J A 6.302-3 SPM3S1-12-D-Z109

Justification for Othe1· than Full and Open Competition (,J&A) for the Meal, Ready-To-Eat (MRE) and the Humanitarian Dally Ration (HDR) under nnthority of 10 U.S.C. 2304 (c)(3)

Industl'ial MoblliZation .. ) L ei.,.

1. Summary/Introduction:

The Defense Logistics Agency, DLA Troop Support, Directm·ate of Subsistence, is the contracting activity. The action being approved is the acquisition ofthe MRE and HDR. It is anticipated that multiple Indefmite Quantity Contracts (IQCs) will be awarded. These contracts will contain a base year and four, one-year option periods. This is the 32"d generation ofMRE and HDR procurement under an integrated, industl'ial base program approach.

The maximum quantities and do11ar value for this acquisition are 300% of the minimum quantity and are calculated below:

MRE- 37,500,000 cases (CS) five year max. X $77.29/CS $2,898,375,000.00 HDR- 3,750,000 CS five year max. X $43.00/CS 161.250,000,00

$ 3,059,62~,000.00

The surge option for the MRBs increases the total maximum dollar value by $768,726,34.6.00 to $3,828,351 ,346.00.

The applicable statutory authority pennitting othe1· than full and open competition is l 0 U.S.C.

2304(c)(3), FAR Patt 6.302-3.

2. Description of Agency's Need (10 U.S.C. 2304 (t)(3)(A)):

The MRE ration program is designated as mobilization essential by the Defense Logistics Agency and the Joint Chiefs of Staff. A primary goal of this acquisition is to maintain readiness fqr these war stopper items. The MRB was developed to meet the need of the U.S. Militaty for a lightweight, less restrictive combat ration. It is used in combat or operational situations in which it is impractical to feed military personnel through normal means. It was designed to sustain an individual engaged in heavy activity such as military training or during actual military operations when customary food service facilities are not available. The MRB is an entirely self-contained operational ration consisting of a full meal packed in a durable, supple meal bag. It has a three year she if life if stored at a temperature of 80 degrees Falu·enheit. As funding constraints and shelf life limitations make it impractical to stockpile enough MREs to cover requirements in the event of mobilization, it is necessary to maintain an adequate production base whose planned capacity is sufficient to cover military surge requirements.

The quantities ofMREs that will be purchased under this acquisition are as follows:

Base Year Quantity Minimum 2,500,000 CS Maximum 7,500,000 CS

Each Option Year Minimum 2,500,000 CS Maximum 7,500,000 CS

The HDR was developed in conjunction with the Ofjj~,e of the Deputy Assistant Secretary of Defense, Humanitarian and Refugee Affairs. Th~ currebt,.sp&nsor of the HDR is the Defense Security Cooperation Agency, Office of Humanitarian Assistance, Disaster Relief and Mine Action. The HDR was developed as a means of feeding large p~pulations of displaced persons or refugees under emergency conditions. It provides a full day's sustenance to a malnourished individual. It is a widely accepted ration among a varied consumer group with diverse religious,

· culh1ral and dietary restrictions around the world, as it contains no animal products or animal by products. The I-IDR relies on the same packaging techniques as the MRE, and is dependent on the retort pouch. While it is not a war stopper item, it is included in this justification because the production base for this item is the same as for the MRE assembly. These HDR quantities help to support the MRE base with sufficient peacetime work to enable the base to stay in production mode to meet military surge requirements. The, feeding of refugees and other distressed civilian populations is an adjunct to our war effmt and a vital part of the foreign policy that suppo1ts our military operations.

The quantities of HDRs that will be purchased under this acquisition are as follows:

Base Year Quantity Minimum 30,000 CS Maximum 750,000 CS

Each Option Year Minimum 30,000 CS Maximum 750,000 CS

The MRE is a military unique item. There is no commercial equivalent for the MRB as its shelf life aud packaging requirements are more stringent and unique than those required for commercial products. The critical component of the MRB is the retort pouch. While this flexible package is now popular in Europe and Asia, it has a limited application in the U.S.

Besides the retott pouch, the finished MRE must be packaged and assembled to survive rough handling and airdrop delivery. The preservative packaging used for the MRE requires close supervision and q1.1ality control, utilizes unique production techniques and equipment, and requires a substantial technical and financial investment.

This acquisition for the MRE and HDR will be limited to companies who have been MRE Planned Producers and comprise the current industrial base: AmeriQual Packaging (Evansville, IN), Sopakco Inc. (Mullins, SC), and The Womick Company (Cincinnati, OH).

3. Authority fqr Other than Full and Open Competition ( 10 U.S.C. 2304(F)(3) (B)):

The authority for the use of other than full and open competition is found at 10 U.S.C.

2304(c)(3), Industrial Mobilization (FAR 6.302-3).

