J.H. Rutter Rex Mfg. Co., Inc. v. U.S.

• Citation: 706 F.2d 702
• Decision Date: 09 June 1983
• Docket Number: No. 82-3239,82-3239
• Parties: 31 Cont.Cas.Fed. (CCH) 71,246 J.H. RUTTER REX MANUFACTURING CO., INC., Plaintiff-Appellant, v. UNITED STATES of America, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 702

706 F.2d 702

31 Cont.Cas.Fed. (CCH) 71,246

J.H. RUTTER REX MANUFACTURING CO., INC., Plaintiff-Appellant, v. UNITED STATES of America, et al., Defendants-Appellees.

No. 82-3239.

United States Court of Appeals, Fifth Circuit.

June 9, 1983.

Montgomery, Barnett, Brown & Read, Daniel Lund, New Orleans, La., for plaintiff-appellant.

Anthony J. Steinmeyer, Alfred R. Mollin, Civ. Div., Dept. of Justice, Appellate Staff, Washington, D.C., for U.S.

Stone, Pigman, Walther, Wittman & Hutinson, Gerard E. Wimberly, Jr., New Orleans, La., Batzell, Nunn & Bode, Dennis J. Riley, Washington, D.C., for DeRossi & Son, intervenor.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before TUTTLE,^* POLITZ and GARWOOD, Circuit Judges.

TUTTLE, Circuit Judge:

This case is an appeal from a summary judgment in the United States District Court for the Eastern District of Louisiana. 534 F.Supp. 331. The plaintiff-appellant, J.H. Rutter Rex Manufacturing Company, Inc., ("Rutter Rex") contends (1) that United States Department of Defense ("DOD") regulations authorizing the "set aside" of certain government contracts for exclusive participation by small business concerns exceed statutory authority, and (2) that it has been unlawfully deprived of a constitutional property right of access to the government contract bidding process. Because we find that the disputed regulations are a proper exercise of the broad authority granted by Congress to government procurement agencies and that no constitutional protections of the type urged by Rutter Rex exist for access to the government bidding process, we reject the appellant's claims and affirm the holdings of the court below.

I.

Rutter Rex is an apparel manufacturer in New Orleans, Louisiana. Since it employs approximately 1500 persons in its combined operations, the appellant is ineligible to bid on certain government contracts which have been set aside for small businesses ¹ pursuant to the Armed Services Procurement Act, 10 U.S.C. Sec. 2301 et seq., and the Small Business Act, 15 U.S.C. Sec. 631 et seq., and regulations promulgated thereunder.

Over the last 20 years, Rutter Rex has operated its New Orleans plant almost exclusively for the production of garments procured by the U.S. Government. However, since 1976, the appellant has experienced gradually decreasing government business culminating with its failure to secure a single government contract in 1981. Rutter Rex contends that its loss of this lucrative source of business is the result of DOD regulations issued and enforced in violation of the powers granted to government procurement agencies by the Small Business Act and the Armed Services Procurement Act (hereafter referred to as the "procurement statutes"). It brings this action seeking to have these regulations declared invalid.

II.

In 1947, Congress passed the Armed Services Procurement Act which provides, "It is the policy of Congress that a fair proportion of the purchases and contracts under this Chapter be placed with small business concerns." 10 U.S.C. Sec. 2301. The Senate Report accompanying this legislation noted that this requirement was grounded in a desire to diversify the Nation's defense production and thus add "production security in the event of any emergency and assist in establishing insurance against bottlenecks." S.Rep. No. 571, 80th Cong., 1st Sess. 6 (1947).

Congress extended the fair proportion requirement to all government procurements when it enacted the Federal Property and Administrative Services Act of 1949 (41 U.S.C. Sec. 251 et seq.) and the Small Business Acts of 1953 and 1958 (15 U.S.C. Sec. 631 et seq.). The 1953 Act stated:

It is the declared policy of the Congress that the government should aid, counsel, assist, and protect insofar as is possible the interests of small-business concerns in order to serve free competitive enterprise, to insure that a fair proportion of the total purchases and contracts for supplies and services for the Government be placed with small-business enterprises, and to maintain and strengthen the overall economy of the Nation.

15 U.S.C. Sec. 631. The 1958 Act provided slightly more specific guidelines for procuring agencies attempting to comply with Congressional intent when it declared that government procurement contracts should be awarded to small business concerns when such awards are determined:

1. To be in the interest of maintaining or mobilizing the Nation's full productive capacity;

2. To be in the interest of war or national defense programs;

3. To be in the interest of assuring that a fair proportion of the total purchases and contracts for property and services for the Government are placed with small-business concerns; or

4. To be in the interest of assuring that a fair proportion of the total sales of Government property be made to small-business concerns ...

