BNUMBER: B-266238
DATE: February 8, 1996
TITLE: Sea-Land Service, Inc.
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Matter of:Sea-Land Service, Inc.
File: B-266238
Date: February 8, 1996
Raymond S. E. Pushkar, Esq., and Michael A. Hopkins, Esq., McKenna &
Cuneo, for the protester.
Richard S. Haynes, Esq., E. Duncan Hamner, Esq., and Charna J.
Swedarsky, Esq., Military Sealift Command, for the agency.
Christine F. Davis, Esq., and Guy R. Pietrovito, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
A solicitation will not result in the award of an enforceable
requirements contract where a solicitation provision disclaims the
government's obligation to order its requirements from the contractor
and therefore renders illusory the consideration necessary to enforce
the contract; agency's proposed amendment to that solicitation
provision is ambiguous and does not clearly revive the government's
obligation to order its requirements from the contractor.
DECISION
Sea-Land Service, Inc. protests the terms of request for proposals
(RFP) No. N62387-95-R-8058 ("the Interport RFP"), issued by the
Military Sealift Command (MSC), for ocean and intermodal
transportation of Department of Defense (DOD) cargo on specified trade
routes. Sea-Land protests that the RFP will not result in the awards
of enforceable requirements contracts, as solicited.
We sustain the protest.
The Interport RFP was issued on October 21, 1994, to obtain rates and
services for ocean and intermodal transportation of breakbulk and
containerized cargo over eight trade routes from October 1, 1995 to
May 31, 1996.[1] Carriers could submit proposals for any trade route
on which they maintained regular commercial sailings, using either
all-United States (U.S.) flagship service, all-foreign flagship
service, or combination service (U.S. and foreign flagship service).
The RFP incorporated the Cargo Preference Act of 1904, 10 U.S.C. sec.
2631 (1994), and accorded a preference to U.S. flagship service over
foreign flagship service. Furthermore, to be eligible for award,
carriers were required to commit 50 percent of their U.S. flagship
capacity, if any, to the DOD Sealift Readiness Program for use in a
military or national defense emergency.
The RFP, as issued, stated that "[t]he government contemplates award
of a Firm-Fixed Rate, Indefinite Delivery, Indefinite Quantity
contract." The RFP did not impose any minimum transit time, sailing
frequency, or cargo accommodation requirement that a carrier must meet
to be eligible for award. Rather, the RFP provided that the
government would tender cargo for transport on the carrier's regularly
scheduled commercial sailings.
The carrier offering the lowest rate for a given route would receive
award, although multiple awards for each route were possible if the
service of more than one carrier was deemed necessary. The successful
carriers' names and their accepted rates would be published in the
Interport Container Agreement and Rate Guide. The Agreement, which
was included in the RFP, describes the services to be performed, the
promises of the parties, and the methods by which the government will
fill individual cargo requirements.
The promises of the carrier appear in section C-4 of the Agreement,
"Carrier Requirements." Under that section, the carrier agrees to
transport such cargo as the government might tender based upon the
carrier's accepted Interport rates or, if applicable, its lower common
carrier rates. Section C-4 does not obligate the carrier to promise
the government a minimum amount of space in its vessels, but, if the
carrier has adequate space to transport the cargo, the carrier "shall
not refuse or discriminate in the matter of cargo space
accommodations." This is in accord with The Shipping Act of 1984, 46
U.S.C. App. sec. 1701, 1709(b)(6) (1988). According to section C-4,
breaching a "Carrier Requirement" may expose the carrier to a
termination for default and a claim for damages.
Regarding the government's promises,[2] the Agreement provides that,
as individual cargo requirements arise, "all such cargo shall be
shipped via carriers holding contracts." The government warrants that
it will not book cargo with carriers not awarded Interport contracts,
unless "capability from carriers receiving awards is not available to
meet the requirement." In a multiple award situation, the government
will book cargo in order of cost favorability among Interport
carriers, provided that the low-cost carrier offers "acceptable space
and a schedule meeting the delivery requirements of the cargo." If
the low-cost carrier cannot meet the government's space or delivery
requirements for the particular cargo, the government will book the
cargo with "the next low cost carrier and so on, until a carrier can
be found who can provide acceptable space and delivery schedule." The
Agreement authorizes the government to make other arrangements to ship
the cargo if no Interport carrier can provide adequate space.[3]
Offerors were advised that the government does not guarantee any
minimum volume of cargo to any carrier.
