of appropriated funds." Furthermore, other sections of the OFFP Act appear to mention non-FAR regulations. See, e.g., 41 U.S.C. § 405(f) ("Oversight of regulations promulgated by other agencies relating to procurement"); 41 U.S.C. § 408 (concerning authority of executive agencies to "prescribe . . .regulations" under other existing law); 41 U.S.C. § 413 ("Tests of innovative procurement methods and procedures"); 41 U.S.C. § 414(1) (concerning agencies' responsibilities to establish "policies, procedures, and practices" encouraging cost-effective competitive bidding). Therefore, there is no reason to conclude that the OFFP Act in general, and § 418b in particular, apply only to the FAR itself.
It is true that some portions of § 418b's interpreting regulation mention only the "FAR system," to the apparent exclusion of other regulations like the DTMR. See 48 C.F.R. §§ 1.501-2(a)&(b) (requiring search for public comment when revisions are made to "the FAR system"). However, the FAR system includes supplements by other agencies, including DFARS, the Department of Defense Federal Acquisition Regulation Supplement, which is subject to the provisions of § 418(b). In Re Grimes Oil Company, 69 Comp. Cen. 676 (1990). The legislative history suggests that § 418b was intended to apply to "agency supplements to the FAR as well as subagency supplements on down to the lowest level." 130 Cong. Rec. 29,976 (1984) (statement of Sen. Cohen). Since the FAR itself refers to the DTMR for "additional guidance," 48 C.F.R. § 47.200(e), it is reasonable to conclude that DTMR falls within the FAR system as an agency supplement. In any case, though, the language of § 418b and other portions of the OFPP Act are clear enough to demonstrate that all procurement regulations, including the one at issue here, are subject to § 418b's notice and comment provisions.
3. Constructive Notice. The defendants argue that even if they did not comply with the requirements of § 418b, the plaintiffs enjoyed constructive notice and a sufficient opportunity to comment. They point out that members of the National Motor Freight Traffic Association, ("NMFTA"), one of the plaintiff groups, learned about the proposed Notice before it was published in the Federal Register, and counsel for the NMFTA sent a letter to MTMC concerning the Notice before its publication date. Furthermore, one carrier sent a comment to MTMC after the Notice was published. Third Declaration of Francis Galluzzo, PP 3, 5-8, 10 (attached to defendants' supplemental brief).
This constructive notice and comment argument is unavailing for at least two reasons. First, there is no evidence that all of the plaintiffs received notice. In their supplemental brief, the plaintiffs state that most of the members of the Munitions Carriers Conference, the other plaintiff group, do not belong to the NMFTA. Without more evidence than that presented in the Galluzzo declaration, there is no reason to believe that MTMC's prepublication transmittal of the Notice to NMFTA sufficed to notify all of the plaintiffs. But cf. Union Oil Company of California v. EPA, 261 U.S. App. D.C. 190, 821 F.2d 678, 683 (D.C. Cir. 1987) (interpreting APA notice and comment provisions and holding that plaintiffs had sufficient notice of proposed agency standard when plaintiffs referred to and objected to standard at public hearing).
Second, § 418b(a) requires publication "for public comment." There is no evidence that the Notice was published for comment--it appeared that MTMC would abide by the terms of the Notice in spite of any comments received. No explicit comment period was set forth in the notice, even though § 418b(b) requires that the public comment period last for at least 30 days. Cf. Home Box Office, Inc. v. FCC, 185 U.S. App. D.C. 142, 567 F.2d 9, 35 (D.C. Cir.), cert. denied, 434 U.S. 829, 54 L. Ed. 2d 89, 98 S. Ct. 111 (1977) (interpreting APA notice and comment provisions and noting that "the opportunity to comment is meaningless unless the agency responds to significant points raised by the public"); and National Tour Brokers Ass'n v. United States, 192 U.S. App. D.C. 287, 591 F.2d 896, 899 (D.C. Cir. 1978) (interpreting APA notice and comment provisions and holding that notice "looking toward the formulation of possible legislative amendments" did not provide constructive notice of proposed rulemaking).
4. Significant Effect/Cost. Section 418b only requires notice and comment when the proposed policy, regulation, procedure, or form has "a significant effect beyond the internal operating procedures of the [issuing] agency. . . . or . . . a significant cost or administrative impact on contractors or offerors." Both conditions are satisfied here. Requiring carriers to solicit FMS business together with other traffic, at one combined rate, has a significant effect and administrative impact on the way carriers bid for work with MTMC. The plaintiffs also maintain that required one-rate bidding will harm them economically, thereby imposing a "significant cost," but the Court does not reach this issue, which involves a matter of factual dispute.
The defendants claim that the Notice has neither a significant effect nor a significant administrative impact because it simply constitutes the required response to a statutory change already effected. As discussed below, this argument is unavailing.
5. Conclusions. For at least two legal reasons, the Notice is inoperative as a result of the defendants' failure to provide adequate notice and comment. First, § 418b itself requires that "no procurement regulation . . . may take effect" without the proper procedures having been followed. Second, this Court may set aside agency actions found to be "without observance of procedure required by law." 5 U.S.C. § 706(2)(D).
