TransAtlantic Lines, LLC

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:  TransAtlantic Lines, LLC

File:  B-411846.3; B-411846.4

Date:  May 18, 2016

DIGEST

Protest of an agency’s price evaluation is denied where the agency reasonably evaluated the protester’s ocean shipping rates consistent with the terms of the solicitation and the Cargo Preference Act of 1904.

TransAtlantic Lines, LLC, a small business located in Greenwich, Connecticut, protests the rejection of hundreds of its proposed ocean shipping rates under request for proposals (RFP) No. HTC711-15-R-W002, issued by the Department of Defense (DOD), U.S. Transportation Command (TRANSCOM), for international cargo transportation.  TransAtlantic contends that the agency’s price evaluation was inconsistent with the terms of the solicitation and violated the Cargo Preference Act of 1904.

We deny the protest.

BACKGROUND

The Cargo Preference Act of 1904, as amended, (CPA) provides that:

[o]nly vessels of the United States or belonging to the United States may be used in the transportation by sea of supplies bought for the Army, Navy, Air Force, or Marine Corps.  However, if the President finds that the freight charged by those vessels is excessive or otherwise unreasonable, contracts for transportation may be made as otherwise provided by law.  Charges made for the transportation of those supplies by those vessels may not be higher than the charges made for transporting like goods for private persons.

10 U.S.C. § 2631(a).[1]  The Act is implemented by DFARS subpart 247.5, Ocean Transportation by U.S. Flag Vessels, and subpart 247.5 of the DFARS Procedures, Guidance, and Information (PGI), as discussed below.

The RFP was issued on an unrestricted basis using the commercial item procedures of Federal Acquisition Regulation (FAR) part 12, and provided for the award of indefinite-delivery, indefinite‑quantity (IDIQ) contracts (for a base year and two option years) to U.S. and foreign flag ocean carriers for international transportation of DOD related cargo.[2]  See Agency Report (AR), exh. 7, Acquisition Plan, at 10; RFP at 4-7, 10, 62, 251.[3]  The RFP stated that multiple awards would be made on a lowest‑priced, technically acceptable basis considering four evaluation factors:  technical, past performance, small business proposal, and price.  See RFP at 62‑64.  The solicitation instructed offerors to submit separate proposal volumes for each evaluation factor, and stated that the non-price factors would be evaluated on an acceptable/unacceptable (i.e., pass/fail) basis.  Id. at 56‑57, 62‑63.

Offerors were to propose fixed‑price rates for the shortest transit time that the carrier could offer between origin and destination for any of the thousands of trade areas, geographic zones, ocean routes, and ocean lanes identified in the solicitation’s performance work statement (PWS).[4]  Id. at 60; see PWS at 120-27 (trade areas and zones), 220-23 (route information).  Offerors could propose prices for seven rate categories, including three categories of ocean rates, relevant here:  (1) an ocean container rate, (2) an ocean breakbulk (i.e., non‑containerized cargo) rate, and (3) a “single factor” rate.[5]  See RFP at 60, 160. Offerors were to submit their proposed rates electronically using the Carrier Analysis & Rate Evaluation (CARE II) System, which is part of the agency’s web‑based, integrated booking system (IBS).  Id. at 56, 59-60.

The RFP provided that price proposals would be evaluated for fairness and reasonableness in accordance with FAR § 15.404-1, and that reasonableness may be determined based on a comparison to other offerors’ prices or to the government’s estimate, current market conditions, or any other price analysis technique under FAR § 15.404‑1(b)(2).  Id. at 64.  The RFP stated that an offeror’s pricing would be evaluated on a “by-lane basis” (specific contract line item number (CLIN) in the CARE II system under various ocean routes);[6] therefore, an offeror’s prices could be determined fair and reasonable on some lanes, but not others.  Id.  Offerors were eligible for contract award if any one of their proposed rates was determined fair and reasonable on at least one ocean lane.  Id.

With regard to the Cargo Preference Act, the RFP provided that U.S. flag service would not be considered when rates were evaluated for contract award, but that any rate that appeared excessive (under the Act, see 10 U.S.C. § 2631(a), supra)[7] would be further evaluated in accordance with DFARS § 247.573.[8]  Moreover, the RFP stated that the contracting officer would not consider an offer to be fair and reasonable if it contained rates higher than the highest commercial service contract rate; or contained rates that were clearly and substantially in excess of the rates stated in comparable commercial services contracts to which the offeror is a party, for the same trades and similar services.  Id.