The Agreement's "Cargo Booking Policy" also contains a "Limitation of
Government Liability" clause, which states
"Nothing in this Agreement shall give the carrier any right,
claim or cause of action against the Government for the
Government's (1) failure to book any particular cargo or any . .
. quantity of cargo with the carrier; (2) failure to utilize any
or all of the vessel space dedicated by a contract carrier; (3)
booking of any particular cargo or any quantity of cargo with any
other carrier, whether or not such carrier has been awarded a . .
. Container Agreement; (4) transporting any cargo by any means
other than with the carrier; (5) otherwise failing to perform any
of its promises or undertakings set forth in Sections C-4,[4]
G-6, or H-8 of this Agreement; (6) right to use alternative
competition methods of procuring ocean transportation, including
service contracting that will obtain service from the least
expensive among the same types of carriers or vessels and also
the least expensive among different types of carriers or
vessels."
Sea-Land submitted an initial proposal in response to the RFP by the
December 9, 1994, proposal receipt date. On August 16, 1995, MSC
issued amendment No. 0004 to the RFP. The amendment added four routes
to the scope of the RFP. These routes were Route 6A (U.S. East Coast
to Spain), Route 7 (U.S. East Coast to the Middle East Area), Route
12A (U.S. Gulf Coast to Spain), and Route 13 (U.S. Gulf Coast to the
Middle East Area). The amendment invited proposals from any
interested U.S. or foreign flagship carrier, including carriers that
did not submit proposals for the eight original routes.
Unlike the eight original routes covered by the Interport RFP, the
four new routes were the subject of another MSC solicitation, RFP No.
N62387-95-R-2600 ("the Worldwide RFP"), to which Sea-Land also
responded. The Worldwide and Interport RFPs were issued
simultaneously (October 21, 1994), contemplated concurrent performance
periods (October 1, 1995 to May 31, 1996), and contained substantially
similar terms and conditions. The Worldwide RFP, as amended, provided
that "the Government contemplates award of a Firm Fixed Rate
Requirements contract" as to most routes, including Routes 6A, 7, 12A,
and 13. The Worldwide RFP did not incorporate the standard
"Requirements" clause, set forth at Federal Acquisition Regulation
(FAR) sec. 52.216-21, required for inclusion in solicitations
contemplating requirements contracts. See FAR sec. 16.505.
In contrast with the Interport RFP, competition under the Worldwide
RFP was restricted to U.S. flagship carriers, using either all-U.S.
flagship service or combination service with foreign flagships. In
its protest report, MSC states that it issued Interport amendment No.
0004 to allow foreign flagship carriers to compete for Routes 6A, 7,
12A, and 13 because it believed that U.S. flagship service under the
Worldwide RFP might not suffice to meet DOD's cargo requirements. To
address the overlap in requirements between the Interport and
Worldwide RFPs, amendment No. 0004 advised offerors that service on
Routes 6A, 7, 12A, and 13 would be
"supplemental to U.S. flag service on these same routes . . .
under [the Worldwide RFP]. Preference will be given to awardees
of rates for these routes under [the Worldwide RFP] to the extent
that U.S. flag service can meet requirements."
Sea-Land was the successful carrier under the Worldwide RFP for Routes
7 and 13, and one of two successful carriers for Routes 6A and 12A,
effective October 1, 1995, under the Worldwide Container Agreement and
Rate Guide.
On August 25, 1995, before proposals were due under Interport
amendment No. 0004, Sea-Land filed an agency-level protest, asserting
three protest grounds: (1) that the RFP's Sealift Readiness Program
award eligibility requirement was discriminatory; (2) that the RFP
would not result in an enforceable indefinite delivery, indefinite
quantity (IDIQ) contract; and (3) that the government would breach the
Worldwide Agreement if it allowed Interport carriers to provide
service on Routes 6A, 7, 12A, and 13. MSC sustained Sea-Land's
protest only as to the allegation that the RFP's IDIQ terms were
defective, and, on September 8, MSC amended the Interport RFP to state
that it intended to award requirements contracts for the trade
routes.[5] This protest followed. MSC proceeded with the award of
the original eight trade routes on October 1, 1995, but suspended
award of the amendment No. 0004 routes during the pendency of the
protest.
