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Sea-Land Service Inc. v. Brown

decided: June 11, 1979.

SEA-LAND SERVICE, INC., APPELLEE
v.
BROWN, HAROLD, INDIVIDUALLY AND IN HIS CAPACITY AS SECRETARY OF DEFENSE, W. GRAHAM CLAYTOR, INDIVIDUALLY AND IN HIS CAPACITY AS SECRETARY OF THE NAVY, REAR ADMIRAL JOHN D. JOHNSON, JR., INDIVIDUALLY AND IN HIS CAPACITY AS COMMANDER, MILITARY SEALIFT COMMAND, CAPTAIN J. A. RAYMOND, INDIVIDUALLY AND IN HIS CAPACITY AS CONTRACTING OFFICER, DEPARTMENT OF THE NAVY, MILITARY SEALIFT COMMAND, AND UNITED STATES OF AMERICA FOSS ALASKA LINE, DEFENDANT-INTERVENOR. FOSS ALASKA LINE, DEFENDANT-INTERVENOR, APPELLANT IN NOS. 78-2360 AND 78-2669; BROWN, HAROLD, ETC. ET AL., APPELLANTS IN NOS. 78-2372 AND 78-2668



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY (D.C. Civil No. 78-1223)

Before Adams, Gibbons and Weis, Circuit Judges.

Author: Weis

Opinion OF THE COURT

In general, a district court may not substitute its judgment for that of a contracting officer who has a rational basis for awarding a governmental procurement contract. It is permissible for an agency to accept a bid having a computation formula different from the one contained in a proposal to negotiate a contract when the variation is one of form rather than substance. The district court's contrasting view of the negotiations resulted in an undue limitation on the contracting officer's discretion and cannot be sustained. Accordingly, we vacate a preliminary injunction and declaratory judgment having the effect of setting aside the award of a contract to one bidder and granting it to another.

The United States Navy Military Sealift Command requested bids for shipping cargo from Seattle, Washington to Adak, Alaska over a two-year period. Bids were submitted by Sea-Land Service, Inc., which was currently serving that route, and by the Foss Alaska Line. On April 7, 1978, the Navy notified the parties that Sea-Land would be awarded the contract. Foss protested this decision, and after re-evaluating the bids, the Navy determined that Foss's was the lower one. Because the bids varied in form, however, the contracting officer decided to reopen the matter and allow both parties to submit revised offers. Upon learning that its contract had been cancelled, Sea-Land filed suit in the district court for injunctive and declaratory relief against the United States and its officers. Foss intervened, seeking similar relief. The parties then entered into a consent order agreeing to submit the matter to the General Accounting Office (GAO) for its review.

On September 12, 1978, the GAO found in favor of Foss and soon thereafter, the government announced that the contract would be awarded to that line. Pursuant to the consent decree, the Navy moved for an order requiring Sea-Land to show cause why the contract should not be awarded to Foss. Sea-Land countered by renewing its motion for an injunction. After a hearing, the district court preliminarily enjoined the government from contracting with Foss. This court granted a stay of the district court's order on November 1, 1978, and on that date the contract was awarded to Foss, which immediately began shipping cargo to Adak.

After further proceedings, the district court entered a declaratory judgment in favor of Sea-Land on December 13, 1978. The court declined to enter a permanent injunction, commenting that such action would "merely invite another stay," but did retain jurisdiction for the granting of further and injunctive relief if that became necessary. Appeals from the grant of the preliminary injunction and the declaratory judgment have been consolidated and both are before us for disposition.

The bids were solicited under a Request for Proposals that spelled out the details of the contract and addressed the factors to be considered by prospective offerors in formulating their bids. The Request made clear that the contract was to be awarded on the basis of a negotiated procurement, not on competitive bidding solicited by advertisement. Under this procedure, discussions between the agency and individual bidders are expected to occur.*fn1 In addition, the Request indicated that the bids were to be broken down into charges for cargo in various shipping categories, rather than on a flat-sum basis. Two numerical components used in calculating the cost of one of these categories the shipping of containers to be packed ("stuffed") by the government constitute the nub of the dispute at hand. One calculation pertains to the minimum charge to be assessed for such containers and the other allocates the proportion that those containers bear to all the cargo shipped.

Because of the nature of the cargo, containers stuffed by the government frequently held less than 100 percent of capacity. To protect the carriers against inefficient stowage, the Request stipulated that a minimum charge be set for each such container on a 100 percent basis. In other words, the government agreed to pay for shipping 100 percent of capacity, no matter how much was actually in each container. Sea-Land did submit its bid on the 100 percent basis. Foss, however, prepared its charges on an 80 percent basis, which meant that if the container were stuffed to less than that percentage, the minimum charge would be 80 percent; but if the container were packed to more than that figure, the government would pay for the actual percentage being shipped.

When the Navy first examined the bids, it ignored the fact that the Foss proposal was on an 80 rather than on a 100 percent basis. When Foss's bid was recalculated, the Navy realized that the 80 percent factor resulted in a lower total bid price. It was then that the award to Sea-Land was cancelled. Sea-Land contends that Foss's use of the 80 percent basis was a material deviation from the Request invalidating the entire bid.

The second point of contention concerns the percentage of containers expected to be stuffed by the government to which the minimum charge would apply. Before preparing its bid, Foss asked the Navy for the historical experience on this point and was told that the figure was 29 percent. But the Navy later determined that the experience for the preceding few years on Seattle-Adak cargo was about 24 percent, and it was this figure that was actually used in appraising the bids of both Sea-Land and Foss. To the extent that the actual percentage was less than 29 percent, Foss's 80 percent minimum bid lost its attractiveness Pro tanto since the discount would apply to a smaller part of the total cargo covered under the contract.

Sea-Land, as the holder of the prior contract for the route, knew what had been the actual experience. Nevertheless, it prepared its bid in the expectation that the Navy would reduce its stuffing operations to about 10 percent. Neither party was told in advance that the government would use a 24 percent allocation. Sea-Land argues that the government erred in giving the 29 percent figure only to Foss, and in not disclosing in the Request what percentage would be used in computing the bids.

The GAO reasoned that Foss's utilization of an 80 percent minimum fee was a difference in form rather than in substance, and that no matter how calculated, the government's prime concern was with the total cost of the contract. Viewed from this perspective, Foss's bid was the lower and the GAO approved the award to that carrier. The GAO did not consider Sea-Land's objections to the 24 percent container proportion factor because, in the agency's view, Sea-Land had failed to raise the matter in a timely fashion. The district court, however, determined that Foss's bid was not in compliance with the Request, that it was not possible to conclude with certainty which proposal would result in lower cost to the government, and that since Sea-Land's proposal was responsive to the Request, it should be awarded the contract.

We first meet the question of jurisdiction. In Merriam v. Kunzig, 476 F.2d 1233 (3d Cir.), Cert. denied, 414 U.S. 911, 94 S. Ct. 233, 38 L. Ed. 2d 149 (1973), we recognized that an unsuccessful bidder for a government contract had standing to challenge an adverse procurement decision, not only on the basis of his own rights but those of the public as well. That case, however, did no more than determine that plaintiff had standing, and that on the record, summary judgment for the government was not appropriate. We did not reach the question whether the court could order the government to award the contract to a particular bidder. Cf. Scanwell Laboratories, Inc. v. Shaffer, 137 U.S.App.D.C. 371, 376, 424 F.2d 859, 864 (1970). That question is present in this case since Sea-Land's complaint includes a demand that it be awarded the contract ...


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