Trilon Educational Corp. v. United States, 241-76.

Decision Date14 June 1978
Docket NumberNo. 241-76.,241-76.
Citation578 F.2d 1356
PartiesTRILON EDUCATIONAL CORPORATION v. The UNITED STATES.
CourtU.S. Claims Court

Maurice H. Bitner, Parsippany, N. J., attorney of record for plaintiff.

Raymond B. Benzinger, Washington, D. C., with whom was Asst. Atty. Gen. Barbara Allen Babcock, Washington, D. C., for defendant.

Before NICHOLS, KASHIWA, and BENNETT, Judges.

ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT

NICHOLS, Judge.

This case, before the court on cross-motions for summary judgment, concerns a naval procurement contract. Defendant cancelled it, six weeks after award, for nonresponsibility of the contractor. Plaintiff seeks recovery of costs incurred in preparing to perform and anticipatory profits, totaling $58,000. Defendant disclaims all liability on the ground that plaintiff's nonresponsibility rendered the contract void.

The invitation for bids (IFB) in this case was for the manufacture of small arms gunfire flash-noise simulators, and was issued by the Naval Training Equipment Center in Orlando, Florida, on May 29, 1974. Although the IFB was sent to 22 companies, only two responded. Of these, plaintiff, Trilon Educational Corp., was the lowest bidder for the quantities desired by the Navy. The contracting officer determined that Trilon was responsible, and awarded the contract on June 26, 1974. The contract was signed the same day. Immediately thereafter, plaintiff placed purchase orders for materials and undertook alteration of its production capacity to assure shipments in accordance with the contract delivery schedule.

In the meantime, the unsuccessful bidder, Joanell Laboratories, formally protested Trilon's award on June 28, 1974, and followed with a letter to the Comptroller General of the United States, dated July 12, 1974. Joanell alleged that Trilon should have been adjudged nonresponsible because of the recent criminal conviction of Mr. Neile Coe, President of Trilon Research Corporation, of which Trilon Educational Corporation was a subsidiary, for conspiring to defraud the government in connection with subcontract awards. Coe pleaded guilty to the charges which arose out of the Grumman Aircraft Kickback scandal, on April 2, 1974, and was sentenced on June 27, 1974. Joanell further noted that this information could easily have been uncovered by the contracting officer simply by telephoning the local Defense Contract Administration Office.

The contracting officer notified plaintiff by telegram, on August 8, 1974, that the contract was cancelled, effective immediately. Plaintiff, operating on the assumption that the cancellation was to be treated as a termination for convenience, submitted a termination settlement proposal to the government. This was rejected out of hand, the government adopting the position that the circumstances of plaintiff's nonresponsibility made the contract illegal, thereby preventing the existence of any rights thereunder.

In its cross-motion for summary judgment defendant offers several interrelated theories in support of its position that the cancellation was valid and released the government from all liability to plaintiff. The major argument is that the contract award was improper and clearly illegal, and therefore was not enforceable under United States v. Mississippi Valley Generating Co., 364 U.S. 520, 81 S.Ct. 294, 5 L.Ed.2d 268 (1961). That case involved a conflict of interest and has never been held to apply to every instance of award irregularity. Schoenbrod v. United States, 410 F.2d 400, 187 Ct.Cl. 627 (1969); Prestex, Inc. v. United States, 320 F.2d 367, 162 Ct.Cl. 620 (1963), are closer to our facts but not on point. Defendant's argument subsumes two others. One is that the contracting officer simply did not have the authority, under the Armed Services Procurement Regulations (ASPR), and in particular ASPR 1-902 et seq., to award the contract to Trilon. The second is that plaintiff should have disclosed its ineligibility to the contracting officer before accepting the contract.

