r_12-38 JA USC - Signed_Redacted.pdf

JUSTIFICATION

FOR OTHER THAN FULL AN]) OPEN COMPETITION

SOLICITATION#: HTC711-11-R-W004

UNIVERSAL SERVICE CONTRACT (USC)-7

1. Contracting Activity: United States Transportation Command, Acquisition Directorate, Sealift Services Division (TCAQ-I), 508 Scott Drive, Scott AFB Illinois 62225-5357.

2. Nature and/or Description of the Action being Approved:

In accordance with DOD Directive 5158.4, the Commander U.S. Transportation Command (USTRANSCOM) is responsible for sealift readiness and assigned the mission to "Provide effective and efficient air, land and sea transportation for the Department of Defense (DOD), in times of peace and war." This action is in support of Fixed-Price, multiple award, Indefinite Delivery/Indefinite Quantity (IDIQ) contracts with relevant equitable price adjustments for the allowance of fluctuations in marine fuel prices (Bunker Adjustment Factor - BAF), foreign currency exchange rates (Currency Adjustment Factor- CAF), and inland Continental United States (CONUS) fuel prices (Fuel Adjustment Factor- F AF) for international surface transportation using intermodal services of ocean carriers. USTRANSCOM will award multiple contracts under this justification to all technically acceptable ocean common or contract carriers offering regularly scheduled commercial liner service at prices considered to be fair, reasonable and realistic. Offerors must also have acceptable past performance and, if they are a large business, acceptable small business subcontracting plans to receive an award. Offerors of U.S.

flag service receive preference over offerors of foreign flag service to the extent authorized by the Cargo Preference Act of 1904 (1 0 USC 2631) , the Cargo Preference Act of 1954 ( 46 USC 55303), or other applicable law. Consistent with DFARS 247.206 and DFARS 247.301-71 and in support ofUSTRANSCOM's readiness mission, an offeror of U.S. flag service that participates in the Voluntary Intermodal Service Agreement (VISA) receives priority over an offeror of US flag service that does not participate in VISA.

It is in the Government's best interest to include two one-year option periods. These options are not priced at the time of award, but are priced prior to exercise of the option. Market research indicates that one-year pricing is standard in the commercial ocean industry due to the volatility of international transportation prices. As required by FAR 17.207(b), when the contract provides for economic price adjustment and the contractor requests a revision of the price, the contracting officer shall determine the effect of the adjustment on prices under the option before the option is exercised. Although the contract allows for EP As, the pricing impact is to a greater degree than what the adjustment accommodates for with BAF, CAF and F AF -the EP As only cover one element of pricing. Other elements such as crew costs, transit fees, import fees, have a large impact. Offerors cannot reasonably establish rates for the option years which require factoring in costs not available to them until sometime in the future and that fluctuate significantly. Industry practice can be accommodated in this commercial item contract through a base year plus two one-year options provided the carriers are able to "refresh" their pricing each year prior to the exercise of any option to accommodate for the fluctuations in the marketplaces around the world.

Therefore, the option years will be unpriced at the time of award, allowing for annual evaluation based on submission of competitive prices each year prior to exercising the option year. The Government's interests will be advanced by allowing carriers to both "refresh" existing rates on

USC-7, J&A Page 1 of 9 previously awarded routes or to offer new rates on routes for which an awardee did not receive an award during the prior contract period.

For the purpose of this justification, full and open competition exists for the base year period and contract awards will be made to all ocean common or contract carriers offering fair and reasonable prices. In accordance with FAR 6.302-1, competition for the option year periods will be limited to only those ocean common or contract carriers awarded a basic year contract.

However, if a new entrant to the marketplace offers US Flag or combination US Flag service where only Foreign Flag service exists, a contract may be awarded anytime during the contract periods as required by the US Cargo Preference Act of 1904. Such awards shall only be made to offerors who propose fair, reasonable and realistic pricing, who have acceptable past performance, and for large businesses, have an acceptable small business subcontracting plan.

