McGregor Printing Corp. v. Kemp

• Decision Date: 19 April 1994
• Docket Number: No. 92-5375,92-5375
• Citation: 20 F.3d 1188
• Parties: McGREGOR PRINTING CORPORATION, Appellant, v. Ira KEMP; Committee for Purchase from the Blind and Other Severely Handicapped; National Industries for the Blind; the United States of America, Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1188

20 F.3d 1188

305 U.S.App.D.C. 324

McGREGOR PRINTING CORPORATION, Appellant, v. Ira KEMP; Committee for Purchase from the Blind and Other

Severely Handicapped; National Industries for the

Blind; the United States of America, Appellees.

No. 92-5375.

United States Court of Appeals, District of Columbia Circuit.

Argued Feb. 3, 1994.

Decided April 19, 1994.

Appeal from the United States District Court for the District of Columbia (91cv3255).

John P. Meade, argued the cause and filed the briefs for appellant.

Mark W. Pennak, Atty., U.S. Dept. of Justice, argued the cause for appellees. With him on the brief for federal appellees were Eric H. Holder, Jr., U.S. Atty., and Barbara C. Biddle, Atty., U.S. Dept. of Justice. Theodore C. Hirt and John C. Hoyle, Attys., U.S. Dept. of Justice, entered appearances. On the brief for appellee, Nat. Industries for the Blind, were Paul M. Frank, Daniel J. O'Neil and Jonathan Russin.

Before: WALD, HENDERSON, and RANDOLPH, Circuit Judges.

Opinion for the court filed by Circuit Judge RANDOLPH.

RANDOLPH, Circuit Judge:

In September 1991, the Committee for Purchase from the Blind and Other Severely Handicapped included tabulating machine paper, known by the last four digits of its National Stock Number as "0996," in the list of commodities all federal government entities must purchase from nonprofit agencies employing blind or other severely disabled persons. At the time of the Committee's decision, McGregor Printing Corporation was one of two suppliers of 0996 to the federal government. McGregor sued to set aside the Committee's decision. In a memorandum opinion and order the district court ruled in favor of the Committee. Because we find the Committee's decision to add 0996 to the list arbitrary and capricious, we reverse.

I

In 1938, Congress established the Committee on Purchases of Blind-made Products, composed of "a private citizen conversant with the problems incident to the employment of the blind" and representatives of the Departments of the Navy, War, Treasury, Agriculture, Commerce, and Interior. Act of June 25, 1938, ch. 697, 52 Stat. 1196 ("the Wagner-O'Day Act"). The Wagner-O'Day Act assigned the Committee the duty of determining the fair market price "of all brooms and mops and other suitable commodities manufactured by the blind and offered for sale to the Federal Government by any non-profit-making agency for the blind," id., and required that in procuring such products, the government should purchase them from the blind so long as the products were manufactured according to federal specifications. See id.

Now known as the Javits-Wagner-O'Day Act ("the Act"), the current Act establishes the Committee for Purchase From People Who Are Blind and Severely Disabled, ¹ 41 U.S.C. Sec. 46, composed of fifteen members. Eleven represent the Departments of Agriculture, Defense, Army, Navy, Air Force Health and Human Services, ² Commerce, Veterans Affairs, Justice, Labor, and the General Services Administration; of the others, one must be conversant with the problems incident to employment of the blind, one must be conversant with the same problems of other severely handicapped individuals, one must represent individuals employed in qualified nonprofit agencies for the blind, and one must represent other severely handicapped individuals so employed. See id. The Committee is responsible for establishing and publishing in the Federal Register a list of commodities and services provided by "qualified nonprofit agencies" for the blind and other severely handicapped individuals which the Committee determines, through informal rulemaking in accordance with 5 U.S.C. Sec. 553(b), (c), (d), & (e), are suitable for procurement by the government, 41 U.S.C. Sec. 47(a). The Committee also must determine, and revise periodically, the fair market value of those commodities and services. See 41 U.S.C. Sec. 47(b). The Act requires that:

If any entity of the Government intends to procure any commodity or service on the procurement list, that entity shall, in accordance with rules and regulations of the Committee, procure such commodity or service, at the price established by the Committee, from a qualified nonprofit agency for the blind or such an agency for other severely handicapped....

41 U.S.C. Sec. 48. "[Q]ualified nonprofit agency for the blind" is defined, in part, as a nonprofit organization operated in the interest of blind individuals that,

in the production of commodities and in the provision of services (whether or not the commodities or services are procured under this Act) during the fiscal year employs blind individuals for not less than 75 per centum of the man-hours of direct labor required for the production or provision of the commodities or services.

