Matter of: N&N Travel & Tours, Inc. File: B-283731.2 Date: December 21, 1999

B-283731.2: Dec 21, 1999

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Agency solicitation seeking proposals for travel services at no cost to the government does not violate prohibitions against improper augmentation of appropriations nor is it otherwise improper where statute specifically permits the accrual to the Department of Defense of credits. Protest that risk of commission reductions makes the commission provisions unfair is denied. Agencies have discretion to impose maximum risks upon the selected contractor and minimum administrative burdens upon the agency. N&N contends that the RFP is defective because it improperly contemplates the award of a fixed-price. Supplemental travel services. /2/ The RFP advised offerors that there was no guaranteed minimum purchase.

Matter of: N&N Travel & Tours, Inc. File: B-283731.2 Date: December 21, 1999

DIGEST

Attorneys

DECISION

N&N Travel & Tours, Inc. protests the terms of request for proposals (RFP) No. M67400-00-R-0009, issued by the U.S. Marine Corps for travel management services for the Corps's Camp S.D. Butler, Okinawa, Japan. N&N contends that the RFP is defective because it improperly contemplates the award of a fixed-price, commission-based contract, which would also result in an unauthorized augmentation of appropriated funds.

We deny the protest.

BACKGROUND

The RFP solicited proposals for a fixed-price, no-cost contract to provide travel management services for both official and leisure ("unofficial") travel by Marine Corps personnel and other eligible patrons. /1/ The RFP required the successful offeror to provide all personnel, equipment, tools, materials, supervision, and other items or services necessary to perform the management and operation of a Commercial Travel Office (CTO) at eight locations on Okinawa. The services to be provided include air, bus, and rail transportation, lodging and rental car reservations, and as to international travel, supplemental travel services. /2/ The RFP advised offerors that there was no guaranteed minimum purchase, but provided estimates which indicated approximately $14.95 million in official travel and approximately $92,500 in unofficial travel. The RFP contemplated a 1-year base period with eight 6-month option periods.

All costs of operation under the contract were to be borne by the successful contractor. In this regard, the contractor is compensated by means of the commissions it receives for booking government travelers with airlines, hotels, and other providers of transportation and lodging. In addition, the contractor proposes a discount on the official travel it books. The performance work statement defines discounts as "Reductions by the Contractor . . . stated as a percentage of total official air, bus and rail travel sales and/or as a percentage of commissions received by the contractor for sales executed by third parties." RFP Sec. C-1.12, at 28. With regard to proposal of the discount, the RFP Sec. B 0001, at 1, states:

Air Travel Discount: The discount on airfares provided by the contractor is to be a percentage of the total ticket costs paid by the contractor to the suppliers for official transportation for official travel purposes. Contractors not paid the industry standard airline commission rates by the airlines will state what percentage of the anticipated standard commission rate will be provided as the contractor's air travel discount on this contract as though the contractor were receiving the standard commission. Then such contractors shall apply their stated percentage of the standard airline commission rates to the Government's total air official travel purchases. For all contractors, the discount will be reflected as an up-front reduction on the base fare of each official commissionable ticket as described in the line items below.

Prior to the closing time for receipt of proposals, N&N filed this protest. Subsequent to the filing of the protest, two offerors submitted proposals.

DISCUSSION

N&N argues that the RFP's no-cost award basis violates the prohibition against the improper augmentation of appropriated funds. In the protester's view, the improper augmentation stems from the contractor's supply of various travel services at no cost to the government. In this regard, N&N maintains that there is no consideration for the contract and that the commissions from the airlines cannot be considered an adequate substitute for payment by the government. We disagree.

Unless otherwise authorized, an agency may not retain for its own use any funds received for the use of the United States; instead it must deposit all such funds in the general fund of the Treasury as miscellaneous receipts. 31 U.S.C. Sec. 3302 (1994). Failure to do so constitutes an improper augmentation of the agency's appropriation. Here, we have no augmentation concerns, however, since there is specific statutory authority for Department of Defense (DoD) agencies to enter into contracts for travel-related services for both official and unofficial travel which "provide for credits, discounts, or commissions or other fees to accrue to [DoD]." 10 U.S.C.A. Sec. 2646 (West Supp. 1999).

