Matter of: Aalco Forwarding, Inc., et al. File: B-277241.20; B-277241.21 Date: July 1, 1998

Matter of: Aalco Forwarding, Inc., et al. File: B-277241.20; B-277241.21 Date: July 1, 1998

DIGEST

Attorneys

DECISION

Aalco Forwarding, Inc. and 98 other self-certified small business concerns protest the sufficiency of the small business set-aside in request for proposals (RFP) No. DAMT01-97-R-3001, issued by the Military Traffic Management Command (MTMC), Department of the Army, for a pilot program reengineering the Department of Defense's (DOD) current interstate and international program for shipping and storing the personal property of its military service members and civilian employees. /1/

We deny the protests.

These protests arose from the contracting agency's implementation of our recommendation in Aalco Forwarding, Inc., et al., B-277241.16, Mar. 11, 1998, 98-1 CPD Para. 75, in which we sustained protests by most of these protesters of the solicitation's partial small business set-aside. /2/

The RFP, issued March 14, 1997, calls for the contractor(s) to provide all personnel, equipment, materials, supervision, and other items necessary to provide transportation and transportation-related services for 50 percent of the eligible DOD and U.S. Coast Guard sponsored personal property shipments from North Carolina, South Carolina, and Florida, to any or all of 13 destination regions in the continental United States and/or any or all of 5 destination regions in Europe. RFP schedule at 2; RFP performance work statement (PWS) at 3, 7, and attachments 1 and 2. Award will be made to one or more contractors for each origin state to destination region "traffic channel." RFP at 36. There are 53 traffic channels included in this RFP. RFP schedule; PWS attachments 1 and 2.

The RFP provides that offers may be submitted on any or all traffic channels from any one or all of the origin states to any one or all destination regions, or any combination thereof. PWS at 3 and attachment 2. Offerors are to list in their proposals for each traffic channel for which they submit an offer the daily capacity (in pounds) that they are committing to each of the various personal property shipping offices in an origin state for the base year and each option year. RFP attachment 3; PWS at 19. The committed daily capacities will be used by MTMC to determine the number of contracts to be awarded for each traffic channel and to obligate the contractors to provide requested services up to their committed daily capacities. PWS at 19. Although a minimum committed daily capacity is not specified, the RFP states that committed daily capacities must be reasonable, based on historical tonnage data. Id. An attachment to the RFP provides historical monthly/yearly tonnage data and numbers of shipments for each traffic channel (from each personal property shipping office) for fiscal years 1994, 1995, and 1996. RFP attachment 4.

In an amendment issued May 14, MTMC set aside 12 percent of the traffic volume of 27 designated high traffic volume channels for exclusive small business participation. According to the amendment, based on historical data, the 27 channels selected for the set-aside represented approximately 85 percent of the total traffic moving under the pilot program, and the 12 percent of traffic volume of the 27 set-aside channels represented approximately 10 percent of the total estimated dollar value of the contracts to be let under the pilot program.

Following the contracting officer's decision to partially set aside the procurement, the Small Business Administration (SBA) Procurement Center Representative (PCR) recommended to the contracting officer that the solicitation's partial set-aside be increased to 50 percent of the total contract value, given that small business concerns constitute much of the moving industry's carrier-agent market. The contracting officer rejected the PCR's recommendation. In accordance with FAR Sec. 19.505, the PCR appealed the contracting officer's decision to the head of the contracting activity, MTMC's commander, who upheld the contracting officer's earlier rejection of the PCR's recommendation. The SBA then appealed to the Secretary of the Army, whose designee, the Director of the Army's Office of Small and Disadvantaged Business Utilization, denied the SBA's appeal.

Two firms, not parties here, protested to our Office that the solicitation should be set aside in its entirety for exclusive small business participation. Numerous other protesters, including most of the protesters here, protested to our Office that the partial set-aside was not an economic production run or reasonable lot, as required, and was otherwise deficient.

