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S.A. HEALY CO. v. WASHINGTON METRO. AREA TRANSIT A

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA


August 14, 1985

S.A. HEALY COMPANY, and VANESSA GENERAL BUILDERS, INC., Plaintiffs,
v.
WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, Defendant

The opinion of the court was delivered by: OBERDORFER

LOUIS F. OBERDORFER, UNITED STATES DISTRICT JUDGE.

 MEMORANDUM

 I.

 Plaintiffs S.A. Healy Company and Vanessa General Builders, Inc., bid as a joint venture on an Invitation to Bid (IFB) issued by the Washington Metropolitan Transit Authority (WMATA) for construction of the Greenbelt Route Shaw Station and Tunnel, extensions of WMATA's subway system funded in part by the Urban Mass Transportation Agency of the Department of Transportation (DOT/UMTA). The IFB, Appendix B, required all bidders to participate in WMATA's Affirmative Action Plan by subcontracting to, or participating in, a joint venture with a disadvantaged business enterprise (DBE), an enterprise owned and controlled by disadvantaged persons, which would be responsible for, and perform, at least 20 percent of the work on the contract. Healy made the low bid of $49.4 million and indicated at the time of its bid its intent to meet its affirmative action obligation by arranging for Vanessa, the minority owned partner, to perform 20 percent of the work on the contract.

 Vanessa had not previously been certified as a DBE. Accordingly, WMATA's Office of Civil Rights (CIVR) held a certification hearing. The chief executive officer of Vanessa, Mr. Ishamel Harps, Sr., and Vanessa's president, Ishamel Harps, Jr., represented the company at the hearing. Information on the record indicated that the biggest jobs done by Vanessa in the last three years ranged from $103,000 to $600,000 undertakings. WMATA Minority Business Enterprise Disclosure Affidavit (Feb. 25, 1985). Mr. Harps, Sr., testified that out of the 35 full time employees listed in his son's affidavit of February 5, 1985, three to four were black, the rest were white. Transcript, In the Matter of: Vanessa Builders Incorporated, before the WMATA Office of Civil Rights Business Enterprise Certification Review Board at 27. As to the company's line of credit, Mr. Harps, Jr., testified:

 

No, [we do not have a line of credit] at this time. Because we can't get a line of credit until the - in the process now of getting our records straight. I mean nobody is going to give you a line of credit.

 Tr. at 83. Both the Harps' confirm, "we have no bonding." Tr. at 48. Mr. Harps, Jr., continued: "We never had to provide bonds." Tr. at 57. Moreover, the company has no payment bond capability. Tr. at 59. As far as liability on its projects, Vanessa has "absolutely no responsibility." Tr. at 62. For one nine month period, the firm listed telephone expenses of only $296.54 and travel expenses of only $303. Tr. at 40. CIVR officials also questioned the validity and accuracy of the Vanessa tax returns which formed the basis of the Harps' testimony on their finances. Tr. at 64, 92. Finally, Vanessa's total equipment consists of one truck, two pickups, one sedan, welding machines and construction tools. Tr. at 23. Concluded one review board member:

 

Vanessa Builders is nothing but a broker, if you would, for large corporations trying to satisfy their minority business input. They have 14 jobs and all but one is federally funded.

 Tr. at 90.

 Based on the evidence received at its hearing, the CIVR refused to certify Vanessa as a qualified DBE, and thus Healy-Vanessa as a qualified joint venture, *fn1" on the grounds that (1) the disadvantaged person who purported to be the president of Vanessa did not have independent control of its day-to-day operations, and (2) Vanessa did not have adequate financial structure and resources to support this contract in addition to all the other contracts that it was performing. *fn2" On May 7, 1985, CIVR denied Healy-Vanessa certification as a DBE for a third reason: there was no agreement requiring Vanessa actually to perform any part of the contract work. Letter from Claude Swanson, Director CIVR, to Donald M. Zeier (May 7, 1985).

