Does this scenario meet the requirement of a sole source environment, or is it considered competitive, since technically any company can buy the product and resell it to the Federal Government?
The key to your question is your statement "We can only use the engine manufactured by Company X." Essentially this is a brand name description, which is a type of sole-source situation. Although superficial competition may exist among "any company that wants to purchase the item...and in turn resell to the Federal Government," it still goes back to the "brand" of engine manufactured by Company X and the fact that normal market forces are not at work.
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