The opinion of the court was delivered by: RICHEY
This case is before the Court for final adjudication of Counts I and II of plaintiff's Amended Complaint. This Court's jurisdiction over the matters here in controversy is provided by 28 U.S.C. § 1331(a) (federal question).
In Counts I and II, plaintiff AM General Corporation (AM General) challenges the decision of the defendant Urban Mass Transportation Administration (UMTA) to make funds available to a consortium of certain local transit agencies (the "Consortium") under a federal grant program, to facilitate the purchase of approximately 400 mass transit buses by the Consortium. Specifically, plaintiff alleges that by concurring in the specifications for buses presented by the Consortium, and by authorizing thereafter the expenditure of grant funds allegedly pursuant to the Urban Mass Transportation Act of 1964, 49 U.S.C. §§ 1601 et seq. (1970), as amended (Supp. V 1975), UMTA violated the Act's prohibition against the use of grant funds "to support procurements utilizing exclusionary or discriminatory specifications." 49 U.S.C. § 1602(a)(1). Plaintiff seeks a declaration that the specifications in question are exclusionary and discriminatory within the meaning of 49 U.S.C. § 1602(a)(1) and an injunction prohibiting defendants from "making financial assistance available or committing federal grant funds to the Consortium in support of any third-party contracts [for the purchase of mass transit buses] based upon the specifications approved by UMTA therefor." Amended Complaint at 16.
The General Motors Corporation (GM) has intervened in this case as a defendant. GM was the sole manufacturer to respond to the Consortium's invitation for bids for a contract to supply the Consortium with mass transit buses per its specifications. Federal funding of the procurement in question has been stayed pendente lite by this Court's Order of September 2, 1976.
The case came before the Court for a hearing on dispositive motions on February 3 and 4, 1977. At that time, the Court expressed doubt as to whether the case was in a posture appropriate for summary judgment. With the Court's approval, the parties proceeded to present live testimony from two UMTA officials. At the end of the hearing, the parties agreed to submit the case to the Court for final, not summary, adjudication based on the arguments of counsel, the testimony taken, various exhibits and documents received by the Court, and post-hearing briefs and documents which were to be submitted by counsel. The post-hearing briefs and documents have now been filed, and the case is in a posture for final adjudication. For the reasons indicated in the following findings of fact and conclusions of law, the Court will enter judgment for the defendants on Counts I and II of the Amended Complaint.
A. Background -- Parties and the Pertinent Statutory Programs.
The following facts have been stipulated to and admitted by the parties:
1. On August 31, 1976, plaintiff AM General instituted this action for declaratory and injunctive relief against the United States Department of Transportation, the Secretary of Transportation, the United States Urban Mass Transportation Administration and the Urban Mass Transportation Administrator.
2. Plaintiff, AM General, is a corporation organized and existing under the laws of Delaware, having its principal place of business in Wayne, Michigan. Plaintiff is engaged, inter alia, in the design, development, and manufacture of mass transit buses, including the AM General "Metropolitan" or "B Model" bus, for use by state and local public agencies in connection with urban mass transportation systems.
3. The Secretary of the United States Department of Transportation is authorized, pursuant to the Urban Mass Transportation Act of 1964, 49 U.S.C. §§ 1601 et seq. (1970), as amended (Supp. V 1975) (the "UMT Act") and other statutes, to carry out a program of Federal financial assistance to urban mass transportation.
4. At the time AM General filed its action, William T. Coleman, Jr., was the Secretary of Transportation and was authorized to conduct all of the affairs of that Department. Brock Adams is the current Secretary of Transportation and is authorized to conduct all of the affairs of that Department.
5. At the time AM General filed its action, Robert E. Patricelli was the Urban Mass Transportation Administrator and was authorized to conduct all of the affairs of UMTA. Robert H. McManus is the current Acting Urban Mass Transportation Administrator and is authorized to conduct all of the affairs of UMTA. All of the powers and functions of the Secretary of Transportation under the UMT Act and other statutes authorizing Federal financial assistance to mass transportation have been delegated to the Urban Mass Transportation Administrator. See 49 C.F.R. § 1.51.
