______________________________ DENIED: September 22, 1995 ______________________________ GSBCA 12472 UTAH LP GAS, INC., Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Mark C. McLachlan of Perkins, Schwobe & McLachlan, Salt Lake City, UT, counsel for Appellant. Donald R. Jayne and Michele M. Feher, Office of Regional Counsel, General Services Administration, San Francisco, CA, counsel for Respondent. Before Board Judges PARKER, WILLIAMS, and DeGRAFF. WILLIAMS, Board Judge. This appeal challenges a contracting officer's final decision refusing to grant price adjustments under a contract for the supply of propane. Appellant contends that the contracting officer should have amended the contract because the Producer Price Index (PPI), the index specified in the contract to govern price adjustments, substantially and consistently failed to reflect market conditions. Because appellant has not demonstrated any basis for a price adjustment or a substitution of an alternative index under the contract at issue, the appeal is denied. Findings of Fact The Contract On August 13, 1992, respondent awarded contract number GS-10F-7986A for the supply of propane under the federal multiple award supply schedule. Appeal File, Exhibit 1. The solicitation invited bids for 523 different delivery destinations in 48 states.[foot #] 1 Appellant was awarded a contract for destinations numbered 324 in Nevada and 470 in Utah. Id. This contract was a fixed-price contract, and the contract period was November 1, 1992, through May 31, 1994. Id. Appellant was to deliver propane for $0.41 per gallon to Hill Air Force Base in Utah.[foot #] 2 The contract contained an Economic Price Adjustment (EPA) clause which provides: (a) The unit price(s) of all items which are purchased under this contract are subject to price adjustment, upward or downward, by the percent increase or decrease in the index code 1321-231 for PROPANE, as quoted in the table 5 of the Producer Price Index(es) by the U.S. Department of Labor (DOL), Bureau of Labor Statistics, which is issued monthly. If the Index(es) cited in the contract consistently and substantially fail to reflect market conditions, the Contracting Officer may amend the contract to substitute a more appropriate index. (b) This initial (unadjusted index(es)) published for the month of JUNE 1992, shall be used as the base for determining price adjustments. The contract price shall be increased or decreased by the percent increase or decrease of the initial unadjusted index(es), provided that no price adjustment shall be made unless such index increase or decrease is four (4) percent or greater. Whenever a price adjustment is made pursuant to this clause, the index which was used for computing the adjustment shall become the new base index for determining further adjustments. . . . Appeal File, Exhibit 1 at 150. The PPI is published by the Bureau of Labor Statistics of the United States Department of Labor and contains price indexes for nearly 500 mining and manufacturing industries, including over 3,200 commodity price indexes organized by type of product and end use. Appellant's Response to First Request for Production of Documents. The PPI represents average changes in selling prices received by domestic producers for their output. Id. Utah LP Gas, Inc.'s (ULPG's) Prices ----------- FOOTNOTE BEGINS --------- [foot #] 1 The General Services Administration (GSA) contracts for propane on a nationwide basis using the Federal Supply Schedule. Transcript at 73. [foot #] 2 Appellant also was awarded a contract for the Owyhee U.S. Public Health Service in Nevada to deliver propane at $0.495 per gallon, but the Nevada destination is not at issue. Complaint at 2. ----------- FOOTNOTE ENDS ----------- Appellant has been in the business of buying and selling propane for over twenty years. Transcript at 6-7. ULPG sells propane exclusively within the state of Utah; it does not import propane from outside the state because it has an ample supply, and the transportation costs of importing would be prohibitive. Id. at 8-9. ULPG's bid of $0.41 per gallon, for delivery to Hill Air Force Base in Utah, was based on the $0.26 per gallon price of propane as of June 5, 1992, indicated in the BPN Weekly Propane Newsletter (BPN Newsletter) for Salt Lake City, Utah. Transcript