Businesses, the Delivery of Cargo or Freight

¶ … businesses, the delivery of cargo or freight is often determined by the lowest cost provider. The provider who can offer the best value at the lowest prices garners the most business. The same is true regarding government contracts and freight orders. In the case of Sea-Land Service, Inc., they were in competition with both international and domestic shipping firms. What complicated this issue, Sea-Land contends, was the ambiguous and discriminatory nature of the business dealings surrounding potential delivery (1). Additionally Sea-Land disputes the methods of determining a "fair" and "reasonable" price.

To begin, Sea Land Service Inc. is a shipping and containerization company. It was established in 1960 and now exists as Horizon Lines Inc. As a publicly traded company. Sea-Land has a long and storied history which includes shipping numerous containers' in the Vietnam War, to various contracts with the U.S. government. One such potential contract was with the Department of Defense in early 1993 (3). Traditionally, the DOD enters into contracts on a cost basis. The suppliers who can delivery the predetermined amount of goods and services at the lowest costs usually are awarded the contract. In many instances, multiple awards are given in the delivery amount in question is too large for a single carrier, or if the multiple routes are needed. Additionally, the contract winner's names and amounts are published in the Worldwide Container Agreement and Rate Guide. The contract in question however is unique in regards to Sea-Land who contented that the DOD departed from the traditional worldwide agreement approach which created a difficulty in the overall negotiation process

The new approach taken by the DOD was one of a single party negotiation as oppose to a multi-party negotiation strategy. The DOD contends that through this method, better rates, better delivery quality and better overall service can be obtained. Sea Land counters by stating this method makes it difficult to identify the commercial contracts or rates MSC intends to use in its evaluation of other services contracts (2). Thus, this single party negotiation process is discriminatory in nature. Finally Sea-Land believes that much of the language within the new agreements are ambiguous and do not present themselves to fair interpretation.

I agree with the initial decision regarding Sea Land Service Inc. As stated in the document, the Military Sealift Command (MSC) is making a substantial monetary commitment and should be compensated accordingly. As such, they have the right to demand better rates through means other than those of the worldwide agreement. Likewise, Sec. 15.805-2 authorizes the contracting officer to select whatever price analysis techniques will ensure a fair and reasonable price (5). This is exactly, what the MSC is doing by using a single party negotiation system. There is no requirement that the government disclose a government offers by competitors. Further, in such instances as price competition, competitor disclosure is not needed in order to place a bid. If other competitor offers were disclosed, competitors would simply base their price off of the bid as oppose to their own costs, required rates of return and so forth.

To take the opposing view, I believe Sea Land, has very valid points regarding the ambiguous nature of the agreement. For example, one clause within the agreement states the following:

"Nothing in this Agreement shall give the carrier any right, claim or cause of action against the Government for the Government's (1) failure to book any particular cargo or any . . . quantity of cargo with the carrier; (2) failure to utilize any or all of the vessel space dedicated by a contract carrier; (3) booking of any particular cargo or any quantity of cargo with any other carrier, whether or not such carrier has been awarded a . . . Container Agreement; (4) transporting any cargo by any means other than with the carrier; (5) otherwise failing to perform any of its promises or undertakings set forth in Sections C-4,[4]G-6, or H-8 of this Agreement; (6) right to use alternative competition methods of procuring ocean transportation, including service contracting that will obtain service from the least expensive among the same types of carriers or vessels and also the least expensive among different types of carriers or vessels."

As such, there is not guarantee that the Government will ship any materials on the cargo ship at all (2). This provides a cost to Sea-Land or other carriers in the form of opportunity cost. In essence, the space dedicated to the government, that is not utilized can be used to serve other client who are in need to service. However, since cargo ships are required to allocate space to the government, they cannot ship other items, which results in lost revenue.