02-6582. MTMC Pam 55-4, “How To Do Business in the DOD Personal Property Program.”

AGENCY:

Department of the Army, Military Traffic Management Command (MTMC), DoD.

ACTION:

Notice; final policy.

SUMMARY:

MTMC has established new qualifying procedures to be able to participate in the Department of Defense (DOD) Personal Property Program (hereafter referred to as “The Procedures”). These procedures were finalized after review of comments received in response to our proposal published in the Federal Register (66 FR 56084), on November 6, 2001. Details of these comments are at the end of this notice, under “Background.” MTMC, as Program Manager of the DOD Personal Property Shipment and Storage Program (hereafter referred to as “The Program”) has streamlined and strengthened the carrier qualification process. All present and future participants (commercial carriers) in the Domestic and International Personal Property Programs are required to use our streamlined qualification process using the web, email and/or fax, and meet the new financial requirements as further discussed in this document.

EFFECTIVE DATES:

April 15, 2002.

FOR FURTHER INFORMATION CONTACT:

Ms. Sylvia Walker, HQ Military Traffic Management Command, ATTN: MTPP-HQ, Room 10N67, Hoffman Bldg II, 200 Stovall St., Alexandria, VA 22332-5000, telephone [phone], fax [phone] or email [e-mail]

SUPPLEMENTARY INFORMATION:

To further DoD's goal of making the Personal Property Qualification Program stronger and more streamlined, changes are being implemented to:

a. Simplify and reduce paperwork involved in the carrier qualification process.

b. Shorten the approval processing time.

c. Meet MTMC's legal obligation to conduct business with responsible commercial carriers only.

d. Assess any financial risk to the Government.

e. Improve Program performance and quality assurance.

f. Incorporate suggestions made by the carrier industry.

MTMC's intent is to incorporate common commercial business practices, and take advantage of efficiencies gained from the use of technology to streamline and strengthen the carrier qualification process. These changes, and the new requirements, supersede the current “How To Do Business MTMC Pamphlet 55-4.” “The Procedures” will be updated and available for your use on the MTMC home page at www.mtmc.army.mil on the Internet. Carriers currently participating in “The Program” must submit requested documentation between April 15-May 15, 2002. New carriers must comply with the new procedures upon application. New applications will be accepted after the moratorium is lifted.

Note:

On November 6, 2001, MTMC imposed a 1-year moratorium on accepting new carrier qualification applications.

If a carrier currently participating in “The Program” does not meet the new requirements, and approval is revoked, the carrier may re-apply as a “new” carrier only after the moratorium is lifted.

1. The new procedures are as follows:

a. Requirements for Documentation: Carriers currently in the program are required to submit four (4) qualification forms during April 15-May 15, 2002. All forms must be received no later than midnight (EST) on May 15, 2002. The forms are as follows:

(1) Electronic Tender of Service Signature Sheet (ETOSSS).

(2) Certificate of Cargo Liability Insurance (MTHQ Form 49-R).

(3) Performance Bond (that is effective 2002 Winter Cycle).

(4) List of Countries and Codes of Service (LOCCS).

These forms must be submitted electronically via the Internet or by fax to [phone]. Carriers should have internal capability to access the Internet, but we do not mandate this requirement. A carrier may elect to use a third party vendor to electronically submit qualification documentation, but assumes all responsibility for all documents arriving within the established time-frame. You can access the forms by going to www.mtmc.army.mil, click on Personal Property, click on Carrier Approval, click on Carrier Qualification Home Page, and Carrier Qualification Registration Page. There you will find instructions for completing all the documents. Instructions for accessing the forms will also be included in “the Procedures,” which is also located at www.mtmc.army.mil on MTMC's web site.

Documentation will be reviewed on a first come, first served basis. The submission date will be determined by the electronic date on the Electronic Tender of Service Signature Sheet received in MTMC's database via electronic means. After completing all required documentation, the MTMC computer will send back a dated response saying that we have received all the required documentation. It will be the carrier's responsibility to ensure any electronic or faxed documentation has been submitted to MTMC by the required deadline. MTMC will not accept late submissions after midnight (EST) on May 15, 2002.