41 U.S.C. Sec. 48b(3). "[D]irect labor" is defined as "all work required for preparation, processing, and packing of a commodity, or work directly relating to the performance of a service, but not supervision, administration, inspection, or shipping." 41 U.S.C. Sec. 48b(5). The Act directs the Committee to "designate a central nonprofit agency or agencies to facilitate the distribution ... of orders of the Government for commodities and services on the procurement list among qualified nonprofit agencies for the blind or such agencies for other severely handicapped." 41 U.S.C. Sec. 47(c).

The Committee revised its regulations after it had added 0996 to the procurement list but before the Committee rejected McGregor's petition for reconsideration. See 56 Fed.Reg. 48,974 (Sept. 26, 1991) (effective date Oct. 28, 1991). ³ Both sets of regulations closely track the Act's language. In order for the Committee to conclude that a commodity is suitable for addition to the procurement list, the Committee is required to determine a fair market price for the commodity and to determine that a qualified workshop is capable of producing the commodity at that price and in accordance with government quality standards and delivery schedules. See 41 C.F.R. Secs. 51-2.5, 51-2.6(a)(1) & (b) (1990); 41 C.F.R. Secs. 51-2.2(c), 51-2.4(c) & (d) (1993). The Committee must determine that "[t]he addition of the commodity ... to the Procurement List would not have a serious adverse impact on the current or most recent contractor for the commodity." 41 C.F.R. Sec. 51-2.6 (1990); see 41 C.F.R. Sec. 51-2.4(e) (1993). To these conditions, the new regulations add an explicit requirement that "the proposed addition must demonstrate a potential to generate employment for persons who are blind or have other severe disabilities." 41 C.F.R. Sec. 51-2.4(a) (1993).

In making the first determination, the fair market price for the commodity, the Committee shall consider recommendations from the procuring agencies and the central nonprofit agency concerned. Recommendations for fair market prices ... shall be submitted by the workshops to the central nonprofit agency representing the workshop. The central non-profit agency shall analyze the data and submit a recommended fair market price to the Committee along with the detailed justification necessary to support the recommended price.

41 C.F.R. Sec. 51-2.5 (1990); see 41 C.F.R. Sec. 51-2.7 (1993) (substantially similar). This is explained in more detail in an extensive series of Pricing Memoranda and in instructions accompanying the forms on which the central nonprofit agency's submissions are required to be made. Simply put, "[t]he initial price for a commodity which has been recently procured by the Government shall be the median of those bids for that commodity which are not more than 35% above the award price, or the award price increased by 5%, whichever is greater." Committee for Purchase From the Blind and Other Severely Handicapped, Pricing Memorandum No. 1--Oct. 16, 1989.

The factors relevant to the Committee's determination that a nonprofit agency for the blind or other severely handicapped is "qualified" are found in three places in the regulations. The first, the definition of "[q]ualified nonprofit agency for the blind," see 41 C.F.R. Sec. 51-1.2(h) (1990); 41 C.F.R. Sec. 51-1.3 (1993), is nearly identical to that in the Act, requiring that the agency be operated in the interest of the blind, and not for profit, and that 75 percent of the man-hours of direct labor required for production be performed by the blind. The second is in the discussion of suitability. The 1990 regulations required that a specific workshop must:

satisfy the Committee that it will have the capability to meet the Government's quality standards and delivery schedules by the time it assumes responsibility for supplying the Government under the Act and that it can supply he [sic] commodity or service at a fair market price.

41 C.F.R. Sec. 51-2.6(b) (1990). The revised regulations are substantially similar, see 41 C.F.R. Sec. 51-2.4(c) & (d) (1993), but require in addition that the workshops "satisfy the Committee as to the extent of the labor operations to be performed." Id. Sec. 51-2.4(c). This addition, like the added suitability requirement noted above, derives from the Committee's determination, discussed in the preamble of the final rule, that "it is the policy of the Government to increase employment and training opportunities for persons who are blind or have other severe disabilities through ... the [Javits-Wagner-O'Day program]." (56 Fed.Reg. at 48,974). Third, the workshop must meet detailed application, recordkeeping, and financial requirements specified at 41 C.F.R. pt. 51-4 (1990 & 1993).

The portion of the regulations concerning "serious adverse impact" provides:

(d) In deciding whether or not a proposed addition to the Procurement List would have a serious adverse impact on the current or most recent contractor for the particular commodity or service, the Committee gives particular attention to:

(1) The possible impact on that contractor's sales, including any cumulative impact as the...