Challenging Solicitation Provisions Deviating from Customary Commercial Practices

The Federal Acquisition Streamlining Act (FASA) of 1994 establishes the Government’s preference for acquiring commercial items. Consistent with this preference, the Federal Government must procure commercial items per customary commercial practices relevant to the items being procured. Prospective contractors may raise pre-award challenges against a procurement alleging that the Government deviated from customary commercial practices and failed to obtain a waiver. In defending against such challenges, the Government must show that it conducted adequate market research demonstrating that the requirement is being procured following a customary commercial practice. Alternatively, if the Government deviates from customary commercial practices in procuring commercial items, it can obtain a waiver according to its internal procedures. Such waivers must be based on market research and describe the customary commercial practice in the marketplace. Additionally, the waiver must show the Agency’s need to include the requirement, term, or condition inconsistent with the customary commercial practice in the marketplace. Finally, the waiver must include a determination that the use of the customary commercial practice is inconsistent with the needs of the government.

In B-411760.2, the Government Accountability Office (GAO) sustained a bid protest alleging that the Army failed to conduct adequate market research to reasonably support its determination that the pricing terms for a solicitation procuring a commercial service were consistent with customary commercial practices. The FAR Part 12 solicitation was issued in 2015 to procure solid waste management services at Fort Polk, Louisiana, where nearly 44,000 U.S. Army soldiers trained yearly before deployment. The solicitation contemplated a single-award indefinite-delivery requirements contract and required prospective contractors to submit pricing reflecting all fixed and variable costs per ton. That is, contractors were only permitted to invoice the Government based on the tonnage of waste collected. The incumbent contractor filed a pre-award protest alleging that the solicitation’s per-ton pricing provisions were inconsistent with customary commercial practice.

In the protest, the incumbent contractor alleged that similar commercial trash collection contracts with regular schedules were priced on a monthly or per-container basis – not on a per-ton basis as contemplated under the solicitation at issue. The protestor explained that since the contractor’s costs on such contracts are driven by the number, frequency, and distance between stops on a collection schedule, the costs incurred by the contractor are essentially the same whether the waste containers are full, partially full, or empty. In other words, the solicitation per-ton pricing provisions were inconsistent with customary commercial practice because the amount or weight of the waste collected did not dictate the contractor’s costs. In response, the Government acknowledged that the services contemplated under the solicitation were commercial services subject to the requirements of FAR Part 12. However, the Government asserted that it had performed the necessary market research to support its determination that requiring per-ton fixed pricing in such waste collection contracts was customary commercial practice. To demonstrate the adequacy of its market research, the Government contended that it (i) conducted a review of other Army waste collection contracts, (ii) requested industry feedback pursuant to a Sources Sought Notice (SSN), and (iii) contacted a sales representative of a waste collection company. The GAO addressed each contention but found that the Government’s market research failed to reasonably support its conclusion that the per-ton pricing provisions reflected customary commercial practice.

  • Review of Other Army Waste Collection Contracts

To justify its conclusion that per-ton pricing reflected customary commercial practice, the Government stated that it relied upon similar Army waste collection contracts at Fort Bragg, Fort Drum, and Fort Stewart in North Carolina, New York, and Georgia, respectively. The Government found that Fort Drum utilized a per-ton pricing approach, whereas Fort Bragg utilized a monthly pricing approach. Fort Stewart operated its own landfill and did not track costs by tonnage. The GAO determined that it was unreasonable for the Government to rely on other Government waste collection contracts as a basis for establishing customary commercial practice. The GAO explained that since the FAR defined commercial items as items customarily used by the general public or non-government entities, contracts with the federal government cannot generally be part of the commercial marketplace. Therefore, the Government’s reliance on other Government contracts for waste collection did not provide a reasonable basis for its determination that the per-ton pricing provisions in the solicitation reflected customary commercial practice.

  • Industry Feedback Pursuant to a Sources Sought Notice (SSN)

Next, the GAO evaluated the Government’s reliance on the SSN as a reasonable basis for justifying its determination. The pertinent question in the SSN asked the industry for comments and suggestions on the anticipated contract structure along with relevant pricing considerations in comparison to customary commercial practices. The same question requested industry feedback on the potential impacts of the per-ton pricing structure and requested information necessary for contractors to provide fair and reasonable pricing. The Government received seven responses to the SSN, four of which suggested that the Government should adopt a monthly pricing structure as opposed to a per-ton pricing structure. The other three responses were silent on the issue. The GAO found that since none of the respondents identified any current commercial contracts priced on a per-ton basis, it was unreasonable for the Government to conclude that the solicitation’s pricing terms constituted customary commercial practice. The GAO explained that it had expressly held previously that the absence of objections to a solicitation provision did not satisfy the Government’s obligation to demonstrate support for an affirmative determination regarding customary commercial practice. Therefore, the Government could not rely upon the silence of the three respondents as justification for the per-ton pricing provisions reflected a customary commercial practice.

  • Discussions with the Sales Representative

The GAO also determined that the market research conducted by Army personnel at Fort Drum by contacting a sales representative for a trash company in upstate New York did not provide an adequate basis for concluding that the solicitation’s per-ton pricing provisions reflected a customary commercial practice. The GAO pointed out that the record lacked any specific references to commercial waste collection contracts to which the New York trash company was a party. The record similarly lacked documentation from the sales representative or the Fort Drum personnel who contacted him. Finally, the record also did not contain any documents, materials, or information addressing the extent of the sales representative’s expertise and knowledge in determining whether per-ton pricing structures constituted a customary commercial practice in the waste collection industry. Therefore, the GAO rejected the Government’s position that its market research provided a reasonable basis for determining that the price-per-ton provisions in the solicitation were consistent with customary commercial practice. Additionally, since the Government also failed to obtain a waiver for utilizing solicitation provisions that deviated from customary commercial practice, the GAO sustained the incumbent contractor’s protest.

Whenever possible, the government should acquire commercial items using customary practices and standard terms and conditions of the commercial marketplace. Doing so is beneficial to both the Government and contractors because it promotes consistency and establishes reasonable expectations for both parties. If the Government utilizes solicitation terms inconsistent with customary commercial practices, it must justify its deviations by conducting adequate market research that demonstrates that the solicitation’s terms are, in fact, customary commercial practices. Alternatively, the Government must obtain a waiver to alter the terms of the commercial item procurement by demonstrating through market research that its needs can only be met by deviating from the standard terms and conditions of the commercial marketplace. In the absence of such adequate research or waiver, interested prospective contractors may be successful in their pre-award protests that allege the Government’s violation of the FASA and FAR Parts 10 and 12 in commercial item procurements.

This Bid Protests Insight provides a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.