Dairy Maid Dairy, Inc. v. US

• Decision Date: 05 November 1993
• Docket Number: Civ. No. 2:93CV260.
• Citation: 837 F. Supp. 1370
• Court: U.S. District Court — Eastern District of Virginia
• Parties: DAIRY MAID DAIRY, INC., Plaintiff, v. The UNITED STATES of America and The United States Department of the Army and John W. Shannon, Acting Secretary of the Army, Philip A. Grace, Contracting Officer, United States Army Korea Contracting Agency, Defendants.

837 F. Supp. 1370

DAIRY MAID DAIRY, INC., Plaintiff, v. The UNITED STATES of America and The United States Department of the Army and John W. Shannon, Acting Secretary of the Army, Philip A. Grace, Contracting Officer, United States Army Korea Contracting Agency, Defendants.

Civ. No. 2:93CV260.

United States District Court, E.D. Virginia, Norfolk Division.

November 5, 1993.

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Michael L. Sterling, Howard W. Roth, III, Vandeventer, Black, Meredith & Martin, Norfolk, VA, for plaintiff.

J. Phillip Krajewski, Asst. U.S. Atty., Norfolk, VA, for defendants.

MEMORANDUM OPINION AND ORDER

PAYNE, District Judge.

Dairy Maid Dairy, Inc. ("Dairy Maid") filed this action seeking declaratory and injunctive relief as the consequence of alleged violations of the Competition in Contracting Act ("CICA") by the United States Army (the "Army"). Following an evidentiary hearing and upon consideration of the affidavits and pleadings, the court entered a temporary restraining order. Upon agreement of the parties, the trial of the action on its merits was advanced and consolidated with the hearing on Dairy Maid's application for preliminary injunctive relief, see Fed. R.Civ.P. 65(a)(2). After reviewing the affidavits, the exhibits, the testimony presented at trial and the briefs and arguments of counsel, the court issued an order on April 13, 1993 deciding the case on the merits and granting permanent injunctive relief. The reasons supporting that decision and order are set forth fully below.

STATEMENT OF FACTS

This action arises out of the solicitation, award and resulting protests of a contract for the operation of the Eighth U.S. Army Milk Plant, located at the K-16 Air Base, Songnam, Republic of Korea. The milk plant is a Government Owned-Contractor Operated ("GOCO") facility. As its name implies, the facility is owned by the Army and, pursuant to contract, the contractor is obligated to operate the milk plant, to maintain the operating equipment and to produce and deliver milk and other dairy products for consumption by United States military personnel and their dependents. By law, the contract must be awarded to an American company, but the milk plant is actually operated by a staff of approximately 75 Korean nationals who work under the supervision of the contractors' American employees.

The milk plant is the only source in the Republic of Korea of veterinary-approved milk and other dairy products for 61 dining facilities used by United States military personnel and by Army civilian employees. It also is the sole source of supply of milk and other dairy products to Army hospitals, the enlisted and officer club systems, the military exchange outlets and the schools operated for dependents of military personnel. It is undisputed that there are no approved local dairies in the Republic of Korea which could constitute an alternate source for milk and dairy products. It is also undisputed that supplies of extended shelf life milk from the continental United States are not available in quantities sufficient to meet demand.

The Historical Setting for the Current Dispute

At the time this action was filed, Dairy Maid was operating the milk plant under contract no. DAJB03-92-C-3216 (the "3216 Contract") which originally was to expire on September 30, 1992, but was extended twice by mutual agreement. Before the 3216 Contract was awarded to Dairy Maid, the milk plant was operated by Contact International, Inc. ("CIC") under contract no. DAJB03-89-C-1001 (the "1001 Contract").

Near the end of the 1001 Contract, CIC and Dairy Maid competed for award of the 3216 Contract and, after the 3216 Contract was awarded to Dairy Maid, CIC filed a protest with the Comptroller General of the United States ("GAO") under 31 U.S.C. § 3552 (Supp.1993). As required by 31 U.S.C. § 3553(c)(1), the award of the 3216 Contract to Dairy Maid was stayed pending a decision by the GAO on CIC's protest. In order to maintain the status quo and an uninterrupted supply of milk and other dairy products, CIC and the Army mutually agreed to extend the 1001 Contract until the GAO decided the merits of CIC's protest of the 3216 Contract. In fact, the 1001 Contract, the terms and conditions of which are the same as the 3216 Contract insofar as they pertain to contract extensions, previously had been extended by mutual agreement three times.

