Aero Corp. v. Department of the Navy

• Decision Date: 26 April 1982
• Docket Number: Civ. A. No. 79-2944.
• Citation: 540 F. Supp. 180
• Parties: AERO CORPORATION, Plaintiff, v. DEPARTMENT OF THE NAVY, Defendant.
• Court: U.S. District Court — District of Columbia

540 F. Supp. 180

AERO CORPORATION, Plaintiff, v. DEPARTMENT OF THE NAVY, Defendant.

Civ. A. No. 79-2944.

United States District Court, District of Columbia.

February 18, 1982.

As Amended April 26, 1982.

COPYRIGHT MATERIAL OMITTED

Roger N. Boyd, Jean-Pierre Swennen, Frederick W. Claybrook, Jr., Washington, D. C., for plaintiff.

Charles F. C. Ruff, U. S. Atty., Royce C. Lamberth, Kenneth M. Raisler, Asst. U. S. Attys., Barbara McBride, Washington, D. C., for defendant.

MEMORANDUM

OBERDORFER, District Judge.

Introduction

There is before the Court the ongoing dispute arising from claims by Aero Corporation, now supported by opinions¹ of the Acting Comptroller-General released June 5, 1981, and September 9, 1981, that the Department of the Navy has violated its duties under the Armed Services Procurement Act ("ASPA"), 10 U.S.C. ?? 2301-2737, and Section 3 of the Armed Services Procurement Regulations ("DAR"), see 32 C.F.R. parts 1-39 (vol. 1). The specific provision of ASPA that plaintiff claims defendant has violated is 10 U.S.C. ? 2304(g), which creates a requirement that procurements, even if they cannot be competed through formal advertising,² must, if possible, be awarded on the basis of competitive negotiation with all qualified potential contractors. That section provides in relevant part:

In all negotiated procurements in excess of $10,000 ... in which time of delivery will permit, proposals, including price, shall be solicited from the maximum number of qualified sources consistent with the nature and requirements of the supplies or services to be procured....

10 U.S.C. ? 2304(g). Even when a noncompetitive, or "sole source," negotiated procurement is permissible under section 2304(g), the regulations require the contracting officer to take steps to avoid unnecessary subsequent sole-source procurements, and to position himself to compete, if possible, any subsequent contracts related to the sole-source contract. As Armed Services Procurement Regulation ? 3-101(d) provides in pertinent part:

Negotiated procurements shall be on a competitive basis to the maximum practical extent. When a proposed procurement appears to be necessarily noncompetitive, the contracting officer is responsible not only for assuring that competitive procurement is not feasible, but also for acting whenever possible to avoid the need for subsequent noncompetitive procurements. This action should include both examination of the reasons for the procurement being noncompetitive and steps to foster competitive conditions for subsequent procurements, particularly as to the availability of complete and accurate data ... and possible breakout of components for competitive procurement....

32 C.F.R. parts 1-39, vol. 1, at 327 (1979) hereinafter cited without reference to the Code of Federal Regulations as "DAR ? 3-101(d)". Without conceding that defendant's actions were to any extent lawful under section 2304(g), plaintiff also contends that defendant's conduct violated the separate express obligations of DAR ? 3-101(d).

The dispute and the litigation derive from decisions by the Chief of Naval Materiel ("CNM") to award to Lockheed-Georgia Corporation ("LGC") a series of contracts for the overhaul of 49 propeller-driven C-130 airplanes manufactured for the Navy by LGC in the 1950's and thereafter. Defendant began to award the overhaul contracts to LGC in November 1979, and LGC has now been designated as the overhaul contractor for all 49 aircraft. The overhaul program is designated as a "Service Life Extension Program" ("SLEP"), and has as its purpose to increase the number of allowable safe flight-hours for aircraft that otherwise would need to be retired from use. The determinations made by the Navy concerning the C-130 SLEP undertaking were to procure the necessary overhaul work on all 49 aircraft through a negotiated procurement, rather than by formal advertising, and further to negotiate contracts for all 49 aircraft on a "sole-source" basis from LGC. The contracting officer has asserted that, under the circumstances of this case, section 2304(g) did not require a competitive negotiation.

The decision to award SLEP contracts on a sole-source basis was based upon a determination by the commander of the Naval Air Systems Command ("NAVAIR") that no contractor other than LGC could perform the overhaul on the C-130 aircraft designated for SLEP until LGC had furnished to that contractor the "kits" needed to accomplish the roughly 40 major individual overhaul tasks NAVAIR intended for each airplane.³ LGC had indicated to NAVAIR that it would require a very long time to furnish such kits to another aerospace firm. NAVAIR decided, in essence, that the Navy's C-130 aircraft were in such bad condition that if overhaul were delayed for the time LGC represented to NAVAIR would elapse before the required kits could be furnished, many of the aircraft would become unsafe and would be grounded. That result, NAVAIR concluded, would jeopardize the critical fleet missions for which the Navy and the Marine Corps operate the aircraft.

