Airco, Inc. v. Energy Research and Development Administration, s. 75--1855 and 75--1856

• Decision Date: 29 December 1975
• Docket Number: Nos. 75--1855 and 75--1856,s. 75--1855 and 75--1856
• Citation: 528 F.2d 1294
• Parties: AIRCO, INC., Plaintiff-Appellee, v. ENERGY RESEARCH AND DEVELOPMENT ADMINISTRATION et al., Defendants-Appellants, and Cryogenic Technology, Inc., Intervening Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1294

528 F.2d 1294

AIRCO, INC., Plaintiff-Appellee, v. ENERGY RESEARCH AND DEVELOPMENT ADMINISTRATION et al Defendants-Appellants and Cryogenic Technology, Inc., Intervening Defendant-Appellant.

Nos. 75--1855 and 75--1856.

United States Court of Appeals Seventh Circuit.

Argued Dec. 11, 1975.

Decided Dec. 29, 1975. ^*

Samuel K. Skinner, U.S. Atty., Chicago, Ill., Anthony J. Steinmeyer, Atty., App. Section, Civ. Div., Dept. of Justice, Washington, D.C., Leon J. Glazerman, Boston, Mass., Bernard J. Nussbaum, Chicago, Ill., for defendants-appellants.

Peter B. Work, Washington, D.C., Hugh L. Moore, Chicago, Ill., for plaintiff-appellee.

Before SPRECHER, TONE and BAUER, Circuit Judges.

PER CURIAM.

Airco, Inc. brought this suit to challenge the award of a government contract to another bidder, Cryogenic Technology, inc. (CTi). The Energy Research and Development Administration (ERDA) (the successor to the Atomic Energy Commission) and ERDA's administrator are named as defendants. Other defendants are the purchaser in the procurement in issue here, Fermi National Accelerator Laboratory (Fermilab), and Universities Research Association, a consortium of universities which manages Fermilab. CTi, the successful bidder, intervened as a defendant after suit was filed.

Most of Fermilab's operating funds are provided by ERDA, which also provides funds to the Lawrence Laboratory in Berkeley, California (Lawrence). Both Fermilab and Lawrence are required by contract with ERDA to obtain that agency's approval of all their contracts for equipment and services, and they must follow federal procurement regulations in entering into those contracts.

In the negotiated procurement at issue here, Fermilab acted as agent for itself and Lawrence. After an initial round of negotiations, Fermilab selected Airco as the low bidder. ERDA refused to approve the selection because of allegedly improper discussions between Airco and Fermilab after Airco had made its best and final offer. ERDA ordered a new round of negotiations, which ended with the award to CTi.

The District Court granted Airco's motion for preliminary injunction, under which the defendants are

'enjoined from aiding or supporting performance of and from making any payments under the aggregate contract awarded to CTi in June of 1975, and defendants are further enjoined to suspend all work under the aggregate contract and to stop incurring any costs or making any commitments thereunder.'

The defendants appeal the issuance of the preliminary injunction. We reverse.

There are some disputes about the facts, and about whether the District Court properly resolved these disputes in Airco's favor on the basis of conflicting affidavits. Cf. General Electric Co. v. American Wholesale Co.,235 F.2d 606, 608--609 (7th Cir. 1956). We find it unnecessary to consider these questions, because we hold that even under Airco's version of the facts, ERDA's actions had a reasonable basis and are therefore entitled to judicial deference. Rossetti Contracting Co. v. Brennan, 508 F.2d 1039, 1042--1043 (7th Cir. 1975); M. Steinthal & Co. v. Seamans, 147 U.S.App.D.C. 221, 455 F.2d 1284, 1301--1302 (1971). Consequently, we find no likelihood that Airco can prevail on the merits. Since the question is one of law, we are not bound by the District Court's contrary conclusion. Milsen Co. v. Southland Corp., 454 F.2d 363, 369 & n. 9 (7th Cir. 1971); 11 Wright and Miller, Federal Practice and Procedure, § 2962 at 636--637 (1973). ¹

The District Court concluded that Airco's conduct during the first round of negotiations was proper, that it was therefore improper for ERDA to require a new round of negotiations, and that it was also improper for ERDA to approve the award to CTi following the second round. We will consider these questions in turn, viewing disputed issues of fact in the light most favorable to Airco.

Before turning to the merits, we must address the issue of standing. In Rossetti Contracting Co. v. Brennan, supra, 508 F.2d at 1042, the court considered the merits of a disappointed bidder's challenge to a procurement decision after commenting that 'the Administrative Procedure Act, 5 U.S.C. § 702, provides a basis for such consideration.' Although the standing issue was not briefed or argued in Rossetti, this remark cannot be dismissed as dictum because the court had a continuing duty to determine whether a statutory basis for its jurisdiction existed. Recent cases in the other circuits have agreed that disappointed bidders have standing to obtain judicial review. See Armstrong & Armstrong, Inc. v. United States, 514 F.2d 402, 403 (9th Cir. 1975), and cases cited therein. We see no need to reconsider the standing issue at this time.

