USC-6 Draft RFP Cover Letter 26 Jun 08.pdf

UNITED STATES TRANSPORTATION COMMAND

508 SCOTT DR

SCOTT AIR FORCE BASE IL 62225-5357

26 Jun 08

MEMORANDUM FOR PROSPECTIVE OFFERORS

FROM: USTRANSCOM/TCAQ-I

508 SCOTT DRIVE

SCOTT AFB, IL 62225-5357

SUBJECT: Update to Draft Request for Proposal (RFP) #: HTC711-08-R-0011, Universal Services Contract (USC)-6

1. Attached is a copy of the updated draft RFP for international cargo transportation and distribution services using vessel operating ocean common or contract carriers' offering regularly scheduled commercial liner service for requirements that may arise in any part of the world.

2. Offers are not to be submitted in response to this notice. The intent of posting this draft is to obtain feedback from Industry prior to issuing the RFP in July 2008. Therefore, we are asking for inputs and comments from all interested offerors. Please send your inputs and comments to Cindy Strout at cindy.strout@ustranscom.mil or myself at charles.burton@ustranscom.mil no later than 09 Jul 08.

3. As anticipated, interest in and response to the first draft RFP was robust. Our Industry partners and Government customers have provided numerous comments, recommendations and insights over the past few months on the draft RFP. We thoroughly reviewed all responses and have updated the attached draft accordingly. The process has proved to be challenging as we work to balance Industry requests with customer needs; while adhering to procurement laws and considering sound stewardship of Government funds.

4. To accommodate an efficient review, changes from the last draft RFP are highlighted in light grey. The more significant changes are identified below with a brief explanation of our position.

a. Minimum Guarantee (RFP document, page 4 of 58):

The minimum guarantee is now $5,000 for each award. In an effort to incentivize good performance, the government is placing emphasis on performance throughout the contract period. With a standard minimum guarantee, the contemporaneous best value bookings will ensure the best performing carriers will receive cargo from the start of, and throughout the life of, the contract.

b. Shipper-Owned Container Surcharge (RFP document, page 5/6 of 58):

We have analyzed historical data for USC-05 which indicates Government owned or leased containers are being shipped with no surcharge for quantities up to ~400 containers per sailing.

While USC-05 did not identify a cap to the number of Government owned containers which could be shipped without charge we have established a cap for USC-6 based on our experience to date. The contract language requires the Contractor to ship up to 400 containers per vessel at no additional charge to the Government. For amounts over 400 containers per vessel, the Government will compete “One-Time-Only” requirements requesting a rate for the group shipment.

c. Refrigerated Container Formula (RFP document, page 6 of 58, paragraph 1.1.1.6.2 & 1.1.2.1):

We agree with carrier recommendation to remove this formula and compete as “One-Time- Only” (OTO) rates for refrigerated containers if they are not priced in the Rate Guide versus applying a conversion formula. Market research and Industry input showed the conversion formula did not adequately compensate carriers. Due to fluctuating prices for refrigerated containers the Government determined it is in all parties' best interest to remove the conversion formula and use the OTO process when this situation arises.

d. Bunker Adjustment Factor (BAF) (RFP document pages 12 – 14 of 58):

As discussed during our industry meeting, the monthly average fuel price will be calculated using a weighted mixture of 95% IFO 380 and 5% MDO. The Office of the Secretary of Defense guidance requires use of Economic Price Adjustment (EPA) formulas that accurately reflect commodity usage, are justifiable, and auditable. To that end, we conducted market research on Bunker usage. The research showed most carriers burn two types of fuel during a voyage, IFO 380 and MDO. Their fuel usage is at a ratio of 95 to 98 % IFO 380 and 2 to 5% MDO. Our historical comparison of price fluctuations shows that had this mixture been used to calculate BAF under USC-05 the surcharges would not have varied much from what they were under the 50% MDO / 50% HFO ratio.

The conversion factor from MT to BBLS will be 6.52. The standard conversion factor used in Government contracts should be from the Defense Energy Support Center (DESC). DESC shows the following conversion factors:

Fuel Type BBLS per MT

IFO 380 6.467

MDO 7.162

Averaging the conversion factor using the 95% IFO / 5% MDO the ratio is 6.52.