at 14; Appeal File, Exhibit 7. According to appellant, its $0.41 per gallon bid would have yielded a $0.15 gross profit over its $0.26 purchase price, which appellant claims is customary in the industry. Transcript at 11. The BPN Newsletter is published weekly by Butane-Propane News in Arcadia, California. Appeal File, Exhibit 7. It contains news relating to the propane gas industry as well as price updates in four price lists. Id. These are: Principal U.S. Postings, which lists twenty-three producers and their individual prices for propane in several U.S. locations as well as the average prices for these producers by location; Spot Prices for Natural Gas Liquids, which lists spot prices for propane and other products in several U.S. locations; Canadian Producer Postings, which lists seven producers and their prices in locations; and Prices for Other Basing Points, which lists propane prices per producer for over thirty producers in numerous different U.S. locations. Id. Appellant relies on the propane price quoted by AMOCO for Salt Lake City, Utah, in the Prices for Other Basing Points list to calculate the adjustment claimed in this appeal. Appellant's Posthearing Brief at 8; Respondent's Trial Exhibits 7-12. Specifically, appellant contends that if GSA had applied the BPN Newsletter price as the alternative index in the EPA clause it would have received $10,927.15 more than it received under the contract utilizing the PPI. Appellant's Posthearing Brief at 7. The contracting officer testified that the Government did not use the BPN Newsletter as the index in the EPA clause because this type of weekly newsletter has fluctuating prices and is not a market trend. Transcript at 84. Industry Propane Prices and the PPI Below is a chart showing the delivery dates relevant here, and comparing the contract price, the PPI figure for each month of delivery, the percentage of variation in the PPI, and the propane prices in Salt Lake City as reflected in the BPN Newsletter. Date of Contract PPI % Variation BPN Delivery Price Index in PPI Price Salt Lake 06/05/92 .41 62.3 (Base Month) .26 Oct.1992 .41 66.7 +7.06% N/A 11/04/92 .41 66.8 +0.15% .38 11/16/92 .41 66.8 +0.15% .38 11/19/92 .41 66.8 +0.15% .38 12/01/92 .41 67.3 +0.90% .38 12/10/92 .4389 67.3 +0.90% .38 12/14/92 .4389 67.3 +0.90% .38 12/22/92 .4389 67.3 +0.90% .42 01/05/93 .4389 65.2 -2.25% .46 01/07/93 .4389 65.2 -2.25% .49 01/14/93 .4389 65.2 -2.25% .49 01/15/93 .4389 65.2 -2.25% .49 See Complaint at 2 (delivery dates); Appeal File, Exhibits 1, 4 (contract price); Appeal File, Exhibit 3 (PPI and PPI% variation); Complaint, Exhibit "A" (BPN price, June 1992); Appellant's Supplemental Index of Exhibits (BPN prices Nov. 16, 1992 through Jan. 15, 1993); Appeal File, Exhibits 3, 4 (adjustments in contract price). As indicated above, appellant's propane prices, which track those in the BPN Newsletter for Salt Lake City, started rising once the contract was awarded. The BPN Weekly Propane Newsletters for the times in question indicate, however, that propane prices varied greatly depending upon the geographic location and the date -- at times running higher in Salt Lake City and at times lower. The average propane prices of twenty-two suppliers listed for seven different locations in the BPN Newsletter indicated prices as follows in cents: BPN Principal U.S. Postings Mont Kearney Conway W.Texas Selkirk Apex Hatties- Belvieu Mo. Kan. Blk 31 N.Y. N.C. burg 11/9/92[[foot #] 3] 37.250 34.894 32.869 34.917 44.223 43.030 40.549 11/16/92 36.972 36.128 33.306 34.750 43.915 42.642 40.012 11/23/92 36.167 36.011 33.588 34.750 42.900 40.932 38.958 11/30/92 35.917 36.668 34.088 34.750 42.455 40.638 38.512 12/7/92 34.894 35.311 33.831 34.750 41.175 39.616 37.597 12/14/92 34.522 35.506 33.767 34.750 40.913 38.535 37.025 12/21/92 34.633 36.278 34.081 34.750 41.056 38.910 37.104 12/28/92 35.494 40.606 37.050 38.071 42.359 40.241 38.322 1/4/93 36.133 43.411 39.394 38.688 42.802 41.210 38.947 1/11/93 35.633 46.772 41.300 40.375 42.475 40.898 38.483 1/18/93 38.378 65.717 57.019 42.438 46.725 44.152 41.623 Appellant's Supplemental Exhibits. For example, for the month of November Selkirk, New York, Apex, North Carolina, and Hattiesburg all showed prices higher than those for Salt Lake City while Mont Belvieu, Kearney, Missouri, Conway, Kansas, and