Sea-Land protests, with respect to the prospective award of the
amendment No. 0004 routes, that the Interport RFP, as amended, will
not result in the awards of enforceable requirements contracts.
Sea-Land argues that the RFP's "Limitation of Government Liability"
clause excuses the government from purchasing its requirements under
the Interport Agreement, thereby vitiating the consideration necessary
to make the contracts enforceable. We agree.
A requirements contract provides for filling all actual purchase
requirements of designated government activities for specific supplies
or services during a specified contract period, with deliveries
scheduled by placing orders with the contractor. FAR sec. 16.503. The
essential feature of a requirements contract is that the government is
committed to satisfying its requirements only through that contract
and no other, while the contractor is committed to filling all such
requirements that may arise. These mutual promises constitute the
consideration necessary to form a binding contract. Torncello v.
U.S., 681 F.2d 756 (Ct. Cl. 1982); Stanley F. Horton d/b/a T & H
Rental & Snow Removal, DOTCAB No. 1231, 82-2 BCA para. 15967; B-160063,
Feb. 10, 1967. Although the mutual promises may be modified to the
extent that orders must be reasonable in relation to any estimated
quantities and the known capacity of the contractor, the absence of
either required promise undermines mutuality of consideration and
renders the contract unenforceable. Id.; Michael O'Connor, Inc.,
B-185502, Apr. 5, 1976, 76-1 CPD para. 224. Under such circumstances, the
government would incur no liability to the seller if it chose to
satisfy its requirements elsewhere, while the seller would incur no
liability to the government if it declined to supply the goods or
services requested. Modern Sys. Technology Corp. v. U.S., 24 Ct. Cl.
360 (1991); Stanley F. Horton d/b/a T & H Rental & Snow Removal,
supra; Federal Elec. Corp., ASBCA Nos. 12161, 11726, 11918, 68-1 BCA para.
6834.
In this case, we find that the government has assumed no legal
obligation under the Interport Agreement and that the solicitation
falls into the category of an illusory contract--a document which
appears to contemplate a contract, but which lacks consideration and
is therefore unenforceable. See Stanley F. Horton d/b/a T & H Rental
& Snow Removal, supra.
Ostensibly, the Interport Agreement requires the government to fill
all its cargo requirements through Interport carriers, provided that
the selected carrier has enough space and provided that no U.S.
flagship under the Worldwide Agreement is available to transport the
cargo pursuant to the Cargo Preference Act. Although the Interport
carrier has promised under the Agreement to accept all tendered DOD
cargo as space permits, the government's promise to tender such cargo
is negated by the "Limitation of Government Liability" clause.
Under that clause, the government may decline to book cargo with an
Interport carrier, even if that carrier has enough space for the cargo
and is eligible to transport the cargo under the Cargo Preference Act.
Among other things, the clause expressly denies the carrier a cause of
action if the government books cargo with any other carrier, "whether
or not such carrier has been awarded a . . . Container Agreement";
uses "alternative competition methods of procuring ocean
transportation" in order to obtain the least expensive service; or
otherwise fails to perform any of its promises or undertakings
specified in the Cargo Booking Policy or Carrier Protection from
Competition provisions. The "Limitation of Government Liability"
clause provides that "[n]othing in this Agreement shall give the
carrier any right, claim or cause of action" if the government chooses
to ignore the Interport Agreement and to satisfy its requirements
elsewhere. In other words, the government has rendered illusory the
promises made elsewhere in the agreement with regard to booking cargo
by disclaiming any liability for its failure to fulfill each of these
promises. The disclaimer makes the Interport Agreement akin to a
basic ordering agreement (BOA), which is merely an understanding, not
an obligation, that the government may enter future contracts if the
need for services arises. Modern Sys. Technology Corp. v. U.S., 24
Ct. Cl. 360; see FAR sec. 16.703; Delta Oaktree Prods., B-248903, Oct. 7,
1992, 92-2 CPD para. 230.
