TITLE: National General Supply, Inc., B-292696, November 3, 2003
BNUMBER: B-292696
DATE: November 3, 2003
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National General Supply, Inc., B-292696, November 3, 2003
Decision
Matter of: National General Supply, Inc.
File: B-292696
Date: November 3, 2003
Robert G. Fryling, Esq., Blank Rome, for the protester.
Aimee M. Nolan, Esq., for W. W. Grainger, Inc., an intervenor.
Lawrence M. Anderson, Esq., Department of the Air Force, for the agency.
Mary G. Curcio, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protest that solicitation improperly fails to prohibit contractor from
providing the agency with products from the contractor*s own inventory or
catalog is denied, since such a prohibition is not required by law or
regulation, and any competitive advantage to an offeror results solely
from its business structure, not from improper agency action.
DECISION
National General Supply, Inc. protests the terms of request for proposals
(RFP) No. F04666-03-R-0026, issued by the Department of the Air Force for
a contractor‑operated civil engineering supply store (COCESS).
National maintains that the solicitation improperly allows the contractor
to provide supply items that it obtained from its own inventory or
catalogs, which allegedly provides large businesses a pricing advantage
not available to small businesses that do not maintain an inventory or
catalogs.
We deny the protest.
The solicitation calls for the contractor to run a COCESS to provide the
agency with building materials and tools for maintenance and improvement
projects. In addition to the inventory held at the store, the contractor
is required to provide items through an electronic catalog. Contract line
item number (CLIN) 0001 calls for fixed prices for approximately 1,400
hardware items the agency will purchase on a regular basis. CLIN 0002
concerns hardware items used less often, such as special tools. These are
non-priced items (NPI) for which the contractor will be paid on a cost
reimbursement basis. The RFP includes a *plug* number for these items
that will be used to evaluate all proposals.[1] CLIN 0003 calls for a
fixed monthly fee to operate the store. This fee covers the contractor*s
costs of operation, including direct labor, overhead and profit. The
solicitation provides for a *best value* award based on an evaluation of
mission capability, past performance and price. The price evaluation is
to be based on the sum of the CLINs for the base and 4 option years.
The solicitation, as issued, prohibited the contractor from transferring
items between affiliates and subsidiaries in which the contractor has a
financial interest. Statement of Work (SOW) S: 1.4.8.1.2. In response to
a question as to whether this prohibition would prohibit contractors from
*purchasing from themselves* (i.e., providing items from their own
inventory), the Air Force responded that *[n]o, this paragraph does not
prohibit a company such as Home Depot from selling a product off their
shelf at a price that is available to the market.* Pre‑Proposal
Conference Question No. 13. Responding to another question, the Air Force
stated that catalogs need not be published by an independent, third party
(i.e., sales may be made from the contractor*s own catalogs), provided the
catalogs contain competitive published price lists available to the
general public. Pre‑Proposal Conference Question No. 18.
The gravamen of the protest concerns the prices that the contractor will
be permitted to charge the government for goods provided under CLIN 0002
(those for which plug numbers are to be used in the calculation of
offerors* prices). National protests that the solicitation should
prohibit the contractor from supplying products from its own inventory or
catalogs and then charging the government the off-the-shelf purchase
prices, since allowing that would provide large companies an unfair
competitive advantage over small businesses such as National that do not
maintain large inventories or catalogs. Specifically, the protester
reasons, a large company contractor furnishing an item from its inventory
or its own catalogs in effect would be purchasing the item from itself;
since profit is included in the off-the-shelf purchase price,
reimbursement of the cost for the item--i.e., the purchase price--will
include profit. This being the case, in preparing their proposals, large
company offerors will be able to use the prospective profit on these items
to subsidize--i.e., reduce the prices for--the other line items in the
procurement. (Because plug prices are to be used for these NPI supplies,
rather than the actual amounts that the contractor will charge the
government, in calculating competing offerors* total prices for evaluation
purposes, the protester apparently views the use of plug numbers as
masking the actual differences in costs to be passed on to the
government.) National maintains that this is unfair, and therefore
improper, since small businesses such as itself that purchase from a
supplier--so that their reimbursement will be limited to the amount they
pay the supplier--will have no profit built into the prices at which they
will be reimbursed by the agency.
This argument is without merit. First, the protester points to no
statutory or regulatory prohibition--and we are aware of none--against
contractors providing items from their own inventory or catalogs and
charging the government the market price, even when the context is
generally described as a cost reimbursement one. Further, we see no
improper competitive advantage here. While an offeror may not be given a
competitive advantage over other competitors by means of improper agency
action, an agency is not required to construct a procurement to neutralize
a competitive advantage that some potential offerors may have over others
by virtue of their own particular circumstances. Electronic Design, Inc.,
B-279662.5, May 25, 1999, 99-1 CPD P:103 at 6.[2] Such is the nature of
the advantage complained of here. Any competitive advantage enjoyed by
offerors intending to furnish items they purchase from their own inventory
or catalogs is solely the result of the offerors* business structure, not
improper government action. Accordingly, the solicitation does not
operate to create an improper competitive advantage, and there is no
requirement that the agency prohibit the contractor from furnishing
products it purchases from its own inventory or catalogs.[3]
National also complains that, since a contractor supplying items from its
own shelves will have profit built into the prices it pays, allowing such
a contractor to be reimbursed at those prices will violate the cost
reimbursement structure of CLIN 0002. This argument also is without
merit. Regardless of whether allowing this arrangement is consistent with
a strict cost reimbursement context, as discussed above, we see nothing
improper in the challenged terms of the RFP. Moreover, the agency has
unambiguously advised all offerors that such an arrangement is permissible
here, so the solicitation cannot be reasonably challenged for lack of
clarity in this respect.
The protest is denied.
Anthony H. Gamboa
General Counsel
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[1]The agency spends about $134,833.33 per month on NPI*s and included
this amount on CLIN 0002 for evaluation purposes.
[2]The Air Force specified that the contractor must provide items at
prices available to the market in order to ensure against unreasonable
price mark-ups.
[3] National argues that the solicitation is defective because it does not
provide for the evaluation of the prices offerors will charge. As this
issue concerns a solicitation impropriety and was not raised until
National submitted its protest comments, after the closing date for
receipt of proposals, it is untimely. See 4 C.F.R. S: 21.1(a)(1) (2003).