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STEUART PETROLEUM CO. v. UNITED STATES

October 12, 1977

STEUART PETROLEUM COMPANY, et al., Plaintiffs,
v.
UNITED STATES OF AMERICA, Defendant



The opinion of the court was delivered by: SIRICA

 I. Background Facts

 This case involves a protest by unsuccessful bidders for a series of government contracts. Suit was brought by plaintiffs Steuart Petroleum Company (Steuart) and L. A. Swann Oil Company (Swann) to set aside as unlawful the award of certain supply contracts, to prevent the contracting authority from making purchases under the contracts and to compel the government to award the contracts to plaintiffs. Steuart and Swann base their claim on the assertion that the contracting agency breached applicable procurement regulations in awarding the contracts at issue.

 The dispute arises out of a procurement process initiated by the Department of Defense (DOD) for the acquisition of petroleum supplies needed to meet fuel requirements for military and related civilian installations in the mid-Atlantic region. The procurement involved an ordering period beginning August 1, 1977 and ending a year later. On March 7, 1977, the Defense Fuel Supply Center (DFSC), a procurement unit in the DOD hierarchy, issued an advertisement inviting interested dealers to submit bids for the supply contracts. The invitation permitted the competing bidders to submit offers for the supply of any number of the numerous supply items detailed in the solicitation. Steuart entered a bid to supply no fewer than 16 items and, as required by the advertisement, represented itself to be qualified to receive the contracts. Swann made a comparable representation with regard to at least two items for which it sought awards. Roarda, Inc. (Roarda) did the same with regard to approximately 150 supply items in a bid that put it in direct competition with Steuart and Swann.

 The solicitation contemplated the award of contracts on a fixed price basis. But the advertisement let bidders specify a price figure accompanied by an escalator provision to take account of the volatile nature of petroleum prices. Beyond this, bidders were allowed to select their own escalator reference from among a number of market indicators so long as the selection complied with limitations imposed by the contracting authority. Steuart and Swann chose to use an escalator provision keyed to a market indicator known as the New York Harbor contract price. Roarda, on the other hand, employed an escalator based on New York Harbor Spot Cargo prices.

 The bids were opened on April 12, 1977. After a preliminary evaluation of all bids, the DFCS determined that Roarda had submitted the most favorable bid for the supply of a large number of installations, including the installations in the Washington, D.C. and coastal Virginia regions for whose supply Steuart and Swann had put in bids. On these Steuart and Swann were apparent second low bidders.

 Approximately a week later, Steuart advised the DFSC that the company intended to lodge a protest against the award of any supply contract to Roarda. Swann similarly informed the agency a short time thereafter. Plaintiffs then proceeded to level formal protests based principally on the claims (A) that Roarda did not qualify as a "regular dealer" in petroleum as required by the Walsh-Healey Public Contracts Act, 41 U.S.C. §§ 35-45 (1970), and applicable regulations, 41 C.F.R. § 50-201.101 and (B) that Roarda was not the lowest "responsible bidder" within the meaning of 10 U.S.C. § 2305(c) and relevant Armed Service Procurement Regulations because the price quotation submitted by Roarda incorporated an upwardly volatile price escalator that would mean sharply higher costs to the government than if Steuart and Swann were awarded the contracts.

 The agency then initiated an investigation of the grounds behind the protests. This entailed collecting and assembling large amounts of documentary information relevant to determining the kind of business carried on by Roarda, with special attention being given to its facilities, equipment, management and work force, customers, suppliers and record of past performance. Also involved was an economic evaluation of the price escalator provisions used by the competing bidders.

 On July 26, 1977, the contracting authority preliminarily found on the basis of the background investigation it made that Roarda qualified as a "regular dealer" in petroleum. Two days later, the administrative file was forwarded to the Secretary of Labor pursuant to 32 C.F.R. § 12-604 for a final determination of the "regular dealer" issue. This decision, yet to be handed down by the Department of Labor, will bind the agency with regard to the Walsh-Healey protest. The head of the procurement agency also concluded based on an examination of the pricing methods used by the competing bidders that the evidence did not warrant disturbing the preliminary determination that Roarda was a "responsible bidder" for the contracts in dispute. This decision, like the Walsh-Healey determination, is also administratively pending.

 The pendency of these administrative appeals did not, however, prevent the procurement agency from proceeding to make a final award of the disputed contracts. Based on a finding that petroleum products were urgently needed, the contracting agency acted under 32 C.F.R. §§ 12-407.8(b)(3)(i-iii) and 12-604(a)(5)(i-iii) to go forward and award the supply contracts to Roarda notwithstanding the pending appeals. This decision, however, remains subject to reversal depending on the outcome of the administrative appeals. If the Department of Labor determines that the DFSC erred in finding Roarda qualified as a "regular dealer" in petroleum, the agency is bound to terminate the award and take necessary measures to obtain an alternate supply of fuel. The agency must also take cognizance of a decision by the Government Accounting Office on the question of whether Roarda qualified as a "responsible bidder."

 The decision to award the contracts to Roarda was announced on August 10, 1977. This lawsuit followed immediately. The case is presently before the Court on plaintiffs' application for a preliminary injunction. For the reasons that follow, the Court is of the opinion that the application should be granted, but with conditions designed to make sure that alternate procurements can be arranged.

 II. The Standard for Review

 Settled precedent affords disappointed bidders access to the courts to redress unlawful decisions made by procurement officers. Scanwell Laboratories v. Shaffer, 137 U.S.App.D.C. 371, 424 F.2d 859 (1970) provides explicit authority for the view that the doctrines of standing, sovereign immunity and exhaustion of administrative remedies pose no barriers to judicial intervention in the contracting process. Id. at 384-88, 424 F.2d at 872-76. Scanwell Laboratories also establishes that the broad discretion exercised by contracting officials in fulfilling their procurement responsibilities does not prevent judicial review in instances where suit is brought to correct a clear violation of law. Id. at 386-87, 424 F.2d at 874-75. By the same token Scanwell Laboratories does not furnish litigants with a license to challenge any adverse procurement decision. Where the challenge is leveled against administrative action peculiarly within the competence of procurement authorities, judicial review is unavailable. Id. The same is true where a particular decision is committed to agency discretion. Id.

 Judicial relief is equally unavailable where suit is brought merely to fault the contracting agency for pursuing one course of action when reasonable minds might have chosen another. This is made plain in the leading case of M. Steinthal & Co. v. Seamans, 147 U.S.App.D.C. 221, 455 F.2d 1289 (1971). Steinthal places strict limitations on the kind of review to be given cases where a "losing bidder has rushed into court seeking to halt [a] particular procurement and to obtain an immediate judicial reconsideration of the agency's determination." Id. at 233, 455 ...


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