3. Description of Supplies/Services Required to Meet the Agencies Needs: This requirement provides for international ocean and intermodal commercial liner transportation services in support of DOD shippers and other US Government agencies for the resupply of the US forces on a worldwide basis, humanitarian assistance, military assistance to foreign governments, peacekeeping operations, and exercises. This is one of several contracts established by USTRANSCOM to meet the recurring shipping requirements of DOD shippers and authorized agents. Other ocean contracts supporting DOD include the Regional Domestic Contracts (RDC) for movements subject to the Jones Act, dedicated barge contracts to move fuel for DLA, and dedicated ocean contracts to support remote locations (GITMO, Azores, Ascension Islands, Antigua). Affected cargo consists of military equipment and related supplies including food, spare parts and other sustainment items shipped by the Defense Logistics Agency (DLA), supermarket-type commodities shipped by the Defense Commissary Agency (DeCA), department store merchandise shipped by Army and Air Force Exchange Service (AAFES) and Navy Exchange (NEXCOM), mail shipped by the Military Postal Service, and personal property including privately owned vehicles of DOD personnel.

The contracts will be awarded with a base year plus two one-year option periods beginning 15 Aug 12 through 14 Aug 13 for the base year, 15 Aug 13 through 14 Aug 14 for Option Year One and 15 Aug 14 through 14 Aug 15 for Option Year Two.

The cost estimate for USC-7 is projected at $2.5 billion for the base year, $2 billion for Option Year 1 and $1.5 billion for Option Year 2, for a total contract value of$6 billion over three years.

This estimate is derived from current contract costs, preliminary cargo volume forecast data for all of the routes solicited, and anticipated cost increases due to forecasted market conditions and planned changes to required performance standards.

The USC requirement will encompass approximately 66,000 lines of rates and cover geographical areas not covered by other contracts. The trade lanes covered by USC are listed below and apply to both inbound and outbound cargo movement.

Route Description 01 U.S. West Coast- Far East 02 Continental Europe, United Kingdom, Ireland- Middle East, South Asia, Indian Ocean 03 U.S. West Coast- Hawaii 04 Middle East, South Asia, Indian Ocean Interport

USC-7, J&A Page 2 of 9

Route Description 05 U.S. East Coast- Continental Europe, United Kingdom, Ireland 06 U.S. East Coast- Mediterranean 07 U.S. East Coast- Middle East, South Asia, Indian Ocean 08 U.S. East Coast- Far East 09 U.S. East Coast- Hawaii 10 U.S. Gulf Coast- Scandinavia, Baltic Sea 11 U.S. Gulf Coast- Continental Europe, United Kingdom, Ireland 12 U.S. Gulf Coast- Mediterranean 13 U.S. Gulf Coast- Middle East, South Asia, Indian Ocean 14 U.S. Gulf Coast- Far East 15 U.S. Gulf Coast - Hawaii 16 Hawaii- Far East 17 U.S. Great Lakes- Continental Europe, United Kingdom, Ireland 18 Caribbean Interport 19 Far East Int~Iport 20 Mediterranean Interport 21 Canada East Coast - Mediterranean 22 Canada East Coast- Continental Europe, United Kingdom, Ireland 23 U.S. West Coast- Continental Europe, United Kingdom, Ireland 24 Scandinavia, Baltic - Continental Europe, United Kingdom, Ireland 25 U.S. West Coast- Mediterranean 26 U.S. West Coast - Alaska 27 Hawaii - Continental Europe, United Kingdom, Ireland 28 U.S. West Coast- Central America/Mexico 29 ~laska Interport 30 U.S. East Coast- Greenland 31 U.S. East Coast- Iceland 32 U.S. East Coast- Scandinavia, Baltic Sea 33 U.S. East Coast- Azores 34 Continental Europe, United Kingdom, Ireland- Mediterranean 36 Mediterranean- Hawaii 37 U.S. East Coast- Caribbean 39 U.S. East Coast- Central America/Mexico 40 Africa Interport 42 U.S. Gulf Coast - Caribbean 43 U.S. Gulf Coast- Central America/Mexico 45 U.S. Great Lakes- Far East 46 U.S. Great Lakes- Mediterranean 47 U.S. West Coast- Middle East, South Asia, Indian Ocean 48 Continental Europe, United Kingdom, Ireland Interport 49 Far East- Continental Europe, United Kingdom, Ireland 50 Far East - Mediterranean 51 Far East - Middle East, South Asia, Indian Ocean

