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PETER KIEWIT SONS' CO. v. U. S. ARMY CORPS OF ENGR

February 26, 1982

PETER KIEWIT SONS' CO., Plaintiff,
v.
U. S. ARMY CORPS OF ENGINEERS, U. S. Department of the Army, and U. S. Department of Defense, Defendants



The opinion of the court was delivered by: RICHEY

FINDINGS OF FACT AND CONCLUSIONS OF LAW

The Court, having considered the entire record, including the pleadings, testimony and exhibits presented at a hearing on February 2, 1982, the memoranda and arguments of counsel, and the stipulations filed by the parties, now makes the following Findings of Fact and Conclusions of Law, pursuant to Rule 52(a) of the Federal Rules of Civil Procedure. Any Finding of Fact which is also a Conclusion of Law is to be treated as both, as is any Conclusion of law which is also a Finding of Fact.

 FINDINGS OF FACT

 Nature of Cause of Action

 1. Kiewit complains that Defendants would, unless constrained by this Court, wrongfully reject Kiewit's low bid on a contract at Barbers Point Harbor, Hawaii, and award the contract to the next bidder at an additional cost to the taxpayers of more than $ 2,750,000, because of an illegal de facto debarment or suspension. (Verified Complaint P 1).

 2. Kiewit seeks a declaratory judgment that the threatened action by the Defendants in de facto debarring or suspending Kiewit by denying Kiewit contracts on which it is low bidder-including, particularly, the Barbers Point Harbor, Hawaii, contract in response to Solicitation DACW 84-81-B-0033-would (a) violate the Fifth Amendment of the United States Constitution by depriving Kiewit of liberty and property interests without due process, and (b) violate applicable regulations, be illegal and arbitrary and capricious within the meaning of the Administrative Procedure Act, 5 U.S.C. § 706. (Verified Complaint P 2).

 3. Kiewit seeks permanent injunctive relief consistent with this declaration and the Findings of Fact set forth herein. (Verified Complaint P 3).

 The Parties

 4. Peter Kiewit Sons' Co. (where specifically referred to, "Kiewit Co.") is a corporation organized under the laws of Nebraska and having its principal place of business in Omaha, Nebraska. Kiewit Co. is a major subsidiary of Peter Kiewit Sons', Inc. (where specifically referred to, "Kiewit Inc."; generally "Kiewit"), a Delaware Corporation. Kiewit is a respected, major contractor, engaged in all types of construction work. (Joint Stipulation of Facts P 1; Testimony of Walter Scott, Jr., and Plaintiff's Exhibits Nos. 24, 25, 27 and 28).

 5. Kiewit is a large corporate organization with many subsidiary divisions and corporations. It currently has in excess of 11,000 employees. For the last three years, Kiewit has averaged approximately 400-450 on-going construction projects and 25 joint-ventured projects, including many major projects. In each of the years 1980 and 1981, Kiewit's total revenues exceeded.$ 1.2 billion. (Testimony of Walter Scott, Jr., and Plaintiff's Exhibits Nos. 23, 26A and 26B).

 6. A substantial portion of Kiewit's work has been in contracts directly with the United States Government. From 1970 to 1981, for example, Kiewit was awarded federal construction projects with a total value of $ 1,301,693,883. Among the many projects it has constructed are the following national-defense-related facilities: Ft. Lewis, Offutt Air Force Base, Thule Air Force Base, Ballistic Missile Early Warning Systems (BMEWS) facilities, Defense Early Warning (DEWLine) stations, gaseous diffusion plants, and both Titan and Minuteman Missile facilities. Kiewit has a record of high quality, on-schedule performance. (Joint Stipulation of Facts P 2; Testimony of Walter Scott, Jr., and Plaintiff's Exhibits Nos. 25, 26A and 26B).

 7. The value of Kiewit as a competitor for Government contracts is significant. In the period from 1970 to 1981, Kiewit bid on 926 Federal construction projects and was low bidder on 108. The resulting savings to the Government (represented by the difference between the Kiewit low bids and the second low bids) was $ 108,766,710. For the Department of Defense alone, Kiewit bid on 545 projects and was low bidder on 68, with the resulting savings to the Department of Defense of $ 90,255,297. (Testimony of Walter Scott, Jr., and Plaintiff's Exhibits Nos. 26A and 26B).