In Aalco Forwarding, Inc., et al., B-277241.16, supra, at 7, we found unobjectionable the contracting officer's determination that a total set-aside of the entire pilot program was inappropriate. We explained that, notwithstanding the considerable interest expressed by small businesses in the solicitation, the contracting officer concluded that the expressions of interest did not warrant a reasonable expectation that two or more interested small business concerns would have the capacity to service all the traffic in each channel, particularly the higher traffic volume channels, given the significant new requirements imposed by the pilot program on contractors. Id. Because the contracting officer did not find that small businesses were capable of performing the requirements of any one traffic channel, she could not determine that small businesses were capable of performing the total solicitation requirements, which encompass all traffic channels. Id.

However, we found that the partial set-aside in the RFP did not ensure an economic production run or reasonable lot of shipments for small business concerns, as required by FAR Sec. 19.502-3(b), because it did not meaningfully consider the impact of the relatively small number of shipments available on many of the channels under the set-aside or the significant obligations, such as committed daily capacity, imposed on small business contractors by the solicitation. We recommended that:

the agency reexamine its partial set-aside determination under the criteria of FAR Sec. 19.502-3. In this regard, the agency should first estimate what is an economic production run or reasonable lot of shipments, considering the committed daily capacity obligations and the other significant obligations imposed on contractors by the solicitation. The agency should then decide if and how the requirement can reasonably be divided into such economic production runs or reasonable lots; for example, the agency could consider entire channels, or a higher proportion of shipments on set-aside channels, as a basis for the partial set-aside. (It may be that some of the current higher volume set-aside channels could be shown to be an economic production run or reasonable lot.) Assuming the pilot program is apportionable into a set-aside and a non-set-aside portion, each of which is an economic production run or reasonable lot, the agency should determine whether one or more small business concerns are expected to have the competence and capacity to satisfy the set-aside portion at a reasonable price.

Aalco Forwarding, Inc., et al., B-277241.16, supra, at 15-16 (footnote omitted).

In response to our recommendation, MTMC determined that 260 shipments per year per channel constitutes an economic production run or reasonable lot of shipments, based on a prior analysis of the shipping volume of the channels which concluded that the "break-even point for sufficient volume" was 260 shipments or more in a channel (an average of a shipment per day based on a 5-day workweek). The reasonable lot having been established, MTMC interpreted our recommendation as permitting it to award either entire channels for small business set-asides or set-aside percentages within channels, so long as the set-aside portion contained a reasonable lot. According to the agency, our Office's guidance rendered "unworkable" the approach it had previously adopted of setting aside a fixed percentage of estimated shipments in designated channels because, to constitute a reasonable lot, the percentages set aside would have to differ from channel to channel, even within one origin state and "[t]his would result in a dramatic, and unacceptable, increase in the complexity of the required record keeping at the Personal Property Shipping Office . . . level." /3/

MTMC instead identified each channel in the pilot program with an estimated shipment volume of more than 260 shipments as a reasonable lot, and consequently, a candidate for a set-aside. /4/ Given previous concerns expressed by industry about the ability of small business concerns to handle high traffic volumes, MTMC determined that setting aside channels with more than 520 estimated shipments per year represented an unacceptably high risk to the government that small businesses would not be capable of satisfying all those channels' traffic. The contracting officer states that this assessment was also based on the fact that some small business offerors appeared to have overextended their capabilities by submitting offers on numerous channels with significantly high total committed daily capacities. As an example, she points out that many of the small business offerors submitted proposals for all channels in the solicitation, apparently in anticipation of receiving awards on fewer channels than proposed, and that this is a strategy used by many carriers in the current personal property program; MTMC believes offerors' continued use of this strategy under the current solicitation evidences a misunderstanding of the pilot program. This, coupled with the inherent risks associated with carrier affiliations that may render some of the offerors ineligible for award, provided what the contracting officer considered too great a level of risk to the government to allow the highest volume channels to be appropriate for a total set aside.

MTMC therefore selected for the set-aside the channels with estimated shipments per year ranging between 260 and 520. MTMC determined that there were 17 such channels based on fiscal year 1995 shipping data, which it considered the most complete information available. The agency then reviewed the proposals that had been submitted by self-certified small business offerors on the identified channels, and concluded there was sufficient interest from qualified and capable small businesses, who offered enough capacity to satisfy the expected number of shipments in these channels. MTMC considered the performance and financial capability of the small business offerors and any affiliations they may have with large businesses or each other, and concluded that the level of risk to the government in setting aside these 17 channels was acceptable. MTMC also determined that the prices previously submitted by small business offerors were fair and reasonable on these channels, and concluded that most of the offers submitted by small businesses indicated that the concerns have the technical competence and productive capacity to satisfy the proposed set-aside channels at a fair market price.