The First Round of Negotiations

On July 24, 1974, Fermilab issued a request for proposals (or 'RFP') for two helium refrigerators for use in research on superconductivity. It was hoped that this research would lead to the development of energy-saving techniques. The RFP was later modified to call for one refrigerator and one cold box (i.e., a refrigerator minus the compressor unit).

Proposals were submitted by Airco, CTi, and Lotepro Corporation. All three proposals were technically acceptable but priced too high. At Fermilab's request, all three offerors agreed to enter into negotiations regarding price. Following these negotiations, 'best and final' proposals were submitted to Fermilab, and on November 21 Fermilab selected Airco as the low bidder. On November 27 and December 6, formal letters of intent were issued to Airco. Under the terms of the RFP, however, no contract could be formed until ERDA's approval was obtained.

On December 6, 1974, CTi filed a notice of protest with the Comptroller General. ERDA investigated CTi's allegations and found them to be baseless. In the course of the investigation, however, ERDA discovered that discussions between Fermilab and Airco had taken place after Airco's selection. According to a TWX from ERDA's area manager to its Director of Procurement, these discussions did not 'substantially prejudice' the other offerors, but did create a possible 'appearance of impropriety.' The area manager informed Fermilab that ERDA had decided not to approve any award under the RFP because of 'certain irregularities in the procurement process, consisting primarily fo failure to adhere to the procedures set forth in (41 C.F.R.) 1--3.804 and (41 C.F.R.) 1--3.805.' These regulations are discussed below.

There is a dispute as to what post-selection discussions took place. Much of the evidence relating to this dispute was destroyed by a Fermilab employee whose husband worked for Airco. Airco now concedes, however, that post-selection discussions took place about warranty and F.O.B. terms. ² Airco wanted the F.O.B. point changed from Fermilab, as the RFP required, to Airco's California facility. This would shift the risk of loss in transit to Fermilab. Airco also wanted a warranty provision that would disclaim all implied warranties and severely restrict its liability for components manufactured by others. This change would be highly material, especially since it appears that Airco planned to purchase the cold boxes themselves from a foreign supplier. Airco's proposed warranty also limited its liability to the cost of replacement and repair, excluding travel expenses and prorated on the basis of the remaining warranty period. Airco was unsuccessful in its attempts to obtain these contract terms.

ERDA argues that the post-selection discussions violated 41 C.F.R. §§ 1--3.804 and 1--3.805, which provide in pertinent part as follows:

'Complete agreement of the parties on all basic issues shall be the objective of the contract negotiations. . . . Basic questions should not be left for later agreement during price revision or other supplementary proceedings.' Section 1--3.804.

'Whenever negotiations are conducted with several offerors, while such negotiations may be conducted successively, all offerors selected to participate in such negotiations (see § 1--3.805--1(a)) shall be offered an equitable opportunity to submit such price, technical, or other revisions in their proposals as may result from the negotiations. All such offerors shall be informed of the specified date (and time if desired) of the closing of negotiations and that any revisions to their proposals should be submitted by that date.' Section 1--3.805(b).

These regulations establish a cut-off date for negotiations and require that all offerors be given equal opportunities to negotiate. See also 41 C.F.R. § 9--59.003(2). The question here is whether the post-selection discussions constituted 'negotiations' within the meaning of these regulations.

The word 'negotiations,' as used in these regulations, has been defined by the Comptroller General to include 'a series of offers and counter-offers until a mutually satisfactory agreement is concluded by the parties,' or 'any opportunity to revise or modify its (an offeror's) proposal.' 51 Comp.Gen. 479, 480--481 (1972). Under this interpretation of the regulations, which is entitled to our deference (Ocean Electric Corp. v. Laird, 154 U.S.App.D.C. 24, 473 F.2d 154, 155 (1972) (per curiam); Wheelabrator Corp. v. Chafee, 147 U.S.App.D.C. 238, 455 F.2d 1306, 1316 (1971)), the discussions in question were negotiations. Since these negotiations took place after the cut-off date, they violated the regulations. ³

Airco bases its argument to the contrary on a newly adopted ERDA regulation allowing post-selection negotiations (but only for contracts larger that this one) (40 Fed.Reg. 46343 (1975)), and on a Comptroller General decision upholding a similar NASA regulation (54 Comp.Gen. 408 (1974)). ⁴ The argument is that if these regulations are consistent with 41 C.F.R. §§ 1--3.804 and 1--3.805, the procedures used here cannot be said to violate the latter regulations. The assumptions underlying this argument are that §§...