Kentron Hawaii, Limited v. Warner

• Citation: 480 F.2d 1166
• Decision Date: 15 June 1973
• Docket Number: 72-1099.,No. 71-2038,71-2038
• Parties: KENTRON HAWAII, LIMITED, Appellant, v. John W. WARNER, Secretary of the Navy, et al. INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO, an Unincorporated Association Local 1260, International Brotherhood of Electrical Workers, AFL-CIO, Appellant, v. John W. WARNER, Secretary of the Navy, et al.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

480 F.2d 1166 (1973)

KENTRON HAWAII, LIMITED, Appellant, v. John W. WARNER, Secretary of the Navy, et al.

INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO, an Unincorporated Association Local 1260, International Brotherhood of Electrical Workers, AFL-CIO, Appellant, v. John W. WARNER, Secretary of the Navy, et al.

Nos. 71-2038, 72-1099.

United States Court of Appeals, District of Columbia Circuit.

June 15, 1973.

COPYRIGHT MATERIAL OMITTED

David H. Lloyd, James A. Dobkin, and Stephen M. Sacks, Washington, D. C., were on the brief for appellant in No. 71-2038.

Thomas X. Dunn, and Elihu I. Leifer, Washington, D. C., were on the brief for appellant in No. 72-1099.

Harold H. Titus, Jr., U. S. Atty., John A. Terry, Robert M. Werdig, Jr., and Joseph F. McSorley, Asst. U. S. Attys., were on the brief for appellee.

P. Gordon Stafford and David L. Reichardt, Washington, D. C., were on the brief for intervenor/appellee, Dynalectron Corp.

Before FAHY, Senior Circuit Judge, and ROBINSON and WILKEY, Circuit Judges.

WILKEY, Circuit Judge:

This case arises on appeal from a summary judgment entered below against appellants' challenge to the award of a negotiated cost-plus-award-fee government contract. The service contract involved here provides for the operation and maintenance of the Pacific Missile Range Facility (PMR).¹ Appellant Kentron Hawaii, Limited (Kentron) was the previous incumbent contractor and is a disappointed bidder for contract renewal.² Appellant International Brotherhood of Electrical Workers (IBEW) has represented various numbers of employees at PMR both before and after the contract award challenged here. Intervenor-appellee Dynalectron Corporation (Dynalectron) was the successful bidder, and is currently performing at PMR, having been awarded the contract by the Navy Regional Procurement Office, Los Angeles (Navy) on 21 May 1971.

Appellants claim that the contract was illegally awarded. They seek both reversal of the summary judgment granted on appellee Navy's cross-motion below and grant of a motion for summary judgment on their own behalf.³

Ever since Scanwell Laboratories, Inc. v. Shaffer,⁴ those adversely affected by the award of government contracts have had standing to challenge the legality of procurement decisions. However, they bear a heavy burden of showing either that (1) the procurement official's decisions on matters committed primarily to his own discretion had no rational basis,⁵ or (2) the procurement procedure involved a clear and prejudicial violation of applicable statutes or regulations.⁶

There are two principal grounds for appellants' challenge. First, they claim that the contracting officer's acceptance of Dynalectron's bid was improper. That argument variously turns on allegations that the successful bid was non-responsive, unfeasible and illegal. Second, appellants urge that the Labor Department's failure to make a wage determination, allegedly in violation of the Service Contract Act, fatally flawed the contract award. They ascribe error either directly to the Labor Department's decision, based on information available to it, or indirectly to the Navy's failure to forward adequate wage data. Since we find none of these arguments persuasive, we affirm the decision of the District Court.

I. Facts

The predecessor PMR service contract, performed by Kentron, had an expiration date of 31 July 1971. Preparations for the award of a successor contract began with the forwarding of a requisition from PMR to the Navy on 6 May 1970.

As early as 29 July 1970 Kentron requested the Navy to procure an area wage determination from the Labor Department, pursuant to the Service Contract Act of 1965, 41 U.S.C. § 351 et seq. On 5 August 1970 the Navy, as required by § 12-1005 of the Armed Services Procurement Regulations,⁷ submitted a Standard Form 98 (entitled "Notice of Intention to Make a Service Contract") to the Wage and Hour Division of the Department of Labor.

Two items of ultimate controversial importance must be noted here. First, although Item 7 of the SF 98 instructed the Navy to enclose "whatever information was readily available on wages and fringe benefits being paid in the locality," no wage information of that nature was ever forwarded. Second, the Department of Labor decided not to make a wage determination. On 3 September 1970 a report from the Labor Department advised the Navy that no pre-existing wage determination was applicable to any of the labor categories at any of PMR's scattered locations, and that no new wage determination would be issued. On 15 October 1970 Kentron was so notified.