It is our intent to add BAF to all routes and to do so we need technical factors for all routes.

Unfortunately, the Volpe Institute study of 1993 did not calculate technical factors for all routes under USC. Therefore, USTRANSCOM will commission a comprehensive BAF study to provide recommendations on all technical factors for all routes and which will be incorporated with the first option period. Until such time we will continue the BAF application to only those routes which have a previously established technical factor.

e. Application of COGSA (RFP document page 33/34 of 58):

We carefully considered the carriers proposal for COGSA application for end-to-end. We will agree to end-to-end application of COGSA but with an increased liability of $1,375 per package vice $500 per package.

This will provide for a consistent liability standard throughout the cargo movement; therefore allowing the carriers to insure themselves accordingly.

The $500 liability limit has not changed since 1936 and we believe that this limit should be more relative to current times. We found during our market research that carriers do negotiate higher COGSA limits in their commercial contracts. Additionally, the information provided by Industry on the drafted United Nations Commission on International Trade Law (UNCITRAL) shows a higher liability limit (approximately $1,400). This will limit a carrier's liability exposure over the land portion of the contract, which currently under USC-05 is unlimited. It provides the Government with a minimum level of cargo value protection and gives the carriers a known “end-to-end” liability limit on each shipment.

f. Force Majeure (RFP document, page 36 of 58):

We agree with the carriers and will reinsert Force Majeure from USC-05 with a slight change as discussed during the industry meeting. Language has been added to clarify that the Force Majeure is applicable for excusable delays only and not for loss or damage to cargo.

g. Tremcards (PWS, page 6 of 59, paragraph 3.A.2.1.4):

We have reinserted the USC-05 language requiring the Contractor to produce tremcards for hazardous cargo transiting through countries where tremcards are required. After further discussions with our customers, we jumped too soon in moving this responsibility from the Contractor to the Government. The customers do not have the capability to produce tremcards.

h. Carriers’ direct booking website requirements (PWS, page 14 of 59, paragraph 3.B.1.5.1):

We have added a requirement for the contractor’s direct booking website to evaluate “Required Delivery Dates” (RDDs) consistent with the booking acceptance logic resident in IBS.

Due to the quantity of direct bookings, it is essential that contractor’s logic be consistent with the IBS logic in evaluating RDDs. Otherwise, contractors may “auto-accept” bookings with unattainable RDDs. Contractors expressed the capability to do this at the Integrated Process Team meetings.

i. Service Contract Act (formally paragraph 5 of the “additional clauses” part of the

RFP:

We worked this issue extensively with the Department of Labor and have determined that this Act will not apply to the USC effort. Therefore, we removed this requirement.

5. Other major comments, recommendations and issues are:

a. Free Time and Detention (PWS, page 19/20 of 59, paragraph 3.G.4.1):

We understood carrier concerns with the 15 calendar days free time, and therefore, have changed to 10 calendar days free time, except for select areas. Free time commences at 0001 on the first calendar day after delivery, similar to USC-05.

b. Fuel Adjustment Factor (FAF):

While we recognize the need for a fuel adjustment factor, development of a FAF formula is imperative to execute the adjustment. While the carrier recommended language is a start, it is based on the Regional and Domestic contracts (RDC) which vary substantially from the USC contract. The RDC FAF was included in order for the carriers to pre-price all options years.

Therefore, FAF will be included in the independent study with BAF to determine the appropriate adjustment factors. The Government intends to incorporate FAF on CONUS linehauls for the option years, but again only after a thorough study is complete.

c. Prime Vendor Cargo Provisions (Attachment 8 to the PWS)

The Government has made some minor changes based on Industry input and market research.

However, the basic language and intent from the first draft remain intact. These terms are essential for the Government to efficiently ship Prime Vendor cargo under the USC-6 contracts.

Experience has shown that the most effective way to handle certain issues (cargo claims, disputes, detention, etc) is directly between the Prime Vendor and USC contractor.

6. I sincerely thank you for your interest in this requirement and look forward to your input.

Respectfully, CHARLES M. BURTON JR.

Chief, Sealift Branch

Attachment:

RFP #: Updated DRAFT RFP #: HTC711-08-R-0011