The protester contends, however, that the statutory provision cited above does not specifically authorize no-cost contracts and that a no-cost contract is an improper augmentation of the Marine Corps accounts, because it allows the agency to save funds that it would have otherwise spent on travel services. Assuming, arguendo, that arrangements which allow agencies to avoid expending funds should be considered augmentations, we view it as self-evident that, since the statute explicitly authorizes DoD agencies through travel-service contracts to receive money, it also authorizes them to avoid expending funds through no-cost travel-services contracts.

In any event, we have long held that there is nothing inherently improper in a no-cost contract. See, e.g., T.V. Travel, Inc. et al.--Recon., B-218198.6 et al., Dec. 10, 1985, 85-2 CPD Para. 640 at 6. We have reviewed numerous procurements with no-cost contracts without any question as to whether they violated the prohibition against improper augmentation. In each, the contractor was dependent upon third parties for payment. See, e.g., CW Gov't Travel, Inc. d/b/a Carlson Wagonlit Travel; American Express Travel Related Servs. Co., Inc., B-283408, B-283408.2, Nov. 17, 1999, 99-2 CPDPara. ___; Scheduled Airlines Traffic Offices, Inc., B-257292.9, May 16, 1995, 95-2 CPD Para. 113 (travel services); Downtown Copy Center, B-240488.8, Dec. 28, 1992, 92-2 CPD Para. 443 (photocopying, distribution, and sale of agency documents); System Planning Corp., B-244697.4, June 15, 1992, 92-1 CPD Para. 516 (operation of agency lost and stolen securities program); TS Infosystems, Inc., B-240986, Dec. 4, 1990, 90-2 CPD Para. 458 (redaction and publication of agency news report).

We also do not believe that the contractual arrangement is defective for want of consideration. Here, while the government will receive a number of valuable services, other than airline ticketing from the successful contractor on Okinawa (such as ticket delivery, making of reservations, and management reports), the contractor will obtain considerable benefits with its concomitant exclusive access to the government's official travel requirements and its entitlement to commissions from the transportation, lodging, and rental car providers. T.V. Travel, Inc. et al.--Recon., supra. In addition, the successful contractor will have the opportunity to book leisure travel. /3/ The current airline commission rate for tickets booked in Japan is 9 percent. Agency Report, Tab I, exh. 7. The approximate value of official travel under this contract is $14.95 million. RFP, Technical exh. A, at 47-50. In our view this is sufficient consideration on which a contract between the parties may be legitimately based. /4/ Thus, the agency will not obtain the bargained-for services "for free," nor improperly augment its appropriation.

N&N also protests that, given the risk of reductions or elimination of commissions, a fixed-price contract is improper. This aspect of the protest flows from ongoing changes in the manner in which travel agencies receive compensation for the services they provide, particularly with regard to the sale of airline tickets. At the time of airline deregulation in 1978, travel agencies sold about half of the airlines' tickets, with the airlines themselves selling the other half; at that time, airlines paid travel agencies commissions on the ticket sales that averaged approximately 8 percent of the value of the tickets sold. Following deregulation, the airlines sought to lower their marketing costs, shifting more of their ticket sales to travel agencies and increasing the commissions paid. Domestic Aviation: Effects of Changes in How Airline Tickets are Sold, GAO/RCED-99-221, July 28,1999 at 3-7. Commission rates for domestic fares peaked at about 10 percent in 1994. Since then, commission rates have steadily declined. /5/ Id.

As airline commissions increased, along with total travel agency revenues due to the higher volume of sales, travel agencies competed for travel service contracts by, among other things, offering to share a portion of the airline commissions they received with the buyer for which the travel services were being provided. Since 1995, as commissions have decreased, an increasing number of travel agencies have begun to charge transaction or service fees as compensation for the services they provide. Id. at 10. However, "a significant portion of the [travel services] industry continues to rely on commission revenues to fund performance of travel services." CW Gov't Travel, Inc. d/b/a Carlson Wagonlit Travel; American Express Travel Related Servs. Co., Inc., supra, at 6.