Accordingly, MTMC issued amendment No. 9 on April 3, 1998, which, among other things, eliminated the previous partial set-aside and designated 17 channels (15 domestic, 2 international) as 100-percent small business set-asides. /5/ According to the amendment:

These channels represent one hundred percent (100%) of the traffic volume of each channel, and approximately thirty-six percent (36%) of the total estimated contract value (i.e., dollars, based on historical data). The 17 channels selected represent approximately thirty-six percent (36%) of the total traffic based on historical data. /6/

Offerors were allowed to revise their existing proposals, and other interested vendors could submit initial proposals if they had not already done so, by the April 28 due date established by the amendment.

The protesters contend that MTMC has failed to establish that all of the 17 set-aside channels provide sufficient numbers of shipments to be considered economic production runs or reasonable lots for each small business contract awardee. In this regard, the protesters allege that in setting aside these channels, the agency failed to consider the prospect of multiple awards per channel, the requirement for committed daily capacity, and the possible award of more than one channel per contractor. The protesters argue that establishing the overall set-aside at 36 percent of the total traffic is not based on any measure of small business capability and does not maximize small business capacity as required. Further, in contending that the agency's selection of the 17 channels is devoid of rational basis, the protesters point out that the percentage of shipments set aside varies significantly depending on the origin state, that the agency's set-aside criteria ignored the operational requirements confronting small businesses where the destination regions are distant from the origin state(s), /7/ and that in some instances the channels selected for the set-aside would change if MTMC used the most recent historical shipping data. The protesters also claim that MTMC failed to take into account the impact of the expansion of the Navy's Service Member Arranged Move program on one of the set-aside channels as well as the impact of nonrecurring mass moves that assertedly inflated the numbers of shipments used in establishing the set-asides.

Because the 17 channels specified in amendment No. 9 were each set aside in their entirety, MTMC has effectively reversed its earlier determination not to make total set-asides of entire channels. As small business offerors on the RFP can submit offers on any or all traffic channels, or any combination thereof, and need not submit proposals on the non-set-aside channels in order to submit proposals on the set-aside channels, we view each set-aside channel as a total set-aside within the context of the set-aside portion of the overall procurement. /8/ See FAR Sec. 19.502; 38 Comp. Gen. 744, 746 (1959) (total set-aside of the entire requirements on only one item of a multiple item procurement does not make the set-aside action on the one item a partial set-aside, but is properly classified as a total set-aside, where the items are independent of each other); Midland Transp., Co., B-201319, Aug. 4, 1981, 81-2 CPD Para. 89 at 3, aff'd, B-201319.2, Dec. 11, 1981, 81-2 CPD Para. 459 (solicitation encompassing several items, some of which were set aside in their entirety for small business and others which were not, was not "partial small business set-aside," which is "term of art" describing the situation where a severable portion or quantity of the same item or class of items is set aside exclusively for small business and the other portion is not). /9/

Since the channels set aside constitute total set-asides, MTMC is not required to demonstrate that these channels constitute economic production runs or reasonable lots of shipments, as contended by the protesters, because the requirements of FAR Sec. 19.502-3, establishing the criteria for partial set-asides, do not apply to total set-aside determinations. See FAR Sec. 19.502-2. Accordingly, we need not consider the various arguments described above advanced by the protesters as to why the set-aside channels do not properly constitute economic production runs or reasonable lots of shipments or why the selection of those channels was not rationally based under that standard.

While some protesters appear to suggest that at least some of the 17 set-aside channels should not have been set aside, inasmuch as they may not be economic production runs or reasonable lots sufficient to support small business concerns, the contracting officer concluded that she had a reasonable expectation of receiving offers from at least two responsible small business concerns on the 17 channels considered for total set-asides and that awards will be made at fair market prices, as required for a total set-aside. See FAR Sec. 19.502-2(b); PR Newswire, B-279216, Apr. 23, 1998, 98-1 CPD Para. 118 at 2.

