel & Tours, Inc., B-283731.2, December 21, 1999

Decision

Matter of: N&N Travel & Tours, Inc.

File: B-283731.2

Date: December 21, 1999

Josephine L. Ursini, Esq., for the protester.

Julius Rothlein, Esq., David P. Ingold, Esq., and Maj. Carlos P. Kizzee,
U.S. Marine Corps, for the agency.

Paul E. 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. Agency solicitation seeking proposals for travel services at no cost to
the government does not violate prohibitions against improper augmentation
of appropriations nor is it otherwise improper where statute specifically
permits the accrual to the Department of Defense of credits, discounts, and
commissions received under travel services contracts, and contractor
receives consideration through receipt of exclusive access to book official
travel.

2. In travel services procurement where solicitation provides for contractor
to obtain operating expenses from commissions paid by third parties, protest
that risk of commission reductions makes the commission provisions unfair is
denied. Agencies have discretion to impose maximum risks upon the selected
contractor and minimum administrative burdens upon the agency.

DECISION

N&N Travel & Tours, Inc. protests the terms of request for proposals (RFP)
No. M67400-00-R-0009, issued by the U.S. Marine Corps for travel management
services for the Corps's Camp S.D. Butler, Okinawa, Japan. N&N contends that
the RFP is defective because it improperly contemplates the award of a
fixed-price, commission-based contract, which would also result in an
unauthorized augmentation of appropriated funds.

We deny the protest.

BACKGROUND

The RFP solicited proposals for a fixed-price, no-cost contract to provide
travel management services for both official and leisure ("unofficial")
travel by Marine Corps personnel and other eligible patrons. [1] The RFP
required the successful offeror to provide all personnel, equipment, tools,
materials, supervision, and other items or services necessary to perform the
management and operation of a Commercial Travel Office (CTO) at eight
locations on Okinawa. The services to be provided include air, bus, and rail
transportation, lodging and rental car reservations, and as to international
travel, supplemental travel services. [2] The RFP advised offerors that
there was no guaranteed minimum purchase, but provided estimates which
indicated approximately $14.95 million in official travel and approximately
$92,500 in unofficial travel. The RFP contemplated a 1-year base period with
eight 6-month option periods.

All costs of operation under the contract were to be borne by the successful
contractor. In this regard, the contractor is compensated by means of the
commissions it receives for booking government travelers with airlines,
hotels, and other providers of transportation and lodging. In addition, the
contractor proposes a discount on the official travel it books. The
performance work statement defines discounts as "Reductions by the
Contractor . . . stated as a percentage of total official air, bus and rail
travel sales and/or as a percentage of commissions received by the
contractor for sales executed by third parties." RFP sect. C-1.12, at 28. With
regard to proposal of the discount, the RFP sect. B 0001, at 1, states:

Air Travel Discount: The discount on airfares provided by the contractor is
to be a percentage of the total ticket costs paid by the contractor to the
suppliers for official transportation for official travel purposes.
Contractors not paid the industry standard airline commission rates by the
airlines will state what percentage of the anticipated standard commission
rate will be provided as the contractor's air travel discount on this
contract as though the contractor were receiving the standard commission.
Then such contractors shall apply their stated percentage of the standard
airline commission rates to the Government's total air official travel
purchases. For all contractors, the discount will be reflected as an
up-front reduction on the base fare of each official commissionable ticket
as described in the line items below.

Prior to the closing time for receipt of proposals, N&N filed this protest.
Subsequent to the filing of the protest, two offerors submitted proposals.

DISCUSSION

N&N argues that the RFP's no-cost award basis violates the prohibition
against the improper augmentation of appropriated funds. In the protester's
view, the improper augmentation stems from the contractor's supply of
various travel services at no cost to the government. In this regard, N&N
maintains that there is no consideration for the contract and that the
commissions from the airlines cannot be considered an adequate substitute
for payment by the government. We disagree.