During the transition period while documents are being processed, carriers currently participating may continue to do business with DoD. Before filing rates for the IW02/DW02 cycles, carriers should consider the contents of this exam Federal Register notice to make sure they comply with the new requirements. Upon MTMC's review of each submission, carriers not meeting the qualification requirements will have 21 calendar days from the date of notification from MTMC, to provide additional information. If approval is revoked, the carrier's rates will be administratively removed. New carriers must submit previously listed forms at time of application.

b. Financial Ratios: For carriers currently participating, a quick ratio of 1:1 or better is required and a debt to equity ratio of 4:1 is desired. New carriers (those applying after the moratorium is lifted) must meet the 1:1 and 4:1 at the time of application.

For carriers currently participating, the status of their debt to equity ratio will be determined upon submission of their 2002 financial statements as detailed in paragraph C of this document. Carriers currently participating that do not meet the desired ratio will not be automatically removed from MTMC's program, as they are not intended to be “pass/fail” standards. Rather, those not meeting the 4:1 ratio must provide an explanation of the reason why in writing. If the explanation is acceptable, carriers will be allowed to stay in the program, but will be re-evaluated within one year. If the explanation is not acceptable, MTMC will require additional information to be provided so that a financial risk assessment can be performed. As always, MTMC reserves the right to convene a Carrier Review Board, if it deems necessary. The carrier will not lose their approval status until the financial risk assessment has been completed.

The purpose of the desired ratio, and the possible requirement for additional information, is to assess the risk the government assumes in doing business with individual carriers. MTMC's goal is to deal with only financially viable companies. MTMC realize that sometimes those with the greatest debt load are those making the effort to invest in the future of their company, to better serve our military customers. And, they are seen as the best credit risks to lend money to. However, this is not always the case, and we must weed out those that don't fall into this category.

The following definitions are provided for clarification purposes only. If there are further questions on the definitions, or how to best present financial data, carriers should consult their own accountants.

Quick Ratio (1:1). The quick ratio, measures the ability of a business to meet their current bills. Quick ratio is cash plus receivables divided by current liability. This is similar to current ratio with the exception that inventory and prepaids are subtracted from the total current assets prior to making the computation. These items are deleted prior to computing the ratio because inventory and prepaids are not easily converted to cash to pay debts. Further, if a company needs to liquidate inventory or prepaids to pay bills, they are in liquidation process and not really a going concern. MTMC recognizes the industry's uniqueness in that many transportation related costs are incurred and paid after the military shipment is picked-up from the member and prior to delivery or placement in SIT. This lag time causes a mismatch between revenues and expenses. If the expenses are included in the financial statements and identifed separately as prepaid transportation expenses or unbilled receivables, MTMC will consider them in the Quick Ratio analysis.

Debt to Equity Ratio (4:1). Debt to equity is total liabilities divided by the company's equity.

c. Financial Statement Requirements: Annually, carriers must provide audited financial statements with an auditor's report, or reviewed financial statements with an accountant review report. Financial statements must be prepared according to generally accepted accounting principles using the accrual basis, including balance sheets and profit/loss statements. Financial statements, audit, or review memorandums must include all referenced footnotes. A carrier may voluntarily provide company tax returns in addition to the financial statements, if they do desire. Statements must be transmitted electronically or via fax to [phone], reflecting the signature of the company's executive stating that they are correct to the best of their knowledge. These statements and other factors will be evaluated by MTMC to determine the need for any additional actions.

Carriers currently participating in the program are not required to provide financial statements during the April 15-May 15, 2002, timeframe. Year 2002 statements must be submitted within 120-calendar days, of year-end, normally defined as December 31, 2002. Under this scenario, the financial statements would be submitted no later than May 1, 2003. If a company closes their books on a fiscal year basis (or other than December 31, 2002), then financial statements and reports should be submitted within 120 calendar days of that date. For example, a carrier currently participating in the program closing out their books October 31, 2002, would be required to submit the financial statements no later than March 1, 2003. Companies desiring to change their report dates must coordinate this with the Chief of MTMC's Internal Review Office at [phone].