6. General Motors Corporation and Flxible Company ("Flxible") have filed motions to intervene in this action as party defendants. Those motions were granted November 9, 1976 and February 3, 1977, respectively. Flxible has intervened only for purposes of Counts III and IV of the Amended Complaint, which are not currently at issue.
7. The purposes of the federal program of financial assistance to mass transportation are:
to assist in the development of improved mass transportation facilities, equipment, techniques, and methods, with the cooperation of mass transportation companies both public and private; to encourage the planning and establishment of area wide urban mass transportation systems needed for economical and desirable urban development, with the cooperation of mass transportation companies both public and private; and to provide assistance to state and local governments and their instrumentalities in financing such systems, to be operated by public or private mass transportation companies as determined by local needs.
49 U.S.C. § 1601(b) (emphasis added).
9. To accomplish the purposes of the UMT Act, section 3(a), 49 U.S.C. § 1602(a), authorizes the Secretary of Transportation to make grants to state and local public bodies to assist in the financing of mass transportation-related capital facilities and equipment including standard-size transit buses.
10. Similarly, section 5 of the UMT Act, 49 U.S.C. § 1604, establishes a formula grant program which authorizes the Secretary of Transportation to make grants to designated recipients in urbanized areas to assist in the acquisition of mass transportation-related capital facilities and equipment, including standard-size transit buses, and for operating expenses.
11. The federal share of a capital facilities or equipment grant is 80 per cent of net project cost under section 3 and a maximum of 80 per cent of net project cost under section 5; the remainder must be provided from local sources. 49 U.S.C. §§ 1602, 1603, 1604.
12. UMTA's External Operating Manual, as well as other regulations and policy directives promulgated by UMTA, set forth the manner in which grants under sections 3 and 5 of the UMT Act are to be carried out.
13. As reflected in the External Operating Manual, mass transportation grants are effected by means of two interrelated but distinct levels of contracting. The first involves a grant contract between the United States (i.e. UMTA) and the grantee (i.e. the state or local public body, or "project sponsor") setting forth the terms of the grant and the conditions imposed upon the use of grant funds. The second level involves one or more "third party contracts" executed between the project sponsor and the individual suppliers of mass transportation facilities and equipment that the grant funds will be used to acquire. External Operating Manual, Chapter II, sections B(6)(a) and (b).
14. The statutory provision that is central to this action is contained in the last sentence of section 3(a)(1) of the UMT Act, 49 U.S.C. § 1602(a)(1), which reads as follows:
No grant or loan funds shall be used for payment of ordinary governmental or nonprofit operating expenses, nor shall any grant or loan funds be used to support procurements utilizing exclusionary or discriminatory specifications.
15. UMTA has approved capital facilities and equipment grants to assist each member of a consortium of local transit agencies (the "Consortium") to acquire standard size transit buses under section 3 or 5 of the UMT Act. The Consortium is headed by the City of Houston and comprised of the following transit agencies: Houston Transit System, San Antonio Transit System, and Dallas Transit System (Texas); Alameda Contra-Costa Transit District and Long Beach Public Transportation Company (California); and Brockton Transportation Authority (Massachusetts).
16. AM General contends that specifications formulated by the Consortium, and modified and concurred in by UMTA, in connection with the Consortium's advertisement for bids for third-party contracts to supply 365 to 418 advanced design transit buses are "exclusionary" and "discriminatory" in violation of the last sentence of section 3(a)(1) of the UMT Act.
B. Developments In The Industry; Progress Of And Problems With The Transbus.
17. It is stipulated to and agreed that, in 1971, AM General decided to enter the transit bus market and to compete for UMTA-funded transit bus manufacturing contracts with GM and Flxible. AM General received its first contract in 1973 and delivered its first standard size bus in 1974. By 1975, AM General had acquired an approximately one-third share of the standard size transit bus market, and in 1976 it captured 47 per cent of all buses offered for bid.