Competition will be limited to the three contt·actors who participated in the planned producer pwgram in the past and who have the capability to produce the MRE and HDR. It is the intention of the Govemment to negotiate an award with each of these fi~ms, who comprise the industrial base, in order to keep these firms in production in the event or a national emergency. 'Ihc Minimum Sustai.rling Rate (MSR) Study for MRE ProQ.uce s, June 1992, prepared by the DLA Troop Support Operational Research & Econom1c Analysis Office, concluded the minimum quantity necessary to sustain the three MRE assemblers was .million cases. Subsequent to Operation Desert Storm, and facing large MRE residual inventories and reduced demand forecasts, the Government cautioned the MRE industry that future demand for the MRE would stabilize at approx .• 11illion cases per year, and urged the MRE producers of the necessity to .increase their commercial business in order to assure their continued viability. J>rcviously DLA Troop Support provided the MRE assemblers with incentives to do so by evaluating their commercial progress, i.e. Defense. Conversion, as part of the award criteria. While the three previous MRE assemblers increased their commercial busi.r1ess, they are stiU primarily dependent on the MRE contracts, and derive most of their annual business volume through these Government contracts. The following percentages represent the Govenm1ent portion of these· assemblers' total annual busi~ess volume (per MRE ~current D7fense Conve~·~ion proposals, Nov 2008): Ame11Qual- Sopakco--and Wormck-- Jhe bulk of the comrucicial work of these assemblers is in their food processing divisions, i.e., retort pouches and bowls for the domestic and international markets. To not make an MRE award to one of these firms may jeopardize their viability as a retort supp.lier) and would likety eliminate their availability as an MRE assembler for future mobilization needs.

It is considered in the best interest of the Government to divide the requirements among, and award an MRE assembly contract to each firm in the current industrial base in order to maintail1 balanced sources of supply aud provide for a sufficient indu~trial base. The vcr.iiled surge plans of AmeriQua1, Sopakco and Warnick are as follows (quantities in thousand (K) CS):

Dl * D2* D3* D4* D5*

Wornick

%filled

In addition to the snrge capacity of the three firms in the industr.i.al base, the DLA maintains war reserve levels for the MRI~ of 5,055~000 million CS. While the combination of War Reserve Level (WRL) and assembler surge capacity appears to represent an excess industrial base, actual requirements for MRE and HDR may exceed the stated six months' requirement above. The Services' fiel.d feeding plan calls for menu transitions as follows: MRE >Unitized Group Ration Heat & Serve (UGR-H&S) >Unitized Group Ration A option (UGR-A) >Prime Vendor support (PV -A). When the UGR-H&S is unavailable, the MRE is required tor replacen1ent feeding. The current six month shortfall tor H&S is approximately -CS, which is equivalentto

' i ' ' l

I

-MRE CS. Additionally, MRBs are sometimes needed for emergency humanitarian relief while they are simultaneously being used for trool?:§upport. For example. DLA provided l, 160)000 CS of MRE to the Federal Bmergency.~Mauagc~m_ent Agency (FEMA) ibr the Hurricane Ike and Gustav relief effo11s and also because of ice storms that affected the Mid-West region of the United States. HDR and MRE requirements usually spike together d\uing military conflicts. Accordingly, the smge capacity of all three firms in the industrial base is required to satisfy the complete requirements for MRE and HDR in light of the UGR H&S shortfall. The six month mobilization requirement for MRE, exclusive ofFEMA or HDR requirements~ Cll.ll be.

million cases .million requirement above plus tbe UGR-H&S sbortfal.!1.1'he total WRL inventory and surge production capacity above totals -million CS, or~ of requirements.

Tile elimination of any of the firms from the indt1strial base would result in a shortfall against these requirements.

Competition will be limited to these three firms, as the annual minimum qtumtity o£2.5 million CS MRE and 30 thousand CS HDR are not enough to support &dditional producers. That these three firms are able to be maintained, at economical award priccsJ at the reduced quantity of2.5 million CS, is thought to be related to their successful defense conversion in generating commercial b11Sincss .. The total annual quantities (100%) are awarded among the three industrial base finns in portions between 25% and 40% (e.g. MRE 29 was awarded in 40, 35, aml25% portions), bused on an assessment of the best value based on their proposals. Dividing the 2.5 million cases ~mong more thtm the three producers may result in uneconomical awards, and a significant price increase to our military customers. For MRE 29, the 40% award was priced at $49.59/CS and the 25% award was priced at $64.14/CS, an inc.rease o£29.3% per CS.

For the reasops above, the mtthority ofU.S.C. 2304(c)(3), Industrial Mobi1ization, is applicable to this acquisition, as it is considered essential to the national defense to mah1tain these three proven facilities, which have demonstrated this ability to quickly ramp-.up theil· surge production of the MRB to support national emergencies and mobilizations such as Operation Desert Storm and Enduring and Iraqi Freedom.

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

The anticipated cost to the Govemment wilt be fair and l'easooable based on adequate competition. Recent history shows that the three assemblers are in a highly competitive environment for award share, aud we expect tbis to continue. In the event that additional information is r~quired to determine pri.ce reasonableness, information othct· than cost or pricing data may be aunlyzed. Tllis may include previous contract prices, economic and market indicators, or cost information that does not meet the definition of cost or pricing data at FAR 15.401.