Once the moratorium is lifted, new carriers applying for initial approval must submit their most recent financial statements to MTMC at the time of application. These statements must meet at least our minimum requirements. Upon approval, these new carriers must submit annual financial statements electronically or by fax, in accordance with when they close their books (as stated in the previous paragraph).

The financial statements must document the business operations of the single business entity or organization that seeks to qualify to do business with the DOD. Combined or consolidated statements that embed the finances of other companies will not be accepted. Letters of guarantee from a parent company will also not be accepted. However, for reporting purposes, a carrier may submit one document that reflects several companies separate financial information, as long as the financial information is reported in each individual company's name and reflects that company's account information. Each individual company must comply with desired ratio minimums, as detailed in paragraph b. New companies must meet required ratio minimums at time of application. In other words, MTMC wants to see the health of the individual companies. MTMC will not accept truly consolidated reports where there is no separation from one company to another.

Additional Information: If MTMC does not receive financial statements within the 120 calendar day time-frame, the company may be placed in nonuse due to non-compliance with program requirements. No pro forma statements will be accepted in lieu of actual financial statements. Additionally, MTMC reserves the right to obtain services from an independent third party source to conduct financial risk analysis of carrier's financials. This analysis will compare the company with appropriate industry norms. This information may be used in a carrier review board action to assist in the determination of financial risk to the government.

d. Cargo Liability Insurance: For Domestic and International programs, the cargo liability minimum amount per shipment will be $22,500. The aggregate amount will remain $150,000. The Certificate of Cargo Liability Insurance form (MTHQ Form 49R) located on MTMC's website, must reflect a signature of the insurance representative as proof of insurance. No other forms will be accepted.

e. Performance Bonds: Performance Bonds are required in both the international and domestic interstate programs. The bond requirement does not apply to domestic intrastate carriers at this time.

For the International program, the bond requirement will remain at $100,000 or 2.5%, of the international revenue based on previous year revenue, whichever is greater. International carriers must submit (electronically or by fax) a “continuous, until cancelled,” bond, that reflects signatures of the surety representative and a carrier representative listed on the ETOSSS. MTMC will review the international bond amount semi-annually. If it is determined the bond needs to be increased, the carrier will be notified in writing and provided 30 days to submit a bond or a rider to the bond on file reflecting the updated amount. MTMC will entertain written requests for an additional 30 days to increase the bond amount on a case-by-case basis. Since all international carriers currently participating already have a bond in place, no submission is required at this time. The current bond will remain in effect until you are notified that there is a requirement to increase the bond. Future international carriers must have the bond in place 1 month before the cycle begins in which they wish to participate.

For the domestic interstate program, the bond must be $50,000 and have an effective date of November 1, 2002. Domestic interstate carriers currently participating in the program must submit a “continuous until cancelled” bond that reflects signatures of the surety representative and a carrier representative listed on the ETOSSS, electronically or by fax, in the amount of $50,000, effective winter cycle 2002. In future years, the bond will be 2.5% of your domestic interstate personal property revenue based on the previous year or $50,000, whichever is greater. MTMC will review this annually. If it is determined the bond needs to be increased, the carrier will be notified in writing and provided 30 days to submit a bond or a rider to the bond on file reflecting the updated amount. MTMC will entertain written requests for an additional 30 days to increase the bond amount on a case-by-case basis. Future domestic carriers must have the bond in place 1 month before the cycle in which they wish to participate begins.

f. Experience Requirements: The company must have 3 years Government and/or commercial experience in the movement of Personal Property. MTMC will use the date on the operating authority, or if the state is deregulated, the date on the state's Articles of Incorporation for determining the 3-year experience. MTMC will require proof at time of application of the 3-year experience (such as, bills of lading, letters of reference, etc. of personal property movement). Carriers currently participating in the program are exempt from this requirement. However, new carriers must comply with the 3-year experience rule, and provide the proof at the time of application.

