Alamo Aircraft Supply, Inc.; Merchants World Surplus E, B-

Alamo Aircraft Supply, Inc.; Merchants World Surplus E, B- BNUMBER: B-278215; B-278215.2 DATE: January 7, 1998 TITLE: Alamo Aircraft Supply, Inc.; Merchants World Surplus E, B- 278215; B-278215.2, January 7, 1998 ********************************************************************** Matter of:Alamo Aircraft Supply, Inc.; Merchants World Surplus Enterprises, Inc. File: B-278215; B-278215.2 Date:January 7, 1998 John J. Fausti, Esq., and Stephanie L. Buser, Esq., for the protester. Robin Walters, Esq., and Michael Malone, Esq., Defense Reutilization and Marketing Service, Defense Logistics Agency, for the agency. John L. Formica, Esq., and James A. Spangenberg, Esq., Office of the General Counsel, GAO, participated in the preparation of the decision. DIGEST 1. Solicitation for the sale of surplus property under a term contract is not transformed into something other than a sale because of the inclusion of a provision requiring that the successful contractor pay the government 80 percent of the net proceeds, if any, it obtains from the property in addition to its bid price. 2. Sale of surplus property is not an unauthorized sale on credit where at the time of the sale there is no credit extended or debt incurred; a provision which requires that the contractor pay the government 80 percent of the net proceeds, if any, the contractor obtains from the property does not render the transaction a credit sale. 3. A solicitation for the sale of surplus property will not result in an illusory contract because of a termination clause, where the clause does not allow the parties to terminate at will, but rather allows the parties to terminate only if certain specified contract performance thresholds are not attained. 4. Neither the financial requirements imposed by a solicitation which provides for the award of a term sale contract, nor the size, scope, or length of the contract contemplated by the solicitation, violates the requirement set forth in the Federal Property and Administrative Services Act of 1949 that solicitations for the disposal of property be "on such terms and conditions as shall permit that full and free competition which is consistent with the value and nature of the property involved," given the apparent reasonableness of the agency's explanation for the challenged provisions and the protesters' failure to substantively respond to the agency's position. DECISION Alamo Aircraft Supply, Inc. and Merchants World Surplus Enterprises, Inc. protest the terms of a solicitation issued by the Defense Reutilization and Marketing Service (DRMS), Defense Logistics Agency (DLA), for the sale of surplus property.[1] We deny the protest. The solicitation represents a pilot initiative under which DRMS will award a term sale contract, with a 5-year performance period, to the high bidder for five categories of surplus Department of Defense (DOD) industrial property.[2] The solicitation provides for a "two-step approach," under which firms are first required to submit technical proposals in response to request for technical proposals (RFTP) No. 99-7005. The technical proposals are to include, among other things, an operational plan demonstrating the firm's "capability to market, transport, store and add value to the material," and a business plan describing the corporate and project organizations to be used in disposing of the property acquired under the sales contract, and evidencing that it had access to a $3 million line of credit. Technical proposals were submitted by September 30, 1997.[3] Those bidders whose technical proposals are found by the agency to be technically acceptable, based upon the RFTP's evaluation criteria, will be invited to submit sealed bids in response to an invitation for bids (IFB).[4] The bids are to be expressed as a percentage of the government's established acquisition value of each category of surplus property, with the high bid being determined by multiplying the acquisition value of each category by the appropriate percentage bid, and totaling these amounts. The successful bidder will be required to establish and fund a "stand alone" entity that will be the actual purchaser of the surplus property from the agency, and whose single purpose will be to perform the proposed contract. This entity, or purchaser, is required to provide DRMS with a performance bond of $1 million, or establish a fund to be held by DRMS, in which 10 percent of all contractor distributions will be deposited until a balance of $500,000 is reached.