TRANSCOM received proposals from 29 carriers offering 36,254 separate cargo rates, including from TransAtlantic, an incumbent (USC‑7)[9] small U.S. flag carrier that offered 2,104 rates, including the 569 ocean rates at issue here.[10]  AR, exh. 42, 3rd Eval. Summ., at 1‑3.  Proposals were evaluated by a source selection evaluation board (SSEB) comprised of different teams for each RFP evaluation factor, including a price evaluation team (PET) that evaluated each rate category for price reasonableness.  See AR, exh. 9, Source Selection Plan, at 6‑8.  After initial evaluations, the SSEB found that all 29 carriers proposed fair and reasonable rates on at least one lane, and the SSEB recommended that the agency hold discussions with all carriers.[11]  See AR, exh. 21, Competitive Range Determination, at 4-5.  The agency conducted two rounds of discussions with offerors.[12]

To evaluate whether proposed ocean rates were fair and reasonable, the PET established a range for each CLIN with the lowest rate received as the “floor price,” and the “ceiling price” set at [DELETED] percent above the lowest rate.[13]  AR, exh. 25, Pricing Guidance, at 1‑2; exhs. 39-41, 3rd Ocean Rate Evals.  That is, all ocean rates that were less than [DELETED] percent above the lowest proposed rate for that CLIN, were deemed fair and reasonable; ocean rates more than [DELETED] percent above the lowest‑received rate were deemed not fair or reasonable.[14]  For any CLIN where only one offeror proposed a rate (which the agency considered to be inadequate price competition for a CLIN), the PET used other price analysis techniques, such as comparison of the proposed ocean rate to the carrier’s initial proposed rate, and, if applicable, the carrier’s USC‑7 rate and/or the government estimate.  AR at 19; see exhs. 39‑41, 3rd Ocean Rate Evals.; see also exhs. 18‑20, 1st Ocean Rate Evals.; exh. 31, 2nd Rate Evals.  With respect to TransAtlantic, the PET evaluated the 569 ocean rates that the carrier proposed and found that 517 were unreasonable.  AR at 6, 27; exh. 42, 3rd Eval. Summ., at 1.

After the PET’s price evaluation, the contracting officer reevaluated the ocean rates that were found unreasonable (i.e., above the [DELETED] percent price ceiling) in order to determine whether the rate should undergo a further excessiveness evaluation pursuant to the CPA; if so, he conducted a detailed analysis, described below.  AR at 26; exh. 44, Price Excessiveness (Excess.) Notes; exh. 50, Determination & Findings of Price Excess. (D&F).  The contracting officer documented his analysis in a Determination and Findings Report approved by TRANSCOM’s component acquisition executive.  AR, exh. 50, D&F.  With respect to TransAtlantic, 20 of its proposed ocean rates--rates already deemed unreasonably high by the PET--were rejected as excessive under the CPA.[15]  Id. at 4-8; AR at 6, 27.

A source selection advisory council (SSAC) reviewed the evaluations and agreed with the PET’s price analyses, assigned ratings, and conclusions.  AR, exh. 47, SSAC Rep., at 1-3.  The SSAC recommended that the agency award contracts to all 29 offerors and that all approved rates be included in the carriers’ IDIQ contracts.  See id. at 3.  The source selection authority (SSA) for the procurement reviewed the SSAC’s report and agreed.  AR, exh. 48, Source Selection Decision Doc.

TRANSCOM awarded contracts to all 29 offerors for almost 35,000 approved cargo rates.  See id.  With respect to TransAtlantic, TRANSCOM approved 1,511 of the protester’s 2,104 proposed rates, including 52 of the protester’s 569 proposed ocean rates.[16]  This protest followed.