 8. Defendants Corps of Engineers, Department of the Army, and Department of Defense (referred to collectively as Defendants, separately as the Corps, the Army, and DOD) are related government agencies charged with responsibility for, inter alia, conducting defense procurement in accordance with the Constitution and applicable laws. The Department of the Army-in particular, the Judge Advocate General for Civil Law (JAG)-has cognizance over formal debarment proceedings. The Corps of Engineers has procurement responsibility for many military construction projects, including the Barbers Point contract. (Joint Stipulation of Facts P 3).

 The Barbers Point Procurement, the Contracting Officer's Determination With Respect to Kiewit's Responsibility, and the Contracting Officer's and the Corps' Recommendation That Award Be Made to Kiewit

 9. Bids in response to Solicitation DACW 84-81-B-0033, for Barbers Point Harbor, were opened on August 27, 1981. (Joint Stipulation of Facts P 9). There were eight bidders from locations around the country and the world. They were:

 
Peter Kiewit Sons' Co.
 
Dillingham-Western (Joint Venture)
 
Riedel-E. E. Black (Joint Venture)
 
Granite Const. Co.-American Dredging Co. (Joint Venture)
 
Morrison-Knudsen Co., Inc. & Great Lakes Dredge & Dock Co. (Joint Venture)
 
Maeda Construction Co., Ltd.
 
M. A. Segal, Inc. & Manson Constr. & Engr (Joint Venture) dba Segal-Manson
 
Groves, Dunbar & Sullivan (Joint Venture)

 (Plaintiff's Exhibit No. 1).

 10. Kiewit Co."s bid of $ 48,977,000 was low. The second low bid was in the amount of.$ 51,732,215. Kiewit's low bid represented a potential saving of public funds in the amount of $ 2,750,000. (Joint Stipulation of Facts P 9).

 11. In a September 3, 1981 memorandum to the Commander of the U. S. Army Corps of Engineers, entitled "Award to Peter Kiewit Sons' Co., Barbers Point Deep Draft Harbor, Oahu, Hawaii," the Contracting Officer (Alfred J. Thiede, Colonel, Corps of Engineers) recommended that award be made to Kiewit as the lowest responsive and responsible bidder. (Plaintiff's Exhibit No. 1; DAR § 1-902; see Joint Stipulation of Facts P 16).

 12. The Contracting Officer made this specific finding:

 
I find that in this instance of the bidding process there was no violation of the Sherman Act or any other statute.

 (Plaintiff's Exhibit No. 1, P 18).

 13. The Contracting Officer, in his September 3, 1981 memorandum, provided the following "Supporting Logic":

 
16. The present situation is such an instance where it would be in the best interest of the Government to award a contract to Kiewit, notwithstanding the current abeyance or the potential debarment or suspension for the following reasons:
 
a. There is no evidence available here that shows or indicates that Kiewit conspired with the other bidders on the Barbers Point project to establish the low bid. It is quite obvious by the recorded bids that such did not happen, and this is further supported in that the bid was submitted by a sub-office of Kiewit in the State of Washington.
 
b. Under the circumstances which Kiewit (the parent company) found itself, and having paid the price for wrongdoing, such should end the matter-at least for all work other than that along the Missouri River of the $ 1 million category formerly done by Cunningham-Kiewit. The reputation of Kiewit is well known, and all of it is good, for previous large and complex jobs such as for the missile and anti-missile construction projects, and even for its part in the Tripler Army Medical Center (1500 bed capacity) in Honolulu some thirty-three years ago (dedicated 9 September 1948).
 
c. The Government would be hurting itself to not make an award to Kiewit, or insisting on an award to Kiewit if that became necessary. It is understood, however, that Kiewit desires the contract notwithstanding the substantial difference between it and the next low bidder.
 
d. The regulations do not require a debarment or suspension, and certainly not for punishment; and even if such did happen the regulations still allow an award if it is to the best interest of the Government. During the current abeyance period it is within the authority of the Corps of Engineers to allow the award of a contract.

 (Plaintiff's Exhibit No. 1).

