Commissaries agency closing ‘brand name’ loophole

By Tom Philpott: Military Update

One great strength of military commissaries is that patrons can buy brand name items at deep discounts, comfortable in the knowledge they are quality products, food safety isn’t an issue, and most goods are identical to those sold commercially off base and back home.

The “brand name” system brings another benefit, say commissary officials. It saves the Defense Commissary Agency (DeCA) many millions of dollars a year in acquisition and support costs.

That’s because DeCA can stock brand names without the expense and hassle of holding “full and open competition” and having to manage hundred of separate contracts. It does so because of an exception written years ago into the Competition in Contracting Act (CICA), the law that controls almost everything the government buys.

DeCA says this brand name exception allows the real competition to occur on commissary shelves, with winners determined by how shoppers choose best value just as shoppers do in any supermarket.

But those savings are now risk, DeCA officials maintain, as Massachusetts lawmakers press to have a New England seafood company “grandfathered” from a tighter brand name exemption that Congress imposed on commissaries in 1996.

It’s hard not to sympathized with the company now challenging the brand name system, or more specifically, challenging how Congress changed that system 14 years ago to keep brand name manufacturers happy.

Alder Foods, Inc. has been a commissary supplier of Rainbow Seafood products for 45 years. Rainbow shrimp is a “category leader” among commissary shoppers, offering a 31 percent savings compared to the cost of the same quality of shrimp sold in commercial stores.

The problem is this: Rainbow products aren’t sold in commercial stores. They have one customer, DeCA, and until now, haven’t needed another. But under the revision to the commissary brand name exemption Congress made back in 1996, Rainbow products no longer can be considered “brand name” items that can be exempt from the competition requirements of federal contracting law. Only if they begin marketing their product commercially can they stay on commissary shelves.

On behalf of Alder Foods, Sen. John Kerry (D-Mass.) and Stephen F. Lynch (D-Mass) have urged the Department of Defense to “reconsider the elimination of the grandfather exception” that had allowed Rainbow Seafood products to be sold in commissaries for decades, and even since the brand name exemption was toughened back in 1996.

Here’s where DeCA officials have to eat humble pie. There has been no long-standing “grandfather exception” to the 1996 law. There was a short-term exception made. But DeCA, through inattention and the nature of its buying process using long-term contracts, simply failed, as existing contracts expired and were replaced, to enforce the law properly.

This only came to the attention of DeCA lawyers in the past year when a competitor to Alder Foods, trying to put its products on commissary shelves, was told it didn’t qualify for the brand name exemption because it didn’t sell the same products to commercial stores.

Well, what about Rainbow Seafood products, this company asked DeCA? They didn’t sell their products commercially either. Whoops.

The circumstance forced DeCA to review how it had been enforcing that 1996 change in law. They discovered that suppliers who were to be given only short-term reprieves until existing contracts had expired were having contract renewed without regard to the 1996 law. That law was only being applied to companies seeking first-time deals with commissaries.

So DeCA sent “notices of trade” in May to suppliers of 461 products that they would have to begin marketing their products commercially, by Dec. 31, 2010, or they would be pulled from commissary shelves.

The hurdle is not a short one for some companies. They face repackaging costs, often have to pay “slotting” fees for space in warehouses of grocery chains, and likely have to advertise to compete commercially.