Keco Industries, Inc. v. United States, 173-69.

CourtCourt of Federal Claims
Citation428 F.2d 1233
Docket NumberNo. 173-69.,173-69.
Decision Date15 July 1970

Paul W. Steer, Cincinnati, Ohio, attorney of record, for plaintiff. Steer, Strauss, White & Tobias, Cincinnati, Ohio, of counsel.

Steven L. Cohen, Washington, D. C., with whom was Asst. Atty. Gen., William D. Ruckelshaus, for defendant.




This case is before the court on defendant's motion for summary judgment and plaintiff's opposition thereto. The two main questions involved are whether plaintiff has standing to maintain an action which involves the award by the Government of a contract to another, and whether plaintiff has raised enough of an inference of arbitrary and capricious action on the part of the Government to create a triable issue of fact. For reasons to be hereinafter stated, we conclude that plaintiff does have standing to sue, and that it has raised an issue of fact which should be resolved by the trial commissioner.

Plaintiff, Keco Industries, is a "Small Business" corporation organized and existing under the laws of the State of Ohio, with its principal offices in Cincinnati. It is engaged in the business of manufacturing specialized air conditioning and does substantially all of its work either directly or indirectly for the Government.

On February 3, 1966, defendant, acting through the San Antonio Air Materiel Command, solicited bids for the purchase of certain air conditioning units. This invitation for bids was canceled several months later because of numerous questions asked by prospective bidders. On April 12, 1966, defendant initiated step one of a two-step procurement, which was to issue a Letter Request for Technical Proposal (LRFTP). Under a two-step procurement, which is usually used when the Government cannot provide detailed specifications to the bidders, the Government requests the bidders, who have the necessary technical knowledge, to furnish first a technical proposal. Armed Services Procurement Reg. (ASPR) § 2-501, 32 C.F.R. § 2.501 (1966). If the proposal is acceptable, then the bidder is asked to submit a conventional bid price based on his own presentation and the Government specifications. ASPR § 2-503.2(iii), 32 C.F.R. § 2.503-2(c) (1966).

In this case, three technical proposals were submitted. One was declared inadequate; and two, that of plaintiff and that of Acme Industries, Inc. (Acme), were found to be acceptable. Acme's technical proposal contained two deviations from the requirements of the specifications. One deviation consisted of a proposal to use a V-belt (indirect drive) rather than direct drive to power the compressor. In the other deviation, Acme proposed to operate the cooling fan by use of an electric motor driven by an AC generator rather than the unit's battery. Defendant accepted Acme's proposed deviations and incorporated them into the amended specifications, which were then issued to both parties. Plaintiff and Acme were then asked to submit bid prices based on their own technical proposals and the amended specifications.

Bids were received in time on June 10, 1966, with plaintiff's bid exceeding that of Acme by approximately 66 percent.1 Because of this great disparity, Acme was requested to verify its bid price which it did on June 15, 1966. The contract was then awarded to Acme on July 6, 1966.

Subsequent to the award of the contract, Acme began to encounter certain problems in connection with its performance under the contract. For instance, its proposal to drive the compressor by use of a V-belt drive arrangement could not be accomplished without certain changes and additions which would greatly increase the cost. Also Acme found that it could not operate the cooling fan by an electric motor without the substitution of a 100-ampere alternator for the 25-ampere generator, required by the original specifications. This likewise would greatly increase the cost over what had been contemplated in Acme's bid.

Acme's request for the necessary changes, additions, and substitutions was granted by the Government, and the appropriate contract change notices were issued. On September 8, 1966, Contract Change Notice No. 1 authorized Acme to use a 100-ampere alternator rather than a 25-ampere generator, thus adding approximately $135,0002 to the contract price. Contract Change Notice No. 3, permitting and directing Acme to employ an adaptation to the compressor so as to allow for V-belt drive, increased the contract price by $154,355.3

Plaintiff filed a protest on September 14, 1967, with the General Accounting Office (GAO), asserting that Acme should be liable financially for the above-mentioned contract modifications. In his Opinion, B-162538,4 dated August 15, 1968, and in a supplemental letter dated January 13, 1969, the Comptroller General found that, with respect to contract change No. 1 defendant had acquiesced in Acme's proposal to use a 100-amphere alternator by failing to inform Acme that only a 25-amphere generator would be supplied. With respect to contract change No. 3, the Comptroller General ruled that defendant knew, in effect, at the time of the award, that the compressor could not be driven by a V-belt. Consequently, it was held that Acme should not be financially liable for either of the change orders since both were due to defendant's error.