 14. On October 30, 1981, Major General E. R. Heiberg, Director of Civil Works, Corps of Engineers, recommended to the Assistant Secretary of the Army (Civil Works) that award of the Barbers Point contract be made to Kiewit. (Plaintiff's Exhibit No. 2). As General Heiberg said in his October 30, 1981 transmittal memorandum,

 
Perhaps at the top of my list, the Government may lose a very good bid and half a year if we wait longer on the important Barbers Point project. I believe the proper course of action to take now is to move out and award these contracts we can justify as needed.

 15. General Heiberg transmitted to the Assistant Secretary a draft memorandum for the Secretary of the Army which recommended, inter alia, award of the Barbers Point contract to Kiewit. (Plaintiff's Exhibit No. 3). This memorandum specifically identified the Barbers Point contract and Peter Kiewit as low bidder in Tab B, entitled "PROPOSALS WHERE LOW BIDDER LISTED ON DEBARMENT RECOMMENDATION." Tab B stated, in connection with the Barbers Point contract, nection with the Barbers Point contract, "ACTION RECOMMENDED IN ACCORDANCE WITH CC (Chief Counsel) RECOMMENDATIONS TO JAG":

 
Award to low bidder. Outside geographic boundary.

 (Plaintiff's Exhibit No. 3, Tab B).

 16. The Assistant Secretary of the Army for Civil Works (William R. Gianelli) signed this memorandum on November 2, 1981, advising the Secretary of the Army that the Chief of Engineers intended to award the Barbers Point contract to Kiewit "as soon as you have been informed." (Plaintiff's Exhibit No. 3, P 4).

 17. Contemporaneously, Kiewit's counsel was advised by General Heiberg that the Corps was seeking approval to make the Barbers Point contract award to Kiewit. (Testimony of Richard L. Coyne).

 The De Facto Debarment or Suspension of Kiewit and Resulting Denial of the Barbers Point Award

 18. Notwithstanding Kiewit's low bid, the findings of the Contracting Officer, and the determinations of General Heiberg, award has not been made to Kiewit. The denial of the Barbers Point contract award has resulted from a sequence of events beginning with criticism of the Corps of Engineers from Congressional sources for its decision to continue doing business with Kiewit and 15 other contractors who had been convicted of anticompetitive practices in connection with river bank stabilization work on the Missouri River. (Plaintiff's Exhibit No. 4; see also Plaintiff's Exhibit No. 5). This was the subject of criticism of high Department of Defense officials at a Congressional hearing on July 28, 1981. (Plaintiff's Exhibit No. 4). For example, at that hearing the following exchange occurred:

 
Senator Levin : I want to go back to another case which is the debarment by another agency which should be presumptively binding on you other than for compelling reasons. In the case of the Engineering Corps, again I said there were 15 companies, nine individuals convicted of bid rigging against the Army Corps of Engineers. Since the date of indictment $ 250 million in contracts were awarded.
 
Listen to this. Since the date of conviction, $ 81 million in new contracts has been awarded. One contractor for $ 31 million was awarded four months after the conviction of the contractor. We have looked at nine of those post conviction contracts. In seven of the nine contracts there was at least a nonindicted bidder.
 
Another one. The reason that the Army Corps gave for not debarring, which is that these companies were needed to do the job, was not true in seven of nine contracts that we looked at.
 
Now we have had hearings on fraud that is perpetuated against government agencies, not just against DOD. Our hearings in the Subcommittee on Governmental Affairs that Senator Cohen (p. 78) chairs, goes much beyond, but we came up with examples both where DOD does not give presumptive validity to other agencies disbarring. Now this case comes to my attention which I frankly find to be unbelievable.
 
Mr. Carlucci : I find it to be unbelievable as well. I certainly would like to look into that.

 (Plaintiff's Exhibit No. 4 at 2-3).

 19. As a result of this criticism, shortly after the hearing the Chief Counsel of the Corps of Engineers, Lester Edelman, received an unusually large number of inquiries from the Department of Defense and Army officials concerning the Corps' continuing contracting with the river bank stabilization contractors. (Testimony of Lester Edelman). In response to these inquiries, Mr. Edelman briefed several officials-including the General Counsel of the Army, the Assistant Secretary of the Army for Civil Works, and the Special Assistant Secretary of Defense-on the Corps' position with respect to debarment of the river bank contractors. (Testimony of Lester Edelman).