In the meantime, the Navy had issued a solicitation for the PMR service contract. Twenty-one firms responded, and the sixteen considered potentially qualified were issued Requests for Proposals.⁸ Initial responses were submitted on 26 October 1970. Thereafter, the Navy's analysis and further negotiations narrowed the field of competitors to three remaining companies: Kentron, Dynalectron, and Bendix Corporation.

During this entire period labor organization had been going on among Kentron's employees. By December 1970, in addition to the 23 employees previously represented by the Inland Boatman's Union, 57 employees had accepted IBEW as their bargaining representative. The Navy decided to deal with this unstable situation (1) by warning the prospective contractors to take account of possible unionization, and (2) by insisting, by way of an amendment to the Request for Proposals on 1 March 1971, that the proposals specify firm maximum wage rates, beyond which the Government would not be obligated to reimburse the service contractor ultimately selected.

On 19 March 1971 the three competitors submitted their best and final offers. By 1 April 1971, 234 of the 375 employees at PMR had been organized.⁹ After the Navy completed cost analyses and evaluations which rated all three competitors as equally technically qualified, on 21 May 1971 the contract was awarded to Dynalectron "on the basis of the lowest potential cost exposure to the Government."¹⁰

On 22 May 1971 Kentron protested the award of the contract to the Comptroller General. On 3 June 1971 IBEW also filed a protest. The Comptroller General issued his opinion, No. B-173061, denying both protests, on 30 July 1971. On that same day Kentron and IBEW filed their complaints in the District Court. The cases were subsequently consolidated. Accompanying applications for temporary restraining orders were denied on 2 August 1971. On 1 December 1971 appellants' motions for summary judgment were denied and appellee's cross-motion for summary judgment was granted.

II. Acceptance of Dynalectron's Proposal

A. Non-responsiveness

Kentron suggests that the contracting officer had a duty to reject Dynalectron's bid as non-responsive to the Request for Proposals. Specifically, they complain that Dynalectron offered first-year maximum wage rates which were generally lower than those actually paid by Kentron immediately prior to the termination of its contract.¹¹ When the Navy amended the Request for Proposals to urge all bidders to take the possibility of unionization into account, Kentron responded by increasing its proposed maximum wage rates.¹² They are essentially now contending that such a decision to increase maximum government-reimbursable costs above current levels was the only reasonable and responsive approach.

Since this was not an advertised sealed-bid procurement, the concept of "responsiveness" does not carry the strict overtones here which it would in that context. In negotiated procurements, the very concept of responsiveness is a subject of negotiations. However, even if a strict and technical interpretation of that concept were to be applied here, Dynalectron's bid is in fact responsive to the precise and specific requirements of the amended Request for Proposals.

The Navy RFP directed that "maximum labor rates should contain any cost contingency you consider necessary with due regard to unionization activities in progress and/or pending . . . ." (Emphasis added.) Further, an "essential" requirement specified that all offerers had to propose "firm maximum average labor rates." The RFP stated that "any proposal not complying with this requirement i. e., provision for firm maximums is not acceptable."¹³ No set minimum wage levels were specified.¹⁴

Kentron contends that it was fundamentally unfair to award the contract to an offerer whose judgment as to the likely outcome and consequences of the current unionization activity differed from its own. We do not agree. The essence of any procurement process is that competing offerers must at some point make independent business judgments and stick by them. In a negotiated procurement, once every competitor knows what factors are to be taken into consideration, it is the very difference between one offerer's judgment and that of another which allows the contracting officer to choose the proposal most advantageous to the Government. The propriety of soliciting divergent opinions is particularly obvious in cases where, as here, the very structure of the contract insures that an error in judgment in the accepted proposal will redound solely to the harm of the contractor. If unionization did force Dynalectron's actual wage rates above the proposed maximums, the resulting "cost overrun" would still not be reimbursable.

Acceptance of Kentron's argument would entail either (1) an artificial result dictated by a non-Service Contract Act minimum wage level set at Kentron's current actual rates,¹⁵ or (2) constant renegotiation until all offerers proceeded on the same assumptions. Under either of those scenarios, Kentron, as the incumbent contractor facing no phase-in costs, would inevitably have a built-in advantage. Procurement negotiations would become a costly, ill-attended and meaningless formality; here, Kentron could confidently expect to retain its contract...