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AERO CORP. v. DEPARTMENT OF THE NAVY

February 18, 1982

AERO CORPORATION, Plaintiff,
v.
DEPARTMENT OF THE NAVY, Defendant



The opinion of the court was delivered by: OBERDORFER

Introduction

 There is before the Court the ongoing dispute arising from claims by Aero Corporation, now supported by opinions *fn1" of the Acting Comptroller-General released June 5, 1981, and September 9, 1981, that the Department of the Navy has violated its duties under the Armed Services Procurement Act ("ASPA"), 10 U.S.C. §§ 2301-2737, and Section 3 of the Armed Services Procurement Regulations ("DAR"), see 32 C.F.R. parts 1-39 (vol. 1). The specific provision of ASPA that plaintiff claims defendant has violated is 10 U.S.C. § 2304(g), which creates a requirement that procurements, even if they cannot be competed through formal advertising, *fn2" must, if possible, be awarded on the basis of competitive negotiation with all qualified potential contractors. That section provides in relevant part:

 
In all negotiated procurements in excess of $ 10,000 ... in which time of delivery will permit, proposals, including price, shall be solicited from the maximum number of qualified sources consistent with the nature and requirements of the supplies or services to be procured....

 10 U.S.C. § 2304(g). Even when a noncompetitive, or "sole source," negotiated procurement is permissible under section 2304(g), the regulations require the contracting officer to take steps to avoid unnecessary subsequent sole-source procurements, and to position himself to compete, if possible, any subsequent contracts related to the sole-source contract. As Armed Services Procurement Regulation P 3-101(d) provides in pertinent part:

 
Negotiated procurements shall be on a competitive basis to the maximum practical extent. When a proposed procurement appears to be necessarily noncompetitive, the contracting officer is responsible not only for assuring that competitive procurement is not feasible, but also for acting whenever possible to avoid the need for subsequent noncompetitive procurements. This action should include both examination of the reasons for the procurement being noncompetitive and steps to foster competitive conditions for subsequent procurements, particularly as to the availability of complete and accurate data ... and possible breakout of components for competitive procurement....

 32 C.F.R. parts 1-39, vol. 1, at 327 (1979) (hereinafter cited without reference to the Code of Federal Regulations as "DAR P 3-101(d)"). Without conceding that defendant's actions were to any extent lawful under section 2304(g), plaintiff also contends that defendant's conduct violated the separate express obligations of DAR P 3-101(d).

 The dispute and the litigation derive from decisions by the Chief of Naval Materiel ("CNM") to award to Lockheed-Georgia Corporation ("LGC") a series of contracts for the overhaul of 49 propeller-driven C-130 airplanes manufactured for the Navy by LGC in the 1950's and thereafter. Defendant began to award the overhaul contracts to LGC in November 1979, and LGC has now been designated as the overhaul contractor for all 49 aircraft. The overhaul program is designated as a "Service Life Extension Program" ("SLEP"), and has as its purpose to increase the number of allowable safe flight-hours for aircraft that otherwise would need to be retired from use. The determinations made by the Navy concerning the C-130 SLEP undertaking were to procure the necessary overhaul work on all 49 aircraft through a negotiated procurement, rather than by formal advertising, and further to negotiate contracts for all 49 aircraft on a "sole-source" basis from LGC. The contracting officer has asserted that, under the circumstances of this case, section 2304(g) did not require a competitive negotiation.

 The decision to award SLEP contracts on a sole-source basis was based upon a determination by the commander of the Naval Air Systems Command ("NAVAIR") that no contractor other than LGC could perform the overhaul on the C-130 aircraft designated for SLEP until LGC had furnished to that contractor the "kits" needed to accomplish the roughly 40 major individual overhaul tasks NAVAIR intended for each airplane. *fn3" LGC had indicated to NAVAIR that it would require a very long time to furnish such kits to another aerospace firm. NAVAIR decided, in essence, that the Navy's C-130 aircraft were in such bad condition that if overhaul were delayed for the time LGC represented to NAVAIR would elapse before the required kits could be furnished, many of the aircraft would become unsafe and would be grounded. That result, NAVAIR concluded, would jeopardize the critical fleet missions for which the Navy and the Marine Corps operate the aircraft.

