Smelkinson Sysco Food Services, B-281631, March 15, 1999

B-281631 Mar 15, 1999 Jump To VIEW DECISION RELATED PAGES GAO CONTACTS Highlights DIGEST Protest of terms of solicitation for commercial food distribution services is sustained where agency failed to conduct adequate market research to support its determination that the challenged terms (requiring. That profit associated with interorganizational transfers of food items be disclosed) are consistent with customary commercial practice. The procurement is being conducted pursuant to the commercial-item acquisition procedures of Part 12 of the Federal Acquisition Regulation (FAR). Offerors are to provide the following prices by item: delivered price per unit. Provides the following definitions of the relevant pricing terms: the "unit price" is the "total price charged to DSCP per unit for a product delivered to the Government consisting of two components: 'delivered price' and 'distribution price'". View Decision Matter of: Smelkinson Sysco Food Services File: B-281631 Date: March 15, 1999 DIGEST Attorneys DECISION Smelkinson Sysco Food Services protests the terms of request for proposals (RFP) No. SPO300-99-R-D008, issued by the Defense Supply Center Philadelphia (DSCP), Defense Logistics Agency, for full service food distribution support for a number of federal installations in the Washington D.C. area. Smelkinson protests the RFP requirement that offerors disclose, among other things, profit associated with interorganizational transfers of food items. We sustain the protest. The RFP, issued on October 23, 1998, contemplates the award of a fixed-price contract with weekly economic price adjustments, for a base year and 4 option years, for full line food distribution, where the "prime vendor" contractor serves as the customer's primary source for food items. The procurement is being conducted pursuant to the commercial-item acquisition procedures of Part 12 of the Federal Acquisition Regulation (FAR). The RFP's pricing schedule lists commercial food items to be supplied, with their estimated quantities, for offerors to price. Offerors are to provide the following prices by item: delivered price per unit, distribution price per unit, total unit price, and total extended price. The RFP's "price changes" clause, included in the solicitation as an addendum to FAR Sec. 52.212-4, provides the following definitions of the relevant pricing terms: the "unit price" is the "total price charged to DSCP per unit for a product delivered to the Government consisting of two components: 'delivered price' and 'distribution price'"; the "delivered price" is the "actual invoice price . . . of the product paid to the manufacturer/supplier, delivered to the Prime Vendor's facility"; and the "distribution price" is the "firm fixed price, offered as a dollar amount, which represents all the elements of the contract price other than the delivered price . . . [such as] projected general and administrative costs, overhead, profit, packaging costs, transportation costs . . . and any other expenses." RFP Sec. 52.212-4(t), at 82-83. This clause allows for changes in the "delivered price" on a weekly basis, to reflect fluctuation of item prices in the commercial market; the contractor's distribution price, however, remains fixed. The RFP's "interorganizational transfers" clause, the subject of this protest, provides further pricing requirements for the determination of "delivered price" related to transfers among contractor affiliates or divisions. This clause provides as follows: For purposes of determining the delivered price of an item delivered under this contract, allowances for materials, supplies and services that are sold or transferred between any divisions, subdivisions, subsidiaries, or affiliates of the contractor under a common control shall be on the basis of the cost incurred by the transferring organization. When materials or supplies are purchased specifically for the contract, only the actual purchase cost of these materials or supplies should be charged to the contract. . . . If the contractor has an established centralized procurement function, all actual costs associated with the operation of this function may be added to the invoice price when the product is transferred to the affiliated organization. Notwithstanding the above, allowances may be at price when it is an established practice of the offeror/contractor to transfer product to its affiliated organizations at other than actual cost, by use of a catalogue, competition or some other standard pricing mechanism, that transfer price can be used as the invoice price of the item as long as all affiliated organizations were charged the same price for that item. If the catalogue or standard price at which the item is being transferred includes profit to the transferring organization, that profit must be disclosed to the Contracting Officer. The Contracting Officer and the offeror/contractor will agree to a procedure for this disclosure.