TITLE: B-298651, 2B Brokers et al., November 27, 2006
BNUMBER: B-298651
DATE: November 27, 2006
**********************************************
B-298651, 2B Brokers et al., November 27, 2006
DOCUMENT FOR PUBLIC RELEASE
The decision issued on the date below was subject to a GAO Protective
Order. This redacted version has been approved for public release.
Decision
Matter of: 2B Brokers et al.
File: B-298651
Date: November 27, 2006
Richard D. Gluck, Esq., Benjamin J. Lambiotte, Esq., Robert A. Boraks,
Esq., Harold G. Bailey, Jr., Esq., and Amy Morton, Esq., Garvey Schubert
Barer, for the protesters.
Lary W. Mohl, Esq., and Peter Ries, Esq., U.S. Transportation Command,
Department of Defense, and Kenneth Dodds, Esq., Small Business
Administration, for the agencies.
Guy R. Pietrovito, Esq., and James A. Spangenberg, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protest that solicitation for the Defense Transportation Coordination
Initiative that consolidated transportation coordination and freight
transportation services was unduly restrictive of competition and was an
impermissible bundling of requirements under the Small Business Act is
denied, where the agency reasonably determined that consolidation would
result in substantial cost savings and efficiencies and was necessary to
meet the agency's needs.
DECISION
2B Brokers and 89 other firms[1] protest the terms of request for
proposals (RFP) No. HTC711-06-R-0001, issued by the United States
Transportation Command, Department of Defense (DoD), for freight
transportation and transportation coordination services within the
continental United States (CONUS) in support of the agency's Defense
Transportation Coordination Initiative (DTCI).[2] The agency describes
DTCI as
a CONUS freight initiative aimed at increasing operational
effectiveness and at the same time obtaining efficiencies. The
premise is that DoD will increase operational effectiveness by
reducing cycle times and improving predictability through the use
of more dedicated truck schedules and cross docking operations. This
premise also includes obtaining efficiencies through best business
practices such as increased consolidations and mode conversions.
The DTCI coordinator would have the visibility of freight movement
requirements across the CONUS and access to a network of
transportation providers to schedule and fulfil[l] those
requirements.
Agency Report (AR), Tab 44, DTCI Information Paper, May 3, 2004, at 1.
The protesters complain that the RFP improperly bundles requirements, is
unduly restrictive of competition, and provides for the performance of
services that are inherently governmental in nature.
We deny the protest.
BACKGROUND
Currently, DoD transports freight from more than 600 sites using hundreds
of commercial freight transportation providers to move the freight to
thousands of destinations within CONUS. AR, Tab 25, Acquisition Plan, at
2; Contracting Officer's Statement of Facts (COSF) at 1. This freight
transportation is managed by more than 600 transportation officers, who
are assigned to various components of DoD, such as the Defense Logistics
Agency, the Army, the Navy, and the Air Force, and accorded the authority
to place orders under the Tailored Transportation Contract (TTC) or to
issue tenders for freight shipment. Hearing Transcript (Tr.), day 1, at
21-22, 40; Agency's Post-Hearing Comments at 2.[3] According to the
agency, "[m]ultiple information systems are employed to execute and manage
this shipment activity; but there is no centralized planning,
coordination, or control. DoD shippers act unilaterally by independently
selecting the mode, level of service, and transportation provider." AR,
Tab 10, DTCI Market Research, July 2005, at 1-1. In this regard,
transportation officers act in a decentralized fashion focusing on
satisfying local shipper requirements rather than DoD-wide efficiency or
expense. Tr., day 1, at 40. The agency states that, as a result of this
lack of planning, coordination, and control, shipment predicability is
inconsistent and transportation costs are higher because enterprise-wide
efficiencies are not employed. COSF at 2.
In 1997, the agency initiated a review of its transportation documentation
and financial processes to explore "reengineering" its freight shipment
system; as part of this effort, DoD studied logistics processes used by
the commercial sector and discovered that some commercial companies were
using third-party logistics (3PL) firms to manage their transportation
needs.[4] See AR, Tab 5, 3PL Prototype Test, Management Reform Memorandum
#15 Final Report, Aug. 15, 2002, at 2. In 2001, DoD conducted a prototype
test with a 3PL firm, Eagle Global Logistics (EGL), to manage
transportation of selected commodities outbound from the southeast region
of the United States.[5] The agency tasked the University of Tennessee's
National Transportation Research Center to "act as an independent observer
and provide comments and analysis during the Prototype Test of the 3PL
concept." AR, Tab 7, University of Tennessee 3PL Prototype Test Report,
Sept. 15, 2002, at 2. From this test, DoD concluded that a 3PL firm could
successfully integrate with DoD shipping processes:
The prototype did highlight a number of valuable lessons for DoD. The
most notable was the fact the concept could work if designed and
implemented correctly. The 3PL prototype was not without its problems
and challenges. Some glitches overshadowed the success of the test. For
example, the implemented concept of operation relegated the 3PL provider
to a transportation brokerage relationship rather than a fully
integrated supply chain business partner. Another lesson was learned
that the 90 days (from the date of the award) allotted for
implementation was not sufficient to accomplish the automated system
interfaces, training, and change management tasks commonly required in
such startups.