DISCUSSION

TransAtlantic protests the rejection of its proposed ocean rates, arguing that TRANSCOM’s price evaluation was inconsistent with the solicitation and the Cargo Preference Act.  While we do not specifically discuss each of the parties’ various arguments, we have considered all of the protester’s contentions and find none furnishes a basis to sustain the protest.[17]

Price Reasonableness

TransAtlantic contends that TRANSCOM’s price reasonableness evaluation was based on “arbitrary metrics” and “unsupported assumptions,” and that the agency can provide no justification for selecting a [DELETED] percent benchmark (i.e., the ceiling price for any given CLIN) for establishing whether a proposed ocean rate was fair and reasonable.  See Comments at 2, 7‑11.  TransAtlantic argues that the benchmark was based on a cost model (namely, large carrier rates) that did not account for the actual price difference between U.S. and foreign flag carrier rates, or for the cost premium associated with U.S. flag service.  For example, TransAtlantic complains that TRANSCOM did not consider a 2011 study by the U.S. Maritime Administration that found that operating costs for U.S. flag vessels are approximately 2.7 times higher due to the compliance costs of U.S. regulatory requirements for labor, insurance, liability, maintenance, repair, and the environment.[18]  According to TransAtlantic, the [DELETED] percent benchmark created an artificially low floor price that resulted in an inaccurate “apples to oranges” price comparison that prejudiced small U.S. flag offerors like TransAtlantic.  Id. at 6.  

Based on our review of the record, we find TRANSCOM’s price reasonableness evaluation unobjectionable and consistent with the RFP and the FAR.  In reviewing a protest of an agency’s evaluation of proposals, our Office will examine the record to determine whether the agency’s judgment was reasonable and consistent with the solicitation’s evaluation criteria and applicable procurement statutes and regulations.  See, e.g., TransAtlantic Lines, LLC, B‑401825, Nov. 23, 2009, 2009 CPD ¶ 232 at 4.

The FAR permits the use of various price analysis techniques and procedures to ensure fair and reasonable pricing, including the comparison of proposed prices to each other, to prices found reasonable on previous purchases, or to an independent government estimate.  FAR § 15.404-1(b)(2); Comprehensive Health Servs., Inc., B-310553, Dec. 27, 2007, 2008 CPD ¶ 9 at 8.  Consistent with the FAR, the RFP provided that price proposals would be evaluated for fairness and reasonableness, and that reasonableness may be determined based on a comparison to other offerors’ prices or to the government’s estimate, current market conditions, or any other price analysis technique under FAR § 15.404‑1(b)(2).  RFP at 64.

TRANSCOM explains that adequate price competition was the agency’s primary method for evaluating whether ocean rates were fair and reasonable.  See AR at 19.  Three carriers, for example, proposed a rate under CLIN No. 111275, therefore the agency found adequate price competition for that CLIN.  See CO Statement at 10; AR, exh. 41, 3rd Single Factor Eval., at 1.  For CLINs without adequate price competition, the agency compared the proposed rate to the carrier’s initial proposed rate, and, if applicable, the carrier’s previous USC-7 rate and/or the government estimate.  AR at 19; see exhs. 39‑41, 3rd Ocean Rate Evals.; see also exhs. 18‑20, 1st Ocean Rate Evals.; exh. 31, 2nd Rate Evals.[19]  Only one carrier, for example, proposed a rate under CLIN No. 110301, therefore the agency considered the price difference between that rate and the carrier’s USC‑7 rate.  AR, exh. 40, 3rd Ocean Container Rate Eval., at 19.  These price analysis techniques, as TRANSCOM argues, are consistent with FAR § 15.404-1.  Given the unobjectionable price evaluation methodologies employed by the agency, we have no basis to question TRANSCOM’s conclusions that the vast majority of TransAtlantic’s ocean rates were unreasonably high.[20]

Next, TransAtlantic argues that the agency’s [DELETED] percent ceiling for determining price reasonableness was improper.  The contracting officer explains that he selected a [DELETED] percent ceiling price based on numerous considerations, including the agency’s most recent (2014) rate competition; the percentage of DOD cargo moved by specified carriers under the USC‑7 contracts;[21] the extent to which smaller carriers offer regularly scheduled commercial liner service; the needs of agency booking officers in that regard; and selected rates proposed by TransAtlantic during the USC‑7 final option year competition that were rejected.[22]  See AR at 21; exh. 25, Pricing Guidance Mem., at 1-3; CO Statement at 31.  The contracting officer also considered the Deep Sea Freight Index, which showed a negative 0.2 percent change in freight prices between fiscal years 2013 and 2014.  See AR, exh. 25, Pricing Guidance Mem., at 11.  Such historical and commercial pricing considerations are exactly the metrics envisioned by the FAR for use in price analysis.  See FAR § 15.404-1(b).

