Can "Adequate Price Competition" be satisfied by a manufacturer bidding against the manufacturer's own dealer?
I've run into this issue now and then, currently working in procurement for a prime contractor, and previously as a DOD Contracting Officer. I think that Adequate Price Competition is not supported because these two entities are not "competing independently" . . . per definition in FAR 15.403-1(c)(1)

By Anonymous on Tuesday, October 23, 2001 - 10:39 am:

I know one manufacturer who has dealers that always quotes a list price so their dealers can win the competition. They say, "we always bid high but if you need a third quote for your files call us". Is this cheating, yes, but it gets you a third quote when you are in a hurry at end of year.

By Anonymous on Tuesday, October 23, 2001 - 10:39 am:

I know one manufacturer who has dealers that always quotes a list price so their dealers can win the competition. They say, "we always bid high but if you need a third quote for your files call us". Is this cheating, yes, but it gets you a third quote when you are in a hurry at end of year.

By joel hoffman on Tuesday, October 23, 2001 - 11:16 am:

I'm glad you're anonymous... BTW, do you need a "third quote" for adequate competition? happy sails! joel

By joel hoffman on Tuesday, October 23, 2001 - 12:00 pm:

Philip, I've checked several sources, without success, concerning the specific topic. Still looking for a copy of Briefing Papers, 95-8, which dealt with TINA and the FASA changes to it. But, it would otherwise appear that the CO has to use considerable judgement in determining whether adequate price competition exists. Each situation must be analyzed on its own merits. For example, consider whether or not the competition is truly independant, if we are dealing with market pricing of the part, component or article, or if list priced, compare the manufacturer's price to its dealer's offered price, etc. (see above example!) happy sails! joel hoffman

By Philip on Tuesday, October 23, 2001 - 12:41 pm:

Joel,
Thanks - Using a secondary method to back up the primary method (Adequate Price Competition) is always a good way to go.
Philip

By Philip on Tuesday, October 23, 2001 - 12:48 pm:

Joel,
Using a secondary method to back up the primary method (Adequate Price Competition) is always a good way to go.
But keeping the issue simple, does this mean that you conclude that "Adequate Price Competition" can not be satisfied by a manufacturer bidding against the manufacturer's own dealer?
Philip

By joel hoffman on Tuesday, October 23, 2001 - 01:28 pm:

Not necessarily - if the manufacturer is willing to directly sell to you at a lower price than its retail dealer, it would appear that there is some real price competition.

However, as in Anon's case above, if the manufacturer comes in at a higher price, it would appear to be a sham competition, to "cover" the dealer.

I think it is unusual for a manufacturer to uncut its dealers in many retail industries. Anyone else have much experience, here? happy sails! joel

By speele on Tuesday, October 23, 2001 - 01:45 pm:

Hi, many of our contracts are sole source or a limited number of sources (which are dealers) and we use FAR 6.302-1. In the body of 6.302-1 it states that a purchase description which specifies a particular brand name, product, or feature of a product, peculiar to one manufacturer does not provide for full and open competition regardless of the number of sources solicited. This is why we do a justification even if there are 8 or more companies bidding, they are all bidding on the same part.

By Philip on Tuesday, October 23, 2001 - 05:18 pm:

Speele, et. al.
I'm not talking about brand name purchases, in which case a justification is required regardless of the number of suppliers bidding.
.....
The issue is simply can a manufacturer be seen as bidding independently of a dealer when there are only two bids received, in order to support adequate price competition? --- Please don't add any other criteria to this question - Thx
.....
I have a number of people telling me that this is just "absolutely wrong and we should never do it." For support they say that you can never know when a manufacturer is deliberately bidding high just so the dealer can get the contract. Both know the Manufacturers Suggested Retail Price, so they both theoretically know the bid starting point.
....
Are there any other opinions on this?
Philip

By Nick Sanders on Tuesday, October 23, 2001 - 06:22 pm:

I have interacted with a manufacturer who also sold to a distributor/dealer for resale. The two went head-to-head infrequently (they tried to avoid it, especially for sales to the Gov't.). Interestingly, when the two did compete, the dealer sometimes quoted a lower price than the manufacturer, which messed up their MFC accounting horribly.

Bottom line for me is whether you obtain Certs of Independent Price Determination (FAR 52.203-2). If you do, then I say you can trust that competition has been achieved. If you later find out you've been had, then call DoJ IAW FAR 3.303 and nail the contractor(s) for violations of the False Statements Act and violations of the Sherman Anti-Trust Act.

