Government Contracts Monitor

Agencies Deviate From Standard FAR Clauses At Their Own Peril

October 21, 2011

Federal agencies with special and articulated needs may deviate from standard FAR clauses and craft their own proposed contract clauses.  However, such custom, non-standard clauses must be rational and reasonable, as the Government recently learned the hard way in U.S. Foodservice, Inc. v. United States, No. 11-376C (Oct. 12, 2011), which involved a pre-award bid protest before the U.S. Court of Federal Claims (“COFC”).

The Department of the Army Defense Logistics Agency Troop Support (“DLA Troop Support”) historically procured food and beverage for military facilities using customary food industry pricing and contract terms.  In an attempt to “promote pricing transparency and place integrity into the commercial pricing process” and to eliminate the opportunity for fraud in food pricing, DLA Troop Support issued a class waiver for the procurement of food and beverage items for military facilities pursuant to FAR 12.302(c).  After issuance of the class waiver, DLA Troop Support issued a solicitation “for proposals to provide food and beverage support to included military and civilian customers in the Texas and New Mexico region of the United States.  The awardee was to serve as a Subsistence Prime Vendor for Texas and New Mexico and to provide full-line food service items.”  This solicitation had a projected contract valuate of $9,300,000 over a fourteen month period.  DLA Troop Support amended the solicitation twelve times, but, in the end, not one responsive offer was received. 

There was a very good reason why no responsive offers were submitted and why U.S. Foodservice, Inc. and Labatt Food Service, LP filed pre-award bid protests with the COFC, after having their GAO protest summarily dismissed.  The Court determined the custom contract clause crafted by DLA Troop Support to be wholly unreasonable and irrational.  The custom clause stated, in relevant part:’  “For all items, the contractor warrants, on a continuing basis throughout the period of performance, that its delivered price under this contract is equal to or lower than its delivered price to its commercial customer accounts.”  The COFC found this Most Favored Customer clause completely irrational because it did not contain any “similarly situated restrictions”.  In other words, the DLA Troop Support MFC clause, as worded, would have enabled the Government “‘to receive the best delivered price for any product sold to any customer anywhere in the world, regardless of the circumstances of the sale’; in other words, regardless of regional, freight, and market price variances.”  Worse yet, the MFC clause would have “require[d] distributors to give DLA the benefit of deviated prices negotiated by customers directly with manufacturers for which USF and other large distributors cannot make purchases for their general inventory.  Not only would USF be required to find the best delivered price of any of its almost 250,000 customers, USF would not be able to make the purchase at such price for the benefit of DLA because such pricing is available only to the customer that negotiates it.”  The COFC easily found this custom MFC clause irrational, and permanently enjoined DLA Troop Support from issuing any other solicitations using the same MFC clause.

There are two takeaways from this case.  First, carefully scrutinize any non-standard contract clauses.  Such clauses could be irrational and the basis for a successful bid protest.  Second, given GAO’s summary dismissal and the COFC’s decision upholding the same protest, careful thought should be given as to the proper forum for any pre-award bid protest involving custom contract clauses. 

Michael J. Schrier is the attorney responsible for the content of this article.