Specifically, MTMC reviewed the various proposals submitted by self-certified small business concerns for the earlier partial set-aside, and concluded that there was sufficient small business interest from responsible and capable concerns on each of the channels being considered for a total set-aside. MTMC determined, that, cumulatively, small businesses offered enough committed daily capacity to satisfy the expected traffic volume of the proposed set-aside channels and that the vast majority of the small business offerors demonstrated that they have the performance and financial capability to perform the solicitation requirements at a satisfactory or better level in at least one of the channels in which they submitted offers. MTMC also considered the price analysis previously performed on the initial offers, and concluded that the pricing in the proposals of small business offerors for the channels was fair and reasonable and that there was no reason to expect that this analysis would be different for the revised set-aside channels.

Consequently, MTMC's set-aside analysis satisfied all criteria for a total set-aside under FAR Sec. 19.502-2(b), and the contracting officer's resulting determination to set aside the 17 selected channels in their entirety for exclusive small business participation is unobjectionable. While this was not the only way MTMC could have revised the former partial set-aside in accordance with our recommendation, we do not view it as inconsistent with our recommendation.

As to the remaining 36 channels in the pilot program, the protesters did not protest MTMC's decision not to set aside the 26 channels with shipping volumes lower than the set-aside channels. /10/

With regard to the 10 channels with higher traffic volumes than the set-aside channels, we continue to find unobjectionable the agency's position first taken in its initial set-aside determination that there was no reasonable expectation of receiving offers from at least two responsible small business concerns on these channels, given the agency's concerns about small business capabilities to handle the pilot program's new requirements, particularly on these channels with the highest traffic volumes, as described in our earlier decision, Aalco Forwarding, Inc., et al., B-277241.16, supra, at 6-7. Moreover, the agency supplemented its previous analysis by reviewing the offers submitted by small business concerns on this RFP, and concluded that there was an unacceptable risk in setting aside the highest volume channels, considering the very high committed daily capacities offered by some of these proposals over the various channels and the inherent risks associated with carrier affiliations that may render some of the offerors ineligible for award. The protesters have not shown the agency's analysis lacked a reasonable basis. Particularly in light of the experimental nature of this program, we find the agency's decision not to set aside the 10 highest volume traffic channels for exclusive small business participation to be reasonable. /11/

Some of the protesters, as well as SBA, contend that in issuing this solicitation, MTMC failed to comply with the procedures of the Small Business Act as recently amended by the Small Business Reauthorization Act of 1997 to avoid unnecessary and unjustified bundling of contract requirements that precludes small business participation in procurements as prime contractors. See Pub. L. No. 105-135, Sec. 411-417, 111 Stat. 2592, 2617-20 (to be codified, in relevant part, at 15 U.S.C. Sec. 631(j), 632(o), and 644(e)). The protesters and SBA argue that these recent amendments to the Small Business Act require the application of a stricter standard for the justification of bundling contract requirements than was applied in our earlier decision, Aalco Forwarding Inc., et al., B-277241.12; B-277241.13, supra, in which we denied their previous protests that the RFP impermissibly restricts competition by bundling certain contract requirements to the detriment of small business concerns. /12/ According to the protesters, as the solicitation was superseded in its entirety after the effective date of the Small Business Reauthorization Act of 1997, the legislation's stricter standard for justifying bundling now applies, and MTMC has failed to apply this standard to justify the solicitation's bundling of contract requirements.

We view this contention as essentially an untimely request for reconsideration of our earlier decision on the bundling issue. The Small Business Reauthorization Act of 1997, enacted December 2, 1997, was effective October 1, 1997. Pub. L. No. 105-135, Sec. 3, 111 Stat. 2592, 2593. The protesters could have requested our consideration of their view that this legislation applies to this solicitation during the pendency of the earlier protests or at least requested reconsideration of the resulting decision on the basis of the legislation's applicability to the solicitation within 10 days of the issuance of our decision. They did not, and we dismiss this contention as untimely. 4 C.F.R. Sec. 21.14(c); see Logitek, Inc.--Recon., B-241639.4, Aug. 30, 1991, 91-2 CPD Para. 221. /13/

The protests are denied.