Plaintiff has now instituted action in this court alleging that, in awarding the contract in question to Acme, defendant violated certain sections of the Armed Services Procurement Regulations, and that, since defendant knew that Acme's technical proposal could not be accomplished within its specified pricing bid, defendant's action in awarding the contract to Acme amounts to a breach of its implied contract to fairly and honestly consider and evaluate plaintiff's bid. Plaintiff is seeking to recover its cost in preparing and submitting its technical proposals and bid as well as its loss of anticipated profits.

The first issue which must be decided is whether plaintiff has standing to sue. Defendant urges the court to follow the long-standing rule in regard to suits by bidders, which is that most statutes governing the awarding of bids by governmental agencies are enacted for the benefit of the public, who are served by these agencies, and not for the benefit of the bidders. As a result, the general rule has been that bidders have no right to sue on the ground that the provisions of a bidding statute have been violated. Heyer Prods. Co. v. United States, 140 F.Supp. 409, 412, 135 Ct.Cl. 63, 68 (1956); see Perkins v. Lukens Steel Co., 310 U.S. 113, 60 S.Ct. 869, 84 L.Ed. 1108 (1940); American Smelting & Ref. Co. v. United States, 259 U.S. 75, 42 S.Ct. 420, 66 L.Ed. 833 (1922); United States v. New York & Porto Rico S.S. Co., 239 U.S. 88, 36 S.Ct. 41, 60 L.Ed. 161 (1915). On the other hand, plaintiff contends that this general rule prohibiting suits by wronged bidders should no longer be accorded any weight as it is not in the public interest. Plaintiff also urges that, regardless of this rule, it does have standing based on Heyer Prods. Co. v. United States, supra, and Scanwell Laboratories, Inc. v. Shaffer, 137 U.S.App.D.C. 371, 424 F.2d 859 (Feb. 13, 1970).

The Heyer case dealt with a situation where the plaintiff was the low bidder on a Government contract, and yet the contract was awarded to a company which had submitted a bid almost twice as great as plaintiff's. Plaintiff alleged that the award by the agency was not made in good faith but was in retaliation for testimony plaintiff had given against the agency in a Senate hearing. This court held that, while still recognizing that bid statutes are for the benefit of the public and not bidders, nevertheless, it is an implied condition of a request for bids that each one will be honestly considered, and the bid which, in the honest opinion of the contracting officer, is the one most advantageous to the Government will be accepted. Consequently, it was held in Heyer that assuming the facts as alleged by plaintiff were true, defendant had breached its implied promise to plaintiff since it had already decided prior to the opening of the bids who would receive the contract award. The court felt that the advertisement for bids was nothing but a sham, a fraud, and a false representation that all bids would be honestly considered.5

In the very recent case of Scanwell Laboratories, Inc. v. Shaffer, supra, the United States Court of Appeals for the District of Columbia Circuit discussed in great detail the question of whether a wronged bidder should have standing to sue. In that case, the plaintiff, who was the second low bidder on a contract dealing with instrument landing systems, argued that the bid of the low bidder was nonresponsive and should have been declared null and void since it was in violation of one of the provisions of the invitation for bids.6 In dealing with the theory that bid statutes are enacted for the public and not bidders, the Scanwell court stated:

The public interest in preventing the granting of contracts through arbitrary or capricious action can properly be vindicated through a suit brought by one who suffers injury as a result of the illegal activity, but the suit itself, is brought in the public interest by one acting essentially as a "private attorney general."

Id. at 864. In addition the circuit court of appeals found that the approach taken by the Supreme Court in such cases as Perkins v. Lukens Steel Co., supra, has been legislatively reversed by the Congress, so that now Congress clearly "favors review for those who are likely to be injured by illegal agency action in the context of government contracting." Id. at 867. The court in Scanwell, therefore, concluded that where "a prima facie showing of illegality is made, the...

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