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AERO CORP. v. DEPARTMENT OF THE NAVY

February 16, 1983

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



The opinion of the court was delivered by: OBERDORFER

 This is the final chapter of this protracted litigation *fn1" in which plaintiff has challenged the Navy's decision to award contracts for the C-130 aircraft Service Life Extension Program (SLEP) to the Lockheed-Georgia Corporation ("Lockheed" or "LGC") without competition. *fn2" Plaintiff is an aerospace firm with ten years of experience in performing maintenance on C-130's, as defendant's contractor for Standard Depot Level Maintenance (SDLM) for its C-130 fleet. *fn3" Plaintiff alleges that the Navy was legally obligated to conduct a competition for its SLEP contracts, and that plaintiff would have submitted adequate bids for SLEP if a competition had been held. *fn4"

 I. Overview

 Almost six years ago, the Navy formally began planning SLEP for 49 of its C-130's. By mid-1979, defendant had decided to procure SLEP for all 49 planes from Lockheed on a "sole source" basis, that is, without attempting competitive bid solicitation for SLEP service contracts from other firms such as plaintiff or others experienced in the maintenance of C-130 aircraft. *fn5"

 This action was filed on October 30, 1979, after defendant had made its final decision to award the SLEP contracts for all 49 C-130's to Lockheed; contracts for the first 13 planes were actually awarded on November 30, 1979. On March 4, 1980, after obtaining the advice of the General Accounting Office (GAO), C.R. A-35, considering briefs and documentary evidence and holding a hearing, the Court filed a Memorandum (Aero I) finding and concluding that, due to the military urgency of the SLEP induction schedule, *fn6" defendant's sole-source award of the initial SLEP contracts was not unreasonable. The Court also concluded, however, that defendant had "not satisfied the GAO or the Court that it now has a reasonable basis for precluding competition for SLEP procurement with respect to the balance of the procurement." 493 F. Supp. at 568. The Court therefore ordered defendant, inter alia, "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." *fn7" Id. at 570 (hereinafter "March 1980 Order").

  Thereafter, while defendant ostensibly studied competitive options, the Court invited further GAO consideration of the possibilities and requirements for competition for SLEP procurement. *fn8" Meanwhile, plaintiff began to charge that Navy was not complying with the March 1980 Order and was otherwise acting in bad faith. See, e.g., C.R. 2; C.R. 29; C.R. 32. In June and September, 1981, the Acting Comptroller General of the GAO rendered two opinions, concluding that the Navy still had not rationally justified its decision to award the contracts for SLEP service for the remaining 29 C-130's without attempting competition. C.R. 84; C.R. 63 at 2. The GAO advised the Court that the Navy should take specified actions to attempt to compete the remaining SLEP contracts before it decided to award them to Lockheed on a sole-source basis.

 Because the GAO's opinion does not bind the parties or the Court, see Wheelabrator Corporation v. Chafee, 147 U.S. App. D.C. 238, 455 F.2d 1306, 1316-17 (D.C. Cir. 1971), the Court invited further briefs, received further evidence and held further hearings on the merits and on the questions raised by plaintiff about the Navy's good faith compliance with the March 1980 Order. These culminated in a Memorandum filed on February 18, 1982, (Aero II), in which the Court concluded that defendant's decision not to permit competition for the remainder of the SLEP procurement still had no rational support in the record, and that plaintiff would probably prevail on its claim that defendant's decision to contract with Lockheed as the sole-source for SLEP for the remaining C-130's without competition violated the Armed Services Procurement Act, 10 U.S.C. § 2304(g) (1976 & Supp. V 1981), *fn9" and Section Three of the Defense Acquisition Regulations, 32 C.F.R., part 1, vol. 1, P 3-101(d) (1981) ("DAR 3-101(d)"). *fn10" See 540 F. Supp. at 184, 211. In order to secure compliance with its March 1980 Order, the GAO's subsequent advice, and the requirements of § 2304(g) and DAR 3-101(d), the Court issued a preliminary injunction. This injunction specified procurement actions to be taken by defendant "to foster competitive conditions for subsequent procurements . . . and possible breakout of components for competitive procurement." DAR 3-101(d). Specifically, the injunction (hereinafter "1982 Order") ordered defendant to "commence forthwith preparation of such an Engineering Change Proposal (ECP) and Air Frame Change (AFC) as may be needed for C-130 SLEP accomplishment by experienced C-130 Standard Depot Level Maintenance (SDLM) contractors following competitive negotiation limited to LGC and experienced C-130 SDLM contractors," *fn11" and to "commence to take all other steps necessary to avoid the need for future non-competitive procurement of C-130 SLEP." 540 F. Supp. at 219 (citations omitted). The Court also ordered defendant to file a report on or before May 31, 1982, based on its engineering progress to that date, regarding the possibilities of competition for SLEP contracts for the remaining C-130's. Id.