Point is -- there are remedies available if you're being conned. Why not trust but verify and, if necessary, take 'em to court?

Nick

By Anonymous on Wednesday, October 24, 2001 - 07:30 am:

Joel, I am with Nick, On severfal occasions, I have had the dealer bid less than the manufacturer. In one instance, I don't remember what the item(IT) was, but I do remember it was $3500.00 less per item which resulted in a substantial reduction to our overall cost of the procurement.

By formerfed on Wednesday, October 24, 2001 - 08:19 am:

The point to remember is that you must ensure fair and reasonable prices when making awards. Price analysis through competition is one way. Comparison with a published price list of items sold in substantial quantities to the public is another. If you can positively make the determination that your award is good, why go through all this debate? Don't we all buy most of our personal purchases through dealers - cars, TV's, etc.? Many electronic devices are sold both from the manufacturer and dealers, and we generally buy from the dealer with the best price, service, and support. I don't see any problem with the situation described if you can show a fair and reasonable price.

By Linda Koone on Wednesday, October 24, 2001 - 09:24 am:

Philip:

In my opinion, I don't see how you can consider pricing between a manufacturer and its dealer as 'independent' competion. Their business relationship is one in which the dealer is always going to be dependent on the manufacturer.

By Philip on Wednesday, October 24, 2001 - 09:38 am:

Everyone, Thank-you! I greatly appreciate your thoughts and opinions.
Philip

By Kennedy How on Wednesday, October 24, 2001 - 12:06 pm:

I read this thread yesterday, and decided to mull it over, and see what everybody else had to say. I'm with Linda here, at my activity, we've always had a major distaste for the manufacturer and dealer price competition. Especially when the Government sometimes says "we should get the most favored price", which *should* undercut the dealer (the rationale being, why is the Government paying a higher price than anybody?). But, manufacturers tend to not undercut their dealer network by selling direct, so they tend to sell at their normal pricing structure.

During the time I was heavily into these types of spare part procurements, we were hanging our hats mainly on price competition, and whenever this type of situation comes up, we sometimes had a gnashing of teeth over it. Mainly, it was "why are we buying from a middleman, a ten-percenter (in certain cases), but if we're buying from the actual manufacturer, it was invariably sole source. And that had it's own set of problems.

For the stuff we buy, I don't know if we would even have a dealer/manufacturer without the "brand name merchandise" attached. We just don't have dealers dealing in armor. Having said that, if the actual manufacturer of the item, which is normally provided via a dealer network, sells it to us less than what the dealer charges everybody else, then I could accept that there is independent price competition, as the dealer is selling in accordance with his catalog, and the manufacturer is independently arriving at a price less than what his own dealer network sells at to the Government by using a different pricing structure, all things considered.

Kennedy

By joel hoffman on Wednesday, October 24, 2001 - 12:40 pm:

On what basis could one conclude that a higher price from the manufacturer constitutes "adequate price competition", without any analsis of the costs comprising the price? It would seem logical to me that a manufacturer's direct costs for the item would be lower than a dealer's, unless the non-manufacturing related costs in a proposal (like maintenance, training, spare parts, etc.,) were more efficiently provided by a dealer than a manufacturer.

How can one conclude that there was "a substantial reduction to our overall cost of the procurement"? Reduction in relation to what? The manufacturer's offered price? To current pricing?

I assume we are discussing purchases above $550k here and that, as an option, where the KO did not consider the price competition to be "adequate", the KO could request a price breakdown, analyze the cost makeup of the offer and negotiate with the dealer and/or the manufacturer...
happy sails! joel hoffman

By formerfed on Wednesday, October 24, 2001 - 02:42 pm:

Joel, Your comment on the dollar value really affects this issue. I agree with what you say but I assumed the action is much less.

Linda and Kennedy, my prior post was based on the assumption that Philip sought competition and only received two responses - one from the manufactuer and the other from a dealer. As sopposed to resoliciting, I feel award can be made if the CO is comfortable with the price.

Philip, what dollar values are you dealing with?

By Philip on Wednesday, October 24, 2001 - 03:32 pm:

Less than $500K. Sometimes less than the simplified acquisition threshold. But for simplicity, lets consider only "less than $500K."
Philip

By Nick Sanders on Wednesday, October 24, 2001 - 07:39 pm:

Joel --

You wrote "It would seem logical to me that a manufacturer's direct costs for the item would be lower than a dealer's, unless the non-manufacturing related costs in a proposal (like maintenance, training, spare parts, etc.,) were more efficiently provided by a dealer than a manufacturer."

