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HALIFAX TECH. SERVS. v. UNITED STATES

April 7, 1994

HALIFAX TECHNICAL SERVICES, INC., Plaintiff,
v.
UNITED STATES OF AMERICA, and ALLIEDSIGNAL TECHNICAL SERVICES CORPORATION, Defendants.



The opinion of the court was delivered by: THOMAS PENFIELD JACKSON

 This disappointed-bidder government contract case is presently before the Court on plaintiff's motion for a preliminary injunction.

 Plaintiff Halifax Technical Services, Inc. ("Halifax") seeks to set aside the award of a contract by the U.S. Marine Corps ("USMC") for maintenance of military equipment and supplies loaded aboard prepositioning ships. The value of the contract is approximately $ 130 million. USMC first awarded the contract to Halifax in October, 1991, after which the General Accounting Office ("GAO") recommended a recompetition based on the USMC's mis-evaluation of cost proposals. Upon the recompetition, the contract was awarded to defendant AlliedSignal Technical Services Corp. ("Allied") in September, 1993. The USMC evaluated Allied at a slightly higher technical rating (weighted 60%) and found that Allied's costs (weighted 40%) were substantially less than Halifax's. Plaintiff's GAO protests, raising the identical issues being raised here, were denied on January 24, 1994. Halifax Technical Services, Inc., 1994 U.S. Comp. Gen. LEXIS 26, 94-1 Comp. Gen. Proc. Dec. P30, 1994 WL 20801 (C.G.). Plaintiff now asks this Court to enjoin the award of the contract to Allied. Transition between contractors in performance of services from Halifax to Allied is due to be accomplished on April 23, 1994.

 To be entitled to preliminary injunctive relief, a movant must demonstrate that there is a substantial likelihood of its ultimate success on the merits; that the movant will suffer irreparable harm in the absence of the requested pendente lite relief; that the balance of the harms favors injunctive relief; and that the public interest justifies issuance of the injunction. Washington Metropolitan Area Transit Corp. v. Holiday Tours, Inc., 182 U.S. App. D.C. 220, 559 F.2d 841, 843 (D.C. Cir. 1977).

 In order to succeed on the merits, Halifax will be required to show that the USMC's award of the contract to Allied was arbitrary and capricious, 5 U.S.C. § 706(2)(a) (1988), or that the procurement procedure involved a clear and prejudicial violation of law. Kentron Hawaii Ltd. v. Warner, 156 U.S. App. D.C. 274, 480 F.2d 1166, 1169 (D.C. Cir. 1973). Plaintiff argues that the instant award lacked a rational basis because the USMC's cost realism analysis was flawed, and because Allied's bid allegedly would cause it to violate the Service Contract Act, 41 U.S.C. § 351 et seq. (1988), ("SCA" or "the Act").

 I.

 The contract at issue is a "cost reimbursement" contract, in which the government is bound to pay the contractor its actual and allowable costs regardless of the proposed estimated costs set forth in the bid. The agency is thus required to perform a "cost realism analysis" of an offeror's proposed costs to prevent unrealistically low bids that will lead to cost overruns.

 Allied's bid proposed a cap of approximately $ 61.8 million on direct labor costs, or just under 50% of the total contract value. In other words, Allied's bid proposed to shift the risk of direct labor cost overruns to itself. The USMC conducted two cost realism analyses -- one which took into account Allied's cap on labor costs ("capped costs analysis"), and another which compared anticipated costs absent the cap ("uncapped costs analysis"). Both the analyses showed Allied to be the low bidder, by $ 5.2 million with labor costs capped and by $ 1.3 million without the cap. The GAO found that Allied's cap on direct labor costs was the basis for its significantly lower proposed costs. GAO Decision at 4. Halifax contends that USMC made a series of errors in its cost realism analyses which, if corrected, would make Halifax the low bidder by just over $ 1 million with the labor cap and approximately $ 1.5 million without the cap. *fn1"