 After the certification denials, the WMATA Contracting Officer informed Healy-Vanessa that although he found their bid responsive, as part of his responsibility *fn3" determination he would have to conduct an inquiry into whether Healy-Vanessa's bid represented a good faith commitment to the DBE requirement of Appendix B. Healy-Vanessa wrote to the Contracting Officer in defense of its own good faith. Healy-Vanessa also offered to substitute five DBE subcontractors already certified by WMATA to fulfill the 20 percent minority participation requirement. Healy-Vanessa had obtained these commitments prior to bid submission. Affidavit of Donald J. Zeier at 5 (May 30, 1985). The Contracting Officer, however, found Healy-Vanessa's response not sufficient to meet the good faith requirement of Appendix B. According to the Contracting Officer:

 

The principals of Vanessa admitted to a complete lack of bonding capacity, which showed that they did not understand that bonds were essential for a contract of this magnitude. Further, the principals had no line of credit to aid in financing the work. Moreover, the joint venture agreement does not contain any requirements for Vanessa to perform a clearly defined portion of the work as required by 49 CFR 23.53(c), nor does the joint venture agreement require any specific amount of financing by either party but permits, where there is a lack of working capital, execution of a note in satisfaction thereof. . . . This type of business arrangement in connection with the accomplishment of an important construction contract raised serious concerns as to whether the joint venture's bid constituted a good faith attempt to comply with the requirements of Appendix B.

 Letter from John S. Egbert, Contracting Officer, to Robert G. Watt (June 10, 1985). Consequently, the Contracting Officer found Healy-Vanessa's bid non-responsible and awarded the contract to Mergentime Corporation and Perini Corporation, the second lowest bidder in the amount of $50,895,000. *fn4" Determination of Contractor Non-Responsibility by John S. Egbert, Contracting Officer (May 15, 1985). Mergentime-Perini has since appeared in these proceedings by leave of Court as amicus curiae. WMATA and Mergentime-Perini represent without contradiction that its contract will be performed with 20 percent participation by certified minority subcontractors. Transcript, Telephone Conference (Aug. 12, 1985).

 On May 30, 1985, both Vanessa, individually, and Healy-Vanessa, as the joint venture, appealed their denials of certification to the Secretary of Transportation pursuant to 49 C.F.R. § 23.55, which sets out the procedure for appeals of denial of certification as a DBE. Healy-Vanessa also filed a protest with DOT/UMTA and, at the same time, filed a Motion For Temporary Restraining Order, Preliminary Injunction, Declaratory Judgment and Other Relief in this Court. By order of June 3, 1985, this Court denied plaintiffs' motion for temporary restraining order, in reliance on the representation by defendant's counsel that it would not immediately award the contract to Mergentime-Perini. An Order of June 27, 1985, stayed all proceedings awaiting initial action by DOT/UMTA. The parties continued, however, to brief the preliminary injunction motion and the summary judgment motions. On July 30, 1985, DOT/UMTA issued its decision affirming WMATA's denial of the contract to Healy-Vanessa. Letter from Peter N. Stowell to Robert G. Watt (July 30, 1985). This matter is now before the Court on the parties' cross motions for summary judgment.

 II.

 Healy-Vanessa advances two challenges to the WMATA decision. First, plaintiffs claim that WMATA's inquiry into the good faith of the joint venture bid was in violation of federal law. Second, plaintiffs argue in effect that the result of WMATA's good faith inquiry was not supported by substantial evidence.

 A.

 Both parties agree that the standard of review to be applied to the WMATA bid award is embodied in Steinthal & Company v. Seamans, 147 U.S. App. D.C. 221, 455 F.2d 1289 (D.C. Cir. 1971). S.A. Healy and Vanessa General Builders, Inc., A Joint Venture's Reply to the Washington Metropolitan Area Transit Authority's Opposition to Healy-Vanessa's Cross-Motion for Summary Judgment (Plaintiffs' Reply) at 21 (filed July 8, 1985); Memorandum of Points and Authorities in Support of Defendant's Motion for Summary Judgment (Defendant's Motion for Summary Judgment) at 7 (filed June 13, 1985). This standard provides:

 

Courts should not overturn any procurement determination unless the aggrieved bidder demonstrates that there was no rational basis for the agency's decision . . . . [The court's] inquiry must fully take into account the discretion that is typically accorded officials in the procurement agencies by statutes and regulations. . . . Only when the court concludes that there has been a clear violation of duty by the procurement officials should it intervene in the procurement process and proceed to a determination of the controversy on the merits.