While TransAtlantic apparently believes that the agency was required to use some independent analysis to calculate floor and ceiling prices for each CLIN, there is nothing inherently unreasonable or unduly restrictive of competition for an agency to use pricing ceilings to assess the reasonableness of prices, particularly here, where the agency received and evaluated tens of thousands of proposed rates.[23]  See, e.g., TransAtlantic Lines, LLC, B‑411846.2, supra, at 10, citing, inter alia, Sea‑Land Serv., Inc., B‑278404.2, Feb. 9, 1998, 98‑1 CPD ¶ 47 at 9.[24]  A price reasonableness determination is a matter of agency discretion, involving the exercise of business judgment, which the protester here has not shown to be unreasonable.  See Serco, Inc., B‑406683, B‑406683.2, Aug. 3, 2012, 2012 CPD ¶ 216 at 14.

In sum, although TransAtlantic disagrees with TRANSCOM’s pricing assumptions and conclusions, the protester has not shown that the agency’s price reasonableness evaluation of ocean rates violated procurement laws or regulations, or the RFP.  See Serco, Inc., supra; see, e.g., American President Lines, Ltd., B‑236834.8, B‑236834.9, May 15, 1991, 91‑1 CPD ¶ 470 at 5 (protest of Military Sealift Command’s rejection of protester’s rates as unreasonable is denied where the RFP provided for comparisons to competitors’ rates and prior rate history under FAR part 15, and where record shows that protester’s rates were substantially higher than the low rate submitted and substantially higher than prior contract prices).  Accordingly, this basis of protest is denied.

Price Excessiveness

TransAtlantic next argues that TRANSCOM’s price excessiveness determination was inconsistent with the Cargo Preference Act, because the contracting officer only evaluated the excessiveness of some, but not all, of TransAtlantic’s ocean rates.  According to TransAtlantic, this effectively barred it from competing for many bookings, contrary to Act’s underlying policy of subsidizing and increasing competition from U.S. flag carriers.  TransAtlantic asserts that TRANSCOM had no basis to consider U.S. flag service, because the RFP did not require carriers to identify the level of flag service offered.  In this respect, TransAtlantic complains, once again, that the agency relied on unfounded assumptions and “arbitrary criteria that subvert the CPA and its implementing regulations.”  Comments at 7.  TransAtlantic also claims that TRANSCOM did not follow the applicable DFARS and PGI criteria for making excessiveness determinations. 

TRANSCOM contends that it was not required to evaluate all ocean rates for excessiveness, but was only required to evaluate those rates deemed unreasonable under the agency’s FAR reasonableness analysis.  TRANSCOM argues that it fully complied with the CPA, because rates proposed by U.S. flag carriers were only rejected where there was still at least one other U.S. flag carrier with an accepted rate for an ocean lane that could compete at the booking level.  TRANSCOM maintains that its contracting officer properly considered all applicable factors under the relevant DFARS and PGI provisions, and properly documented its excessiveness determination.

As stated above, the RFP provided that any rate that appeared excessive would be further evaluated in accordance with DFARS § 247.573.[25]  RFP at 64.  In this respect, PGI § 247.573 specifies a number of considerations for analyzing whether freight charges offered by U.S. flag carriers are excessive.[26]  The contracting officer must consider that the CPA is, in part, a subsidy, and that a lower price for foreign flag service is not a sufficient basis, on its own, to determine that an ocean rate proposed by a U.S. carrier is excessive.  See PGI § 247.573(b)(1)(ii)(C)(1)(i).  The contracting officer may also consider a number of other factors, such as:  (1) excessive profits to the carrier, if ascertainable; (2) the differential between the freight charges proposed by a U.S. flag carrier and an estimate of what foreign flag carriers would charge based on a price analysis; (3) a comparison of U.S. flag rates charged on comparable routes; (4) the efficiency of operation regardless of rate differential (e.g., vessel capacity or positioning); and‑-significantly--(5) “[a]ny other relevant economic and financial considerations.”  See PGI §§ 247.573(b)(1)(ii)(C)(1)(ii)-(iii) (emphasis added).  If, after considering such factors, the contracting officer concludes that an ocean rate is excessive, the guidance requires that the contracting officer must prepare a Determinations and Findings report that includes, “as appropriate”:  (6) an analysis of the carrier’s cost under FAR subpart 15.4; (7) a description of efforts to negotiate a reasonable price under FAR § 15.405; and (8) an analysis of whether the costs are beyond the economic penalty normally incurred by excluding foreign competition.  See PGI § 247.573(b)(2)(iv)(C)(1).