 20. Also shortly after the hearing, on July 31, 1981, Senator Levin submitted questions to the Secretary of the Army concerning the Corps' dealings with the river bank contractors. These questions were passed down to the Corps, through Department of Defense channels, to be answered. (Testimony of Lester Edelman).

 21. From September 1978 (the date of the agreement on the nolo contendere plea) to August 19, 1981, Defendants had continued to award contracts to Kiewit. (Testimony of Richard L. Coyne; Plaintiff's Exhibit No. 6). On at least 12 different occasions in this period, Defendants in the exercise of procurement discretion determined Kiewit to be responsible. (Testimony of Richard L. Coyne; Plaintiff's Exhibits Nos. 6 and 35; DAR §§ 1-902, 1-904; Joint Stipulation of Facts P 15). No evidence suggesting the irresponsibility of Kiewit resulted from award and performance of these contracts.

 22. Then, on August 19, 1981, the Corps issued an internal directive to all of its divisions and districts holding in abeyance all contracts where Kiewit (and the 15 other river bank stabilization contractors) was low bidder, "pending review of debarment reports." (Plaintiff's Exhibit No. 7). The August 19, 1981 directive was not restricted in terms of time or the contracts to which it might apply. (Plaintiff's Exhibit No. 7). Pursuant to this directive, awards to Kiewit were suspended indefinitely. (Plaintiff's Exhibit No. 7). The directive, in the words of Defendants to the United States District Court for the Eastern District of Louisiana, was a "temporary declaration of ineligibility." (Plaintiff's Exhibit No. 8).

 24. Kiewit was not advised of the August 19, 1981 directive until after the bid opening at Barbers Point, when the Contracting Officer advised that there was a hold on awards to Kiewit. (Testimony of Richard L. Coyne). Upon inquiry to the Chief Counsel of the Corps of Engineers, Kiewit was advised of the substance of the August 19, 1981 directive. Kiewit was also advised that there had been Congressional criticism about the Corps's decision to take no debarment action against the river bank stabilization contractors. (Testimony of Richard L. Coyne and Lester Edelman).

 25. Not only has the Barbers Point contract award been jeopardized because of the August 19, 1981 directive, Kiewit was deprived of the award of the Corps contract for channel restoration of the Cuyahoga and Old River because of the delay attendant to "obtaining an exemption ... from the policy stated in the 19 August 1981 twx entitled "Contract Actions For Specific Contractors.' " (Plaintiff's Exhibit No. 9, P 2). Kiewit had been low bidder in response to the solicitation by $ 544,125. On November 17, 1981, Kiewit's low bid was rejected and award not made due to delay. No incapacity or irresponsibility in connection with the submission of the Cuyahoga bid was found or suggested by the Corps. (Plaintiff's Exhibit No. 9).

 26. The Corps of Engineers has awarded one contract to Kiewit in the period subsequent to the August 19, 1981 directive. On November 19, 1981, Big Horn Construction Company, a Kiewit subsidiary, was low bidder by $ 356,000 on a contract for maintenance dredging on the Alameda Naval Air Station, Alameda City, California. (Plaintiff's Exhibit No. 10). This award was justified by General Heiberg in a memorandum dated November 27, 1981, with the following statements:

 
In order to meet the 15 January 1982 critical operational requirements of the Navy in connection with deep draft aircraft carrier operations, it is necessary that a decision on how to proceed with maintenance dredging for Alameda Naval Air Station be made by 30 November 1981.

 (Plaintiff's Exhibit No. 10, P 2d). The only factor suggesting to General Heiberg that an award should not be made to Kiewit was that "the Army could be criticized by congressional interests or the public" if the award were to be made. (Plaintiff's Exhibit No. 10, P 3a).

 27. Award of the Alameda dredging contract was made with the concurrence of Assistant Secretary Gianelli on November 27, 1981. (Plaintiff's Exhibit No. 11). There is no evidence to suggest that award of the Alameda Naval Air Station contract has damaged the interests of the United States in any way or that Kiewit lacks the responsibility to perform the contract.

 28. In contrast, the efforts of the Contracting Officer, General Heiberg, and Assistant Secretary Gianelli (see Findings of Fact 11-17, above) to award the Barbers Point contract to Kiewit failed. The recommendations of the Assistant Secretary for Civil Works were not approved. As ...


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