Comptroller General of the United States

1. This decision is made under our express option procedures, 4 C.F.R. Sec. 21.10 (1998). The protesters are: Aalco Forwarding, Inc.; AAAA Forwarding, Inc.; A Advantage Forwarders, Inc.; Air Van Lines International, Inc.; Allstates Worldwide Movers; Aloha Worldwide Forwarders, Inc.; Alumni International, Inc.; American Heritage International Forwarding, Inc.; American Shipping, Inc.; American World Forwarders, Inc.; Apollo Forwarders, Inc.; Arnold International Movers, Inc.; Astron Forwarding Company; BINL Incorporated; Burnham Service Company, Inc.; Cavalier Forwarding, Inc.; Classic Forwarding, Inc.; Davidson Forwarding Co.; Deseret Forwarding International, Inc.; Foremost Forwarders, Inc.; Great American Forwarders, Inc.; Hi-Line Forwarders, Inc.; International Services, Inc.; Island Forwarding, Inc.; Katy Van Lines, Inc.; Lincoln Moving & Storage; Miller Forwarding, Inc.; Northwest Consolidators; Ocean Air International, Inc.; Senate Forwarding, Inc.; Sentinel International Forwarding, Inc.; Shoreline International, Inc.; Stevens Forwarders, Inc.; T.R.A.C.E. International, Inc.; Von Der Ahe International, Inc.; Wold International, Inc.; Zenith Forwarders, Inc.; Acorn International Forwarding Company; AAA Systems, Inc.; A.C.E. International Forwarders; Apex Forwarding Company, Inc.; Armstrong International, Inc.; Art International Forwarding, Inc.; Coast Transfer Company, Inc.; Crystal Forwarding, Inc.; CTC Forwarding Company, Inc.; Diamond Forwarding, Inc.; Dyer International, Inc.; Harbour Forwarding Company, Inc.; HC&D Forwarders International, Inc.; Jag International, Inc.; The Kenderes Group, Inc.; Pearl Forwarding, Inc.; Rainier Overseas, Inc.; Rivers Forwarding, Inc.; Ryans's World; Sequoia Forwarding Company, Inc.; A-1 Relocation, Inc. d/b/a A-1 Movers of America, Inc.; A-1 Moving & Storage, Inc.; Able Forwarders, Inc.; American Van Services, Inc.; A. Arnold & Son Transfer & Storage Co., Inc.; Art and Paul Moving & Storage; Associated Forwarding, Inc.; Associated Storage and Van, Inc.; Carlyle Van Lines, Inc.; Carrier Transport International, Inc.; Coastal Moving Co., Inc.; Conrad Group, Inc.; Davidson Transfer & Storage Co., Inc.; Denoyer Brothers Moving & Storage Co.; Door To Door Moving & Storage Co.; Exhibit Transport, Inc.; Ferriss Warehouse & Storage Co., Inc.; Fogarty Van Lines, Inc.; Horne Storage Co., Inc.; Lift Forwarders, Inc.; Lynn Moving and Storage, Inc.; A.D. McMullen, Inc.; Mid-State Moving & Storage Inc.; Movers Unlimited, Inc.; Nilson Van & Storage; Northwest Consolidators, Inc.; Ogden Transfer & Storage Co.; OK Transfer & Storage, Inc.; Pan American Van Lines, Inc.; Riverbend Moving & Storage, Inc.; Royal Forwarding, Inc.; Sells Service, Inc.; South Hills Movers, Inc.; Stanley's Transfer Co., Inc.; Starck Van Lines, Inc.; StarTrans International, Inc.; Stearns Forwarders, Inc.; Stearns Moving & Storage of Kokomo, Inc.; Terminal Storage Co., Inc.; Von Der Ahe Van Lines, Inc.; Wainwright Transfer Co. of Fayetteville, Inc.; and Weathers Bros. Transfer Co.-NC.