USC-7, J&A Page 3 of 9

Route Description 52 U.S. East Coast- Black Sea 53 U.S. West Coast- South America 54 U.S. West Coast - Oceania 55 U.S. East Coast- South America 56 U.S. Gulf Coast- South America 57 Mediterranean - Middle East, South Asia, Indian Ocean 58 Far East - South America 60 U.S. East Coast- Africa 61 Far East- Oceania 62 Continental Europe, United Kingdom, Ireland - Iceland 63 Iceland - Mediterranean 64 Continental Europe - Azores 65 Central America/Mexico- Continental Europe, United Kingdom, Ireland 66 Central America/Mexico - Mediterranean 67 U.S. West Coast- Africa 68 Central America/Mexico - South America 69 Central America/Mexico - Oceania 70 Azores - Mediterranean 71 Continental Europe, United Kingdom, Ireland - Africa 72 Continental Europe, United Kingdom, Ireland- Oceania 73 U.S. Gulf Coast- Africa 74 Mediterranean - Africa 75 Africa - Middle East, South Asia, Indian Ocean 76 Central America/Mexico Interport 77 U.S. East Coast - Oceania 78 U.S. Gulf Coast - Oceania 79 Hawaii - Oceania 80 Oceania - Middle East, South Asia, Indian Ocean 81 Oceania Interport 82 Alaska - Far East 83 Alaska - Oceania 84 Caribbean - Central America, Mexico 85 Hawaii - Middle East, South Asia, Indian Ocean 86 Mediterranean - Scandinavia, Baltic Sea 88 Continental Europe, United Kingdom, Ireland - Caribbean 89 Mediterranean - Oceania 90 Far East- Africa 91 Alaska - Middle East, South Asia, Indian Ocean 92 Caribbean - Middle East, South Asia, Indian Ocean 93 Far East- Central America/Mexico 96 Black Sea lnterport 98 Baltic Interport

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4. Statutory Authority Permitting Other Than Full and Open Competition: Authority for

· this acquisition is FAR 6.302-1, Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements (unpriced options).

5. Demonstration That the Proposed Contractors' Unigue Qualifications or the Nature of the Acguisition Reguires Use of the Authority Cited

Although an option period which follows an opportunity to reset rates (i.e. an unpriced option) is not necessarily a "follow-on contract" as contemplated by FAR 6.302-1(a)(iii), it is closely analogous in that it could be considered a "contract opportunity" as defined in FAR 5.001; thus requiring a justification to provide for other than full and open competition. With this consideration, the contracting officer has determined the required service is a "unique service available from ... a limited number of sources or from only a ... limited number of suppliers with unique capabilities." Therefore, it is permissible to limit co~petition in the option periods to only those "limited" carriers with "unique capabilities" who rt)c~ive a contract under the original procurement and to any new carrier offering US Flag or cc!nbination US Flag service where only Foreign Flag service exists. In accordance with FAP, 6.302-1(a)(iii), conducting a full and open competition of this requirement at ea?h option year (as opposed to competitively refreshing rates, then exercising the previously unpriced options) would incur "substantial duplication of cost to the Government that is not expected to be recovered through competition," and would result in "unacceptable delays in fulfilling the agency's requirements." Changes in ocean and intermodal transportation requirements in support of the peacetime and wartime mission worldwide requires that both the Government and ocean. carriers have a high degree of responsiveness to changes and continuity of services. As worldwide threats continue to increase, it is essential that the U.S. maintain its ability to move cargo any place in the world at a moment's notice. The option year provisions in USC significantly enhance this capability without a disruption in service or business practices. In light of the need for military services to support the war-fighting effort, and the inability to forecast and price the requirement up front, it is prudent to have a vehicle in place that can be accurately priced, analyzed, and awarded in a rapid and efficient fashion. The options in this contract have been designed to minimize the disruption normally associated with new entrants following evaluations. Prior to the option period, SDDC will provide cargo volume estimates to the carriocs upon which new rate proposals will be based. The Government's inability to estimate cargo volumes more than one year out contributes to the necessity of using unpriced options. The optkn year rates will be competed and evaluated prior to exercising each carrier's option period. f.J price analysis will be conducted to determine whether the prices are fair and reasonable. A price~ realism analysis will also be conducted to determine whether the specific elements of the pro:.,osal reflect a clear understanding of the requirements and are consistent with the unique methods of performance described in the offeror's technical proposal.