West Texas all showed prices lower. Id. The first two weeks in December Selkirk and Apex had prices higher than those of Salt Lake City. Id. The January 18, 1993, BPN Newsletter indicated that Kearney, Missouri's prices had jumped from $0.46772 as of the January 11 publication to $0.65717 on January 18; similarly, the January 11 $0.413 price for Conway, Kansas, increased to $0.57019 as of the January 18 publication. Id. The Adjustment in the Contract In accordance with paragraph (c) of the EPA clause, the administrative contracting officer (ACO) checked the PPI index monthly to determine whether the contract price had to be adjusted. Appeal File, Exhibit 1 at 150; Id., Exhibits 3, 6, 10, 12, 13, 14. On December 12, 1992, the contract price was ----------- FOOTNOTE BEGINS --------- [foot #] 3 These dates are the dates of publication of the BPN Newsletter, representing postings a few days earlier. ----------- FOOTNOTE ENDS ----------- adjusted from $0.41 per gallon to $0.4389 per gallon, to reflect an increase of 7.06% in the October PPI (66.7), over the June PPI (62.3), the base index. The price increase became effective on December 10, 1992. Id., Exhibit 4. On January 14, 1993, a manager of ULPG called the ACO and advised her that the EPA did not cover his cost, which was then $0.50 per gallon, and that he intended to repudiate the contract. Appeal File, Exhibit 5. The ACO requested ULPG's manager to confirm that in writing. Id.; Transcript at 22-23. ULPG's Claim On February 12, 1993, ULPG, through counsel, submitted a claim for an upward price adjustment in the amount of $2,833.17. Appeal File, Exhibit 7. Appellant argued that the Producer Price Index consistently and substantially failed to reflect the true market conditions, and that a more appropriate index would be the BPN Weekly Propane Newsletter. Id. Appellant believed that it was fairly treated with regard to the other destination it was awarded, Owyhee, and did not seek a price adjustment with regard to that. Transcript at 33. On March 3, 1993, the contracting officer wrote to GSA's appropriate commodity branch seeking guidance in the application of the EPA clause, citing ULPG's claim. Appeal File, Exhibit 8. The contracting officer looked to a letter written by GSA to another contractor in response to a similar request. Letter from Margaret F. Lien, Contracting Officer, Chemicals and Special Programs Branch, Paints and Chemicals Commodity Center, to Bellman Propane (Bellman) of Randolph, Kansas (Feb. 18, 1993).[foot #] 4 The contracting officer found that ----------- FOOTNOTE BEGINS --------- [foot #] 4 Bellman requested that GSA use a different publication, the Propane Terminals Price Watch, published monthly, to calculate EPA price adjustments. GSA's response to Bellman stated: The index(es) referred to in the [EPA] clause pertain only to the Producer Price Index, not to other publications . . . . The wholesale prices you show in your letter are reflective of a specific region. The EPA clause in your contract addresses market conditions on an industry-wide basis. We also reviewed the Department of Energy Winter Fuels Report. It shows a slightly higher figure than the PPI for the period of October 1992 to December 21, 1992 with an average 6% increase. (continued...) ----------- FOOTNOTE ENDS ----------- the letter did not answer the following questions which needed to be addressed to resolve ULPG's request. 1. The figures released by the Department of Labor (DOL) may be monthly, but how current is the information? 2. Why is the EPA based on a nationwide industry basis rather than on a regional basis which may be more specific and accurate? 3. What criterion is used to evaluate the Index(es) as to whether or not it reflects market conditions? What would be the prerequisite criterion to determine that an index(es) consistently and substantially fail (sic) to reflect market conditions? 