2. This procurement was also the subject of prior decisions in Aalco Forwarding, Inc., et al., B-277241.8, B-277241.9, Oct. 21, 1997, 97-2 CPD Para. 110, which denied various protests primarily against the acquisition of these services under the Federal Acquisition Regulation (FAR) part 12 commercial item procedures; in Aalco Forwarding Inc., et al., B-277241.12, B-277241.13, Dec. 29, 1997, 97-2 CPD Para. 175, which denied protests that the RFP impermissibly bundled contract requirements to the detriment of small business concerns; and in Aalco Forwarding Inc., et al., B-277241.15, Mar. 11, 1998, 98-1 CPD Para. 87, which denied protests of the RFP's stated contract minimum and maximums, price evaluation scheme, and Service Contract Act provisions. These decisions contain much of the background for this procurement, which will not be repeated here.

3. MTMC's concern reflected the fact that 260 shipments might be 100 percent of the shipments for one channel, 60 percent for another, and 30 percent for yet another, depending on the total estimated shipments in the given channel.

4. MTMC did not regard any of the 26 channels with fewer than 260 shipments per year as constituting an economic production run or reasonable lot of shipments.

5. The 17 channels were among the 27 channels previously partially set aside.

6. This set-aside approach was agreed to by the SBA procurement center representative (PCR), the contracting officer, and the agency's small business specialist. See FAR Sec. 19.501(b). The PCR later retracted his concurrence and, on his behalf, another PCR recommended, among other things, that MTMC "structure a new solicitation to include meaningful set aside provisions which will maximize small business opportunities in a resultant contract." Because, as SBA concedes, this later recommendation was untimely made under FAR Sec. 19.402(c)(2), the contracting officer takes the position that the set-aside determination is not subject to the appeals procedures of FAR Sec. 19.505 through which the earlier set-aside had been appealed, as described above.

7. Several protesters provided statements detailing the particular operational difficulties they faced, e.g., consolidating shipments to the distant destination regions on some set-aside channels.

8. This is consistent with the view of SBA and some of the protesters that each channel should be considered a separate acquisition for set-aside purposes.

9. Unlike Midland, this RFP's inclusion of partial set-aside instructions did not render the solicitation's basis for award "confusing and ambiguous" because it is apparent from reading the RFP as a whole that the submission of a proposal for the non-set-aside channels was not a necessary prerequisite to offering on the set-aside channels. See Defense Group Inc., B-257366, B-257366.2, Sept. 26, 1994, 94-2 CPD Para. 118 at 11-12.

10. It would seem that providing service on some of these low shipment volume channels may be feasible to a contractor only in conjunction with the award of other set-aside or non-set-aside channels, especially those from the same origin state utilizing the same agents and other resources.

11. In their comments filed after receipt of the agency report on the protests, some protesters suggest that the 10 highest volume channels could be the subject of a partial set-aside. This contention was not made in, nor was it within the scope of, the initial protests. Since this supplemental contention was first raised after the closing time for receipt of proposals, it is untimely and will not be considered. 4 C.F.R. Sec. 21.2(a)(1) (1998); see A-1 Postage Meters and Shipping Sys., B-266219, Feb. 7, 1996, 96-1 CPD Para. 47 at 3 n. 1. Although the SBA also now takes the position that the non-set-aside channels should have been considered for partial set-asides, it did not timely object to the contracting officer's set-aside determination, and we will not consider the matter further.

12. We held that the challenged solicitation requirements that each contractor serve all points in a traffic channel and that each contractor provide both household goods and unaccompanied baggage transportation services do not constitute improper bundling of requirements where they reasonably reflected the agency's needs and are necessary to implement the pilot program's goals of reducing administrative burdens on the agency and improving the reliability and quality of service. Id. at 6-8. Although not mentioned in that decision, we were cognizant of these amendments to the Small Business Act, but found them inapplicable because the procurement strategy for the solicitation had been established before the amendments were enacted.

13. Although some protesters continue to object to the RFP's requirement that offerors commit to daily capacity at each personal property shipping office in an origin state, we previously found the solicitation's requirement for committed daily capacity to be reasonable. Aalco Forwarding, Inc., et al., B-277241.8, B-277241.9, supra, at 20.