 In April 1982, plaintiff filed a pleading which charged that the Navy was not complying with the March 1980 and 1982 Orders. C.R. 128. On May 13, 1982, defendant submitted its "Report to the Court." C.R. 129 (hereinafter "May 1982 Report"). On July 8, 1982, after review of more briefs and documentary evidence, the Court filed a third Memorandum (Aero III), ruling that the Navy still had not provided a rational basis for its sole-source SLEP decisions and reiterating that plaintiff would probably prevail on the merits. 549 F. Supp. at 41, 43-44. In exercise of its equitable discretion, however, the Court declined to enjoin sole-source procurement of SLEP service from Lockheed for the balance of the original 49 planes, in light of the military priorities asserted by the Navy for SLEP and the limited and speculative opportunity for competition that remained at that late date. Id. at 45; see M. Steinthal & Sons v. Seamans, 147 U.S. App. D.C. 221, 455 F.2d 1289, 1301 (D.C. Cir. 1971). *fn12" The Court noted at that time that plaintiff's requests for collateral relief and contempt citations were still serious issues in the case.

 Defendant has not prosecuted appeals of any of the Court's orders issued over the course of this action, nor has it ever sought clarification or modification of them from the Court. See Fed. R. Civ. P. 60(b).

 In addition, the Court finds and concludes that defendant has failed to comply with the Court's March 1980 Order that it consider "in good faith" the feasibility of competitive procurement of SLEP among experienced C-130 contractors, and has evaded the 1982 Order implementing the requirement of a "good faith" effort. This failure and evasion are not the flagrant violations of clear, crisp orders that would sustain the citation for contempt sought by plaintiff. As more fully demonstrated below, however, the Navy's failure to make the "good faith" effort so plainly called for by statute, regulation, GAO advice and Court orders is, by itself, "bad faith." See McGehee v. C.I.A., 697 F.2d 1095, slip op. at 13 n.26, 37-38 (D.C. Cir. 1983) (lack of good faith is "evidence of bad faith"). Moreover, its conduct in this litigation since March 4, 1980, if not earlier, plainly evinces bad faith of defendant (but not its counsel) *fn13" toward plaintiff and the Court. The accompanying Order therefore provides for an award to plaintiff for its attorney's fees from March 4, 1980, until the present in its legally successful but practically frustrated pursuit of relief from its elusive adversary. Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 44 L. Ed. 2d 141, 95 S. Ct. 1612 (1975). *fn14"

 II. Jurisdiction

 Recent legislation requires brief re-examination of the Court's jurisdiction over this matter. Jurisdiction has been and is now founded upon 28 U.S.C. § 1331 and Section 702 of the Administrative Procedure Act, 5 U.S.C. §§ 701-06, as applied to procurement decisions alleged to contravene the statutory obligations of competition. See Scanwell Laboratories, Inc. v. Shaffer, 137 U.S. App. D.C. 371, 424 F.2d 859 (D.C. Cir. 1970) (hereinafter " Scanwell "); see also Gull Airborne Instruments, supra n.8; Kentron Hawaii v. Warner, 156 U.S. App. D.C. 274, 480 F.2d 1166 (D.C. Cir. 1973); M. Steinthal & Co., supra page 408.

 While this matter has been in litigation, Congress enacted the Federal Courts Improvement Act of 1982 (FCIA), Pub. L. No. 97-164, 96 Stat. 40 (April 2, 1982) (effective as of October 1, 1982). Section 133 of FCIA grants the Claims Court new equitable jurisdiction "to award injunctive relief in the pre-award stage of the procurement process," while specifically leaving "intact" the Scanwell doctrine of federal district court jurisdiction over post-award claims. *fn15" The Claims Court has ruled that, under FCIA, its jurisdiction to provide equitable relief extends only to pre-award contract disputes, and that post-award disputes belong in the district courts. John C. Grimberg Co., Inc. v. United States, No. 510-82C (Cl. Ct. Oct. 7, 1982); see also American District Telegraph v. Dept. of Energy, 555 F. Supp. 1244 (D.D.C. 1983); Opal Manufacturing Co., Ltd. v. UMC Industries, Inc., 553 F. Supp. 131, 133 n.3 (D.D.C.1982).