4. What would be considered a more appropriate index(es) should a substitution be made? Appeal File, Exhibit 8. The director of the procurement division, paints & chemicals commodity branch, replied to the contracting officer's memorandum on March 11, 1993, Appeal File, Exhibit 9, and answered each of the above questions as follows: 1. . . . the [Department of Labor] sends forms to the producers of gases each month who in turn send back their price quotes, this causes a 30 day lag. 2. We have contracts with 63 companies for approximately 500 different locations throughout the U.S. Some companies bid on several different locations from coast to coast. The contractors may buy their propane from different suppliers based on best price including companies located in Canada. As you can see in the BPN's Weekly Propane Newsletter, there are numerous prices per location under "Prices for Other Basing Points." It would be impossible for us to keep track of price changes and adjust them monthly on a regional basis. ----------- FOOTNOTE BEGINS --------- [foot #] 4 (...continued) Accordingly, we feel that the PPI deals accurately with the industry-wide price fluctuations and that the PPI shows the market conditions of the propane industry. Appeal File, Exhibit 8. ----------- FOOTNOTE ENDS ----------- 3. In addition to the PPI we look at publications such as The Department of Energy's "Winter Fuels Report". The PPI and Winter Fuels Report, which reflect industry-wide price fluctuations are considered to show a truer picture of the marketplace. The PPI is published monthly, year-round, while the Winter Fuels Report is published only from October through the second week in April. BPN's Weekly Propane Newsletter dated 1/18/93 clearly states several times that prices have been "rising and falling", and "the market has been like a roller coaster." This is an industry-generated publication that reflects weekly and regional prices. Propane suppliers know that propane prices fluctuate - rising in the colder months, and dropping with warmer weather. The suppliers are also aware that prices vary dependent upon the geographical location(s). A prudent bidder considers all costs and anticipate(s) cost increases when preparing a bid price on a fixed price contract with EPA. The EPA provides for upward and downward revision of the stated contract price upon the occurrence of specified contingencies, such as an industry-wide price fluctuation. The fixed price contract . . . is not intended to be used as a cost plus fixed fee provision. In addition to referring Utah LP Gas, Inc. to your office, only two other contractors have written expressing concern over the use of the PPI. Since we have contracts with 63 companies, and have only received three written complaints and a few telephone inquiries we do not feel this justifies using a different publication and eliminating the PPI. 4. The "index" referred to in the [EPA] clause pertains only to the Producer Price Index, and not other publications. The PPI index we are using in accordance with the EPA clause is 1321-231 (Natural Gas Liquids - Propane) and is specific to Propane. We feel after looking at the other publications available to us that the PPI is the most appropriate method for price adjustments. We have been using this clause for the past three years, and feel that the clause is very clear in its intent. Also this is a fixed price contract and not a cost plus fixed fee contract. Appeal File, Exhibit 9. The contracting officer testified that she reviewed the Propane Terminal, the Winter Price Watch, and Oil Price publications to verify that the PPI was accurately reflecting market conditions, but that she did not look at the BPN Newsletter for this purpose. Transcript at 133-34. She explained: "There are two different things here; I would not compare the two." Id. at 134. She clarified that the publications she reviewed showed national market trends, but that the BPN Newsletter showed spot prices based on daily or weekly prices for specific geographic locations. Id. at 135. She also stated that the BPN Newsletter is "a 100% industry controlled publication" whereas the PPI is nationally recognized by industry and Government. Id. The Government's contract specialist responsible for propane testified about her inquiry: I did do a telephone survey of a couple of our contractors to find out how they were feeling about the price at that time. . . . I called the Department of Labor in Washington, D.C. and spoke to an analyst there to find out how they arrived at the percentages in the PPI and discussed it with them, and she told me about the month lag for gases. She also suggested that I contact the Department of Energy in