Plaintiff has contended that the CNM, NAVAIR and LGC (on whom the CNM and NAVAIR heavily depend in calculation of the timetable for possible kit manufacture) failed to consider in sufficient depth the fact that plaintiff and at least one other aerospace firm, Hayes International Corporation ("Hayes"), have for many years performed elaborate maintenance service on Navy, Air Force, and Marine Corps C-130 aircraft as so-called "Standard Depot Level Maintenance" ("SDLM") and "Programmed Depot Maintenance" ("PDM") contractors. That experience, plaintiff claims, was ignored by the Navy to such a degree as to make defendant's decisions to procure SLEP for the C-130 aircraft on a sole-source basis irrational and a violation of section 2304(g) of ASPA and DAR ? 3-101(d).

In its two opinions prepared for the parties and the Court, the General Accounting Office ("GAO") concluded that competitive SLEP procurement was possible for some of the Navy's C-130 fleet currently scheduled for induction in the program, and found the Navy's rejection of competitive options "premature" in light of those possibilities. GAO determined, however, that the Navy properly could insist that any SLEP contractor other than LGC use kits in performing SLEP overhaul on the C-130. GAO also found that the opportunities for competition might be increased if competitive negotiation were limited to experienced C-130 maintenance contractors like Aero, Hayes, and LGC, because the kits needed for SLEP accomplishment by firms with the experience of Hayes and Aero would be less complex and could be furnished before the kits needed to assist industry-wide competition. GAO's determinations were based upon documentary submissions and briefs filed by plaintiff, defendant, and LGC.

After careful consideration of the elaborate GAO opinions, the voluminous documentary evidence considered by GAO, the memoranda filed by counsel, and the testimony adduced at several hearings (including testimony by the present commander of NAVAIR and the expert testimony of LGC employees), the Court is persuaded that plaintiff probably will prevail on the merits of many of its most important contentions.⁴ The Court will probably conclude that the Navy decisions to employ sole-source procurement for all 49 aircraft was unlawful. The Court will probably conclude that the Navy, beginning in 1979, so "transgressed the statutory boundaries"⁵ as to render the contracts and options since awarded to LGC for SLEP of many of the aircraft invalid. Additionally, the Court is likely to find that defendant has repeatedly breached its duties under DAR ? 3-101(d), as well as its obligations under this Court's Order of March 4, 1980, to take steps to reconsider and minimize noncompetitive negotiated procurements.

After assessing the effects of defendant's continued preclusion of competition on plaintiff and on the public interest, as well as the possible impact of preliminary injunctive relief on the public interest and the allocation of power among the executive, legislative, and judicial branches of government, the Court has determined that affirmative interim relief is required in this case. Accordingly, an accompanying Order will direct defendant to begin engineering design for a kit-assisted competitive negotiation that would permit competitive award of SLEP contracts on as many aircraft as possible in the C-130 fleet scheduled by NAVAIR for SLEP accomplishment. The Order will leave undisturbed the schedule of SLEP inductions established by NAVAIR, and requires no action inconsistent with timely and uninterrupted SLEP accomplishment for the fleet. The Order does, however, require defendant to conduct the competitive procurement required by Congress unless and until the Secretary of the Navy or his delegate credibly and rationally determines that the costs of competitive negotiation or the risks attendant to such a procurement relieve the Navy from the mandate for competition under 10 U.S.C. ? 2304(g) and DAR ? 3-101(d).

FINDINGS OF FACT

Background

1. When this action was filed in 1979, NAVAIR had proposed to contract on a sole-source basis for overhaul of a total of 49 C-130 aircraft.⁶ On cross-motions for summary judgment and plaintiff's motion for a preliminary injunction, the Court ruled on March 4, 1980 that the Navy's decision to award contracts for overhaul of 13 C-130 aircraft to LGC in the SLEP program and to give LGC an option for SLEP contracts for an additional seven aircraft was not unlawful, even though the contracts were negotiated without competition. Aero Corp. v. Department of the Navy, 493 F.Supp. 558, 556-67 (1980). With respect to the other 29 aircraft that the Navy planned to overhaul in the SLEP program, however, the Court emphasized that

the mandate of section 2304(g) of the Armed Services Procurement Act .... is clear: ... competition is required to the maximum

...