When the Government Buys Commercial Items, Don’t Forget You Can Demand Terms Consistent with Customary Commercial Practice
February 9, 2016
By: Eric Whytsell
The Government’s statutory preference for acquiring commercial items that meet an agency’s needs comes with the requirement that, to the maximum extent possible, contracts for the acquisition of those items include only clauses that are consistent with customary commercial practice. In other words, if the Government buys commercial items, it is supposed to use commercial contract terms if it can. Contractors pursuing Federal Acquisition Regulation (FAR) Part 12 commercial item contracts should keep this rule in mind. As the recent decision in Red River Waste Solutions, LP, B-411760.2 (January 20, 2016) reminds us, it can be used to challenge solicitation requirements that do not reflect customary commercial practice.
This pre-award protest was filed by Red River Waste Solutions, LP (RRWS) in connection with a FAR Part 12 solicitation for commercial waste management services at an Army base. RRWS, the incumbent contractor for the same services, challenged the new request for proposals (RFP) in part on the ground that it contained terms inconsistent with customary commercial practice in violation of FAR § 12.301(a)(2). More particularly, the RFP required offerors to submit fixed prices, on a per-ton basis for several contract line item numbers (CLINS) based on Government-provided estimated quantities. According to RRWS, this new approach represented a significant departure from the prior contract, which included CLINs priced on a per ton basis but also had overhead CLINs covering the contractor’s variable costs. By removing the overhead CLINs, requiring the per-ton prices to include all fixed and variable costs, and only permitting invoicing based on tonnage collected, the challenged RFP provided for compensation “primarily based on tonnage” – something RRWS argued is inconsistent with the customary commercial practice for refuse contracts.
RRWS explained that where, as in the RFP, commercial contracts mandate regular trash collection schedules, those contracts are not priced on a per-ton basis because costs a contractor incurs are essentially the same whether the refuse containers are full, partially full, or empty. Those costs reflect the number, frequency, and distance between stops on a collection schedule, not the amount, or weight, of refuse collected during such stops. RRWS argued that the agency should have known better. In response, the Government claimed that its market research under FAR § 10.002(b) supported its determination that requiring per-ton fixed prices in refuse contracts is customary commercial practice. The Government Accountability Office (GAO) disagreed.
The agency’s market research included: (1) review of other Army refuse contracts; (2) a request for feedback from industry in a Sources Sought Notice (SSN); and (3) contact with a sales representative for Thomas Trash Services, a company located in upstate New York. First, the GAO agreed with RRWS that, since contracts with the federal government are not generally considered to be part of the commercial marketplace, it was unreasonable for the agency to rely on other government refuse contracts as a basis for establishing customary commercial practice. With respect to the SSN, the GAO reviewed the SSN question and the Army’s summary of responses received and found that: (i) none of the respondents identified any current commercial contracts priced on a per-ton basis; and (ii) the majority indicated that customary commercial practice reflected monthly-based prices rather than prices based on tonnage collected. Further, the agency attempted to rely on several respondents’ lack of objections to the tonnage-based compensation approach described in the SSN, something that the GAO has repeatedly held is insufficient to satisfy an agency's obligation to establish support for an affirmative determination regarding customary commercial practice. Finally, the GAO determined that the Army could not reasonably base its conclusion on the claimed contacts with a sales representative for a trash company in upstate New York because of the total lack of documentation -- from either the sales representative or the Army personnel who contacted him -- concerning any contracts to which the trash company was actually a party or addressing the basis for or extent of the sales representatives’ asserted expertise and knowledge on this issue.
On this record, the GAO rejected the agency’s assertion that its market research provided a reasonable basis for determining that the price-per-ton provisions in the RFP are consistent with customary commercial practice and sustained the protest on this ground.
Obviously, the facts will not always be as favorable as they apparently were in this case. But contractors facing solicitations for commercial item acquisitions that contain terms and conditions that diverge from customary commercial practice need to remember that this argument may be available. If the problem of non-customary terms in a solicitation cannot be remedied through the Q&A process or other informal means, a protest demanding customary commercial terms may be in order.
Eric Whytsell is responsible for the contents of this Article.
© Jackson Kelly PLLC 2016