 Plaintiff has contended that the CNM, NAVAIR and LGC (on whom the CNM and NAVAIR heavily depend in calculation of the timetable for possible kit manufacture) failed to consider in sufficient depth the fact that plaintiff and at least one other aerospace firm, Hayes International Corporation ("Hayes"), have for many years performed elaborate maintenance service on Navy, Air Force, and Marine Corps C-130 aircraft as so-called "Standard Depot Level Maintenance" ("SDLM") and "Programmed Depot Maintenance" ("PDM") contractors. That experience, plaintiff claims, was ignored by the Navy to such a degree as to make defendant's decisions to procure SLEP for the C-130 aircraft on a sole-source basis irrational and a violation of section 2304(g) of ASPA and DAR P 3-101(d).

 In its two opinions prepared for the parties and the Court, the General Accounting Office ("GAO") concluded that competitive SLEP procurement was possible for some of the Navy's C-130 fleet currently scheduled for induction in the program, and found the Navy's rejection of competitive options "premature" in light of those possibilities. GAO determined, however, that the Navy properly could insist that any SLEP contractor other than LGC use kits in performing SLEP overhaul on the C-130. GAO also found that the opportunities for competition might be increased if competitive negotiation were limited to experienced C-130 maintenance contractors like Aero, Hayes, and LGC, because the kits needed for SLEP accomplishment by firms with the experience of Hayes and Aero would be less complex and could be furnished before the kits needed to assist industry-wide competition. GAO's determinations were based upon documentary submissions and briefs filed by plaintiff, defendant, and LGC.

 After careful consideration of the elaborate GAO opinions, the voluminous documentary evidence considered by GAO, the memoranda filed by counsel, and the testimony adduced at several hearings (including testimony by the present commander of NAVAIR and the expert testimony of LGC employees), the Court is persuaded that plaintiff probably will prevail on the merits of many of its most important contentions. *fn4" The Court will probably conclude that the Navy decisions to employ sole-source procurement for all 49 aircraft was unlawful. The Court will probably conclude that the Navy, beginning in 1979, so "transgressed the statutory boundaries" *fn5" as to render the contracts and options since awarded to LGC for SLEP of many of the aircraft invalid. Additionally, the Court is likely to find that defendant has repeatedly breached its duties under DAR P 3-101(d), as well as its obligations under this Court's Order of March 4, 1980, to take steps to reconsider and minimize noncompetitive negotiated procurements.

 FINDINGS OF FACT

 Background

 1. When this action was filed in 1979, NAVAIR had proposed to contract on a sole-source basis for overhaul of a total of 49 C-130 aircraft. *fn6" On cross-motions for summary judgment and plaintiff's motion for a preliminary injunction, the Court ruled on March 4, 1980 that the Navy's decision to award contracts for overhaul of 13 C-130 aircraft to LGC in the SLEP program and to give LGC an option for SLEP contracts for an additional seven aircraft was not unlawful, even though the contracts were negotiated without competition. Aero Corp. v. Department of the Navy, 493 F. Supp. 558, 556-67 (1980). With respect to the other 29 aircraft that the Navy planned to overhaul in the SLEP program, however, the Court emphasized that

 
(t)he mandate of section 2304(g) of the (Armed Services Procurement) Act .... is clear(:) ... competition is required to the maximum extent feasible by solicitation of proposals "from the maximum number of qualified sources consistent with the nature and requirements of the supplies and services to be produced."

 493 F. Supp. at 568. Thus the Court found that while the decision not to compete the first 20 SLEP contracts was not unreasonable, the same could not be said for NAVAIR's plan to contract for the remaining 29 without competition.

 2. The Court further found in its March 1980 decision that the timing of the process used by the Navy in deciding to award the SLEP contracts to the original C-130 manufacturer had finessed plaintiff's efforts to make a timely protest to the General Accounting Office, and had denied plaintiff an opportunity for timely judicial review of the sole-source decision as to the first 20 aircraft. *fn7" Reviewing the Navy's deliberate and unexplained failure to conduct design and procurement of SLEP for the C-130 in a manner permitting the effective review contemplated by statute and the law of this Circuit, the Court concluded:

 
The Navy-Lockheed actions (in the last months before the CNM decision to procure on a sole-source basis) served no material planning or operational purpose of the Navy, and had as (their) principal apparent effect frustration of Aero's opportunity to obtain considered review of the decision by GAO and this Court. The Navy (in the months after filing of the action) freely and strongly invoked national defense concerns in pressing the GAO and the Court to act in great haste, to review in days or weeks a decision which the Navy required over two years to make, creating the impression that the Court had a dramatic choice between doing its duty under the law and the Constitution or jeopardizing the Navy's ability to defend the Nation. In these circumstances, the Navy's failure to facilitate GAO consideration of Aero's earlier protests was a breach of its duty, and seriously interfered with the ability of the GAO and of this Court to perform their duties.
 