The criteria to be applied in determining the responsibility of prospective contractors are delineated in part 9 of section 1 of ASPR. The pertinent ASPR provisions are set forth in full in the appendix following this opinion. The object of part 9 is to ensure that potential contractors are qualified to perform the work or services sought. To this end, awards may be made only to "responsible prospective contractors" after the contracting officer has made an affirmative determination in this regard, based on the standards enumerated in the ASPR. Under ASPR 1-903.1, to be qualified for an award a contractor must at minimum be able to command adequate financial resources and have available enough plant capacity and equipment to perform the contract and comply with delivery schedules. In addition, the prospective contractor must have satisfactory records of performance and integrity. ASPR 1-904.1 further provides that "the signing of the contract by the contracting officer constitutes an affirmative determination of responsibility * * *; therefore he must assure himself that the applicable requirements of 1-903 are met before signing the contract or order." Finally, "before making a determination of responsibility (see 1-904), the contracting officer shall have in his possession or obtain information sufficient to satisfy himself that a prospective contractor currently meets the minimum standards set forth in 1-903, to the extent that such standards are applicable to a specific procurement." ASPR 1-905.1(a).

Despite what may appear to be a lengthy list of standards to be applied in evaluating the responsibility of a potential contractor, this court and the Comptroller General of the United States have both consistently stated that the regulations invest in the contracting officer a considerable degree of discretion in arriving at a determination. See, e. g., Keco Industries, Inc. v. United States, 492 F.2d 1200, 1205-06, 203 Ct.Cl. 566, 577 (1974); Data Test Corp., 54 Comp.Gen. 499 (1974). In Data Test Corp., it was noted that responsibility "determinations are based in large measure on subjective judgments which are not readily susceptible to reasoned review." Id. at 501. Absent allegations of fraud or bad faith, then, affirmative determinations of responsibility generally will not be overturned, and ordinarily protests in this regard will not even be entertained. See Central Metal Products, Inc., 54 Comp.Gen. 66 (1974). Although this reasoning usually appears in the context of challenges by unsuccessful bidders, this court has implied that it also is applicable to the recipient of a government contract who later realizes that the favorable responsibility determination as to him was erroneous. Transcountry Packing Co. v. United States, 568 F.2d 1333, 1338, 215 Ct.Cl. ___, ___ (1978). Similarly, then, the government should also be bound by its own assessment even if it should later conclude that the initial judgment was incorrect.

We now turn to the major thrust of defendant's argument, that the contract was void and illegal because improperly award to a nonresponsible prospective contractor. In essence, defendant would have us hold either that plaintiff is estopped from demanding damages because of its failure to bring Coe's conviction to the attention of the contracting officer, or that the contract is cancellable without recourse by Trilon.

At the outset, we reject the government's implication that Trilon's "suppression" of information pertaining to Mr. Coe's criminal conviction connotes an element of fraud in obtaining the contract. Upon reading the applicable ASPR sections, 1.905.1-.3, we are convinced that absolutely no duty whatsoever devolves upon the bidder voluntarily to proffer such information. Rather, it is unequivocally up to the contracting officer to unearth the facts needed to assess the contractor's responsibility. Moreover, we note that in ASPR 1-905.3 the drafters obligingly recommend several sources for obtaining information concerning prospective contractors. Although the government does not elaborate on the extent of the contracting officer's investigation of Trilon, it does not refute the allegation made by Joanell that a simple telephone call to the local Defense Contract Administration Office would have resulted in the discovery of Mr. Coe's conviction. ASPR 1-905.3(iii) directs the contracting officer to make use of existing information within the Department of Defense. ASPR also suggests that information should be acquired from the prospective contractor as well. It is surprising, then, that Trilon was not asked to submit background information about its key employees. Trilon was entitled to assume that the contracting officer would comply with the directive of the ASPR and make an adequate investigation of Trilon's responsibility. His failure to do so certainly did not obligate Trilon to come forward, unprompted, and volunteer the information. The interpretation advocated by defendant would virtually put potential contract recipients in the position of being forced to make a self-determination of responsibility in order to avoid the risk of rescission if the government later decides the responsibility determination was erroneous. The ASPR does not place such a burden on prospective government contractors, and we therefore decline to hold that plaintiff is estopped from recovering contract damages by some vague notion that this contract resembles something in the nature of an "ill-gotten" gain.

We now turn to defendant's alternative argument that the conviction of Trilon's parent's president for fraud in connection with other government contracts irrefutably demonstrates a lack of requisite business integrity on the part of plaintiff, preventing Trilon from qualifying as a responsible bidder in the first instance. From this, defendant reasons that since the regulations...

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