Washington to get a copy of the Winter Fuels Report which is . . . a monthly publication during the winter months, which I did. I called one of our current contractors and asked her what she was finding in the price changes that were going on in January. I talked with Ferrell Gas, which is also one of our contractors, and asked them if they could send me a couple of publications. They sent me . . . a couple of publications of Propane Terminals, Price Watch was one of them, they faxed to me which was the January, 1993 and the February 1993 issue of the U.S. Contract Propane Prices, so I could get an idea of the market trend in those publications. . . . [The CO] and I discussed it, and we found that it was very comparable to the PPI. It all followed very closely. Transcript at 143-44. On March 31, 1993, the contracting officer denied ULPG's request for price adjustment, stating that because the PPI had not increased or decreased 4% or more, a change in the price to be paid to ULPG was not warranted. The contracting officer also refused to substitute the BPN Newsletter prices for the PPI in the EPA clause, stating that: [T]he PPI is . . . reflective of market conditions on a nation-wide basis for the industry . . . rather than restricting purchases to a regional source. The EPA provides upward and downward revision of the stated contract price upon the occurrence of specified contingencies, such as industry-wide price fluctuation. The fixed price contract with an EPA is used to protect both the Contractor and the Government against significant fluctuations, and is not intended to be used as a cost plus fixed fee provision. Appeal File, Exhibit 11. Discussion Appellant claims that the contracting officer arbitrarily refused to grant the price adjustment and abused her discretion in not substituting a more appropriate index for the PPI. Appellant has the burden of proving that a price adjustment or the substitution of an alternate index was warranted. Appellant has not met its burden here. Under the clear terms of the EPA clause, an upward price adjustment was not warranted because the PPI did not increase by as much as 4% after October 1992. That clause unambiguously provided that the contract price could be increased "by the percent increase of the initial unadjusted index, provided that no price adjustment shall be made unless such index increase . . . is 4% or greater." The only remaining issue is whether the contracting officer abused her discretion in failing to substitute the prices in the BPN Newsletter in lieu of the PPI as the "index" which would trigger adjustments in the EPA clause. Appellant has not demonstrated an abuse of discretion here. Respondent did not arbitrarily reject appellant's claim, but rather performed an analysis of the accuracy of the PPI in reflecting market trends in the propane industry, considered the propriety of basing the EPA on trends in nationwide rather than regional markets and compared prices reported in other publications to assess market trends. Specifically, respondent surveyed other contractors, received complaints from only 3 out of 63 contractors for over 500 locations, contacted the Department of Labor to clarify how the PPI worked, reviewed the Department of Energy's Winter Fuels Report, an index that lists winter prices each month, reviewed other publications of prices, Night Watch Publication, Propane Terminals Price Watch, and the U.S. Contract Propane Prices and determined that the PPI index did, in fact, follow the market trend. The evidence of record confirms that appellant has not made a case for substituting the weekly BPN Newsletter -- which is not even an index -- for the PPI. The evidence does not demonstrate that the PPI failed to accurately reflect market trends. In contrast, the evidence demonstrates that the PPI did reflect overall market trends, but that there was a wide variety in prices among different locations at different times. Given that respondent had contracts with 63 companies for over 500 locations with differing prices per location, we cannot disagree with respondent's decision to implement the EPA clause on a nationwide rather than a regional basis. Decision The appeal is DENIED. MARY ELLEN COSTER WILLIAMS Board Judge We concur: ROBERT W. PARKER MARTHA H. DeGRAFF Board Judge Board Judge