AR, Tab 10, DTCI Market Research, July 2005, at 1-1. Although the
prototype test did not show any cost savings, the University of Tennessee
found that the prototype contract "was not structured to allow the 3PL to
optimize shipment consolidations and therefore reduce DoD's transportation
costs," and recommended the intregration of coordination services with
freight transportation to achieve cost savings. AR, Tab 7, University of
Tennessee 3PL Prototype Test Report, Sept. 15, 2002, at 3.
In addition, the agency performed market research with the assistance of
Logistics Management Institute (LMI), a nonprofit government consulting
group, and GENCO, a 3PL firm that provides, among other things,
transportation services.
The primary objective of the DTCI market research was to gain a general
understanding of commercial logistics business practices in which a
third-party service provider performs at least some of a client's
logistics management services. The research also was to determine if
there are providers in the commercial marketplace that can meet or
exceed the quantitative and qualitative requirements of the DTCI
initiative.
AR, Tab 10, DTCI Market Research, July 2005, at 1-2. This reseach included
a review of trade journals and academic studies and interviews and surveys
of industry and academia. Based upon this research, DoD concluded that
there were several companies that could "address the specific concerns and
requirements of DoD." Id. at 1-3.
A business case analysis (BCA) was performed to "determine whether a
world-class 3PL [firm] could increase operational effectiveness and
improve shipment efficiency by lowering costs and improving predictability
through better utilization of available rates and increased shipment
consolidations through cross docking,[6] mode shifting, and
scheduling."[7] COSF at 4. Based on this analysis, the agency concluded
that selection of a 3PL firm to centrally manage DoD's freight
transportation within the CONUS "would improve effectiveness, gain
efficiencies, and achieve cost savings." Id.; AR, Tab 8, BCA, Apr. 2006.
In this regard, the agency estimated that such an approach would realize
estimated net savings of approximately $[Deleted] million, which was about
[Deleted] percent of the agency's historical operation and maintenance
costs, after considering "the phased in/safe start approach and
implementation/life-cycle costs (to include management services costs,
award fee costs, and Program Management Office (PMO) costs)." AR, Tab 8,
BCA, Apr. 2006, at 4-18; Agency Memorandum of Law at 4. The cost savings
were calculated using a cost model, under which the agency's historic
transportation costs were compared to optimized, weighted average rates
the government could hope to achieve by leveraging volume and optimizing
freight movements to obtain the lower rates.[8] See AR, Tab 8, BCA, Apr.
2006, app. A, Savings Analysis Method, at A-1-4.
DoD also analyzed whether the DTCI requirement represented a "bundled
acquisition and, if so, whether sufficient justification exists to proceed
with the project" under the Small Business Act. AR, Tab 9, DTCI Bundling
Analysis, Apr. 12, 2006, at 1. The Small Business Act states that "to the
maximum extent practicable" agencies "avoid unnecessary and unjustified
bundling of contract requirements that precludes small business
participation in procurements as prime contractors." 15 U.S.C.
sect. 631(j)(3) (2000). The Small Business Act defines bundling as
consolidating two or more procurement requirements for goods or services
previously provided or performed under separate smaller contracts into a
solicitation of offers for a single contract that is likely to be
unsuitable for award to a small-business concern due to (a) the diversity,
size, or specialized nature of the elements of the performance specified;
(b) the aggregate dollar value of the anticipated award; (c) the
geographical dispersion of the contract performance sites; or (d) any
combination of the factors described in subparagraphs (a), (b), and (c).
15 U.S.C. sect. 632(o)(2). The Act also provides that an agency may
determine that consolidation of requirements is "necessary and justified
if, as compared to the benefits that would be derived from contracting to
meet those requirements if not consolidated, the Federal Government would
derive from the consolidation measurably substantial benefits," including
such benefits as cost savings, quality improvements, reductions in
acquisition cycle times, and/or better terms and conditions. 15 U.S.C.
sect. 644(e)(2)(B); see 13 C.F.R. sect. 125.2(d) (2006).
The agency concluded that because the transportation coordination function
was a new requirement, rather than one previously provided, the DTCI
solicitation did not result in a bundled requirement, as defined by the
Small Business Act. See COSF at 11. Nevertheless, because the
transportation services had previously been acquired from both small and
large businesses, DoD analyzed whether bundling the transportation
coordination and transportation services was justified under the Small
Business Act. DoD concluded that, even if the DTCI acquisition was
considered to be a bundled requirement under the Act, it would save more
than 5 percent of the new contract's estimated 7-year value of
approximately $1.5 billion--"which meets the [Act's] `measurably
substantial benefits test'" that would justify bundling.[9] AR, Tab 9,
DTCI Bundling Analysis, Apr. 12, 2006, at 18. DoD also concluded that
there would be a number of non-monetary benefits, such as improved
delivery times, increased on-time delivery, and improved in-transit
visibility (ITV).[10] See COSF at 12.