In reaching these conclusions, the Court does not address the plaintiffs' argument in the alternative that MTMC was required by the terms of the DTMR to "negotiate" with the carriers before publishing the Notice.
C. Substantive Conflict Between the Notice and Relevant Statutes
The plaintiffs maintain that the interstate commerce statutes do not grant authority for "reduced" rates for FMS shipping, and therefore the Notice is contrary to law. In response, the defendants assert that recent statutory changes, read in context with MTMC's obligation to seek cost-effective services, not only permit but require MTMC to abide by the terms of the Notice.
Recently, the interstate commerce law providing the context for this argument has been revised drastically. The old statutory regime, under which the separate rates for domestic bids and FMS shipments developed, required that
(a)(1) Except as provided in this section, the full applicable commercial rate shall be paid for transportation for the United States Government by a common carrier....
(b)(1) ...A common carrier providing transportation or service...may transport property for the United States government without charge or at reduced rates.
49 U.S.C. § 10721. In sum, instead of charging the "full applicable commercial rate," carriers could charge less when providing services to the U.S. government. The Court of Claims decided that FMS shipments are not "services provided to the government," because the foreign government, and not the U.S. government, is responsible for paying the shipping fees, even if they are collected through MTMC. Baggett Transportation Company v. United States, 229 Ct. Cl. 428, 670 F.2d 1011 (Ct. Cl. 1982). Therefore, carriers could not charge, and the United States could not pay, the lower § 10721(b)(1) rates for FMS shipments. Instead, the United States had to pay the "full applicable commercial rate" mentioned in § 10721(a)(1).
This statutory scheme has changed, and the parties disagree over the importance of the revisions. The Trucking Industry Regulatory Reform Act of 1994, ("TIRRA"), Pub. L. No. 103-311, 108 Stat. 1683 (codified in scattered sections of 49 U.S.C.), abolished the requirement that carriers file tariffs with the Interstate Commerce Commission ("ICC"), except for a couple of arcane categories of goods not relevant here. The ICC Termination Act of 1995, Pub. L. No. 104-88, 109 Stat. 803 (codified in scattered sections of U.S.C.), went even further and abolished the ICC altogether. The Termination Act moved Section 10721 to 49 U.S.C. Sec. 13712, and amended it to read:
A carrier providing transportation service for the United States Government may transport property or individuals for the United States Government without charge or at a rate reduced from the applicable commercial rate.
The final legislative report of the ICC Termination Act explains that it "preserves current law that transportation may be provided for the U.S. Government at discounted rates." H.R. Rep. No. 422, 104th Cong., 1st Sess. 209 (1995).
The defendants argue that the change in statutory context is crucial. They maintain that because carriers no longer have to file tariffs with the ICC, those published rates would no longer apply to FMS shipments charged at the "full applicable commercial rate." Therefore, the defendants argue, the rate for FMS shipments can be charged at the reduced rates allowed for shipments for the U.S. government, thus allowing one bid for FMS and non-FMS shipments.
The plaintiffs maintain that the abolition of the ICC filing requirement is much less crucial, and note that carriers are still required to keep their rates on file privately, so that the rates may be scrutinized for their applicability and reasonableness. The Court need not resolve the exact status of freight transportation filing requirements, or the fixity of some market rate. It is clear that there is still a two-level rate regime. The new statute codified at § 13712 still anticipates "discounted rates" for the government, and the rationale of Baggett requires that FMS rates not include this discount. To require carriers to submit one rate for these two types of shipments would either (1) contravene the holding of Baggett by giving foreign governments the benefit of discounted rates; or (2) render the statutory discount provision a nullity by preventing carriers from submitting discounted bids for any MTMC work.
Therefore, the Court concludes that the Notice is "not in accordance with law," and must be set aside. 5 U.S.C. § 706(2)(A).
In reaching these conclusions, the Court does not address the plaintiffs' other arguments challenging the substantive validity of the Notice.
MTMC's Notice was not subject to the notice-and-comment provisions of the APA, but it was subject to the similar requirements set forth in 41 U.S.C. § 418b. Because MTMC did not comply with § 418b, either actually or constructively, the Notice is without effect. Furthermore, the provisions of the Notice improperly required carriers to combine discountable rates to the U.S. government with nondiscountable rates for FMS shipments. For these reasons, the Court will enter summary judgment for the plaintiffs. An order will accompany this opinion.
June 19th, 1996
Thomas F. Hogan
United States District Judge
In accordance with the Memorandum Opinion issued today, it is hereby ORDERED that the defendants' motion for summary judgment or to dismiss is DENIED. It is FURTHER ORDERED that the plaintiffs' motion for summary judgment is GRANTED, and the defendants are enjoined from enforcing the Notice issued at 60 Fed. Reg. 64031 on December 13, 1995. It is FURTHER ORDERED that the provisions of that Notice are hereby set aside as improperly promulgated and contrary to law.
June 19th, 1996
Thomas F. Hogan
United States District Judge