While N&N is concerned with the amount of risk placed on potential offerors, a procuring agency is not required to eliminate all contract risk. On the contrary, it is within the ambit of administrative discretion to offer to competition a proposed contract imposing maximum risks upon the selected contractor and minimum administrative burdens upon the agency. Braswell Servs. Group, Inc., B-278521, Feb. 9, 1998, 98-1 CPD Para. 49 at 3; Argus Servs., Inc., B-234016.2, B-234017.2, Sept. 12, 1989, 89-2 CPD Para. 227 at 3. We have approved a similar apportionment of risk in a travel services procurement. CW Gov't Travel, Inc. d/b/a Carlson Wagonlit Travel; American Express Travel Related Servs. Co., Inc., supra, at 7.

N&N maintains that the commissions from the airlines and other travel-related providers were never intended to cover all the services which the successful contractor will have to provide. Further, the commissions themselves are subject to reduction at any time. In this regard, N&N notes that in October 1999, all domestic carriers and "some international carriers" announced that the standard commission would be reduced from 8 percent to 5 percent. Protester's Comments at 10.

While the RFP does not provide for an economic price adjustment in the event of a reduction in current commissions, it does provide some safeguards. In this regard, the RFP provisions concerning proposed discounts speak in terms of "any discount." See, e.g., RFP at 25-26, section B-1 ("Government will reimburse the Contractor only the actual carrier rates . . . less any negotiated discount percentage"); section B-3 ("Government will pay the Contractor for the actual price charged by the carrier . . . less any discount offered"); section B-4 ("Invoices must reflect any discount for each ticket billed . . . ."). Implicit in these provisions is the option of proposing no discount at all. Thus, an offeror believing the commissions as reduced will provide insufficient revenues may propose not to provide a discount. Further, offerors may propose up to nine different discounts (base year and eight, 6-month options) to reflect anticipated reductions.

Moreover, contrary to the arguments of N&N, the record does not provide any evidence of serious risk that the relevant commissions will be reduced in the foreseeable future. Here, in response to the airlines' announcement of reduced commissions, the Corps provided offerors the opportunity to revise their proposed pricing structure. In response, the offerors which had submitted proposals wrote the contracting officer declining the opportunity. According to the offerors, the reductions applied only to tickets issued in the United States and Canada and would not apply to tickets issued in Japan. Agency Report, Tab I, exh. 6, 7. In addition, one of the offerors noted that the commission level remained at 9 percent (1 percent higher than the former domestic commission percentage) and indicated that it did not anticipate a reduction, because previous domestic commission rate cuts were not matched by commission cuts elsewhere in the world. Agency Report, Tab I, exh. 7. Under these circumstances, we find without merit the assertion that the RFP creates unreasonable risks for the contractor.

The protest is denied.

Comptroller General of the United States

1. The protest concerns only the RFP's provisions concerning the official travel portion of the procurement. Accordingly, this decision will address only those aspects of the solicitation.

2. These services include information and advice on conditions at various foreign destinations, currency exchange rates, and ticketing for connecting rail or bus transportation, regardless of whether the international travel was booked through the contractor. RFP Sec. C-7.13, at 41.

3. N&N argues that the exclusivity is illusory because the market is restricted to various rates which have been set in accordance with other contracts with the General Services Administration and the Military Traffic Management Command. Although certain rates are pre-set, the fact remains that only the successful contractor under this procurement will be able to book the agency's official travel needs on Okinawa for the term of the contract and thus will have the exclusive right to earn the commissions on approximately $14.95 million in official travel.

4. Our view is not changed by N&N's contention that the commissions are not, and never were intended by the airlines to be, sufficient to cover all the costs of providing the various travel services called for in the RFP. Whether the potential income is sufficient to perform the contract is a matter for each offeror to determine based on its business judgment. We note that two offerors submitted proposals in response to the RFP without objecting to the need for reliance on commissions to provide operating expenses. In this regard, prior to issuing this solicitation, the contracting officer considered the fact that within the past year, three CTO contracts (two Corps and one Air Force) had been awarded on similar no-cost bases, after receipt of at least two competitive proposals in each procurement. Agency Report, Tab D, Affidavit of Contracting Officer.

5. In 1995 the airlines capped commissions at $25 for one way domestic tickets and $50 for round trip domestic tickets. In 1997, the standard commission was reduced from 10 percent to 8 percent. In 1998, caps were imposed for international travel. In October 1999, while these protests were being considered, most of the domestic airlines reduced the commission paid from 8 percent to 5 percent.