This, in my opinion, is classic Government-think. The reality is that commercial pricing is RARELY set by the total cost of the item. More likely, the pricing is set by market-related factors such as the desire to break into new markets or achieve certain sales volume. The phrase "marginal pricing" comes to mind, but since Econ 101 was a looong time ago I think I better stay away from phrases I can't fully explain.

In any case, the dealer may offer lower prices than the manufacturer for various reasons, including a desire to increase market share. For instance, there may be a special incentive or rebate program offered for achievement of a certain sales volume. Or maybe it's been a slack month and sales that make some margin are better than zero sales at full margin. Etc.

Hope this provides some rationale as to why there could actually be bona fide competition in the circumstances described, and why cost analysis might lead a buyer down the wrong path.

Nick

By joel hoffman on Wednesday, October 24, 2001 - 10:20 pm:

Nick, that may be plausible. However, I've been bidding and negotiating contracts for thirty years. We are discussing a situation where the only bidders are the factory and a local dealer - who buys from the factory. The factory submits a higher price than its retail dealer.

I'd bet my hind teeth that MOST of the time, the factory is putting in a "courtesy bid" (politely stating it), to help the dealer. This is not to say that the dealer's price won't be a fair market price - that was never my point. I think you are naive, if you think there is true competition, in such a case case. Happy Sails! joel

By joel hoffman on Wednesday, October 24, 2001 - 10:22 pm:

Nick, in case you doubt that this happens, please recall this from Anonymous:

"I know one manufacturer who has dealers that always quotes a list price so their dealers can win the competition. They say, "we always bid high but if you need a third quote for your files call us". Is this cheating, yes, but it gets you a third quote when you are in a hurry at end of year. "

By speele on Thursday, October 25, 2001 - 08:35 am:

There are so many scenarios I don't think it's possible to narrow down to just a few.

Many of our contracts are awarded to brokers/dealers/distributors and the reason is that we receive volume discounts each year based on the total price spent each year with the manufacturer. The distributors have a much larger volume discount because they are selling to many companies and we are just buying for the Coast Guard aircraft. Therefore we can purchase at a lower price by going to the dealer. That is just one example.

By joel hoffman on Thursday, October 25, 2001 - 09:04 am:

speele, I don't disagree. happy sails! joel

By formerfed on Thursday, October 25, 2001 - 10:56 am:

Philip,

I wouldn't focus exclusively on whether adequate price competition resulted. If you took reasonable means to seek competition (FedBizOps notice, posting in a public place, used personal/corporate knowledge of market to identify potential sources, etc.) and got only two responses, make an award if you are confident in the reasonableness of the price. Perhaps you suspect true price competition didn't result. Use other means to determine that the price is good. Find out what other agencies and customers paid. Ask the manufacturer for information on sales at list price versus discounted amounts and to whom. If there is something else close in the marketplace, do a comparison with it.

By Kennedy How on Thursday, October 25, 2001 - 12:37 pm:

Nick,

I think the "Classic Govt Thinking" is valid when you're talking about tank armor, or something that only the Government is a customer on. There is no "Brand Name" tank armor out there.

However, the original poster mentioned that we are not talking about "brand name stuff", so I don't think we're talking about buying a Motorcraft air filter from Ford or from Napa auto parts. There just isn't any "market related pricing factors' in tank armor. Which is how I phrased my reply.

Kennedy

By Nick Sanders on Thursday, October 25, 2001 - 01:00 pm:

Kennedy --

Given where you're coming from (tank armor) I can see the logic in your reply. However, please consider that we are talking about a situation where there is a dealer and a manufacturer -- that situation doesn't apply to tank armor either.

I would assume that where there's a dealer involved, there is likely to be sales to the general public. Accordingly, that's the logic behind my reply.

I guess it would be helpful in getting to the bottom of this situation if we knew whether or not we were dealing with a commercial item.

Nick

By Philip on Thursday, October 25, 2001 - 01:10 pm:

I'm hearing that (in the scenario given) we can never really know if the manufacturer and dealer were bidding independently. This is eventhough there are many other factors that could affect the price.

Based on everying said, I'm basically hearing "use the smell test." If it doesn't smell right as bid, use other (additional) means to support the price fair and reasonable.

I greatly appreciate all of the responses.
Thank-you Philip Griggs

By Susan Marie Paolini on Friday, October 26, 2001 - 09:35 am:

We should start a dictionary of euphemisms for common sense:

Smell Test
Washington Post Test
Ho-Ho Test