DoD coordinated its planning for this procurement with the Small Business
Administration (SBA), transmitting copies of DoD's Bundling Analysis and
BCA to SBA, see, e.g., AR, Tab 23, Transportation Command Letter to SBA,
Apr. 12, 2006, and published a notice on the Federal Business
Opportunities website, notifying small businesses of the agency's intent
to bundle its requirements under the RFP. See AR, Tab 29, Notice to Small
Business. DoD states that SBA concurred with DoD's acquisition approach,
and the record shows that SBA did not contemporaneously object to the
agency's bundling of the requirements.[11]
SOLICITATION
The RFP, issued June 22, 2006, provides for the award of an
indefinite-delivery, requirements contract with fixed-price, cost
reimbursable, and award fee items, and includes an award term option
provision for a 3-year base period and up to 4 option years.[12] For the
base period, offerors were requested to provide a fixed-price for
transportation coordination services and to propose estimated costs with a
"not-to-exceed" (NTE) ceiling rate for the transportation services.[13]
With respect to the proposed NTE costs for transportation services, the
RFP provides for adjustments in the NTE rates for the option years based
upon a "pre-priced methodology" to be proposed by the offerors and
evaluated in making award,[14] see RFP sect. H, at 94, and for interim
adjustments of the NTE costs for orders placed within sites designated by
the Transportation Command as an "exigency area." See id. at 94-96.
The RFP includes a detailed performance work statement (PWS) that informed
offerors that the DTCI would be "implemented through a spiral phased
approach" and that "Spiral I, the only spiral to be implemented under this
contract" would include three phases. Phase I includes 18 identified
Defense Distribution Centers, phase II includes another 33 identified DoD
shippers and aerial ports, and phase III includes 16 additional,
identified shipper locations. RFP sect. C, at 23. The RFP also informs
offerors that the government may add, and the contractor would be required
to implement, additional sites, to a maximum number of 260 sites, during
contract performance.[15] Id. at 30. Even if all 260 sites were added
under the DTCI contract, the DTCI acquisition represents only slightly
more than a third of all DoD's shipping locations, although the DTCI
contract will include the larger shipping sites. Tr., day 1, at 65-66,
162-63.
Under the contract, the DTCI contractor would be responsible for handling
all aspects of freight shipment from receiving notification from DoD
shippers that shipments are ready for transportation to selecting and
subcontracting with carriers for the transportation of freight. The RFP
provides that requests for transportation would be electronically
submitted to the contractor and the contractor would be required to
electronically respond to the request. RFP sect. G, at 77. The contractor
will be required to provide tracking and tracing capabilities and
electronic recordkeeping, and to handle and facilitate the resolution of
claims for loss or damage. In this regard, the contractor is required to
provide a central information technology system meeting certain
requirements. Id. sect. C, at 46-55.
With respect to the transportation services, the RFP requires the
contractor to "establish, maintain, and manage all necessary subcontracts
with carriers that move freight under this contract." Id. sect. C, at 33.
Among the contract requirements is that the contractor support "surge"
requirements, that is, that the contractor support transportation needs
associated with mobilization, wartime, natural disaster, humanitarian
assistance, or other contingencies. Id. sect. C, at 45. In addition, the
contractor is required to report its actual cost savings on a semi-annual
basis, and offerors were informed that the agency expected cost savings of
19.1 percent by the end of the base contract term from an historical
baseline to be established at award and cost savings of 23.2 percent by
the end of the first option year. Id., sect. C, at 32.
The RFP identifies a number of performance thresholds, such as the
requirements for on-time pickup, on-time delivery, and loss and damage
free shipments in 98 percent of the contract shipments; for resolution of
loss and damage claims within 120 days for 99 percent of the claims; for
an information technology system that was available for use 99 percent of
the time; and for meeting or exceeding various small business, HUBZone
business, service-disabled-veteran-owned business, small disadvantaged
business, and women-owned small business subcontracting goals. See RFP
sect. C, Table 7, at 57-58. The solicitation provides for reductions in
the contractor's fixed price for services that fail to satisfy the
performance thresholds identified in the RFP. Id. sect. G, at 81-90.
DISCUSSION
Consolidation of Requirements
The protesters complain that, by consolidating the transportation
coordination services and freight transportation services, the RFP unduly
restricts competition under the Competition in Contracting Act of 1984
(CICA), 10 U.S.C. sect. 2305(a)(1) (2000), and is an unnecessary and
unjustified bundling of requirements in violation of the Small Business
Act, 15 U.S.C. sect. 631(j)(3).
The applicable Small Business Act requirements are set out above. In
addition, CICA requires that solicitations generally permit full and open
competition and contain restrictive provisions only to the extent
necessary to satisfy the needs of the agency. 10 U.S.C. sect. 2305(a)(1).
