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August 10, 1988


Louis F. Oberdorfer, United States District Judge.

The opinion of the court was delivered by: OBERDORFER


 This matter is before the Court on plaintiff's motion for a preliminary injunction, which has been the subject of extensive briefs and oral argument.

 Plaintiff, Samson Tug & Barge Company, Inc., is a corporation which, until July 1, 1988, engaged in the transportation of military cargoes between Seattle and Tacoma, Washington, and the U.S. Naval Station at Adak, Alaska, pursuant to a February 1, 1986 shipping contract with the Military Sealift Command ("MSC") of the U.S. Navy. MSC Contract No. N0003386C8503. That contract provided by its terms that it would remain in force until June 30, 1988, "and thereafter until terminated." Id. at 1. If the contract remained in force beyond June 30, 1988, the "TERMS AND CONDITIONS as of 30 June 1988 . . . apply." Id. On March 31, 1988, MSC notified Samson that the February 1, 1986 contract for service to Adak would be terminated in favor of a "contract for a definite period." Letter from George Rieber to Samson Tug & Barge dated March 31, 1988. The notice further stated that "in no way is this action intended to reflect dissatisfaction with your performance . . . on the contrary, your performance has been satisfactory." Id.

 Meanwhile, on March 30, 1988, MSC issued a request for proposals for a new two-year contract for service to Adak, with bids set aside for small business (i.e. businesses that together with affiliates and joint ventures had fewer than 500 employees). Plaintiff, C.C.C. Georgia, Inc. ("C.C.C.") and Alaska Tug & Salvage, Inc. ("Alaska Tug") responded. On about May 13, 1988, MSC advised Samson that the Adak contract would be awarded to C.C.C. Samson protested, invoking a regulation that postponed any award of a contract set-aside for small businesses for 10 days to enable the Small Business Administration ("SBA") to make a size determination. 48 C.F.R. § 19.302(h)(1). Samson's protest of C.C.C.'s bid advised the contracting officer that Samson was in a position to carry on the Adak service until the size protest was resolved. However, on June 8, 1988, before the SBA acted or the protest was otherwise resolved, MSC advised Samson that C.C.C. had withdrawn its bid, and that MSC had decided to let the contract to Alaska Tug. In response, on that same day, Samson confirmed its willingness to continue on an interim basis. By letter dated June 14, 1988, Alaska Tug informed the contracting officer that it would not accept the Adak award until it received formal confirmation from MSC and SBA that its offer qualified on all scores, but that if its status was confirmed by June 24, it could begin receiving cargo on July 14, 1988.

 There ensued a flurry of activity. On June 15, Samson made an oral protest that Alaska Tug was also ineligible for small business set-asides because it planned to perform the contract as a de facto joint venture with Sea-Land Service, Inc. and Crowley Transportation, Inc. On June 16, Samson confirmed its protest in writing and challenged other elements of the Alaska Tug bid. By letter dated June 16, Alaska Tug advised the contracting officer that it would have to know by June 22 whether the contract would be awarded. On June 17, Samson protested the award to the General Accounting Office ("GAO"). On that same day, after learning that SBA could not complete its size determination by June 22, MSC awarded the contract to Alaska Tug. On June 20, the SBA Regional Office notified MSC and Samson that it expected to complete its size determination by July 1, 1988. On June 23, Samson reiterated its willingness to extend its contract beyond June 30 and reminded MSC of its obligations under 31 U.S.C. § 3553(d). That section permits a contracting officer to allow performance of contract protested to GAO only if "the head of the procuring activity responsible for award of [the] contract" determines and reports to GAO:

(i) that performance of the contract is in the best interests of the United States; or
(ii) that urgent and compelling circumstances that significantly affect interests of the United States will not permit waiting for the decision of the Comptroller General concerning the protest.

 On July 8, 1988, MSC made a finding that it is in the best interest of the United States to continue performance by Alaska Tug in order to assure continued service to Adak, Alaska. A few days later, on July 14, 1988, SBA determined that Alaska Tug is not a small business.

 According to MSC, the contracting officer determined that extending the Samson contract beyond June 30 would have constituted a new procurement on less than full and open competition when there was at hand a valid competitive offer from Alaska Tug capable of acceptance. He was also concerned that if he did not acquiesce in Alaska Tug's demand for a definite commitment by June 22, it would withdraw, as had other contractors. As a consequence, MSC would have to pay a higher price to the next bidder. The contracting officer further determined that failure to award a contract immediately to Alaska Tug, despite the protests to the SBA, would result in disruption of service to Adak and have an adverse impact on Alaska Tug and future small business set-asides in the industry. For these reasons the contracting officer concluded that it was in the best interest of the government to award the contract prior to a decision by the SBA. According to MSC "due to an administrative oversight," it was July 8 before the head of MSC got around to making a written determination and finding and informing GAO that it was not in the best interests of the United States to suspend performance by Alaska Tug. This determination emphasized that if the Alaska Tug contract were suspended, there would be a break in the resupply of the Naval Air Station at Adak which would adversely impact the ability of the base to perform its mission and the quality of life for military personnel and their dependents. There was no meaningful statement about the availability of continued service by Samson; it was no more than mentioned.

 MSC urges that the decision to award the contract while there was a protest pending before the SBA was permissible because "the contracting officer determine[d] in writing that an award must be made to protect the public interest." 48 C.F.R. § 19.302(h)(1). It also urges that the decision not to suspend the contract after the protest to GAO was permissible because (albeit after the fact) "performance of the contract [was] in the best interests of the United States," 31 U.S.C. § 3553(d), so that the decision was essentially unreviewable according to 5 U.S.C. § 701(a)(2) and the principles established in Heckler v. Chaney, 470 U.S. 821, 830, 84 L. Ed. 2d 714, 105 S. Ct. 1649 (1985). Even if these decisions were reviewable, MSC argues, they were not arbitrary, capricious, or unlawful decisions about a partially performed contract.

 As reluctant as courts must be to disturb decisions of contracting officers, particularly in the area of military procurement, it is highly likely that this matter will be resolved on the merits against MSC and in favor of Samson. MSC appears to have overlooked or deliberately ignored the provision of its contract with Samson that permitted it to continue to perform past June 30, 1988. This leaves the contracting officer's concern about the immediate necessity of a new procurement completely without foundation.

 The hearing on the pending motion established, without dispute, that Samson was positioned to carry on without interruption. By contrast, Alaska Tug, even before its failure to qualify as a small business was exposed, was equivocating about whether it could maintain the service theretofore provided by Samson unless it could be assured of a contract by June 22, a date by which it was manifestly impossible for either SBA or GAO to rule on the Samson protests. MSC need not have submitted to that kind of pressure. It is therefore highly likely that when this matter is addressed on the merits, the MSC's failure to consider the availability of continuing Samson's service to allow SBA and GAO sufficient time to address what has proven to be Samson's meritorious protests was arbitrary, capricious, and contrary to law.

 The injury suffered and threatened to Samson by MSC's failure to extend its contract while leaving the Alaska Tug contract in place is, and would continue to be, irreparable. At the hearing it was established that Samson has assets in place at Adak that will be either scrapped or removed at great cost if it is unlawfully deprived of an opportunity to ...

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