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Petchem, Inc. v. United States

May 15, 2000

PETCHEM, INC., PLAINTIFF,
V.
THE UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: Emmet G. Sullivan U.S. District Court

MEMORANDUM OPINION

I. INTRODUCTION

This case involves the Navy's procurement policies for certain tug boat services at Port Canaveral, Florida. Plaintiff, Petchem, Inc., ("Petchem" or "plaintiff") is a small business that had been providing these tug services at Port Canaveral since 1984. With Petchem's most recent contract due to expire in fall 1999, the Navy, in the summer of 1999, solicited bids for a new contract for the tug services. Petchem was one of seven small businesses to bid on the work. However, on November 23, 1999, the Navy announced that it was canceling its solicitation for a new contract on the tug work because all of the bids were deemed too high in comparison to market rates at Port Canaveral. The next day, plaintiff filed this lawsuit alleging a violation of the Competition in Contracting Act (CICA), 10 U.S.C. §2304.a.1 and 41 U.S.C. §253.a.1.

Plaintiff initially sought a temporary restraining order that would have extended Petchem's most recent contract at Port Canaveral. This Court held a hearing on that motion on December 10, 1999 and found that plaintiff had not met its burden for a temporary restraining order under Washington Metropolitan Area Transit Commission v. Holiday Tours, 559 F.2d 841, 843 (D.C. Cir. 1977). Pursuant to Fed. R. Civ. P. 65(a)(2), the Court consolidated the request for injunctive relief with the merits determination. Now, this matter is before the Court on the parties' cross-motions for summary judgment pursuant to Fed. R. Civ. P. 56(c). Upon consideration of the pleadings and the arguments of counsel, and for the following reasons, the defendant's motion for summary judgment is GRANTED and the plaintiff's motion for summary judgment is DENIED.

II. PROCEDURAL HISTORY

Plaintiff Petchem had provided tugboat services for the Military Sealift Command (MSC) and Naval Ordnance Testing Unit (NOTU) at Port Canaveral, Florida since January 1984 under a series of contracts. The contracts involved towing nuclear submarines and surface vessels, as well as transferring military personnel to and from these vessels. The most recent contract was to have expired on November 30, 1999, but was extended through December 14, 1999. That contract provided Petchem a fixed monthly payment in exchange for the exclusive use of Petchem's two tugboats and one personnel transfer vessel on a 24-hour, 365-day per year basis.

Early in 1999, naval procurement officials began preparing a new solicitation for the tug and personnel transfer services at Port Canaveral. Concluding that the demand for these services would be substantially reduced in the future, the Navy decided to abandon the fixed-price contract it had been using with Petchem in favor of a so- called Indefinite Delivery/Indefinite Quantity (IDIQ) contract under which the government would pay for only the amount of services it actually used above a stated minimum.(Def.'s Mot. to Dismiss at 4.) The solicitation was issued on July 9, 1999 as a small-business set-aside. However, large firms were also allowed to submit bids in the event that there were not at least two offers from qualified small business providers. The Navy reserved the right to award different portions of the work to different bidders unless the bidder specified that it would not accept a partial award.

MSC received seven bids from qualified small business concerns and, as a result, did not open the single bid submitted by a large business. Petchem was among the seven small business bidders. Petchem submitted an initial bid in early August, revised the bid to reflect MSC's concerns regarding pricing and technical issues, and submitted a final bid on September 29, 1999.

On or about November 12, 1999, the Navy informed Petchem it would be allowed to compete for any contracts for tug boat work over $2,500. On November 19, 1999, the government notified Petchem it would end the then-current contract entirely on November 30,1999 *fn1 and not use its option to extend the contract up to four months.

On November 23, 1999, MSC officially canceled the solicitation for tug services. *fn2 The bids from the seven small business providers were all deemed too high in comparison to posted rates from the port's commercial operator, Port Canaveral Towing (PCT).

On November 24, 1999, Petchem filed this lawsuit against the government, alleging violations of the Competition in Contracting Act (CICA), 10 U.S.C. §2304.a.1 and 41 U.S.C. §253.a.1, the Small Business Act, 15 U.S.C. §631, and the Federal Acquisition Regulations(FAR), 15.306(d)(3) and 19.506. The lawsuit was initially filed in the United States Court of Federal Claims, but was removed to this Court because of the possibility of maritime issues. See Order of November 24, 1999, U.S. Court of Federal Claims, No. 99-953C.

Since Petchem's contract expired in mid-December, the MSC has been procuring tug services on a piecemeal basis - to date on a competitive, spot-bid basis from PCT, a large commercial operator in the area, or from Petchem. Petchem and PCT have both received some of the tug jobs bid in this fashion.

III. CROSS-MOTIONS FOR SUMMARY JUDGMENT

Plaintiff's original complaint alleged five counts of improprieties regarding the Navy's handling of the now- canceled Port Canaveral solicitation. Over the course of the litigation, however, plaintiff has abandoned several of those allegations and now presses only its first count: that the government is violating the Competition in Contracting Act (CICA), 10 U.S.C. §2304.a.1 and 41 U.S.C. §253.a.1, by failing to award the tug work via "full and open" competition.

CICA requires agencies, including the military, to promote competition for federal contracts. The law generally requires that procurement be conducted via "full and open" competition designed to ensure maximum participation. *fn3 However, there are various exceptions to this requirement including a partial exception for smaller contracts. Specifically, procurement under the "Simplified Acquisition Threshold" (SAT) of $100,000 is subject to lesser requirements. So-called micro-purchases of up to $2,500 are even less restricted.

Plaintiff contends that although the small business bids were deemed unacceptably high, the Navy was not relieved of its statutory obligation to secure the tug services through "full and open" competition. Specifically, plaintiff argues that defendant was required to re-solicit the tug services work on a "full and open" basis. Had it done so, plaintiff contends, Petchem and other bidders would have known they were competing against the commercial rates and might have lowered their bids accordingly.

Petchem claims that the tug work does not qualify for any of the regular statutory exceptions to CICA, 10 U.S.C. §2304(a)(3)(c)1-7. Moreover, Petchem maintains that the government does not qualify for the looser requirements for purchases below the SAT of $100,000, or below the "micro- purchase threshold" of $2,500. It is a violation of CICA, 10 U.S.C. §2304(g)(2), *fn4 and FAR 13.003 *fn5 to fragment a procurement order that would fall above the SAT simply to take advantage of the simplified procedures. Plaintiff maintains that defendant is engaging in precisely this type of prohibited fragmenting, since the government's own estimates for the original solicitation were much higher than $100,000. *fn6

Alternately, plaintiff argues that defendant is violating the general requirement that procurements over $2,500 but under $100,000 be reserved for small business providers. See FAR 13.003 and FAR 19.502-2. Since seven small businesses bid for original solicitation, plaintiff contends that it was reasonable for the contracting officer to expect at least two to ...


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