USC provides for international cargo transportation services using vessel operating ocean common or contract carriers offering regularly scheduled commerr;ialliner service for requirements that may arise in any part of the world. This servi~e includes, but is not limited to, ocean transportation, related intermodal movements, infrastructt.'fe, transportation service, and management expertise. There are a limited number of U.S. flag ccean carriers able to provide the required services. Due to the cost of maintaining a vessel und-er U.S. Flag registration, the

USC-7, J&A Page 5 of 9

U.S. Flag fleet represents just 2.1% of the world fleet of container :;hips and less than 1% of the world fleet of dry bulk ships (statistics from the U.S. Departmen~ cfTransportation, Maritime Administration's web site). The expense of maintaining a U.S. Flag registration, along with the stringent inspections required make it highly unlikely that few, if any, additional U.S. Flag vessels will enter the market during the option years. Despite the finite number of U.S Flag vessels, the majority of carriers awarded USC contracts are U.S.rFlag carriers. Of the nineteen current USC contracts only three are non-U.S flag carriers. ·

In summary, unpriced options are determined to be the best alteMative for this procurement for the following reasons:

* Maintains continuity of terms and conditions for three yezrs

* Provides stability for our ocean carrier partners ·

* Follows industry practice of one year pricing

* Price is primarily driven by ocean vessel capacity supply & demand

* Ensures continuity of services *No sound economic indicator to apply for calculation of cption year prices

* Competitive rates will be set before exercising option (65,000 +lines of rates) ,* Contractor exposed to less risk resulting in lower price~ tc Government

Not evaluating the options at the time of the base year award wi~~ 'lOt limit competition in the option years; this solicitation and any resultant contract will inc he~ e terms that allow the Government to award additional contracts to any US Flag carrie~· cffering service on routes where there currently is no US Flag service. Additionally, all c~~·iers awarded contracts in the base year will be able to propose rates for any lane (subCLIN) d':lring the options years- even if they did not have awarded rates for the lane in the base year. TOCs, USTRANSCOM benefits not only from new price competition among prior awardees on a !."Qute, but also may receive the benefit of new price competition from by one or more awardees that did not originally compete for a route.

6. Description of Efforts Made to Ensure That Offers are Splicited From as Many Sources As Is Practicable: The USC requirement will be synopsized to include the anticipation of two unpriced one-year option periods in accordance with FAR 5.203(a). There are currently 19 USC ocean carrier contracts. The current USC06 ocean carriers are:

American President Lines Ltd, Inc . APLS American Roll On Roll Off Carriers, LLC AROF Austral Asia Line B.V. AALV Central Gulf Lines CEGL Crimson Shipping Co. Inc. CMSW Crowley Liner Services, Inc CAMN Farrell Lines Incorporated FRLN I c .

Foss International Inc. ACOA Hapag-Lloyd USA, LLC HLUS Horizon Lines HRZD Industrial Maritime Carriers IDMC Liberty Global Logistics, LLC LGLT

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Maersk Line Limited MAEU Matson Navigation MATS Polynesia Lines PLLU Sealift Inc SLFI Toho Shipping Co, LTD TOHO Trailer Bridge, Inc. TRBR TransAtlantic Lines TALS

All contractors responding to the synopsis wil~ be notified when the Request for Proposals is posted to the Federal Business Opportunities website.