Additionally, carriers must continually have two (2) key employees (i.e. involved in the management of the company) with at least three years experience. the names of these individuals are required to be included on the ETOSSS.

g. Notification Requirements: All carriers are required to notify MTMC within 45 calendar days of a change of ownership, a change of corporate name, or change of key personnel.

(1) Change of Ownership: When a company changes ownership, a novation agreement must be submitted to MTMC. Approval will be based on a review of the sales agreement and evidence to show that the carrier complies with all carrier qualification requirements. The new asset owner (transferee) must assume all obligations of the carrier as if they were the original owner.

(2) Change of Name: When a company changes their name, they must submit a change of name notification.

(3) Change of Key Personnel: When a company changes key personnel they must submit an updated ETOSSS.

Detailed instructions on the novation process, change of name notification and change of key personnel can be located in the “How to do Business in the DOD Personal Property Program” pamphlet located at www.mtmc.army.mil on MTMC's website.

2. MTMC will use the Department of Transportation (DOT) SAFER system to obtain a carrier's safety rating, verify operating authority, and note any safety infractions. This safety rating may be used when carriers are seeking initial/additional approval or in Carrier Review Board actions.

3. Though nothing changes in the Common Financial and/or Administration Control (CFAC) arena as a result of this streamlining and strengthening initiative, domestic and international carriers are reminded of the continuing requirement to declare CFAC (affiliate) relationships with other participating carriers in accordance with the Tender of Service. This declaration will continue to be accomplished on the ETOSSS and will be submitted electronically to MTMC (as stated previously). Please note we do intend to reduce the incentive for paper companies in our future program.

CFAC (affiliates) means associated business concerns or individuals directly or indirectly, where (a) either one controls or can control the other(s) or where (b) a third party controls or can control them both. All currently participating carriers in the International Program and new international carriers will continue to be required to refrain from competing, i.e. submitting rates, in the same code of service/channel combinations served by any of their affiliates. Carriers failing to disclose CFAC (affiliate) relationships may be removed from the Program for a period of up to 2 years and may be prosecuted for filing a false official statement in violation of 18 USC 1001.

Background

A notice of proposed implementation to establish new procedures to participate in the Department of Defense Personal Property Program was published in the Federal Register, 66 FR 56084, Tuesday, November 6, 2001. In response to this notice, the carrier associations and individual carriers and agents submitted numerous comments. The comments were all carefully considered and were the subject of discussion at various meetings. Listed below are the comments and MTMC's response:

Comment 1: Electronic qualification procedures. Could smaller carriers utilize the services of a third party to accomplish the required electronic submission, if necessary? Also there was a comment on declaring Common Financial and/or Administrative Control (CFAC) using the ETOSSS form.

Response: While we prefer carriers to have internal capability to access the Internet, we do not mandate this requirement. A carrier may elect to use a third party vendor to submit qualification documentation electronically via the Internet. The CFAC statement declaring international CFAC and domestic CFAS is on the ETOSSS form.

Comment 2: Application for re-qualification. There was a concern with using the term “Re-apply” for qualification for current participants.

Response: We will not use the terminology “re-apply.” Instead, we will use “comply with” when referring to all current participants. Current carrier participants must comply with all new requirements, as detailed in this document.

Comment 3: MTMC should consider staggering the application process in stages and should consider the impact on the rate cycle to allow carriers to incorporate any additional costs in their rate submission.

Response: We decided to accept electronic applications April 15-May 15, 2002, on a first-come, first-served basis. By doing this, carriers will be able to incorporate any additional expenses in their rates for Winter 2002.

Comment 4: Carriers do not want to be placed in nonuse due to not meeting the new standard, without the opportunity to address the issues.

Response: Once documentation is submitted, we will review them for compliance with our program rules. if we find the company does not meet the minimum requirements, they will not be placed in immediate nonuse and will be afforded the opportunity to address our concerns within 21 calendar days of notification.

