Legal Briefs: How good are you at herding cats?

SDDC conference. The SDDC, which stands for

Surface Distribution and Deployment Command (and I apologize in advance for all the acronyms), is probably the largest shipper in the world, paying annual transportation fees in the billions of dollars. No one is sure just how much.

The SDDC is a joint military services organization run by the U.S. Army, but staffed in one way or another by personnel from other services, along with a large component of civilian employees. It used to be known as the Military Transportation and Management Command.

Based on what I heard at the conference, many changes are in the works for the government logistics market. These changes are something that carriers of all modes, 3PLs, 4PLs and any shippers who sell goods to the government will experience over the next year or two.

Getting a grasp on the government logistics market is something like herding cats. The market is divided into various segments that often use different procurement and payment methods. These segments occasionally overlap and are impacted by multiple players.

For instance, the Department of Defense (DOD) acquires logistics services in various ways. The SDDC manages DOD logistics for motor and rail services as well as international ocean transportation. To that end, the SDDC has issued an extensive series of regulations, directives and standard contracts for a variety of these services (you can check some of this out at www.sddc.army.mil).

Another DOD component, the Air Mobility Command, manages the air freight requirements for the DOD. This includes small package shipments.

The General Services Administration (GSA), meanwhile, manages many of the programs civilian federal agencies use for logistics services. One GSA-managed method often used by federal agencies to procure goods and services is the GSA schedule system. Under the schedules, GSA will post online common types of goods and services that agencies may want to procure (everything from paper clips to chocolate chip cookies). Once a transportation service provider (TSP) is on the schedules for various types of logistics services, an agency may procure services from it without going through the cumbersome process of formal contracting. The DOD is free to use GSA schedules, although in practice it rarely does.

The DOD and other agencies often use the solicitation method for acquiring logistics services. These require a precise method of contract development and are within the purview of the Federal Acquisition Regulations-(FARs). The FARs are quite lengthy, and the FAR sections that are incorporated into a solicitation need to be carefully examined before anyone submits a bid. TSPs submit bids in response to solicitations. There may be multiple awards, meaning more than one TSP may receive a contract under the solicitation.

Another method of acquiring transportation services often used by the DOD is the tender of service process. Basically, under this process, a DOD component sets up a statement of desired services, called a "tender", and then asks TSPs to submit ("tender") a rate for the described service. Shipments under the tender system are not under the FARs, but the FARs are sometimes used to interpret them.

Perhaps the biggest change on the horizon is a project coming from the Office of the Secretary of Defense (OSD). The OSD is developing a solicitation that, when awarded, would give one private logistics manager the responsibility to manage all DOD general freight movements. It would be a FAR-based contract with one manager in charge of billions of dollars' worth of transportation services. The details are still being worked out, but the program's development is well on the way. Other developments relate to the role of transportation officers (TOs). The TO is the person on the line who actually books a particular shipment with a TSP. A recent decision by the GSA Board of Contract Appeals and a regulatory proposal by the GSA concerning the training and certification of TOs will give more responsibility and power to them.

The process of paying TSPs has also been changing. The old method of submitting paper documents through the Defense finance and accounting system is giving way to an automated system called Power Track, administered by a private bank.

Those selling goods to the government may have to deal with these new systems. One-time-only shipments from a supplier's warehouse may be procured and paid for by a government agency. Traditionally, shippers supplying goods to a government agency are reimbursed for transportation service at the actual cost of the transportation. This made sense when rates were easily determined by examining a TSP's filed tariffs. With tariffs largely a thing of the past and a variety of rate programs available, it may not be easy to determine exactly what the actual cost of transportation is under a government contract to supply goods. Audits of transportation charges can raise questions.

Shippers and logistics providers should stay tuned to changes in the multi-billion dollar government market as it continues to evolve.

James Calderwood is a partner with the law firm of Zuckert, Scoutt & Rasenberger L.L.P., in Washington, D.C., where he concentrates on transportation matters. He can be reached at [email protected]. This column is designed to provide information of general interest. It cannot substitute for in-depth legal analysis of particular problems. Readers are urged to seek counsel concerning individual situations.

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