The 0002 Solicitation and Protests

On November 23, 1992, the Army issued solicitation no. DAJB03-93-R-0002 ("0002 Solicitation") for a follow-on contract to the 3216 Contract. In December 1992, Dairy Maid filed two protests of the 0002 Solicitation, alleging numerous defects therein. Those protests were consolidated and set for hearing on their merits by the GAO. However, by letter dated January 21, 1993, the Army requested dismissal of the consolidated protests as moot because the Army had considered the protests and taken corrective action. In requesting this disposition of Dairy Maid's consolidated protests, counsel for the Army advised the GAO to:

Please obtain dismissal of subject protest. USACCK has extended the solicitation closing date, as Protestor Dairy Maid requests, and is substantially revising the solicitation. We will take into account all of Dairy Maid's criticisms.... we will negotiate with Dairy Maid a six-month extension to allow for amendment, repreparation of proposals, audit, negotiations, award, and phase-in. (emphasis added)

In response to the Army's request, GAO dismissed as moot Dairy Maid's consolidated protests of the 0002 Solicitation. Having received copies of the communications between the Army and the GAO, counsel for Dairy Maid advised the Army's contracting officer in Korea by letter dated January 22, 1993, that "we understand from Mr. Wilder's correspondence that it is the Government's intention to negotiate a six-month extension to our existing contract and look forward to cooperating with your office in this regard."

Subsequently, by letter dated January 28, 1993, Phillip A. Grace, the Army's contracting officer in Korea, advised Dairy Maid that the government was prepared to extend the 3216 Contract by mutual agreement through September 30, 1993, and solicited a proposal from Dairy Maid. Dairy Maid responded on February 11, 1993, by submitting two alternate proposals for a six-month contract extension.

On the same day, CIC entered the picture and informed the head of the government contracting agency in Korea that "we understand that it is the Government's desire to award a contract for operation of the K-16 Milk Plant for the period of 01 April 1993 through 30 September 1993." CIC expressed its willingness and readiness to perform the required work and requested that a contract be awarded to it on a "sole source basis or alternatively on the basis that under 10 U.S.C. § 2304(c)(2), the Army could limit procurement solicitation to one firm when the government reasonably determined that only that firm could properly perform the work in the available time."

On February 16, 1993, five days after submitting the proposals solicited by the Army on January 28, Dairy Maid received a letter from Mr. Grace, stating that a new solicitation, which would be identical to the 0002 Solicitation except as to the provisions governing duration of the contract and the guaranteed minimums, was being issued for a six-month extension of the 3216 Contract. Dairy Maid was requested to prepare a proposal by February 26, 1993. Confused by these developments and by the inconsistent instructions from the Army, Dairy Maid's counsel posed six questions to the contracting officer by letter dated February 18, 1993. One of those inquiries asked whether the government intended to negotiate with Dairy Maid a six-month extension to the 3216 Contract. The Army responded to that inquiry on February 25, 1993, stating that:

It was the Government's desire to negotiate for a six-month extension to the current contract. However, the Government is now able to obtain competitive prices under solicitation DAJB03-93-R-0002 in compliance with procurement regulations. Therefore an extension to the current contract for six months may not be necessary.

The 0072 Solicitation

On February 23, 1993, Dairy Maid received solicitation DAJB03-93-R-0072 (the "0072 Solicitation," which subsequently became the "0072 Contract"). The next day, Dairy Maid filed a protest with the GAO challenging numerous improprieties and defects in the 0072 Solicitation. The Army partially revised the 0072 Solicitation by letter dated March 16, 1993, and, on March 19, 1993, the next government working day, the Army responded to Dairy Maid's challenges to the 0072 Solicitation with a limited clarification. On March 22, 1993, Dairy Maid informed the contracting officer that, as a consequence of the Army's amendment of the 0072 Solicitation, Dairy Maid would require ten working days to reprice its proposal.

The 0072 Protests and The Stays Here At Issue

The filing of a timely protest of the 0072 Solicitation, automatically stays an award of the 0072 Contract pending resolution of the protest by the GAO, unless the head of the procuring activity decides to override the stay after making a written finding pursuant to 31 U.S.C. § 3553(c)(2) that:

urgent and compelling circumstances which significantly affect interests of the United States will not permit waiting for the GAO decision on the merits of the protest.

On March 19, 1993, Major General Scott, the head of the procuring agency, acting pursuant to staff recommendations dated March 18, 1993, and March 17, 1993, decided to override the automatic pre-award stay and award the 0072 Contract to CIC. The stated basis of General Scott's determination was that "... delay in awarding a contract shall have a devastating impact on all dining facilities in Korea as well as on hospitals, club system, and AAFES." This conclusion was based on the fact that the milk plant...