Labatt Food Service, LP

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: Labatt Food Service, LP

File: B-408790

Date: November 25, 2013

DIGEST

Protest of solicitation’s price evaluation scheme that assigns greater weight to an offeror’s proposed distribution price is denied where agency conducted reasonable research to support the weighting factor in order to combat price manipulation of offerors’ proposed distribution and delivery price components.

Labatt Food Service, LP, of San Antonio, Texas, protests the terms of request for proposals (RFP) No. SPM300-13-R-0079, issued by the Defense Logistics Agency (DLA) for subsistence prime vendor (SPV) support for Department of Defense (DOD) and non-DOD customers in central Texas. The protester challenges the solicitation’s price evaluation scheme.

We deny the protest.

BACKGROUND

The RFP, which was issued on April 19, 2013, contemplates the award of an indefinite-delivery/indefinite-quantity, fixed-price contract, with an economic price adjustment, for a 2-month implementation and a 22-month performance period, with a 1-year, then a 2-year option. RFP (conformed) at 30-31, 43, 142.[1] The contractor is responsible for furnishing food, beverage, and related items for garrisons and others. Id. at 42, 44. The procurement is being conducted pursuant to the commercial item acquisition procedures of Part 12 of the Federal Acquisition Regulation. See id. at 8. The solicitation states that award will be made on a lowest-priced, technically-acceptable basis, considering the following evaluation factors: technical (experience, quality control and assurance procedures, and food defense), past performance, and price. Id. at 119, 122.

Offerors were to propose a contract unit price (for each item listed in the RFP’s market basket and for each performance period), consisting of the sum of an offeror’s delivered price and distribution price, less government rebates and discounts.[2] Id. at 111, 125; see attach. 1, Price Proposal Spreadsheet. The RFP defined the terms contract unit price, delivered price, and distribution price as follows:

Contract Unit Price means the total price per unit charged to DLA Troop Support for a product delivered to DLA Troop Support’s customers.

* * * * *

Delivered Price means the most recent manufacturer, grower or private label holder commercial price per unit to the Contractor, inclusive of all standard freight,[3] that is input in the Contractor’s purchasing system as the starting basis for its pricing to customers prior to the application of any specific distribution fees, rebates, discounts, limited discounts, or other financial agreements with the Contractor’s various customers. . . . Delivered price shall exclude all costs that are to be covered in the Distribution Price.

* * * * *

Distribution Price means the firm fixed price portion of the Contract Unit Price, offered as a dollar amount per unit of issue, rounded up or down to the nearest cent. The Distribution Price is the only method for the Contractor to bill the Government for all aspects of contract performance other than Delivered Price . . . Delivered Price is distinct from and not to be included in the Distribution Price.

Id. at 54-56; see also 31-33.

Under the RFP’s economic price adjustment clause, the delivered price component of the contract unit price could be adjusted weekly based on market fluctuations; the distribution price would remain fixed over the life of the contract. See id. at 33-35, 56.

The solicitation states that, for evaluation purposes, the distribution price would be weighted by multiplying the aggregate distribution prices for all basket items by 11.5. Id. at 120-21, 124. An offeror’s total evaluated price would be calculated by adding the weighted aggregate distribution price to the aggregate delivered price, to arrive at a weighted aggregate unit price. Id. The lowest-priced offer would be determined based on the weighted aggregate unit price. Id.

Labatt protested the RFP’s price evaluation scheme prior to the due date for submission of proposals, arguing that the 11.5 weighting factor is not based on relevant research, is arbitrary, and bears no rational relation to the actual cost to the government for the required items. See Protest at 11; Comments at 2, 16. According to the protester, the agency should only evaluate an offeror’s total aggregate price, because evaluating delivered/distribution prices, which can vary dramatically among vendors, only invites offerors to manipulate those pricing components to achieve a lower aggregate unit price for evaluation and award purposes.

DLA responds that the weighting factor is based on recent analysis of average distribution prices from other SPV contracts, is specifically calculated to address price manipulation, and will result in a more meaningful price evaluation. Agency Report (AR) at 11-14. The agency points out that the RFP contains numerous other requirements, applicable before and after contract award, that will also stem price manipulation.

DISCUSSION

Agencies must consider cost to the government in evaluating proposals, 10 U.S.C. § 2305(a)(3)(A)(ii) (2006), and while it is up to the agency to decide upon some appropriate and reasonable method for evaluating offerors’ prices, an agency may not use an evaluation method that produces a misleading result. See Bristol-Myers Squibb Co., B-294944.2, Jan. 18, 2005, 2005 CPD ¶ 16 at 4; AirTrakTravel, et al., B-292101 et al., June 30, 2003, 2003 CPD ¶ 117 at 22. The method chosen must include some reasonable basis for evaluating or comparing the relative costs of proposals, so as to establish whether one offeror’s proposal would be more or less costly than another’s. Id.