Comment 5: Carriers do not want to meet a debt to equity requirement. They cited problems in classifying the purchase of new equipment and being properly credited for when a shipment has been picked up but not delivered, so they could bill.

Response: While we decided to have a Debt to Equity requirement, it is not a pass/fail system. We are allowing for flexibility in the financial ratios, as long as the carrier shows continued improvement, or shows evidence justifying that satisfies MTMC. Additionally, the Debt to Equity requirement was made less stringent (4:1 versus 2:1) and we removed the requirement for a current ratio. The objective is to encourage participating carriers to manage debt in a responsible manner consistent with industry norms.

Comment 6: Carriers did not want to submit copies of their company income tax returns.

Response: We are not requiring copies of the income tax returns, but a carrier may voluntarily provide them in addition to the financial statements, if they so desire.

Comment 7: The $315,000 aggregate limit seems quite high when compared to the $22,500 shipment cargo liability minimum. The likelihood of 14 shipments at risk at one time is remote. The amount per shipment limit of $22,500 would present no problem, as the “average” mover in the program carries a $50,000 per shipment limit.

Response: The amount per aggregate minimum of $150,000 will not be increased. The amount per shipment on cargo liability is increased to $22,500.

Comment 8: There were concerns regarding the bond in the Domestic program. The heaviest burden of the bonding costs will fall on carriers that do not perform very many moves per year to recoup the added cost of the bond. This is especially true for intrastate carriers, where there may only be a handful of moves per year within a given state.

Response: The bond is protection for the Government in the event of a carrier's failure to move the shipment. The purpose of this performance bond requirement is to ensure that the DOD is compensated for reprocurement costs caused by the carrier's failure to perform agreed upon services. We excluded intrastate carriers from the bond requirement.

Comment 9: Comments indicated that 5 years company experience was too long and some were against any minimum experience requirement. Also, MTMC's proposal to measure this experience from either the date shown on the operating authority or the date reflected on the Articles of Incorporation does not accomplish measurement of experience. Some suggested incorporating measurement by the experience of personnel.

Response: We want to do business with companies that have already weathered start up costs, etc. However, we reduced the carrier experience requirement to three years. The only way to determine this experience is the date shown on the operating authority or the date reflected on the Articles of Incorporation. We also exempted carriers currently participating from this requirement. In addition, we added the requirement for carriers to continually have two (2) key employees (responsible fro the management of the company) with at least 3 years experience in the movement of household goods.

Comment 10: Carriers are concerned that the information in the SAFER system is not correct.

Response: We plan to still use the SAFER system as a source for information. However, if necessary, the carrier will be given the opportunity to provide documentation that counters those findings for further consideration.

Comment 11: There was a concern regarding the seller of a company being held responsible for a period of time when a company has been sold.

Response: We removed the requirement for the seller to have responsibility after the sale. MTMC will require the new owner to certify their acceptance of the carrier's liabilities and obligations.

Comment 12: Carriers want to submit a combined or consolidated financial statement.

Response: We will only accept stand-alone financial statements in the name of the company that holds the approval. MTMC continues to believe that carriers should qualify on their own strength and merit (i.e., company, can stand independently). However, for reporting purposes, a carrier may submit one document that reflects several companies separate financial information, as long as the financial information is reported on each individual company's name and reflects that company's account information. Each individual company must meet the ratio minimums as detailed in this document. In other words, we want to see the health of the individual companies. MTMC will not accept truly consolidated reports where there is no separation from one company to another.

Paperwork Reduction Act.

The Paperwork Reduction Act, 44 U.S.C. 3501 et seq., does not apply because no new information requirements or records keeping responsibilities are imposed on offerors, contractors, or members of the public.

Regulatory Flexibility Act.

This change is related to public contracts and is designed to streamline and strengthen the DOD personal property carrier qualification program. This change is not considered rule-making within the meaning of the Regulatory Flexibility Act, 5, U.S.C. 601-612.

Patricia K. Hunt,

Col. USAF, DCS, Passenger and Personal Property.