Because bundled or consolidated procurements combine separate and multiple
requirements into one contract, they have the potential for restricting
competition by excluding firms that furnish only a portion of the
requirement; we therefore review challenges to such solicitations to
determine whether the approach is reasonably required to satisfy the
agency's needs. Aalco Forwarding, Inc. et al., B-277241.12, B-277241.13,
Dec. 29, 1997, 97-2 CPD para. 175 at 6. We have recognized that bundling
may serve to meet an agency's needs where the agency reasonably determines
that consolidation will result in significant cost savings or operational
efficiencies. See B.H. Aircraft Co., Inc., B-295399.2, July 25, 2005, 2005
CPD para. 138 at 7; Teximara, Inc., B-293221.2, July 9, 2004, 2004 CPD
para. 151 at 6. Administrative convenience, however, does not in and of
itself provide a reasonable basis for an agency's consolidating or
bundling of requirements. See Vantex Serv. Corp., B-290415, Aug. 8, 2002,
2002 CPD para. 131 at 4.
DoD disagrees that the RFP reflects either bundling or a restriction upon
competition; rather, the agency argues that the solicitation does not
preclude any offeror from competing and therefore provides for full and
open competition.[16] See COSF at 7-8. This argument, however, is
inconsistent with the agency's own recognition that the "overall
management of a CONUS-wide domestic freight operation [under the DTCI
contract] is beyond a small business's capabilities." See AR, Tab 9,
Bundling Analysis, at 7-8. It is thus apparent that the agency's
consolidation/bundling of its coordination and freight transportation
requirements restricts competition to some degree. The fact that the
agency expects to receive some competition under the RFP does not relieve
an agency of the burden under CICA of justifying restrictions to full and
open competition. See National Customer Eng'g, B-251135, Mar. 11, 1993,
93-1 CPD para. 225 at 6.
DoD argues nevertheless that the RFP, as structured, is the least
restrictive means to obtain the substantial cost savings estimated by its
cost model and to satisfy its other legitimate needs. See Agency Legal
Memorandum at 2. As noted above, DoD determined that the decentralized and
disorganized manner in which its freight transportation is managed and
shipped does not satisfy the government's requirements for shipment
reliability, predictability and efficiency; for reduced cycle times (time
from request for shipment to freight delivery); for visibility over
movements across the DoD enterprise; and for cost savings. See id. at 3-4;
COSF at 1-5. In addition, under its current system, the agency's freight
volume is not leveraged to enable it to get the best possible rates, and
that even when the agency obtains fixed rates for a specific lane or
point-to-point movement there is no practical guarantee by a carrier that
its capacity will be available at that rate when DoD needs it. Agency
Legal Memorandum at 5-6. In contrast to DoD's current system, the agency
points to the commercial marketplace, in which, DoD states, the "current
commercial trend is to leverage the services of a [3PL firm] to collect
transportation requirements, perform shipment planning and optimization,
and gain efficiencies through consolidation and mode shift." Id. at 6.
Commercial 3PL firms, DoD notes, use their aggregate volume to reduce
transportation costs and, unlike DoD's current system, contract for
guaranteed capacity at set rates. Id. In short, the agency believes that
it is necessary to consolidate the coordination services and
transportation services in the DTCI solicitation to fix or reengineer the
agency's current decentralized and disorganized freight transportation
system.
The protesters agree with the agency that DoD's freight shipment system
needs to be reengineered. See Supplemental Protest at 6 ("We agree that
the nation's warfighters and taxpayers would benefit from centralization
and improvement of those [management, coordination, and information
technology] functions, as opposed to having them performed by hundreds of
DoD shippers [that is, transportation officers] that are now performing
them"). In this regard, the protesters describe the agency's current
freight shipment system as having a
core dysfunctionality resulting in the inefficiency and less than
optimal costs that define DTCI's stated goals. . . . [The transportation
officers] are a decentralized corps, disbursed across many different
shipping locations. They make traffic management and load planning
decisions, including carrier and mode selection decisions, on an
independent, uncoordinated, and localized basis, without regard to the
needs and activities of other, even nearby shipping locations within the
DoD enterprise, with the sole focus of "getting their freight off the
dock," without regard to overall cycle time from pickup to delivery.
Protesters' Post-Hearing Comments at 6 (Tr. citations omitted). The
protesters also agree that the RFP, as structured, will provide the cost
savings and non-monetary benefits ascribed to it by the agency.[17] Tr.,
day 2, at 7-9.
The protesters now primarily argue that the agency could receive the same
cost savings and non-monetary benefits under a less restrictive approach
that does not consolidate the coordination/management services with the
transportation services. See Protester's Comments at 4-5; Protester's
Post-Hearing Comments at 9. In this regard, the protesters contend that
the problems associated with the decentralized nature of DoD's freight
transportation could be resolved by awarding a contract for a coordinator
that would provide centralized traffic management, freight optimization
recommendations, and an information technology system. Protester's
Comments at 4-5. The agency responds that it determined that it could only
achieve the cost savings and non-monetary benefits, such as more reliable,
efficient, and timely transportation, by consolidating the coordination
and transportation functions. Agency's Post-Hearing Comments at 2.
The protesters complain, however, that the agency failed to
contemporaneously perform an analysis of whether such an "unbundled"
approach, which did consolidate the coordination and transportation
functions, would provide cost savings and other benefits. Protester's
Supplemental Response (Oct. 19, 2006) at 2. While it is true that the
record does not contain a detailed analysis of an "unbundled" approach, as
discussed below, the record confirms that the agency in fact considered
whether its needs could be satisfied by an approach that did not
consolidate the coordination function with the actual provision of the
transportation services, and concluded that this approach would not
satisfy all of its needs. See Tr., day 2, at 58, 78-80, 134-35, 142-44;
AR, Tab 25, Acquisition Plan, at 5; Agency's Post-Hearing Comments at
12-14.