MSC has not disclosed the origin or purpose of the "Limitation of
Government Liability" clause, although MSC does not dispute that the
clause deprives the contract of consideration. MSC states that it
will amend the clause to restore consideration. Specifically, MSC
proposes to begin the clause with the following language, "[e]xcept as
otherwise specified herein, nothing in this Agreement shall give the
carrier any right, claim or cause of action against the Government for
the Government's (1) failure to book any particular cargo or any . . .
quantity of cargo with the carrier," and so on.[6] MSC states that
this language is intended to restore the contractor's cause of action
should the government breach any of the obligations enumerated in the
clause, but to restrict the contractor's cause of action to the
Contract Disputes Act of 1978, 41 U.S.C. sec. 601 et seq. (1994). In
this regard, the RFP already incorporates the standard Disputes
Clause, FAR sec. 52.233-1, advising offerors that the Contract Disputes
Act applies.
Sea-Land argues that one cannot reasonably interpret the agency's
proposed amended "Limitation of Government Liability" clause as
restoring the contractor's rights to pursue "claim[s] or cause[s] of
action" under the Contract Disputes Act, which the clause otherwise
precludes. The protester notes that the proposed clause does not even
mention the Contract Disputes Act or the Disputes clause, and that the
Contract Disputes Act already applies to all government contracts,
including maritime contracts. See 41 U.S.C. sec. 602(a), 603; Bethlehem
Steel Corp. v. Avondale Shipyards, Inc., 951 F.2d 92 (5th Cir. 1992).
Thus, the protester questions MSC's stated goal of implementing the
Contract Disputes Act via the "Limitation of Government Liability"
clause--a goal that could be more readily accomplished by simply
deleting the "Limitation of Government Liability" clause from the RFP.
Moreover, the protester argues that the language of the planned
amendment is essentially ambiguous. For example, if the phrase,
"[e]xcept as otherwise specified herein," refers to every provision of
the Interport Agreement (e.g., sections C-5, G-6, and H-8), then each
enumerated disclaimer in the "Limitation of Government Liability"
would be nullified and meaningless, contrary to accepted rules of
contract interpretation.
In our view, the proposed "Limitation of Government Liability" clause
is susceptible to at least two, if not more, reasonable
interpretations. Presuming that the phrase, "[e]xcept as otherwise
provided herein," refers to the Interport Agreement as a whole, no
Interport provision is specifically exempt from the "Limitation of
Government Liability" disclaimers, but numerous Interport provisions
broadly contradict each enumerated disclaimer. Thus, it is not clear
whether the provisions setting forth the government's putative
obligations are intended to be controlling in light of the "[e]xcept
as otherwise provided herein" language, or whether the disclaimer
itself will be controlling in the absence of more specific language to
the contrary in connection with the provisions setting forth those
putative obligations. Moreover, if the amended language is read to
encompass the Disputes clause incorporated into the RFP, it is not
clear how this can remedy the problem since the clause already
provides the contractor with the procedural right to bring a claim
against the government--it does not itself provide any substantive
rights and therefore would not restore the rights otherwise waived by
the carrier in the "Limitation of Government Liability" clause.
Accordingly, we find that the proposed "Limitation of Government
Liability" clause would not clarify the government's obligation under
the Interport Agreement and, therefore, would not render the contract
clearly enforceable.
In addition to the absence of consideration, Sea-Land also protests
that the Interport RFP is defective because it does not include all
FAR clauses prescribed for inclusion in a requirements contract. FAR sec.
16.505 requires the following clauses to be included in solicitations
contemplating requirements contracts: FAR sec. 52.216-18, Ordering; FAR sec.
52.216-19, Delivery-Order Limitations; and FAR sec. 52.216-21,
Requirements. The Interport RFP includes only the Requirements clause
and improperly omits the Ordering and Delivery-Order Limitations
clauses.
Sea-Land raises a number of other contentions concerning the RFP that
are meritless or not for our consideration. Specifically, Sea-Land
protests the issuance of Interport amendment No. 0004, covering Routes
6A, 7, 12A, and 13, because these routes are subject to the Worldwide
Agreement. The protester characterizes the Worldwide Agreement as a
requirements contract, which generally requires the government to
satisfy all its cargo requirements on the subject routes using
Worldwide carriers, such as Sea-Land. Although Sea-Land grants that
the government may use another carrier if Worldwide carriers lack
sufficient space for the cargo, Sea-Land maintains that space will be
available. Sea-Land argues that, because DOD would likely breach the
Worldwide Agreement by booking cargo with Interport carriers, it is
unclear what, if any, valid requirements remain under the Interport
RFP. Sea-Land thus claims that amendment No. 0004 is ambiguous and
that our Office should recommend that it be canceled.