Unless otherwise authorized, an agency may not retain for its own use any
funds received for the use of the United States; instead it must deposit all
such funds in the general fund of the Treasury as miscellaneous receipts.
31 U.S.C. sect. 3302 (1994). Failure to do so constitutes an improper
augmentation of the agency's appropriation. Here, we have no augmentation
concerns, however, since there is specific statutory authority for
Department of Defense (DoD) agencies to enter into contracts for
travel-related services for both official and unofficial travel which
"provide for credits, discounts, or commissions or other fees to accrue to
[DoD]." 10 U.S.C.A. sect. 2646 (West Supp. 1999).

The protester contends, however, that the statutory provision cited above
does not specifically authorize no-cost contracts and that a no-cost
contract is an improper augmentation of the Marine Corps accounts, because
it allows the agency to save funds that it would have otherwise spent on
travel services. Assuming, arguendo, that arrangements which allow agencies
to avoid expending funds should be considered augmentations, we view it as
self-evident that, since the statute explicitly authorizes DoD agencies
through travel-service contracts to receive money, it also authorizes them
to avoid expending funds through no-cost travel-services contracts.

In any event, we have long held that there is nothing inherently improper in
a no-cost contract. See, e.g., T.V. Travel, Inc. et al.--Recon., B-218198.6
et al., Dec. 10, 1985, 85-2 CPD para. 640 at 6. We have reviewed numerous
procurements with no-cost contracts without any question as to whether they
violated the prohibition against improper augmentation. In each, the
contractor was dependent upon third parties for payment. See, e.g., CW Gov't
Travel, Inc. d/b/a Carlson Wagonlit Travel; American Express Travel Related
Servs. Co., Inc., B-283408, B-283408.2, Nov. 17, 1999, 99-2 CPDpara. ___;
Scheduled Airlines Traffic Offices, Inc., B-257292.9, May 16, 1995, 95-2 CPD
para. 113 (travel services); Downtown Copy Center, B-240488.8, Dec. 28, 1992,
92-2 CPD para. 443 (photocopying, distribution, and sale of agency documents);
System Planning Corp., B-244697.4, June 15, 1992, 92-1 CPD para. 516 (operation
of agency lost and stolen securities program); TS Infosystems, Inc.,
B-240986, Dec. 4, 1990, 90-2 CPD para. 458 (redaction and publication of agency
news report).

We also do not believe that the contractual arrangement is defective for
want of consideration. Here, while the government will receive a number of
valuable services, other than airline ticketing from the successful
contractor on Okinawa (such as ticket delivery, making of reservations, and
management reports), the contractor will obtain considerable benefits with
its concomitant exclusive access to the government's official travel
requirements and its entitlement to commissions from the transportation,
lodging, and rental car providers. T.V. Travel, Inc. et al.--Recon., supra.
In addition, the successful contractor will have the opportunity to book
leisure travel. [3] The current airline commission rate for tickets booked
in Japan is 9 percent. Agency Report, Tab I, exh. 7. The approximate value
of official travel under this contract is $14.95 million. RFP, Technical
exh. A, at 47-50. In our view this is sufficient consideration on which a
contract between the parties may be legitimately based. [4] Thus, the agency
will not obtain the bargained-for services "for free," nor improperly
augment its appropriation.

N&N also protests that, given the risk of reductions or elimination of
commissions, a fixed-price contract is improper. This aspect of the protest
flows 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. [5] 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.
However, "a significant portion of the [travel services] industry continues
to rely on commission revenues to fund performance of travel services." CW
Gov't Travel, Inc. d/b/a Carlson Wagonlit Travel; American Express Travel
Related Servs. Co., Inc., supra, at 6.

While N&N is concerned with the amount of risk placed on potential offerors,
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 and minimum administrative burdens upon the agency. Braswell
Servs. Group, Inc., B-278521, Feb.  9, 1998, 98-1 CPD para. 49 at 3; Argus
Servs., Inc., B-234016.2, B-234017.2, Sept. 12, 1989, 89-2 CPD para. 227 at 3.
We have approved a similar apportionment of risk in a travel services
procurement. CW Gov't Travel, Inc. d/b/a Carlson Wagonlit Travel; American
Express Travel Related Servs. Co., Inc., supra, at 7.