 This case first came to the Court as a pre-award dispute in October 1979, almost three years before the effective date of FCIA. SLEP contracts have been awarded to Lockheed from time to time since November of that year. The final contract was scheduled to be awarded by December 1982. See 540 F. Supp. at 218 (chart). Moreover, the actual and final sole-source SLEP decision was first made by defendants in 1979 and was reaffirmed in May 1982. See C.R. A-13 at 23-24 and Exs. AO & AT; C.R. 129 & 130. In July 1982, the Court declined to enjoin any part of the 49-plane SLEP procurement. 549 F. Supp. at 45. The Act did not become effective until October 1, 1982, and at least as to the SLEP contracts awarded to Lockheed by that date, this is clearly a post-award case and jurisdiction is firmly in this Court. Plaintiff's current claims for collateral relief all grew out of these now post-award disputes with the Navy. Accordingly, as the plain language of the Act indicates, jurisdiction over such post-award claims lies with this Court. See John C. Grimberg Co., supra.16

 With regard to plaintiff's claims for collateral relief, defendant appears to suggest that because this Court refused injunctive relief in connection with the 49 C-130's scheduled for SLEP in Aero III, at least some of these claims should be considered moot. Such is not the case, however. Plaintiff's claims survive refusal of the injunction and are not mooted simply because the litigation has outlasted the Navy's procurement timetable. First, the declaratory judgment that plaintiff seeks will serve both the "public interest in having agencies follow the regulations which control government contracting" and the interest "in preventing the granting of contracts through arbitrary or capricious action." Scanwell, supra, 424 F.2d at 864. A declaration of legal rights in this case should deter future violations of the procurement laws as well as relieve both private contractors and the government of uncertainties attendant in this area of the law. These interests survive the awarding of the contracts. Cf. Simpson Electric Co. v. Seamans, 317 F. Supp. 684, 688 (D.D.C. 1970) (declaring rights of the parties in Scanwell -type action although refusing injunctive relief).

 Second, plaintiff has raised substantial issues of civil contempt and bad faith on defendant's part with regard to its conduct in these proceedings. Resolution of such collateral issues are "part of the main cause" of action, Gompers v. Bucks Stove & Range Co., 221 U.S. 418, 445, 55 L. Ed. 797, 31 S. Ct. 492 (1911), and are not mooted by the fortuitous timing of defendant's actions. Plaintiff's position clearly provides the adversity necessary to sustain this controversy.

 Finally, relief in the form of a notice injunction is necessary to prevent recurrence of the same injury to plaintiff's interests as has occurred with regard to SLEP contracts for the first 49 C-130's. Plaintiff seeks an order implementing this Court's suggestion in Aero III that defendant should be required to notify plaintiff of any future decisions made by the Navy for SLEP procurement. *fn17" C.R. 135, P 6; see Aero III, 549 F. Supp. at 47. This relief would be based on the Court's prior finding that defendant obstructed GAO and judicial review in 1979 by obscuring its decision to procure SLEP from Lockheed, Aero I, 493 F. Supp. at 568, and would also flow from the Court's declaration today that defendant has violated the law and this Court's orders regarding competition. Any further SLEP procurement is likely to be time-dependent due to its relevance to the national security. If a new SLEP procurement decision were now made by defendant, plaintiff could again be denied the opportunity to compete for SLEP and yet also be denied relief by the passage of time and defendant's exploitation of it. This aspect of the SLEP litigation is therefore similar to the "capable of repetition, yet evading review" cases in which termination of a discrete injury does not necessarily generate mootness. Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 515, 55 L. Ed. 310, 31 S. Ct. 279 (1911); see Reeves Inc. v. Stake, 447 U.S. 429, 434, 65 L. Ed. 2d 244, 100 S. Ct. 2271 n.5 (1980). These considerations with regard to the relief still sought by plaintiff reinforce earlier determinations that there is jurisdiction here. See 540 F. Supp. at 200-203; 493 F. Supp. at 566-67.

 III. Declaratory Judgment

 Plaintiff's fundamental contention on the merits is that defendant has violated § 2304(g) of the Armed Services Procurement Act, enacted in 1962, and Defense Acquisition Regulation 3-101(d). See supra, notes 9 & 10. Section 2304(g) requires defendant to solicit proposals "from the maximum number of qualified sources consistent with the nature and requirements of the . . . services to be procured." 10 U.S.C. § 2304(g) (Supp. V 1981). "Negotiated procurements shall be on a competitive basis to the maximum practical extent," according to DAR 3-101(d), a regulation enacted in furtherance of the duty imposed by § 2304(g). *fn18" As stated earlier and often by the Court and the GAO, these directives require that, for procurements extending over time, federal procuring agencies such as defendant must pursue competition until and unless there is some rational, nonarbitrary reason for not doing so. *fn19" See Kentron Hawaii, supra, 480 F.2d at 1169; Steinthal, supra, 455 F.2d at 1301. As the Supreme Court noted soon after § 2304(g) was enacted, "competitive bidding is the rule, not the exception." Paul v. United States, 371 U.S. 245, 257, 9 L. Ed. 2d 292, 83 S. Ct. 426 (1963). And if competition is not feasible for the initial part of a long-term procurement, DAR 3-101(d) obligates defendant to persist in seeking out ways to compete the balance. Matters of technical expertise and certain evaluative judgments may lie within defendant's discretion, and the duty to pursue competition is not absolute. *fn20" Under the statutory regime, however, the obligation to consider and pursue competition in good faith is mandatory and cannot be avoided as a matter of discretion.

