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Does Competition Exist if there is a single manufacturer of a product; but you receive quotes for the product from two or more distributors?  I have gotten into some heated arguments about this issue.  I don't consider buying from multiple distributors a competitive purchase since there is only a single manufacturer.  I would appreciate hearing your view.

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I've seen this before.  Let me pose a scenario for you:

You have a requirement to buy 100 boxes of Tide detergent.  On Amazon, there are 5 sellers of the product you need.  They all vary by 1-2% except for Seller 5, who has a price that is 10% lower than everyone else.  Your due diligence leads you to question whether this is the same item and you discover that yes, it is.  Seller 5 explains that they receive favorable pricing from Tide because they buy it by the truckload.

Do you have competition?

Let's modify it slightly and say that all sellers 1-5 price the product essentially the same.  Does this change the answer?  Why?

In my book, the punchline here is that if you have an active distribution marketplace for an item, then price is set by the laws of supply and demand.  If you notified the bidders that this would be awarded competitively, then they will be motivated to put their best foot forward and meet the requirements of adequate competition.

The caveat:  I have seen a case where a manufacturer tried to sell through two "distributors" in order to skirt TINA.  In this case, there was no "active marketplace" responsible for setting price.  Price was dictated by the manufacturer and zero sales had occurred.  Distribution model was a sham...didn't qualify as competition.

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3 hours ago, PhilBail said:

Does Competition Exist if there is a single manufacturer of a product; but you receive quotes for the product from two or more distributors?  I have gotten into some heated arguments about this issue.  I don't consider buying from multiple distributors a competitive purchase since there is only a single manufacturer.  I would appreciate hearing your view.

The answer depends in part upon what you mean by "competition."

If (1) you are asking about "full and open competition," (2) the purchase is being made by a government agency, and (3) FAR Part 6 applies, then see FAR 6.302-1(c)(1)(i).

If the purchase is being made a private sector entity, then there is no rule that bears upon the answer to your question. However, government agencies reviewing the entity's purchases might look to FAR 6.302-1(c)(1)(i) for guidance.

If you are not asking about "full and open competition," then what kind of competition are you asking about? The FAR mentions at least three kinds.

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I'm asking about full and open competition from a federal government prime contractor perspective.  The contracting is buying to support an active prime government contract.  Lets assume He/she is purchasing $800,000 of some product that does not meet the definition of a commercial item; and, this product is manufactured by only a single manufacturer.  If the contractor gets quotes for the product from 2 or more distributors and determines the price fair and reasonable based on competition, will a CPSR Audit team look at this price reasonableness determination as being valid or look at it as not adequate since there is a single manufacturer and the prime contractor didn't determine the price from the manufacturer as fair and reasonable - even though distributors were involved in the sale.  

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Contractors are not required to seek or obtain "full and open competition." Only government buyers are required to do that. Contractors are required to "select contractors on a competitive basis to the maximum practical extent consistent with the objectives and requirements of the contract." See FAR 52.244-5. That's a lower standard.

In a CSPR the government is supposed to determine "the degree of price competition obtained." I cannot say what an auditor would think of the case that you described. I would not be surprised if they object, because they might be thinking in terms of rules that apply to the government. I think the key might be for you to show that there really was price competition among the distributors. Merely showing that you got quotes from two or more distributors might not be enough. I would certainly question it.

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I always questioned the adequacy of the source justification when seeing distributor involvement in a proposed procurement, before looking at the adequacy of competition. For example, if it was requested that a Ford automobile is required to be ordered, was there adequate justification for that vs. issuing an RFP to many brand  car dealers for automobiles that carry x passengers, get x miles per gallon or more, are licensed to drive on highways and streets, etc. I believe it would be a stronger file if the manufacturing source justification was adequate to support a determination of competitive pricing among distributors of that product. You may get better or more views if you could fill in the details of your scenario, Phil as to source justification and market research. But, it would be awfully nice if we could get a view from CPSR teams or those that deal with them daily e.g., see CPSRHelpandHints on Facebook   

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Maybe PhilBail has this but another source document is the DCMA Guidebook for CPSR found here....http://www.dcma.mil/Portals/31/Documents/CPSR/CPSR_Guidebook_011817.pdf

Appendix 12 of this document may be of help.

To the latest question raised by PhilBail the pertinent question that needs to be supported as to whether the seeking of pricing in the example is a  "competition" is whether the distributors provided pricing by "competing independently".   

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