The record here does not support Labatt’s assertions that the RFP’s weighted distribution price factor is arbitrary and not based on relevant data. Rather, the agency has provided documentation detailing its analysis of a sampling of basket items (approximately 70) from 29 SPV contracts. AR, Tab 1, Rationale for Business Evaluation Weighting. According to DLA, the data reveal that an item’s unit price is comprised, on average, of 92 percent delivered price and 8 percent distribution price, or an 11.5 ratio between the respective price components. In addition, the agency reviewed proposed aggregate prices from a recent regional procurement for a SPV contractor, which also showed--even under different pricing equations--the same 92/8 percentage and 11.5 ratio. See id. at 2-3. Thus, in DLA’s calculation, multiplying or weighting aggregate distribution prices by a factor of 11.5 (again, based on the recent, typical ratio of distribution to delivered price) equalizes the two price components, leading to a more equitable price evaluation that minimizes the effect of price manipulation. Id. at 2, 11-13. We find, contrary to the protester’s assertion, that DLA’s rationale for the weighting factor is reasonably supported by agency research. See U.S. Foodservice, Inc.; Labatt Food Servs., LP, B-404786 et al., May 13, 2011, 2011 CPD ¶ 102 at 5-6

While Labatt disagrees with the extent of DLA’s analysis,[4] the protester has not shown that the RFP’s weighted price evaluation scheme is arbitrary or unsupported. See, e.g., id.; Short & Assocs., B-406799, B-406799.4, Aug. 31, 2012, 2012 CPD ¶ 251 (weighted price factor derived from historical data and protest denied where protester does not show that methodology was inaccurate or that more historical analysis required); RMS Info. Sys., Inc., B-280521.3, Oct. 21, 1998, 98-2 CPD ¶ 113 at 7 (protest denied where weighted price factor was intentionally structured, based on historical data, to discourage price unbalancing and manipulation); S. J. Thomas Co., Inc., B-283192, Oct. 20, 1999, 99-2 CPD ¶ 73 at 4-5 (comparing offerors’ mark-up rates alone is meaningless without estimating expected cost ratios or some other mechanism for considering offerors’ differing rate calculations, and uncertainty regarding rates and material costs does not mean that those elements play no role in evaluating relative cost to the government); see also U.S. Foodservice, Inc. v. United States, 100 Fed. Cl. 659, 680-81 (2011) (reducing fraud in food-service distribution contracts is sufficient rationale and DLA not obliged to produce additional research and analysis, or specific instances of past experience, to substantiate agency’s goal).[5]

Regardless, Labatt insists that the weighting factor invites price manipulation and that the solicitation’s other pricing and reporting requirements offer little protection in that regard. The agency explains that the RFP includes numerous documentation, verification, monitoring, and audit provisions that are specifically intended to prevent price manipulation. AR at 14-16. For example, offerors, as well as the awarded contractor, must substantiate delivery prices with manufacturer or growers invoices, which DLA will verify if distribution prices appear too low.[6] RFP at 53, 117. An offeror/contractor must also provide printed computer “screen shots” showing delivered prices from the offeror/contractor’s electronic purchasing system. Id. The agency may audit the contractor’s computer purchasing system, to confirm that the delivered prices for market items sold to DLA’s customers are identical to the delivered prices charged to other commercial customers, and request additional documentation regarding pricing agreements. Id. at 53. In this respect, the RFP also requires the contractor to warrant, on a continuing basis, that its delivered price for each item sold to DLA is equal to, or lower than, the delivered price offered to other commercial customers. Id. at 32, 54.

While Labatt questions the sufficiency of some[7] of these RFP provisions, we are persuaded by the agency that the solicitation’s various requirements provide additional, and reasonable, protections against price manipulation. Indeed, the protester concedes that “adequate safeguards,” including “periodic auditing,” can control volatility and “creeping” delivered prices after contract award. Comments at 3.

Accordingly, we conclude that the solicitation‘s price evaluation methodology, which is based on the agency’s recent, historical analysis and is specifically designed to minimize price manipulation, provides a reasonable and adequate basis to compare the relative costs to the government of offerors’ proposals.[8]

The protest is denied.

Susan A. Poling
General Counsel