 A. Kit-Assisted Competition and Aero I

 Defendant has consistently conceded that an experienced C-130 maintenance firm like plaintiff could adequately perform SLEP if provided with "kits" of tools, data, and instructions. See supra, note 7. The GAO has found that defendant's insistence on requiring "some form of kit" for any other contractor to perform SLEP besides Lockheed is not unreasonable, and the Court has adopted this finding. Aero I, 493 F. Supp. at 567. Defendant now attempts to characterize the Court's holding in Aero I as a finding that the Navy's initial noncompetitive contract award for SLEP of 20 planes was "rational and supported by substantial evidence" on the merits. C.R. 139 at 1-2; see also C.R. 133 at 3. This is true only insofar as the "time frame which [was] immediately imminent" in late 1979 supported defendant's decision to award sole-source contracts for SLEP of the first 20 C-130's. Aero I, 493 F. Supp. at 568. Defendant represented in October 1979 that the national security demanded award of the initial SLEP contracts within a month or two; by any estimate, kits for SLEP competition could not be prepared in time to meet that schedule. Thus, only the timing of the initial SLEP procurement was approved in Aero I. Defendant had not otherwise demonstrated that kits could not be prepared in time to compete "the balance of the procurement." Id.21

 Defendant's noncompetitive SLEP procurement decision in September 1979, however, encompassed all 49 C-130's and not just the initial 20. Defendant asserted that the length of time required to prepare competitive kits usable by the entire aerospace industry precluded competition for any of the remaining planes. Both the Court and the GAO, however, raised the question of whether kit production time (which was the only factor allegedly precluding competition) could be reduced if the kits were "tailored" for a competition among a smaller number of firms like plaintiff that had a great deal of experience specific to maintenance of the C-130 aircraft. *fn22" The Court concluded in Aero I that the language of § 2304(g) and DAR 3-101(d) clearly required defendant to pursue competition, even if the only competition possible would be limited necessarily to a small number of highly qualified firms for whom kits might be prepared in less than the 60 months estimated for the preparation of kits usuable by any potential competitor, experienced or inexperienced. *fn23" Because defendant had not considered kits for such a limited competition, the Court ordered it in March 1980 to consider "in good faith" the feasibility of competition using kits "tailored" to the limited number of experienced C-130 maintenance firms. Aero I, 493 F. Supp. at 570. *fn24"

 B. The Monitoring Team

 The March 1980 Order was entered in general rather than specific terms in part in reliance on the Navy's representation that it would set up a Monitoring Team to review Lockheed's performance of SLEP on the first few C-130's and report to the Court regarding the possibility of future SLEP competition. In its decision in December 1979, the GAO had recommended that the Navy "should closely monitor Lockheed's initial performance and evaluate the methods used" and "review the sole source determination before . . . awarding a follow-on contract for all or part of the 29 remaining aircraft to Lockheed." C.R. A-35 at 18; 493 F. Supp. at 584. In an affidavit submitted on February 11, 1980, Captain Neil P. Ferraro, NAVAIR's Assistant Commander for Contracts, stated that the Navy "plans to abide by the recommendations of GAO" and would set up a monitoring team. C.R. A-48, P 14. Plaintiff continued to press for injunctive relief regarding the procurement of SLEP for the remaining 29 C-130's, see C.R. 9 (July 28, 1980), and critical time was passing. After Aero I, however, the GAO and the Court refrained from acting further until the Monitoring Team could substantially complete its review and the Navy could have the benefit of its presumably good faith effort to pursue competition. *fn25"

  As outlined in Aero II, 540 F. Supp. at 210, three on-site members of defendant's Monitoring Team made a preliminary determination that competition limited to experienced C-130 contractors was feasible. *fn26" Consequently, these members proposed to their superiors at NAVAIR that they be given the supplies and personnel to prepare a competitive plan for the remainder of the SLEP procurement. In responding to the on-site members' request, however, the Navy refused the time and support requested. The Navy thus effectively aborted the mission of its on-site members and subsequently produced a Final Report that ...


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