Neither of these failures by the Navy justifies interference with its plans for the first 20 planes. However, they do require the fashioning of a remedy that will guarantee that the Navy further considers all possibilities of competing some or all of SLEP for the remaining planes.

 493 F. Supp. at 568-69. To this end, the March 1980 Order required the Navy

 
(to) continue in good faith to consider the feasibility of competitive procurement for the remaining planes to undergo SLEP, including the use of kits tailored to depot level contractors experienced with the C-130....

 493 F. Supp. at 570. In addition, the March 1980 Order required the Navy to monitor LGC's work on the first overhaul contracts closely to determine whether kits were necessary, *fn8" and declared that, as the procurement law required, all prospective contracts or options would be terminable upon determination by defendant that competitive procurement was practical and mandated by law. The Court explicitly based the requirement that the Navy monitor LGC's SLEP experience, and explore use of kits tailored to SDLM and PDM *fn9" contractors, on DAR P 3-101(d): the Court reminded defendant that "(if) the nature of the services in SLEP is such that providing limited kits is the only means of obtaining any competition at all, the Navy must do so, if it can be done practically." 493 F. Supp. at 568.

 3. Pursuant to the Navy's master schedule, *fn10" the first aircraft was inducted for SLEP accomplishment at LGC's facilities on May 15, 1980, and other inductions soon followed. A team of Navy aerospace personnel ("the Review Team") undertook on-site study of LGC's progress on the first aircraft, and began to prepare a written report for use by the Navy decision-makers who would have to determine whether, and when, competition would be feasible, and for presentation to the Court in connection with the litigation.

 4. In August 1980 plaintiff moved to supplement the March 1980 Order by requiring defendant inter alia to begin the procurement process for the last 29 aircraft scheduled for SLEP in time to permit competition. According to plaintiff, the Navy's conduct in delaying solicitation and evaluation of proposals for the group of aircraft under section 2304(g) would have had the effect of making it impossible to compete contracts for the last group of aircraft in much the same way that the pressure of time made competition as to the earlier aircraft infeasible. Plaintiff also alleged that the Navy's procurement of parts for installation in SLEP in certain configurations and combinations would make SLEP by any firm other than LGC unnecessarily difficult. In August 1980, however, the NAVAIR Review Team was still at work on its evaluation of LGC's performance and the potential for kit-based competition. Moreover, GAO, prompted by an Aero protest filed in October 1979, had under active consideration the reasonableness of the Navy's decision not to compete a group of the SLEP contracts. Accordingly, in light of GAO's expertise and responsibility for reviewing contract procurement decisions, and reluctant to examine defense-related decisions of the Navy, the Court retained Aero's prayer for an injunction requiring competition under advisement. *fn11"

 5. Thereafter, on December 16, 1980, the Navy reported to the Court that it had decided to award five of the remaining 29 SLEP contracts to Lockheed. The Navy decision was based on a determination that any contractor other than LGC could not be allowed to attempt SLEP performance unless it was required to use so-called "mil-spec" kits. Mil-spec kits would contain, in addition to the parts needed for installation on the aircraft in the overhaul process, all the tools that any firm having the minimum technical qualification for maintenance work on Navy aircraft would possess. The language in the technical directives that would accompany such a mil-spec kit would employ the universal "military specification" terminology comprehensible to any such qualified firm, even if that firm had never worked on the C-130 aircraft before. *fn12" LGC had previously informed NAVAIR that 36 months could elapse after a decision to compete SLEP contracts before those mil-spec kits would be available to a contract competitor. That time lapse, the Navy had found, would involve a militarily unacceptable delay in the SLEP program and thus make competition impracticable.

 6. Plaintiff reacted with a motion seeking the sanction of contempt for alleged Navy noncompliance with the Court's March 1980 Order. In doing so, it renewed its earlier prayer for an order requiring the Navy to conduct a competitive negotiated procurement involving, at the least, the three firms that were experienced C-130 maintenance contractors as to the remaining 29 aircraft, as well as any of the 20 aircraft not yet inducted into SLEP. Again, in deference to the Navy and to GAO, the Court retained Aero's motion under advisement and requested GAO to respond to a series of questions framed in a February 26, 1981 stipulation entered into between plaintiff and the Navy. *fn13" The Court thus requested GAO's opinion whether there was a rational basis for the following decisions by defendant:

 
(1) The Navy's decision to award installation of SLEP on a sole-source basis;
 
(2) The Navy's determination that certain kits would be required for experienced C-130 maintenance contractors; and
 
(3) The Navy's determination that it would require approximately 36 months to prepare the required kits from the time of a decision to procure SLEP on a competitive basis.

