Clevepak Corp. v. U.S. E.P.A., 82-1390

• Decision Date: 03 June 1983
• Docket Number: No. 82-1390,82-1390
• Citation: 708 F.2d 137
• Parties: CLEVEPAK CORPORATION, Appellant, v. The UNITED STATES ENVIRONMENTAL PROTECTION AGENCY and Charles R. Jeter, Regional Administrator of the EPA and Orange Water and Sewer Authority and Dickerson, Inc., Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 137

708 F.2d 137

20 ERC 1845

CLEVEPAK CORPORATION, Appellant, v. The UNITED STATES ENVIRONMENTAL PROTECTION AGENCY and Charles R. Jeter, Regional Administrator of the EPA and Orange Water and Sewer Authority and Dickerson, Inc., Appellees.

No. 82-1390.

United States Court of Appeals Fourth Circuit.

Argued Nov. 11, 1982.

Decided June 3, 1983.

John E. Haigney, New York City (James T. Williams, Jr., Brooks, Pierce, McLendon, Humphrey & Leonard, Greensboro, N.C., Ronald M. Glick, Ide & Haigney, New York City, on brief), for appellant.

Claire L. McGuire, Dept. of Justice, Koy E. Dawkins, Monroe, N.C. (Claude V. Jones, Durham, N.C., Robert M. Perry, Gen. Counsel, Gerald H. Yamada, Associate Gen. Counsel, Lee A. DeHihns, Asst. Gen. Counsel Steve Sorett, E.P.A., Anthony C. Liotta, Acting Asst. Atty. Gen., Anne S. Almy, Dept. of Justice, Washington, D.C., on brief), for appellees.

Before WIDENER and SPROUSE, Circuit Judges, and HAYNSWORTH, Senior Circuit Judge.

WIDENER, Circuit Judge:

Clevepak Corporation (Clevepak), which had submitted a price quotation for a jet aerator system (aerator) to a disappointed bidder, protested to the grantee of the Environmental Protection Agency (EPA) the award of a subcontract to its competitor by the prime contractor of the grantee of the EPA. The grantee denied the protest, which the Regional Administrator (Administrator) of the EPA then heard and dismissed. Clevepak sought judicial review in the district court, which denied its claims. Clevepak appeals from the district court's judgment, and we affirm.

The EPA awarded the Orange Water and Sewer Authority (Authority) a construction grant for the construction of the Mason Farms Project, a wastewater treatment plant near Carrboro, North Carolina. ¹ In early 1981, the Authority solicited bids from contractors for construction of the plant.

Dickerson, Inc. (Dickerson) was the low bidder, and on March 24, 1981, the Authority awarded Dickerson the general contract for the construction of the project. Dickerson's responsibility as general contractor included building the project according to the design and specifications of the Authority's consulting engineers, Moore, Gardner & Associates. A specific obligation of the general contractor was the procurement of an aerator, an essential component of the wastewater treatment plant. The original bid specifications required that the manufacturer of the aerator be "regularly engaged in design, fabrication and marketing of a complete jet aeration system" and be "Pentech, Aerocleve, or [their] equal."

Dickerson, Lee Construction Company, and Ballenger Corporation, the general contract bidders, all had solicited price quotations from potential subcontractors and suppliers, and had used such quotations in figuring their bids on the job. Dickerson's bid listed T. Combs as its supplier for the Aerator; Lee Construction Company's bid listed Clevepak; and Ballenger Corporation's bid listed Pentech.

Unlike Clevepak and Pentech, which were both manufacturers of aerators, T. Combs was a manufacturer's representative. Combs had represented Pentech since 1980, and had helped Pentech prepare a price quotation for the aerator in the Mason Farms Project. Pentech, which had been part of Houdaille Industries, was acquired by Clevepak on April 1, 1981. Clevepak alleges that, with the acquisition of Pentech, it acquired an assignment of any interest Pentech had in the Authority's bid solicitation. ²

On June 8, 1981, Dickerson issued a purchase order for an aerator to Jet-Tech, Inc. (Jet Tech), and a few days later informed Clevepak of the order. Clevepak telegraphed its protest to the Authority, claiming that the subcontract between Dickerson and Jet Tech violated 40 C.F.R. Secs. 35.936-13, 35.936-15(a), and 35.938-4(h). Without reaching the merits or conceding that Clevepak had any right of protest, the Authority denied the protest as untimely, taking the not unrealistic position that Clevepak knew or should have known that its quotation was not the one accepted in April 1981.