As indicated, the protest now focuses on the reasonableness of the
agency's determination that it can only achieve the cost savings estimated
in its cost model, if the DTCI coordinator performs both the coordination
and transportation functions under which it would provide a centralized
structure, information technology system, management, and shipping volume
to allow for the optimization of freight shipments (that is, consolidation
of loads, better mode and carrier selection, and avoidance of "empty
miles"[18]) that results in lower shipping rates. In questioning this
determination, the protesters assert that, because the cost model was
based only upon DoD's own shipping volume (and did not include any
estimate of commercial volume that a 3PL could bring to the contract) and
rates, see Tr., day 1, at 235-36, the reported cost savings indicated by
the model are only a reflection of obtaining optimized shipments, which
could also be achieved if the DTCI coordinator was merely a consultant
providing management and optimization advice to the agency's
transportation officers.[19] See Protester's Post-Hearing Comments at
22-23.
We find that both the contemporaneous record and the testimony received at
the hearing supports the agency's conclusion that the estimated savings to
be derived from optimizing freight shipments can only be achieved from an
approach that provides for consolidating the coordination and
transportation functions, including a centralized information technology
and freight management system.[20] We first note in this regard that the
record supports the agency's judgment that a 3PL firm brings to the
contract an existing carrier network and information technology system
that allows the 3PL the ability to optimize DoD freight movements both
before and after the pickup of freight.[21] See Tr., day 2, at 26, 38, 40;
AR, Tab 7, University of Tennessee 3PL Prototype Test Report, Sept. 15,
2002, at 17. Although the protesters argue that the coordinator could
perform the same services while the government continued to award and
administer the transportation contracts, they have not provided a
persuasive basis to challenge the agency's belief that such an unbundled
approach would be operationally inefficient, given that the coordinator
would be supporting the more than 600 transportation officers located
throughout the agency's various components. In this regard, the agency was
reasonably concerned that using the coordinator as a consultant to the
agency's scattered transportation officer corps would bifurcate
responsibility and contribute to operational inefficiency. Finally,
contrary to the protesters' assertions, the agency had reasonable concerns
that if the coordination and transportation functions are not consolidated
the agency would be required to bear greater time, expense and risk to
obtain and/or develop a central information technology capability that the
agency currently does not have and which the coordinator would be expected
to provide as part of its carrier network.[22] See Tr., day 2, at 99-100.
In addition, the record supports the agency's judgment that obtaining
optimization of freight shipments after pickup and a means to share in
subsequent rate savings are important agency needs. Although it is true
that the agency's cost model did not specifically address when freight
optimization would occur and that commercial freight volumes were not
included in the model's analysis, the agency believed that having a
mechanism, such as DTCI's use of cost-reimbursable NTE rates, would allow
the agency to share in cost savings generated by after pickup
optimization.[23] That is, this approach would enable the DTCI contractor
to leverage both government and commercial volume and consolidate freight
after pickup to achieve additional cost savings.[24] This is one of the
reasons that the agency believed that the model's estimated cost savings
represented a "conservative" estimate that could be realized by the agency
and that therefore its need for cost savings would be satisfied by the
RFP, whereas an unbundled approach posed risks that costs savings would
not be achieved. See Tr., day 1, 94-95, 236-38; day 2, at 42-43. Although
the protesters suggest that the agency's expressed need to share in cost
savings after freight pickup could be satisfied by "the transportation
provider . . . agreeing, in advance as a part of its contract, that its
initial task order and rate is subject to change after issuance in the
event the Coordinator can find additional optimization/coordination
opportunities after pickup," see Protesters' Post-Hearing Comments at 16,
the protesters have failed to explain this proposed approach or show it
would be practical and/or feasible.
Moreover, the record supports the reasonableness of the agency's
conclusions that contracting with a 3PL firm for coordination and
transportation services would satisfy other core agency needs, such as
reducing cycle times, improving the reliability and predictability of
freight shipments, and increasing the agency's capacity guarantees to
address daily and surge requirements. Testimony at the hearing explained
how a 3PL firm's larger carrier and customer network and freight volume
provided greater shipping capacity than that available to the agency under
its contracts and that it was this greater capacity that allows 3PL firms
to meet the agency's shipping needs generally and surge requirements. See
e.g., Tr., day 1, at 179-80; day 2, at 23-26, 28. Other testimony
explained the agency's view that an unconsolidated approach would not
satisfy the agency's needs for improved reliability, predictability and
cycle times, given that such an approach would, among other things, not
result in a centralized transportation management system supported by an
information technology system. See, e.g., Tr., day 2, at 100-04. Again,
although the protesters argue that all of the agency's needs would be met
in some fashion by an unconsolidated approach, they have failed to show
that the agency's judgments to the contrary are unreasonable.