 455 F.2d at 1301, 1303.

 The DOT/UMTA rejection of plaintiffs' bid protest is not binding upon the court, but may be viewed as advisory:

 

The court has the last word, but it can properly seek the benefit of whatever contributions can be made by an agency whose "area of specialization" embraces problems similar to or intermeshed with those presented to the court.

 Wheelabrator Corporation v. Chafee, 147 U.S. App. D.C. 238, 455 F.2d 1306, 1316 (D.C. Cir. 1971) (citation omitted). The DOT/UMTA, like the GAO in Wheelabrator Corporation, is an agency of special competence. Consequently, "the court may properly take into account [the DOT/UMTA's] concurrence [in WMATA's denial of certification to Healy-Vanessa] . . . although the court does have the last word." Id.

 B.

 Plaintiffs' contention that because Healy-Vanessa met the good faith standard of 49 C.F.R. § 23.45(h)(2), the Contracting Officer's determination was in error, is vulnerable to a short answer and therefore is addressed first. Assuming, arguendo, that WMATA's good faith inquiry was itself lawful, there is ample evidence on the record to support the Contracting Officer's determination that because of Vanessa's obvious lack of ability to perform 20 percent of the contract work, Healy-Vanessa as a joint venture lacked good faith in proposing Vanessa to satisfy the DBE requirement. See Tr. of CIVR Hearing. Healy knew or should have known the palpable defects in Vanessa's qualifications. To proffer it as a 20 percent partner in a $50 million subway construction contract is, manifestly, not in good faith.

 C.

 Healy-Vanessa's other claim is that WMATA's decision fails to meet the Steinthal standard because it was made in violation of federal law embodied in 49 C.F.R., Part 23, which governs the award of contracts for which contract goals have been set. Section 23.45(h) provides:

 

(2) If the MBE participation submitted in response to paragraph (h)(1) of this section does not meet the MBE contract goals, the apparent successful competitor shall satisfy the recipient that the competitor has made good faith efforts to meet the goals.

 49 C.F.R. § 23.45 (h)(2) (1985). Plaintiffs contend that WMATA violated this federal regulation by subjecting Healy-Vanessa to a "good faith efforts" test once WMATA determined that Vanessa was not a qualified DBE, instead of allowing Healy-Vanessa to substitute other certified DBE's to meet the minority participation goals. Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendant's Motion for Summary Judgment and in Support of Plaintiffs' Cross-Motion for Summary Judgment (Plaintiffs' Opposition) at 10 (filed June 25, 1985).

 Specifically, plaintiffs claim that an integrated reading of subsection (h) shows that a "good faith efforts" examination is not proper if a bidder satisfies its commitment to DBE goals any time before award of the contract. Plaintiffs' Reply at 5. Plaintiffs also cite decisions of the Comptroller General which state that a prime contractor may substitute a fresh MBE subcontractor after bid opening, but before award, when the named MBE subcontractor fails to win certification. *fn5" But the prime contractors in the GAO cases cited by plaintiffs did not know that the minority subcontractors originally selected did not qualify. *fn6" By contrast, Healy-Vanessa knew or should have known that Vanessa was not financially able to perform 20 percent of the work, could not make a bond, and had bids from subcontractors which it could substitute if, after bids were opened, Healy still wanted the contract. n7 Healy's knowledge of these facts distinguishes this case from those permitting a prime contractor to substitute a qualified minority subcontractor for another who proved, on inquiry, to be unqualified. n7 A Dunn & Bradstreet Report on Vanessa shows the following: 02/06/85 Interim Statement dated SEP 30, 1984: Cash $ (21,327) Accts Pay $ 120,861 Account Rec 180,511 Notes Pay 6,405 Due Former Owner 1,000 Taxes (505) Loans & Adv-Princ 219,200 Curr Assets 159,184 Curr Liabs 347,561 Fixt & Equip 20,818 Deferred Charges 2,191 Loans to Shareholders 7,250 Loans REc 16,700 CAPITAL STOCK 20,201 Loans to Former RETAINED Onwer [sic] 13,039 EARNINGS (148,579) Total Assets 219,183 Total 219,183

19850814

© 1992-2004 VersusLaw Inc.



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