2011-09-27 J A Redacted for Fed Biz Ops.pdf

Source Selection Information – See FAR 2.101 and 3.104

JUSTIFICATION & APPROVAL

FOR OTHER THAN FULL & OPEN COMPETITION FOR

PRIVATIZATION OF THE NATURAL GAS UTILITY SYSTEM AT

MACDILL AIR FORCE BASE, FLORIDA UNDER 10 U.S.C. §2304(c)(1)

Summary/Introduction

This justification concerns a privatization action by the Defense Energy Support Center (DESC) for the natural gas utility system at MacDill Air Force Base (AFB), Florida. DESC proposes to enter into a Regulated Tariff Rate or a Fixed Price with Economic Price Adjustment utility services contract to be negotiated on a sole source basis with Peoples Gas, a local municipal natural gas utility provider. The estimated dollar value of the contemplated contract is . Under the authority of 10 U.S.C.

§2688(d)(2), the term of this contract is anticipated to be for a period of up to 50 years, provided that a determination is made that a 50-year contract is cost effective. DESC originally solicited this requirement on a competitive basis

DESC intends to enter into negotiations with Peoples Gas on a sole source basis for the reasons discussed further below.

1. Background:

DESC, a subcomponent of the Defense Logistics Agency, is the contracting activity. DESC contracts on behalf of the Air Force and Army for Utility Privatization (UP) pursuant to 10 U.S.C. §2688 and DoD Directive 4140.25. 10 U.S.C. §2688 provides authority to enter into a utility services contract for up to 50 years in connection with the conveyance of a utility system. DoDD 4140.25 provides that DLA, through DESC, will assist the Military Services with infrastructure privatization.

The UP Program permits the Services to leverage private funds to ensure that systems are brought up to industry standards and are properly maintained. Historically, utility infrastructure maintenance and repair has been under-funded, leading to obsolete and deteriorating systems. UP contracts provide for an immediate infusion of private capital by conveying the systems to a contractor, who, as the new owner, must modernize and/or repair the systems within the first few years of the contract in order to bring them up to regulatory and industry standards. The contractor’s costs are then amortized over a negotiated period, during which the contractor provides utility services to the installation at a price that includes recoupment of its initial investment to bring the system up to standards.

The Air Mobility Command (AMC) entered into a Memorandum of Agreement whereby DESC was to serve as their contracting agent for the MacDill AFB natural gas utility system privatization action.

Before issuing the original Request For Proposal (RFP) in March 2008, DESC conducted market research and developed an Acquisition Plan, which addressed the needs of the Air Force at MacDill AFB. In conducting this research, In accordance with the above, Solicitation Number SP0600-08-R-0807 for privatization of the MacDill AFB natural gas, water, and wastewater utility systems was issued competitively on March 24, 2008, and closed for receipt of proposals on August 4, 2008. .

The RFP was posted to the Federal Business Opportunities website as well as the DESC website and notification was sent out to DESC Energy Enterprise’s Mass Bidders Mailing List. DESC received for the natural gas utility system from

MacDill Air Force Base, Florida Natural Gas System Page 2 of 5 Justification & Approval for Utility Privatization

Therefore, no award was made under the competitive procurement.

2. Description of Agency’s Need [10 U.S.C. §2304 (f)(3)(A)]:

In accordance with 10 U.S.C. §2688, the Secretary of Defense is authorized to convey utility systems to non-U.S. Government entities and enter into long term contracts with those entities for utility services delivered across the privatized systems. The Department of Defense has issued various UP Guidance documents directing the Military Departments to privatize their utility infrastructure and establishing milestones for completion of these privatization efforts. The Air Force has entered into an MOA with DESC whereby DESC acts as the primary contracting agent for Air Force utility privatization procurements. On June 5, 2009, AMC and MacDill AFB requested DESC to continue to pursue privatization of the MacDill natural gas utility system and issue a Sole Source RFP

3. Authority for Other Than Full and Open Competition [10 U.S.C. §2304 (f)(3)(B)]:

The Authority for Other Than Full and Open Competition is 10 U.S.C. §2304(c)(1) as there is only one responsible source interested in and capable of meeting the Government’s requirement. The utilities privatization statute at 10 U.S.C. §2688 (b)(2) states that the Secretary concerned may use procedures other than competitive procedures, but only in accordance with subsections (c) through (f) of 10 U.S.C. § 2304. Federal Acquisition Regulation (FAR) §6.302-1(b)(3) specifically recognizes that when acquiring utility services, “circumstances may dictate that only one supplier can furnish the service.” Section 6.302-1(b)(3) references FAR 41.202, which discusses conducting market research to determine the availability of competition for utility services.