In sum, the agency reasonably concluded that consolidating the
coordination function and transportation services extends beyond mere
administrative convenience and would provide the agency with substantial
monetary benefits and increased operational efficiency, as well as a
number of other non-monetary benefits. Further, DoD reasonably decided
that an approach that did not consolidate these functions would likely not
satisfy the agency's needs for cost savings and reengineering its
transportation system to obtain operational efficiency and other benefits.
Here, the record reasonably supports DOD's judgments.
Inherently Governmental Functions
The protesters also complain that the RFP provides for the performance of
a number of inherently governmental functions in violation of 10 U.S.C.
sect. 2383 (Supp. IV 2004) and FAR Part 7.5. Specifically, the protesters
argue the DTCI contractor will be required to select carriers; negotiate,
execute, and manage subcontracts; ensure subcontractor compliance with
federal regulations regarding public liability and cargo liability
insurance; facilitate the resolution of government claims for loss or
damage to cargo; and "[i]nterpreting and enforcing cargo liability terms."
Protesters' Comments at 14.
Implementing Office of Federal Procurement Policy Letter 92-1, Sept. 23,
1992, the FAR provides that agencies will not award contracts for the
performance of inherently governmental functions, and includes as examples
of inherently governmental functions in federal procurement activities
"with respect to prime contracts" the awarding, administering and/or
terminating contracts. FAR sect. 7.503(a), (c)(12). In this regard, the
FAR defines an "inherently governmental function" as one that is so
intimately related to the public interest as to mandate performance by
government employees, and notes that governmental functions fall into two
categories: the act of governing (that is, the discretionary exercise of
government authority), and monetary transactions and entitlements. FAR
sect. 2.101. Section 2383 of Title 10 of the United States Code further
provides that an agency may award a contract "for the performance of
acquisition functions closely associated with inherently governmental
functions" only where there are no appropriate DoD personnel available to
perform the functions; that the contractor will be supervised by DoD
personnel who will perform "all inherently governmental functions
associated with the functions to be performed under the contract"; and any
potential organizational conflict of interest of the contractor in the
performance of the functions under the contract has been addressed.
We find from our review of the solicitation here that the RFP does not
provide for either the "performance of acquisition functions closely
associated with inherently governmental functions" or for the performance
of "inherently governmental functions" themselves. The RFP's coordination,
management, and transportation requirements are all services that are
routinely performed in the commercial sector by 3PL firms, such as GENCO.
See AR, Tab 7, University of Tennessee 3PL Prototype Test Report, Sept.
15, 2002, at 16-17. In addition, the DTCI contract requirements do not
provide for the performance of inherently governmental functions involving
the inherent exercise of government discretionary authority or directly
obligating government funds. Instead, the contract tasks of selecting,
awarding, and managing subcontracts reflect routine subcontract
administration requirements. While the contract requires the DTCI
contractor to facilitate the resolution of government claims for loss or
damage to cargo and requires the contractor to include in its subcontracts
terms that "name the government as a third party beneficiary" and
"authorize[s] the government to enforce cargo liability terms," see RFP
sect. C, at 41-43, these provisions do not require the contractor to
perform any tasks that are inherently governmental in nature because it
remains the government's responsibility to "determine the final resolution
of government claims [for loss or damage to cargo]," see id. at 44, and,
in this regard, the DTCI contractor remains liable to the government for
the actions of its subcontractors. See id. at 43.
The protest is denied.
Gary L. Kepplinger
General Counsel
------------------------
[1] The other protesters are A&A Transportation; ACE Transportation; Acme
Trucklines; Alan Farmer; American Freight; American Road Lines; American
World Forwarders, Inc.; Anita Howard; America Trans-Freight; Available
Shippers; Big Rock Transportation; Blackhawk Transport, Inc.; Britton
Transportation; C2 Freight Resources, Inc.; Callie Transport; Cargo
Master; Carr Trucking; Cheetah Transportation; CL Services; Combined
Transportation; Cowboy Trucking; CrossRoad Carriers; D and H Trucking;
Daily Express; Dallas Mavis; Dalton Trucking; Daystar Transportation;
Diamond Transportation System, Inc.; Diedes Transport; Dispatch Services;
DTS Logistics; Durrett Trucking Inc.; Dynasty Transportation; E9
Logistics; Easton Transportation; Economy Transport; Encore Forwarding;
Family Affair Trucking; Federal Freight Systems; Frontline; General
Freight; GMR Logistics; Great American; Green Valley; Hi-Ball Trucking;
International CC; J.H. Rose Logistics; Jameson Enterprises, Inc.; Kansa
Transport, Inc.; Kenneth Clark; Keystone Lines; KL Logistics; L&M
Transportation; Louisiana Transportation, Inc.; Maverick Transport;
McClellan Trucklines; Meadowlark; MEGATRUX; Midwest Specialized
Transportation, Inc.; Norseman Transportation; Northern Dispatch; NorWest
Express, Inc.; NYP & Associates; Overdrive Transportation; Owen Kennedy;
P. Carter Trucking; Packard; Parker Trucking; Picks Logistics; Prompt
Shippers, Inc.; R.K. Jackson; Ready Transportation; Rockhill Transport;
Sheridan Transportation; Southern Ag Carriers; Speed Logistics; Sunteck
Transport; Teresi Trucking; Trans Tech; Trinity Transport; TTI, Inc.;
Tucker Company; Universal Am-Can; US Transport; Utley, Inc.; Virginia
Highway; Watson Trucking; Wilson Transfer; and Wiedmeyer Express.