19. It is undisputed that GM had produced a prototype new transit bus designated the RTX during the late 1960's. After displaying the RTX to transit operators throughout the country, GM restyled its prototype vehicle in 1970. The result was a new design which, while similar to the RTX, had several different and/or additional features. The new prototype was designated RTS-2.
20. It is stipulated to and agreed that, in implementing its mandate to assist in the development of improved mass transportation facilities and equipment, UMTA initiated in 1971 a major, $27 million project known as Transbus. UMTA's Transbus objective was to bring an improved transit bus to the public which would attract mass transit ridership (including the elderly and handicapped) and at the same time encourage competition in the transit bus supply industry.
21. It is stipulated to and agreed that in July of 1971, UMTA contracted with Booz-Allen Applied Research for the development of a prototype modern urban transit bus, Transbus. Booz-Allen in turn contracted with AM General, GM, and Rohr (Flxible), and each of these manufacturers agreed to deliver three prototypes for testing. The Transbus prototypes were completed, and a testing program was begun, in 1973-74.
22. Beginning in 1973, opposition to a number of Transbus features was voiced by a significant number of transit operators. The operators objected to Transbus' reduced seating capacity, its new and untested running gear, and especially its low floor, which necessitated a new and untested tire and wheel size and a double-axle rear suspension and which, it was believed, could cause curb and incline clearance problems. At least in GM's view, and very probably in UMTA's view as well, implementation of the Transbus program would be delayed longer than originally contemplated when the program was begun. See Killinger deposition at 44-48; plaintiff's exhibit 10 at 2-3; Herringer testimony, transcript of Feb. 3 and 4 hearing (hereinafter, "Tr.") at 133-34.
23. In early 1973, in light of GM's belief that the Transbus program faced serious difficulties, see finding of fact 22, GM decided to introduce its RTS-2 advanced-design bus to the market. In a May 25, 1973 public announcement, GM indicated that the RTS-2 would be scheduled for initial production in about two years. The announcement stated that more than $32 million would be expended for equipment and tooling to produce the new model bus and discussed many of the new design and styling features which originated from GM's RTX and from Transbus and would be incorporated in the bus. The RTS-2 was not designed, however, to have as low a floor as the Transbus prototypes. See plaintiff's exhibit 1 at 14; plaintiff's exhibit 10 at 2; GM's exhibit 10.
C. UMTA's "Low-Bid" Policy.
24. Prior to the recent development of advanced mass transit buses, the mass transit buses offered by the three manufacturers were of roughly the same design and specifications. For that reason, UMTA and purchasing transit operators followed the practice of awarding contracts for such buses on the basis of low bid only, as price was the sole significant, distinguishing factor. However, it was UMTA's policy, and it was apparently understood in the industry, that, consistent with federal procurement standards and policy, awards could be made on the basis of other factors and that even sole source procurements of transit buses were possible in appropriate circumstances. As former UMTA Administrator Patricelli testified:
Q: [By Mr. Johnson, plaintiff's counsel] Did UMTA follow the low-bid philosophy?
But the practice that prevailed throughout the country in 1973, let's say, to 1975, 1976 or so, was that it was head-to-head price competition only among the three manufacturers, given this pretty much standard bus. [Tr. at 183]
Q: And there was no statement prior to January, 1976, that the longstanding, low-bid policy and practice -- the low-bid practice, as you call it -- of UMTA would be changed until the release of the draft statement in January of 1976, is that not correct?
A: Well, I think all of the parties were aware of the framework in which we were operating and the federal procurement guidelines, which indicate that price and other factors can be taken into account.
So there should be no surprise to anyone that other things can be valued. [Tr. at 184-85]
Q: Now, in January of 1975, was there any published policy of UMTA that covered the subject of the procurement plans for interim buses covered by the ...