N&N maintains that the commissions from the airlines and other
travel-related providers were never intended to cover all the services which
the successful contractor will have to provide. Further, the commissions
themselves are subject to reduction at any time. In this regard, N&N notes
that in October 1999, all domestic carriers and "some international
carriers" announced that the standard commission would be reduced from 8
percent to 5 percent. Protester's Comments at 10.

While the RFP does not provide for an economic price adjustment in the event
of a reduction in current commissions, it does provide some safeguards. In
this regard, the RFP provisions concerning proposed discounts speak in terms
of "any discount." See, e.g., RFP at 25-26, section B-1 ("Government will
reimburse the Contractor only the actual carrier rates . . . less any
negotiated discount percentage"); section B-3 ("Government will pay the
Contractor for the actual price charged by the carrier . . . less any
discount offered"); section B-4 ("Invoices must reflect any discount for
each ticket billed . . . ."). Implicit in these provisions is the option of
proposing no discount at all. Thus, an offeror believing the commissions as
reduced will provide insufficient revenues may propose not to provide a
discount. Further, offerors may propose up to nine different discounts (base
year and eight, 6-month options) to reflect anticipated reductions.

Moreover, contrary to the arguments of N&N, the record does not provide any
evidence of serious risk that the relevant commissions will be reduced in
the foreseeable future. Here, in response to the airlines' announcement of
reduced commissions, the Corps provided offerors the opportunity to revise
their proposed pricing structure. In response, the offerors which had
submitted proposals wrote the contracting officer declining the opportunity.
According to the offerors, the reductions applied only to tickets issued in
the United States and Canada and would not apply to tickets issued in Japan.
Agency Report, Tab I, exh. 6, 7. In addition, one of the offerors noted that
the commission level remained at 9 percent (1 percent higher than the former
domestic commission percentage) and indicated that it did not anticipate a
reduction, because previous domestic commission rate cuts were not matched
by commission cuts elsewhere in the world. Agency Report, Tab I, exh. 7.
Under these circumstances, we find without merit the assertion that the RFP
creates unreasonable risks for the contractor.

The protest is denied.

Comptroller General
of the United States

Notes

1. The protest concerns only the RFP's provisions concerning the official
travel portion of the procurement. Accordingly, this decision will address
only those aspects of the solicitation.

2. These services include information and advice on conditions at various
foreign destinations, currency exchange rates, and ticketing for connecting
rail or bus transportation, regardless of whether the international travel
was booked through the contractor. RFP sect. C-7.13, at 41.

3. N&N argues that the exclusivity is illusory because the market is
restricted to various rates which have been set in accordance with other
contracts with the General Services Administration and the Military Traffic
Management Command. Although certain rates are pre-set, the fact remains
that only the successful contractor under this procurement will be able to
book the agency's official travel needs on Okinawa for the term of the
contract and thus will have the exclusive right to earn the commissions on
approximately $14.95 million in official travel.

4. Our view is not changed by N&N's contention that the commissions are not,
and never were intended by the airlines to be, sufficient to cover all the
costs of providing the various travel services called for in the RFP.
Whether the potential income is sufficient to perform the contract is a
matter for each offeror to determine based on its business judgment. We note
that two offerors submitted proposals in response to the RFP without
objecting to the need for reliance on commissions to provide operating
expenses. In this regard, prior to issuing this solicitation, the
contracting officer considered the fact that within the past year, three CTO
contracts (two Corps and one Air Force) had been awarded on similar no-cost
bases, after receipt of at least two competitive proposals in each
procurement. Agency Report, Tab D, Affidavit of Contracting Officer.

5. 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 domestic airlines reduced the commission paid
from 8 percent to 5 percent.