The RFP unambiguously states that orders for cargo shipment along
these routes would first be placed under the Worldwide Agreement to
the extent that U.S.-flag service contracted for under that agreement
can meet the government's requirements. Thus, to the extent Sea-Land
asserts that orders placed under the Interport Agreement would breach
the Worldwide Agreement, the basis for that assertion is not apparent
from the RFP. To the extent Sea-Land believes that the government
will place specific orders that would constitute a breach of the
Worldwide Agreement contracts, its proper remedy would be a claim
under the Contract Disputes Act should such action occur. See GSX
Gov't. Servs., Inc., B-239549, July 5, 1990, 90-2 CPD para. 14.
The protester also claims that the use of foreign flagship service
under Interport would likely violate the Cargo Preference Act, if the
government rejects available service from Worldwide carriers or other
U.S. flagship carriers in order to expedite delivery. The Interport
RFP incorporates the appropriate cargo preference for U.S. flagship
service over foreign flagship service and extends this cargo
preference to U.S. flagship carriers under the Worldwide Agreement
pursuant to amendment No. 0004. At this juncture, Sea-Land's protest
merely anticipates a violation of the Cargo Preference Act during
performance of the Interport contract; accordingly, we will not
consider this matter.
Finally, Sea-Land protests that the Interport RFP treats U.S. flagship
carriers, such as Sea-Land, unfairly by requiring them to commit 50
percent of their U.S. flagship capacity to the Sealift Readiness
Program, a requirement inapplicable to foreign flagship carriers.
Sea-Land urges that foreign carriers not be permitted to compete. We
dismiss this protest allegation as untimely because the award
eligibility requirement was not introduced by amendment No. 0004 and
should have been protested to the contracting agency before the
initial proposal receipt date. 4 C.F.R. sec. 21.2(a)(1), (a)(3) (1995);
Wheeler Bros., Inc., B-242061.2, Apr. 19, 1991, 91-1 CPD para. 387, recon.
den., B-242061.3, June 7, 1991, 91-1 CPD para. 546. In addition, our
Office generally does not consider protests that procurements should
be more restrictive, such as by excluding a category of potential
offerors. See Petchem Inc., B-228093, Sept. 8, 1987, 87-2 CPD para. 228.
In summary, we sustain Sea-Land's protest allegation that the RFP will
not result in a requirements contract with respect to the amendment
No. 0004 routes and dismiss the remainder of Sea-Land's protest. We
recommend that MSC determine whether a requirements contract or some
other type of agreement would best serve its needs and amend the
solicitation to reflect the procurement method selected. If MSC
determines that a requirements contract is the appropriate vehicle,
the RFP should be amended to address the concerns discussed in this
decision. We also find that Sea-Land is entitled to recover its costs
of filing and pursuing this protest. 4 C.F.R. sec. 21.6(d)(1). The
protester should submit its certified claim for costs to the
contracting agency within 60 days after receipt of this decision. 4
C.F.R. sec. 21.6(f)(1).
The protest is sustained.
Comptroller General
of the United States
1. Sea-Land did not offer to transport breakbulk cargo in response to
the RFP, and its protest is based upon the RFP provisions applicable
to containerized cargo. Therefore, our decision will refer to the RFP
containerized cargo provisions, although we note that the breakbulk
cargo provisions are generally similar.
2. The government's promises appear in the following provisions of the
Agreement: section C-5, "Government Obligation--Commitment of Cargo,"
section G-6, "Cargo Booking Policy," and section H-8, "Carrier
Protection from Competition."
3. Contrary to MSC's interpretation, the Interport Agreement, while it
allows the government to discriminate between multiple awardees on the
basis of their delivery schedules, does not clearly authorize the
government to make other transportation arrangements to secure a
better delivery schedule.
4. The reference to section C-4, "Carrier Requirements," is clearly
erroneous, in that this section describes carrier promises, not
government promises. Although the apparent error does not affect our
decision, the correct reference is section C-5, "Government
Obligation--Commitment of Cargo."
5. The Interport RFP included the Requirements clause set forth at FAR sec.
52.216-21.
6. This qualifying language begins the "Limitation of Government
Liability" clause in the Worldwide Agreement. It is absent from the
Interport Agreement awarded as to the eight original trade routes.