Wheelabrator Corporation v. Chafee

• Decision Date: 14 October 1971
• Docket Number: No. 24705,24729.,24705
• Parties: The WHEELABRATOR CORPORATION v. John H. CHAFEE, Secretary of the Navy, et al., Appellants. The WHEELABRATOR CORPORATION v. John H. CHAFEE, Secretary of the Navy, et al., The Carborundum Company, Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

455 F.2d 1306 (1971)

The WHEELABRATOR CORPORATION v. John H. CHAFEE, Secretary of the Navy, et al., Appellants.

The WHEELABRATOR CORPORATION v. John H. CHAFEE, Secretary of the Navy, et al., The Carborundum Company, Appellant.

Nos. 24705, 24729.

United States Court of Appeals, District of Columbia Circuit.

Argued January 15, 1971.

Judgment January 26, 1971.

Opinion October 14, 1971.

Mr. Walter H. Fleischer, Atty., Department of Justice, with whom Messrs. Thomas A. Flannery, U. S. Atty., and Alan S. Rosenthal, Atty., Department of Justice, were on the brief, for appellant Chafee in No. 24,705. Messrs. Morton Hollander, Atty., Department of Justice, and John A. Terry and Robert M. Werdig, Jr., Asst. U. S. Attys., also entered appearances for appellant Chafee in No. 24,705.

Mr. David E. McGiffert, Washington, D. C., for appellant in No. 24,729.

Mr. Daniel A. Rezneck, Washington, D. C., with whom Mr. James A. Dobkin, Washington, D. C., was on the brief, for appellee.

Before FAHY, Senior Circuit Judge, and LEVENTHAL and MacKINNON, Circuit Judges.

LEVENTHAL, Circuit Judge:

This is an appeal from a preliminary injunction restraining Navy officials from opening any bid, awarding any contract, or in any other way carrying out a Solicitation for a portable ship hull cleaning device. On January 26, 1971, we entered our judgment of reversal, stating that "the complaint, motion, and affidavits filed by the plaintiff do not show sufficient likelihood of success on the merits * * * to warrant grant of the injunctive relief prayed." This opinion, which explains our reasoning, is being issued simultaneously with the opinion in Steinthal v. Seamans, 147 U.S.App.D.C. ___, 455 F.2d 1289 which involves related considerations.

I. THE FACTS AND DISTRICT COURT PROCEEDINGS

On April 22, 1970, defendant officials initiated a procurement pursuant to a solicitation for a self-contained, portable, blast-cleaning apparatus for cleaning the hull sides of ships. The District Court found that plaintiff Wheelabrator had developed a new and unique device, never previously purchased by the United States Government, as a result of a twelve-year research and development effort, on which plaintiffs allegedly spent over $100,000, that included demonstrations and consultation with Navy personnel. Plaintiff alleged that it thus acquired "a body of technology, special equipment and tooling, all of which uniquely qualifies plaintiff to manufacture the portable ship hull cleaner for the Navy and avoid the undue delay and expense which would arise from a new supplier having to acquire such technique, technology, tooling and equipment."

The essence of the complaint is that under Armed Service Procurement Regulations (ASPR) the only lawful method of procurement for this product was by negotiation with plaintiff, and that the Navy acted in violation of ASPR when it proceeded by "Two-Step Formal Advertising,"¹ under which bidders first submit technical proposals without price quotations and then those bidders whose technical proposals are deemed acceptable are invited to submit price bids on the item.

Responding to the first step, on June 2, 1970, plaintiff submitted three technical proposals, one of which was deemed acceptable by the Navy.

By letter dated July 22, 1970, plaintiff protested to the Comptroller General, head of the General Accounting Office.² On August 3, 1970, without awaiting GAO's decision, the Navy proceeded to the second step, and issued a formal invitation for bids under Solicitation No. NOO600-70-B-0478 to plaintiff and to the Pangborn Division of the Carborundum Company—the only other company whose technical proposal was deemed acceptable by the Navy.

Objecting to the defendant's continued use of this method of procurement during the pendency of plaintiff's protest before the Comptroller General, plaintiff notified the Navy that it would not submit a bid. Initially, the deadline for the submission of bids and the date for opening bids was August 18, 1970, the District Court issued a temporary restraining order enjoining defendants from opening bids and awarding a contract. The deadline for the submission and opening of bids was extended by the Navy to August 31, 1970.