No fmn will receive au awal'd for less than 20% of the n11nual ruinimum, and no fllm will receive an award for more than 50%~ The three firms comprising the industrial base ·wm compete for contract awards l>y submitting offers in 5% quantity increments between the 20% and 50% annual quantities. Therefore, a contmcto1· may offer $64.00 for 20% of the totul award quantity> $60.00 for the 25%, $56.00 for 30% and sinlllady reduce their price ftutber until they reach the 50% quantity range. Additional orders above the mi¢mum quantity will be placed according to a contract performance matrix in the contract .that evaluates the contractors' quality, deli vet)' peeformance and pl'ice submitted inrcsp,onse t~~1~.-additional quantity requh·ement.

This acquisition wiJl contain the relatively new Economic Price Adjustment (EPA) for the Meal Ready-to-Eat (MRE) Assembly clause at DLAD 52.216-9060t Oct. 2009, for the option years, as there is potential for significant market fluetuatioJls in many major component costs over the five-year period of the contract. The use of tho EPA clause is an effective too) for protecting botll contractors and the Government from tmforcsecn economic conditions. An industry survey will be conducted to ftscertaiu the optimal economic indicators to use. Curre11tly EPA is \lscd for the linerboard in lhe shipping cation and resins used in the retort poucht as well as food items like beef, chicken, and dairy products. These commodity items cnn vary in price based on market conditions.

5. Mnrkct Rcscnrch/IUforts to Obtnin Competltiou (lO u.s.c. 2304(1)(3)(ll)&(E)}:

Pl'ocurcmcnt of the MRE is in its 31st year and market research has been ongoing to expand the commercial application of ration teclmology. Since there is no appreciable commercial market for the retort pouch, expansion of the industdal base is unlikely unless the pouch becomes commercially acceptable. In the past, we huve actively pursued defense conversion in order to stabilize the flrms in the industrial base and we will contitmc this effott in tho future.

This same reasoning applies to the HDR program.

is acquisition cycle a ,..,,.,,. .. ,.,,., from the -was determined that currently-and therefore they cannot be considered a part of the industdal base deserving protection \lt1der n (c )(3) acquisition. DLA commissi011ed Deloitte to conduct a study to date the 1995 Sector Du this study, among other fac~ors, the question of including in the industrial base was analyzed. The completed results of the sn1dy confirmed that the present acquisition strategy of limitiJ1g competition to the thl'ec fil'ms comprising the current industdal base results in the least risk to Agency.

6. Actions Being Taken to Overcome Barriers to Competition (lOU.S.C.2304 (f)(3)(F)): /-:~ f.

1,1 I~ ·\...

This MRE and HDR acquisition will be res(ricted to the current industrial base and the Government will stl'ivc to enhance competition within tllis b11se to the maximum exte.nt possible.

We have, and will continue to usc commercially available components (such as the condiments, snacks and candies) whenever nnd wherever it makes good business sense in an attempt to enlumcc the competitive nature of this program. DLA Troop Support been working to make the MRE more commercially ftcceptable and remove production barrie1'S that inhibit additional sources from becoming producers. Also, we will consider new technologies such as the deveJopment ofpressurized packaging> which is being studied by theDLA Manufacturing Technology Program, to encO\lrago new somces. Ifa S\tfficiently viable commercial ind\lstdal b~se capable of supplying an acceptable MRE is developed, future acquisitions may considet' the use of full and open competition. In accordance with FAR 5.202(a)(l0), tbe above items will not be synopsized since the acquisition is being conducted under FAR 6.302-3, Industrial Mobilization, I hereby certify that the information contained in this j\1stiticution is accurate and complete to the best of my knowledge and belief.

~ ffbr Date A. L.-JIJ\,..-\,..IL.>..-I.l4J.'>-

Contmcting Officer

I have reviewed this justification and ,.,.""'"''VI"'',. ,.,, .... r,'"'"

;;b, In Date

HARRY

Chief, 0~'.., ... , ... .., Supplier Support Div.

I have reviewed tbls justiilcation and recommend npproval.

J.'IS~t/

Date Director Supplier Suppmt Division

I have reviewed this justiilcation and recommend approval.

J.~/!},-(t Date

Competition Advocate DLA Troop Support

Illave reviewed this justification and recommend ••

J'{~~!J Date .... ~~~ I have reviewed this Justification nnd recommend approval.

.. ~./..\~.1 ... \ .. L.

Date

Executive Director Troop Support Contracting ll and Acquisition Management f

I have reviewed und hereby recommend that thl$ Justit}~tion be approved:

Date

~ - .;-.- - -~-------• 0 fi e of Jen tal Cou se

~;; 7:ewed Olld hereby approve this justiron: .

nte! - ~~JtJ~ DLA Senior Procurement Executive

1.