[2] The mission of the Transportation Command is to provide air, land and
sea transportation for the DoD. GAO/NSIAD-98-99, "Defense Transportation:
Status of U.S. Transportation Command Savings Initiatives, May 1998, at 2.
[3] The TTC is an indefinite-delivery, indefinite-quantity contract
awarded and subject to the Federal Acquisition Regulation (FAR). According
to the agency, a tender is an unsolicited rate provided by a carrier that
an agency can use to offer freight shipment services to carriers; a
contract based upon a tender is created only when the agency and carrier
agree to the shipment of services and a bill of lading has been issued.
Tr., day 1, at 26-27. DoD moves far more freight, both by volume and
value, using tenders rather than by issuing orders under the TTC. Tr., day
1, at 28-31.
[4] A 3PL firm is one that provides outsourced or "third party" logistics
services to companies for part or all of a company's supply chain
management functions, such as transportation or warehousing. See AR, Tab
7, University of Tennessee 3PL Prototype Test Report, Sept. 15, 2002, at
2.
[5] EGL was awarded a fixed-price contract for a base year with 2 option
years to manage transportation at 28 shipping or transportation offices
located within Alabama, Florida and Georgia. After the base year, EGL
continued to perform at four Defense Logistics Agency depots. AR, Tab 7,
University of Tennessee 3PL Prototype Test Report, Sept. 15, 2002, at 2.
[6] "Cross-dock" is defined as a "distribution system in which merchandise
received at the warehouse or distribution center is not put away, but
instead is readied for shipment," which the BCA states "can significantly
reduce distribution costs." AR, Tab 8, BCA, Apr. 2006, app. D, Glossary,
at D-1.
[7] The BCA was prepared by LMI and GENCO.
[8] The cost model used was GENCO's proprietary ShipIO^TM modeling
software, a linear programming-based freight optimization tool that uses
the well-accepted "Farthest First" algorithm. Agency's Reply to
Protesters' Comments at 13; AR, Tab 8, BCA, Apr. 2006, app. A, Savings
Analysis Method, at A-1.
[9] SBA's regulations implementing the Small Business Act define
"measurably substantial benefits" to include "[b]enefits equivalent to 5
percent of the contract or order value (including options) or $7.5
million, whichever is greater, where the contract or order value exceeds
$75 million." 13 C.F.R. sect. 125.2(d)(5)(i)(B); see FAR sect.
7.107(b)(2).
[10] ITV refers to the "ability to track the identity, status, and
location of DoD unit and nonunit cargo . . . from origin to consignee or
destination established by the combatant commanders, the Services, or DoD
agencies during peace, contingencies, and war." Understanding the Defense
Transportation System, USTRANSCOM Handbook 24-2, 4^th ed., Sept. 1, 2004,
at GL-7.
[11] In response to our request, SBA provided a report in which it states,
contrary to DoD's views, that the RFP reflects a bundled requirement under
the Small Business Act, and that this bundled requirement "will not be
good for small business." SBA Report, Sept. 18, 2006, at 2. SBA also
states, however, that DoD, as required, properly coordinated this
acquisition with SBA and that, given the substantial cost savings
reflected in the agency's analysis, the bundled requirement does not
violate the Small Business Act. Id.
[12] As indicated above, the estimated value of the contract, including
all option and award terms, is approximately $1.5 billion. AR, Tab 9,
Bundling Analysis, Apr. 12, 2006, at 18.
[13] The RFP excludes accessorial and fuel surcharge costs from the NTE
costs to be proposed by offerors. RFP sect. M, at 170. Accessorial Service
is defined by the Defense Transportation Regulation (DTR) as a "service
performed by a carrier in addition to the [transportation of cargo over
carrier routes from point of origin to destination]." DTR, DoD 4500.9-R,
Part II, Cargo Movement, Definitions, at xxiv.
[14] The successful offeror's pre-priced methodology for option-year NTE
rate adjustments will be incorporated into the contract. RFP sect. H, at
94.
[15] To the extent that additional sites are added to the DTCI contract,
the contractor may be entitled to an equitable adjustment under the
contract's changes clauses. RFP sect. C, at 30.
[16] Also, as noted above, DoD believes that, because the transportation
coordination services are a new requirement, combining this function with
the transportation services in the RFP did not constitute bundling, as
defined by the Small Business Act. The protesters and SBA disagree with
DoD's belief. We do not address this issue because we find that, even
assuming this is a bundled requirement under the Small Business Act, the
record shows that the consolidation of the coordination and transportation
functions will result in a substantial monetary benefit as defined by
SBA's regulations. See 13 C.F.R. sect. 125.2(d)(5)(i)(B).