Department of Defense (DoD) Guidance for the Utilities Privatization (UP) Program states that privatization must proceed in a deliberate manner that promotes industry interest and competition to the maximum extent practical and provides for maximum advertisement of such actions. DoD UP Guidance also states that following attempts to achieve competition, “if no responsible proposals are received, the local utility provider should be specifically requested to provide a proposal or feedback.” Likewise, DESC’s Defense Energy Procurement Instructions (DEPI) Subpart 6.304 (a)(101) provides that, in accordance with 10 U.S.C. §2688(b)(1), a utility privatization procurement may proceed on a sole source basis if good faith efforts to obtain competition are unsuccessful.

The MacDill AFB natural gas privatization effort meets the requirements set forth above. DESC has been active in efforts to comply with Department of Defense Utility Privatization Guidance for privatizing utility infrastructure at U.S. Military installations. In an effort to complete this task and obtain as much industry interest as possible, DESC and the Services have conducted industry forums, made numerous direct contacts, and publicized many UP efforts, including the MacDill AFB natural gas privatization requirement.

As discussed in the Background section above, DESC previously attempted to competitively privatize the MacDill AFB natural gas utility system, but was unsuccessful, Following this unsuccessful competition and upon the Air Force’s request to proceed sole source, DESC conducted further market research during the period November 2009 through January 2010. DESC found that Peoples Gas, the local utility company, is interested in acquiring and providing service via the

MacDill Air Force Base, Florida Natural Gas System Page 3 of 5

MacDill AFB natural gas system.

Based on the results of the previous competitive action and market research results, DESC has determined that Peoples Gas is the only responsible source interested in the MacDill AFB natural gas utility privatization action. Peoples Gas is Florida's largest natural gas distribution utility. Since 1997, Peoples Gas has secured agreements to provide natural gas to more than 138,000 single and multi-family homes and businesses throughout the state. As the only local utility provider that has expressed interest in the MacDill AFB natural gas privatization action and in accordance with the OSD UP Guidance documents, DESC intends to request that Peoples Gas submit a proposal.

4. Price/Cost Considerations [10 U.S.C. §2304(f)(3)(C)]:

As Peoples Gas is a regulated utility, the monthly service charges under any contract awarded to Peoples Gas will likely be regulated Tariff Rate line items. Furthermore, as previously noted, the privatization statute provides an economic threshold above which an award cannot be made, and therefore, any proposed award price must be 10 percent below the Government Should Cost Estimate (GSCE) for the Government to perform the same work. In accordance with FAR 15.404-1(a)(4) information other than cost or pricing data may be used to determine cost reasonableness or cost realism. A cost realism analysis will be conducted under the authority of FAR 15.404-1(d)(3) due to the long term nature of the requirement.

5. Market Research/Efforts to Obtain Competition [10 U.S.C. §2304 (f)(3)(D) & (E)]:

As stated above, statements of interest were submitted and offers were received in response to the competitive RFP; however, the utility privatization effort was unsuccessful.

Market research has indicated that no entities have entered the natural gas utility operation market in the area around MacDill AFB or in the state of Florida since the closing of the full and open solicitation.

As a result of the prior full and open competition and market research, Peoples Gas has been identified as the only interested, responsible, qualified, and technically able organization to provide the required services. The Government’s sole source intentions will be announced on FedBizOpps.

6. Actions Being Taken to Overcome Barriers to Competition [10 U.S.C. §2304(f)(3)(F)]:

As noted above the requirement was originally solicited under competitive procedures and in accordance with 10 U.S.C. §2688. The MacDill AFB natural gas utility system is now being offered on a sole source basis to the local natural gas service provider. As the natural gas infrastructure at MacDill AFB will be conveyed to the selected awardee, privatization will necessarily create an ongoing sole source situation

MacDill Air Force Base, Florida Natural Gas System Page 4 of 5 with the new owner of the system being the only source capable of providing natural gas service on MacDill AFB.