 See Stipulation & Order of February 26, 1981. In addition, the Court identified for possible consideration by GAO the question whether

 
(t)he Navy, in order to maximize competition for future SLEP procurement, has a duty ... to procure immediately the parts, data and tooling that the Navy deems necessary for a competitive procurement and to take the administrative steps that the Navy deems necessary for a competitive procurement.

 Id. at 2. In response to this and other Court orders, the Navy and Aero made elaborate submissions to GAO concerning the Navy's December 16, 1980 decision. *fn14" When, on May 11, 1981, the Navy determined to award all of the remaining SLEP contracts to LGC, plaintiff, defendant and LGC made further submissions to GAO.

 The GAO Opinions

 7. On June 5, 1981, the Acting Comptroller-General submitted his opinion on the issues framed by the February 26, 1981 Stipulation and Order. In brief, the Acting Comptroller-General drew the following conclusions:

 
a. There is a rational basis for the Navy's determination that "certain" kits are required for performance of C-130 SLEP overhaul by experienced C-130 maintenance contractors other than LGC.
 
b. Preparation of the kits necessary for competitive negotiated procurement could be accomplished in "considerably less time than the Navy has allocated," and could be completed within 12-18 months' time rather than three years.
 
c. Because it was not possible, given those two facts and in light of all the other pertinent considerations, to conclude that competitive negotiation was impossible, the Navy erred in prematurely determining that competition under 10 U.S.C. 2304(g) was infeasible and in electing to make a final and complete sole-source procurement from LGC.
 
d. The Navy had and has a duty to procure the parts, data and tooling the Navy deems necessary for competitive procurement under DAR P 3-101(d).

 8. In response, on June 15, 1981, Aero again moved for a preliminary injunction. While contesting the Acting Comptroller-General's approval of the Navy's finding that certain kits were required, Aero prayed again for an order enjoining the Navy from taking any action or failing to take any action that would delay competition for SLEP contracts among experienced C-130 SDLM contractors. When, however, the Navy sought GAO reconsideration of the Acting Comptroller General's opinion of June 5, 1981, the Court requested GAO to entertain the Navy's reconsideration petition, and retained the latest Aero motion under advisement with all the rest.

 9. On August 13, 1981, after argument on the pending motion for preliminary injunction, and pending a GAO response to the Navy's request for reconsideration, the Navy consented to an Order pursuant to which it would take the first administrative step toward competitive procurement: it undertook to contract by September 1, 1981 with LGC for a so-called "Engineering Change Proposal" ("ECP"). The ECP, according to defendant, represented a first step in the competitive process. If the Navy elected to compete the SLEP contract, the ECP would be used to prepare the technical directives or working-papers, also called the air frame change ("AFC"), needed for SLEP by a firm other than LGC. *fn15" The ECP ordered by defendant pursuant to the Order of August 13, 1981, however, contemplated competition among all qualified aerospace firms rather than a competition limited at the outset to experienced C-130 SDLM contractors. Such an ECP would thus not fully reflect existing tooling and expertise possessed by firms like Aero and Hayes, who were not strangers to C-130 overhaul. *fn16" The decision to order such a mil-spec-based ECP made it more difficult for defendant to explore fully the possibility of timely competition within the existing C-130 engineering community of LGC, Hayes and Aero. *fn17"

 
that (the Navy and LGC) have no intention of tailoring kits to reflect differences in difficulty and risk.... Rather they now indicate they plan to describe every task in equal detail, without regard for the skill of experienced C-130 maintenance contractors, notwithstanding the impact this would have by increasing the time required to prepare the technical materials included in the kits.

 C.R. 84 at 4-5. According to the Acting Comptroller-General, however,

 
(the) use of tailored kits reflecting only the minimum necessary technical detail is the lynchpin of our conclusion ... that it would be proper for the Navy to insist that contractors other than Lockheed use kits.

 C.R. 84 at 5. GAO indicated that when it endorsed the Navy decision to require "certain kits" it

 
did not envision the Navy as writing detailed technical documentation without regard for its needs. Insofar as the record shows, preparation of kit documentation for use by experienced C-130 maintenance contractors should involve little more than documenting tasks which Lockheed has performed on the initial quantity of C-130 series aircraft to undergo SLEP.

 C.R. 84 at 5. Finding the Navy estimates of the time and difficulty involved in the preparation of kits intelligently tailored to the needs of experienced C-130 maintenance contractors therefore to be greatly ...


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