[17] The protesters initially challenged the agency's cost analysis and
methodology as incorrect, incomplete, and unsupported. See, e.g.,
Supplemental Protest at 13. The protesters, however, had the opportunity
for a full review of the record supporting the agency's cost model and
analysis, and had the support of an expert consultant, who received access
to protected material under the protective order issued in connection with
this protest. See Protesters' Consultant's Final Report. Following this
review, the protesters' view of the cost model and its estimated cost
savings changed. Although the protesters agree that the model's estimated
cost savings can be achieved, see Tr., day 2, at 7-8, they continue to
complain that the model looked at all of DoD's shipping locations within
CONUS without regard to whether the locations would ultimately be part of
the DTCI acquisition. As noted in testimony, however, at the time of the
cost analysis, the agency had not determined what shipping locations would
become part of the DTCI acquisition and, in fact, the cost analysis was
used to make that determination. See Tr., day 1, 263-65. In any event, the
protesters fail to show what difference this would make in the agency's
analysis. The protesters also complain that the agency's cost analysis
used rates from the TTC I contracts, which were awarded based upon a
cost/technical tradeoff, and did not consider the rates from the newer TTC
II contracts, which were awarded based upon low price and technical
acceptability. However, the performance of the TTC II contracts did not
begin until after the agency had completed the business case analysis,
which as noted above, was based upon the agency's historical data.
Agency's Response to Protesters' Comments at 14. Under such circumstances,
the agency was not required to account for the rates included in the TTC
II contracts. See American Artisan Prods., Inc., B-292380, July 30, 2003,
2003 CPD para. 132 at 6.
[18] "Empty miles," also known as "deadhead miles," refers to the
situation where a carrier after delivering a freight shipment does not
have cargo to return and is thus traveling empty. In this situation the
costs associated with the empty miles must be borne by the first shipment,
and thus the shipping rates are higher. See Tr., day 2, at 35-37.
[19] In its pre-hearing statement, the protesters stated that the DTCI
coordinator, in the protesters' unbundled alternative, "would determine
and select the optimum route, mode, and carrier rate, and order the
transportation from the Government-contracted carrier." Protesters'
Submission (Oct. 31, 2006) at 5 (emphasis added). The agency contends that
allowing a contractor to place orders against other government prime
contracts, and thus obligate government funds, would appear to provide for
the DTCI coordinator to perform inherently governmental functions contrary
to FAR Part 7.5. In their post-hearing comments, the protesters no longer
assert that the DTCI coordinator, under their proposed unbundled approach,
would place orders; rather, the coordinator would serve as a consultant to
the transportation officers, who would be placing orders for
transportation services. See, e.g., Protesters' Post-Hearing Comments at
10-12.
[20] In fact, as discussed above, the protesters do not dispute that DoD
needs to reengineer its freight transportation system, and the protesters'
consultant testified that, despite having access to all of the protest
record and having heard all of the hearing testimony, he could not
conclusively say whether DoD would achieve the same monetary and
non-monetary benefits if the coordination and transportation services were
not bundled. Tr., day 2, at 185-87. The protesters argue, however, that it
should not be their obligation in these protests to perform the analysis
that they assert the agency did not perform to demonstrate that an
unconsolidated acquisition approach would provide the monetary and
non-monetary benefits that DoD hopes to obtain in this procurement.
Although we agree with the protesters that they need not perform such an
analysis nor conclusively demonstrate what benefits, if any, the agency
would achieve from the protesters' argued-for approach, the protester has
the burden of showing that the agency's analysis and explanation
supporting the bundling of the requirements are unreasonable. See Phoenix
Scientific Corp., B-286817, Feb. 22, 2001, 2001 CPD para. 24 at 12. As
explained in this decision, the protesters have failed to satisfy this
burden.
[21] 3PL firms also employ volume purchasing of fuel, maintenance, parts
and equipment for their carrier network, which reduces its carriers' costs
for these items; this aids small business carriers and tends to improve
the carriers' rates. See Tr., day 2, at 34.
[22] While it is true that the agency can contract for the provision of a
new information technology system by a transportation
coordinator/consultant, the protesters' arguments ignore the agency's and
its 3PL consultant's arguments that 3PL firms would not simply provide the
agency with access to its existing information technology system that was
expensive to create and is intertwined with its commercial carrier
network. The agency's 3PL consultant basically questioned the feasibility
of a 3PL firm providing access to its information technology system to
carriers with which it was not in a contractual relationship. The
reliability of the information technology system is dependent upon
carriers being trained to use the system, investing in the "hookup," and
complying with contract requirements to provide information to the system,
all of which the agency believed would be difficult, if not impossible, to
achieve where the government continued to award and administer its own
transportation service contracts. See Tr., day 2, at 52-55; see also Tr.,
day 1, at 171-74.
[23] The agency found that cost savings were not achieved under its 3PL
prototype test in 2001, where, among other things, a 3PL firm was awarded
a fixed-price service contract and there were no incentives for the firm
to generate cost savings. See COSF at 3; AR, Tab 7, University of
Tennessee 3PL Prototype Test Report, Sept. 15, 2002, at 44-45.
[24] While the protesters contend that the DTCI will not have sufficient
incentive to ensure cost savings for the government will be obtained, the
proposed contract includes a variety of terms, for example, award fees,
award term option, and provisions providing for reductions in contract
price if the performance thresholds are not satisfied.