7. Determination by the Contracting Officer That the Anticipated Cost to the Government Will Be Fair and Reasonable: The anticipated cost to the Government for this contract action and all option years will be considered fair and reasonable based on competition, comparison with current year prices, the Federal Maritime Commission of service contracts and commercial tariffs.

8. Description of the Market Research Conducted and the Results or a Statement of the Reasons Market Research Was Not Conducted: Formal marke~: research was conducted and confirmed that this requirement meets the cri~eria of commercia} service. Commercial terms and conditions identified through market research have been incorporated into the Performance Work Statement (PWS) where applicable. Market research also indicated some of the terms and conditions incorporated in the PWS are more stringent that those f<Jund in the commercial market. In accordance with DFARS 212.302, the Contracting Officer will obtain Head of the Contract Activity approval of a waiver to include these terms an~ ~onditions in the contract.

Market research was sought through various publications (Journal of Commerce, American Shipper, etc.) and websites (MARAD, Federal Maritime Commiss:on) to ensure that all possible sources for these services were considered. The U.S. Department of Transportation Maritime Administration has a website that lists all U.S. Flag, Voluntary ~~ermodal Sealift Agreement (VISA) participants. Further, as stated in Paragraph 6, a synopsis was issued, and four draft request for proposals were issued for industry comment.

9. Any Other Facts Supporting the Use of Other Than Full an,d Open Competition:

Not Applicable

10. A Listing of Sources, If Any, That Expressed in Writing An Interest in the Acquisition:

All current USC Ocean Contract Carriers identified in paiagrapl:(~above have expressed a written interest in this acquisition.

11. A Statement of Actions, If Any, The Agency May Take I~ Remove Or Overcome Any Barriers To Competition Before Making Any Subsequent Acg1\lisition For The Supplies Or Services Required. In an effort to increase competition, contra~t holders may offer new service prior to exercise on either option period on routes for which the~ did not receive award on during the base or option year period. Contractors w~1o receive initial c":mtract awards must compete with these potential new entrants prior to the exercise of each or-tion period. As a result, allowing the carriers to bid on new routes at an option period ac~.dly enhances competition, i.e., carriers who did not receive specific routes due to higher pricin~ 1:end to be more competitive at

USC-7, J&A Page 7 of 9 the option year period in order to receive business. To be in compliance with the Cargo Preference Act, if a non-contract holding carrier offers U.S. Flag service on a route that none of the USC carriers offer service, USTRANSCOM will negotiate a contract with the new carrier.

12. Contracting Officer Certification: I certify that the data supporting the recommended use of other than full and open competition is accurate and complete iothe best of my knowledge and belief.

William R. Lindquist Contracting Officer

13. Technical/Requirements Personnel Certification: I certif)r t~at the supporting data under my cognizance that are included in the justification are accurate a:.'1d complete to the best of my knowledge and belief.

G :Bria1rftivera Division Chief, Global Business Department

USC-7, J&A

.t~ VI1/41Z. lZ

DATE

CONTRACTING ACTIVITY: United States Transportation Con-;.mand, Acquisition Directorate, Sealift Services Division (TCAQ-I)

PROGRAM/PROJECT: Universal Service Contract (USC)-7 (SqJicitation HTC711-II-R-W004)

AUTHORITY: 10 USC 2304(c)(l)

ESTIMATED CONTRACT COST: $6,000,000,000 over 3 year:J

TYPE OF J&A: Class

REVIEW AND APPROVAL:

WILLIAM R. LINDQUIST

TCAQ Branch Chief, Sealift Services Division

TCA D i ·on Chief, Sealift Services Divisior.

smbdvocate

JEFFER

TCAQC

w AMT.RAC L USTRANSCOM Competition Advocate

SANDRA M. HALAMA

GAILM.JO

SES, DAF

SPE, Acquisition

USC-7, J&A

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