 The Court notes at the outset that decisions on cost realism are squarely within the area of the contracting officer's expertise, and a reviewing court may not substitute its judgment on the matter for the judgment of the contracting officer unless the latter is not supportable on any rational basis. Kentron Hawaii, 480 F.2d at 1166. The plaintiff's challenge to USMC's cost analyses at GAO, which generated a 30-volume administrative record, was unsuccessful. The GAO ruled that upward adjustments to capped costs in assessing cost realism are not necessary because the offeror, not the government, bears the risk of cost overruns. An awardee's ability to perform a contract at rates arguably capped below actual cost goes only to the agency's determination of the offeror's responsibility, which is in turn only reviewable upon a showing of agency fraud, bad faith or misapplication of responsibility criteria. GAO Decision at 9. Halifax does not contest Allied's responsibility under the contract. Its only dispute with the GAO opinion is in GAO's failure to address Halifax's specific assertions of miscalculations in the cost realism analysis, implicitly taking issue with the GAO's conclusion that upward adjustments to capped costs are improper.

 "A court's reluctance to interfere with the executive procurement process should be especially strong where, as here, the General Accounting Office has made a determination upholding the procurement officials on the merits." M. Steinthal & Co. v. Seamans, 147 U.S. App. D.C. 221, 455 F.2d 1289, 1304 (D.C. Cir. 1971). The GAO, an agency with nearly 75 years' history reviewing the government procurement process, is composed of a corps of officials and specialists with expertise born of concentrated experience with applicable statutes, regulations and precedents. Independent of the executive departments engaged in the procurement decisions under review, the GAO is uniquely positioned and qualified to advise agencies and courts on the propriety of contested awards. As the D.C. Circuit recognized in Wheelabrator Corp. v. Chafee, 147 U.S. App. D.C. 238, 455 F.2d 1306, 1315 (D.C. Cir. 1971), "the importance of the GAO has not been undercut by the recognition of a judicial forum for disappointed bidders," that forum itself deriving from the D.C. Circuit's own decision in Scanwell Laboratories, Inc. v. Shaffer, 137 U.S. App. D.C. 371, 424 F.2d 859 (D.C. Cir. 1970). Although GAO's opinions are not binding on reviewing courts or the agencies, courts especially have given respectful attention to the GAO's expertise and special competence in procurement matters. See Wheelabrator, 455 F.2d at 1315; Irvin Industries Canada, Ltd. v. United States Air Force, 288 U.S. App. D.C. 111, 924 F.2d 1068, 1077 n.88, (D.C. Cir. 1990). The GAO's altogether sensible conclusion that upward adjustments to capped costs are improper is a sound rule of bid evaluation, and this Court perceives no justification for discarding it, or for second-guessing the GAO's determination that the USMC appropriately evaluated the actual costs to it of the contract at issue and properly awarded the contract to Allied as the low bidder by $ 5.2 million.

 Plaintiff then asserts that the USMC made several errors in its analysis of costs not subject to the cap, which, all totalled, would prove Halifax to be the low bidder by just over $ 1 million. For example, as a basis of its bid costs Allied assumed that 36 non-unionized positions would agree to join the union. In recognition of the possibility that some or all of the 36 employees might not be willing to forego their non-union status, the USMC upwardly adjusted Allied's uncapped costs analysis by approximately $ 3.5 million. Halifax argues that this adjustment to Allied's uncapped costs analysis must also be made to Allied's capped costs analysis. But as a direct labor cost, the amount spent on the 36 positions would in any event be covered by the cap. Whether or not the workers agree to join the union, Allied's direct labor costs being capped, the government runs no risk of cost overruns. It was thus entirely reasonable for USMC to leave the capped costs analysis unadjusted with respect to these 36 positions.

 Halifax proposes other upward adjustments to Allied's uncapped costs, including overtime labor base and premium, overhead, and general and administrative expenses, which appear to the Court to be meritless. However, having rejected the notion of an adjustment premised on doubt as to the unionization of the 36 positions, even if the Court were to accept all of Halifax's other proposed upward adjustments, Allied would still be the low bidder by $ 2.3 million in the capped costs analysis. And, because the Court upholds the validity of the USMC's treatment of ...


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