In support of its preliminary injunction entered August 31, 1970, 319 F.Supp. 87, the District Court found that the award of the contract to Carborundum would result in irreparable injury to plaintiff through loss of investment, waste of acquired skill and expertise, and abridgment of the right to a meaningful decision by the Comptroller General. It might also "deprive the Department of the Navy of the benefits of plaintiff's technical skill and know-how derived from its development of this product over the past twelve years." The court concluded there was a substantial likelihood that plaintiff would establish the unlawfulness of defendants' action in procuring the portable ship hull cleaner pursuant to the method of "two-step formal advertising."

II. APPLICABLE LEGAL DOCTRINES

A. Plaintiff's Claims of Illegality

In Scanwell Laboratories, Inc. v. Shaffer, 137 U.S.App.D.C. 371, 424 F.2d 859 (1970), we held a bidder for a government contract who, like plaintiff in this case, alleged illegality in the manner by which a contract is awarded has standing to seek judicial review of the procurement agency's action.

In this case, however, plaintiff has failed to make out a prima facie case of illegality on the part of the procurement officials. Plaintiff's claims must be evaluated in the light of the applicable statute, the Armed Services Procurement Act, 10 U.S.C. § 2301 et seq., and regulations, see ASPR; 32 C.F.R. §§ 2-501 et seq. (1970).

Wheelabrator's first claim is that the use of two-step formal advertising is forbidden by ASPR 2-502, which provides:

(a) Two-step formal advertising shall be used in preference to negotiation when all of the following conditions are present, unless other factors require the use of negotiations, e. g., § 3.213 of this chapter;

(1) Available specifications or purchase descriptions are not sufficiently definite or complete or may be too restrictive, and the listing of the salient characteristics in a "brand name or equal" description would likewise be too restrictive, to permit full and free competition without technical evaluation, and any necessary discussion, of the technical aspects of the requirement to insure mutual understanding between each source and the Government;

(2) Definite criteria exist for evaluating technical proposals, such as design, manufacturing, testing, and performance requirements, and special requirements for operational suitability and ease of maintenance;

(3) More than one technically qualified source is expected to be available;

(4) Sufficient time will be available for use of the two-step method; and

(5) A firm fixed-price contract or a fixed-price contract with escalation will be used.

(b) None of the following in itself precludes the use of two-step formal advertising:

(1) A multi-year procurement is being made.

(2) A first or subsequent production quantity is being procured under a performance specification.

Wheelabrator's complaint maintained that ASPR § 2-502(a) permits the use of two-step formal advertising in preference to negotiation only if a number of enumerated conditions are present, and that in this case the "requirement" of both (2) and (3) were absent.

Wheelabrator's second claim of illegality was based on § 4(a) (14) of the Armed Services Procurement Act, 10 U.S.C. § 2304(a) (14) and ASPR § 3-214.1, under which it claims that "negotiation rather than two-step formal advertising is required." These sections provide for negotiation when:

formal advertising would be likely to result in additional cost to the Government by reason of duplication of investment or would result in duplication of necessary preparation which would unduly delay the procurement of the property.

In our opinion, Wheelabrator misconstrues the meaning and intent of the statute and regulations. They are permissive, authorizing a possibility of negotiation, not requiring it in this situation. Where government officials act within the limits of the discretion conferred upon them by Congress, there is no arbitrary and capricious action which the courts have the power to enjoin.

B. Armed Services Procurement Act

The statute reveals a Congressional preference for competitive bidding. It provides, 10 U.S.C. § 2304(a):

(a) Purchases of and contracts for property or services covered by this chapter shall be made by formal advertising in all cases in which the use of such method is feasible and practicable under the existing conditions and circumstances. If use of such method is not feasible and practicable, the head of an agency, subject to the requirements for determinations and findings in section 2310, may negotiate such a purchase or contract, if—

* * * * * *

(14) the purchase or contract is for technical or special property that he determines to require a substantial initial investment or an extended period of preparation for manufacture, and for which he determines that formal advertising would be likely to result in additional cost to the Government by reason of duplication of investment or would result in duplication of necessary preparation which would unduly delay the procurement of the property * * *.

The law provides only that the agency head "may" use negotiation under certain conditions. The preference for active competition and formal advertising mandated by the statute is carried forward by the Regulations issued thereunder. Paul v. United States, 371 U.S. 245, 83 S.Ct. 426, 9 L.Ed.2d 292 (1963). See ASPR § 1-300. Congress intended "that the military departments use formal advertising in all procurements in which this method could reasonably be expected to give satisfactory results although circumstances might exist that would be sufficient to authorize negotiation under one or more of the 17...