15 U.S.C. Sec. 644(a).

In 1958, the DOD adopted regulations intended to implement the requirements of the procurement statutes. ² These regulations provided, inter alia, that certain government acquisitions would be "set aside for the exclusive participation of small business concerns." 32 C.F.R. 1-706.1(b). The regulations further provided that such set asides would occur "if the contracting officer determines that there is a reasonable expectation that (i) offers will be obtained from a significant number of responsible small business concerns and (ii) awards will be made at reasonable prices." 32 C.F.R. 1-706.3(a). In 1979, subpart (i) of the above regulation was amended to provide that bids need only be reasonably expected from "at least two responsible small business concerns." 32 C.F.R. 1-706.5.

This procedure for the determination of set asides was slightly altered in 1979 when the DOD issued new regulations providing that once a contracting officer successfully acquired a product under a small business set aside, all future requirements of that agency (or agency subdivision) for that product may continue to be so acquired until such time as the contracting officer determines that either of the two necessary conditions no longer exists. 32 C.F.R. Sec. 1-706.1(f). These recently-promulgated regulations also provide that no set aside will be disapproved merely because "a large percentage of previous acquisitions of the item has been placed with small business concerns [or because] small business concerns are considered to be receiving a fair proportion of total contracts for supplies or services." 32 C.F.R. Sec. 1-706.1(j)(i, vi).

Also, in 1978, Congress amended 15 U.S.C. Sec. 644 to require the head of each federal agency to establish goals for the participation of small business concerns in the procurement of contracts of more than $10,000. 15 U.S.C. Sec. 644(g). ³ Congress ordered that these goals should "realistically reflect the potential of small business concerns to perform such contracts ..." 15 U.S.C. Sec. 644(g). Though the head of each federal agency is required to justify a failure to meet such goals in an annual report to the Small Business Administration, 15 U.S.C. Sec. 644(h), no sanctions are imposed for such failure and the goals do not as a matter of law have any impact on individual set aside decisions.

III.

The parties to this action vigorously dispute whether Rutter Rex has standing to challenge the validity of the regulations. Because the standing issue is not determinative, we assume, without deciding, that Rutter Rex has standing to contest these regulations.

IV.

A.

Rutter Rex makes two principal attacks on the DOD regulations. First, Rutter Rex notes that the procurement regulations promulgated by DOD provide both in theory and in practice for a 100 percent small business set aside of certain products. In the appellant's industry, the manufacture and marketing of apparel, over 90 percent of DOD procurements have been allocated to small business. Rutter Rex argues that such high levels of set asides clearly constitute more than a "fair proportion" of procurements in the apparel industry and that the regulations are thus in excess of statutory authority. Rutter Rex also asserts that the goal practices, as implemented by the DOD and other procurement agencies, contribute substantially to awards in excess of a fair proportion by placing additional pressure on procurement officers to make set asides, particularly in industries such as the appellant's where the great majority of participants are small business concerns.

Second, Rutter Rex contends that the significant percentage of set asides in particular industries violates the express direction of Congress for "full and free competition" in the procurement process. The appellant particularly focuses on the 1979 DOD regulation which allows a set aside whenever reasonable bids are anticipated from two or more responsible small business concerns. Rutter Rex contends that two bids can hardly constitute the open competition envisioned by Congress.

B.

Congress has delegated broad powers to federal agencies to achieve the purposes of the procurement statutes; ⁴ our review is therefore limited to determining whether the disputed regulations are "reasonably related to the purposes of the enabling legislation." Thorpe v. Housing Authority of the City of Durham, 393 U.S. 268, 280-81, 89 S.Ct. 518, 525-526, 21 L.Ed.2d 474 (1969); Mourning v. Family Publications Service, 411 U.S. 356, 364, 93 S.Ct. 1652, 1658, 36 L.Ed.2d 318 (1973). In National Muffler Dealers Association v. United States, 440 U.S. 472, 99 S.Ct. 1304, 59 L.Ed.2d 519 (1979), the Supreme Court added flesh to the bare bones of this loosely-worded test:

In determining whether a particular regulation carries out the Congressional mandate in a proper manner, we look to see whether the regulation harmonizes with the plain language of the statute, its origin, and its purpose. A regulation may have particular force if it is a substantially contemporaneous...