Clevepak requested the Administrator to review the Authority's disposition of the protest. The Administrator determined that he did not have to address the timeliness issue because Clevepak had failed to raise a protestable matter for review. The Administrator noted that the protestable matters for subcontractors were greatly limited under EPA regulations. Protests of subcontract awards or purchase orders under a competitively bid, lump-sum construction contract are prohibited, except for a limited range of issues. 40 C.F.R. Sec. 35.939(j)(6). The only protestable issues relevant to Clevepak's case are alleged violations of the Sec. (6)(i) specification requirements of 40 C.F.R. Sec. 35.936-13, and the Sec. (6)(ii) procurement procedures of 40 C.F.R. Sec. 35.938-9. Section 35.938-9(a) broadly exempts a prime contractor's awards to subcontractors from EPA regulations except as specifically provided in subsections 9(b)(1)-(7). Only two of Clevepak's three claims even arguably fell within the scope of these regulations of subcontract awards as protestable, namely, Clevepak's allegations of violation of subsections 9(b)(3) and 9(b)(4). ³

The Administrator proceeded to address Clevepak's assertion that Jet Tech failed to meet the responsibility standards in 40 C.F.R. Sec. 30.340-2(c), which apply to subcontractors by Sec. 35.938-9(b)(4). ⁴ Specifically, the Administrator considered whether Jet Tech had "a satisfactory record of integrity, judgment, and performance." 40 C.F.R. Sec. 30.340-2(c).

The Administrator characterized the Authority's determination of a subcontractor's responsibility as largely "a discretionary matter involving the business judgment of officials closest to the actual transaction [sic] who must be prepared to work with the selected contractor throughout the life of contract performance." Although the EPA's regulations do not set standards for reviewing a grantee's determination of a subcontractor's responsibility, they do permit the Administrator to rely on relevant decisions of the Comptroller General or the Federal Courts. 40 C.F.R. Sec. 35.939(f)(2)(ii). In this case, the Administrator relied on the rule, used by the Comptroller General in reviewing cases of contractor and subcontractor responsibility, ⁵ that he should not review a determination of responsibility unless the protesting party adduces adequate evidence of the contracting officer's fraud, bad faith, or violation of specific, objective standards of responsibility required by the bid solicitation. The Administrator concluded that Clevepak had not presented adequate evidence of the grantee's fraud or bad faith, and that it had not pointed to any specific, objective standard of responsibility in the bid solicitation.

The only evidence in the entire administrative record that suggests Jet Tech may have lacked a satisfactory record of performance, as required by EPA regulations, is a photocopy of Jet Tech's Articles of Incorporation. That copy shows that the Articles were filed on June 12, 1981, the day Jet Tech received its purchase order from Dickerson. The Administrator, however, read Sec. 30.340-2(c) and the bid specification's quality standards for the maker of the aerator as limited by the language of 40 C.F.R. Sec. 35.936-13(c), which severely curtails the use of experience clauses that require a manufacturer to have a record of satisfactory operation for a specified period of time. Concluding that Clevepak had no basis to contest Jet Tech's participation in the Mason Farms Project, the Administrator dismissed the protest.

The scope of judicial review of the Administrator's decision is governed by the Administrative Procedure Act, 5 U.S.C. Sec. 706. As informal agency action, the Administrator's dismissal of Clevepak's protest is considered by us under a narrow standard of review. The function of judicial review here is to determine whether the agency acted within its authority, whether the agency complied with prescribed procedures, and whether the agency's action was "arbitrary or capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. Sec. 706(2)(A), (D); Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415-417, 91 S.Ct. 814, 823-824, 28 L.Ed.2d 136 (1971).

The Administrator's decision is entitled to great deference, but must be supported by a rational basis in the administrative record. American Meat Institute v. Department of Agriculture, 646 F.2d 125, 127 (4th Cir.1981). The agency must disclose the basis of its order. Burlington Truck Lines v. United States, 371 U.S. 156, 168, 83 S.Ct. 239, 245, 9 L.Ed.2d 207 (1962). Although this court may not substitute its judgment or justification for those of the agency, SEC v. Chenery Corp., 332 U.S. 194, 196, 67 S.Ct. 1575, 1577, 91 L.Ed. 1995 (1947), we will uphold an agency decision of less than ideal clarity if the agency's reasoning is reasonably discernible. Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 286, 95 S.Ct. 438, 442, 42 L.Ed.2d 447 (1974). Furthermore, we must, in our review, give great deference to the EPA's interpretation of its own regulations. Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965).

With the proper standard of review in mind, we consider Clevepak's claims. The first is that the Administrator disregarded EPA regulations which require grantees to afford bid protesters an adversary proceeding for a determination of responsibility after receiving a timely protest. See 40 C.F.R. Sec. 35.929(d). The bid protest procedures, however, are not available to parties protesting the award of subcontracts, except as specifically provided for by the terms of 40 C.F.R. Sec. 35.939. ...