Here, the contracting officer’s excessiveness determination was unobjectionable and consistent with the DFARS.  The contracting officer states that if a carrier’s proposed ocean rates were found not fair and reasonable by the PET, then those rates underwent further analysis to determine if they were indeed unreasonable, and to determine whether the rates were excessive.  CO Statement at 24, 33; AR, exh. 44, Excess. Rate Notes, at 1.  The contracting officer explains that he verified those ocean lanes in which carriers historically offered U.S. flag service and confirmed which small carriers only own or operate U.S. flag vessels.[27]  For ocean lanes where there was only one small carrier (such as TransAtlantic) that proposed a rate--and that rate was outside the [DELETED] percent price ceiling--the contracting officer also compared the proposed rate to those of “similarly situated” carriers.[28]  See CO Statement at 33‑34; AR at 17-18, 32, 37‑38.  For example, if the lane was historically served by a U.S. flag vessel or by a small business carrier that only owns or operates U.S. flag vessels, and for which the offeror’s rate exceeded the [DELETED] percent threshold, then that offeror’s rate was rejected for that CLIN.  See CO Statement at 33-34.  Based on this process, the contracting officer found that 20 of TransAtlantic’s 517 unreasonably high ocean rates appeared excessive and thus qualified for additional analysis pursuant to the CPA.[29]  See AR, exh. 50, D&F, at 4‑6.

While TransAtlantic objects to the contracting officer’s various assumptions and considerations relied on in his excessiveness determination, the protester does not substantively challenge any them.  For example, TransAtlantic does not dispute the contracting officer’s identification of small U.S. flag carriers, carriers that historically offered U.S. flag service, or small carriers that only own or operate U.S. flag vessels.[30]  Moreover, TransAtlantic objects to the agency’s reliance on the Deep Sea Freight Index, because according to the protester it does not take into account flag service, but the protester does not otherwise challenge the actual indexes for any given fiscal year or any of the agency’s comparisons in that regard.  Significantly, the protester does not dispute any of the contracting officer’s calculations regarding the 20 TransAtlantic ocean rates that he found excessive.[31]

Finally, we disagree with TransAtlantic that TRANSCOM was required to evaluate every ocean rate for excessiveness.  The RFP advised that an offeror’s rates may be determined fair and reasonable on some ocean lanes, but not others.  RFP at 64.  Moreover, the RFP explicitly stated that a price proposal would not be considered fair and reasonable if it proposed rates that were above the highest commercial service contract rate, consistent with the CPA.  Id.  Significantly the RFP stated that any rate that appeared to be excessive would undergo further evaluation in accordance with CPA regulations.  Id.  As discussed above, the PET reasonably concluded, based on adequate price competition and other FAR price evaluation techniques, that the vast majority of TransAtlantic’s proposed ocean rates were unreasonable.  As also discussed above, the contracting officer then further evaluated those rates to verify the evaluators’ conclusions and to determine whether any rates should undergo a further excessiveness evaluation under the CPA.  This process, in our view, was consistent with the RFP’s stated evaluation process and the CPA’s requirement that U.S. flag carriers not charge DOD rates that are higher than the carrier charges to private persons for transportation of like goods.

In the final analysis, TransAtlantic’s challenges to TRANSCOM’s price evaluations provide no basis to sustain its protest.  See TransAtlantic Lines, LLC, B‑411846.2, supra, at 9-10; American President Lines, Ltd., supra, at 5.  Rather, in our view, TransAtlantic’s protest essentially reflects the protester’s continuing objection to the terms of the solicitation, and the protester’s apparent view that TRANSCOM must conduct the procurement so as to provide the maximum possible CPA subsidy for all U.S. flag carriers.

The protest is denied.

Susan A. Poling
General Counsel