ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY (D.C. Civil No. 76-1106)
Before Adams and Rosenn, Circuit Judges, and Layton,*fn* District Judge.
This class action was instituted by Local 2855 of the American Federation of Government Employees and by civilian employees of the Department of the Army to contest the decision of the Army to contract out to a private concern the stevedoring and terminal services previously performed by government employees at the Military Ocean Terminal in Bayonne, New Jersey. The district court dismissed the suit for lack of subject matter jurisdiction. In an opinion delivered from the bench, it justified this result on the ground that the decision to contract out involved the exercise of discretionary, managerial prerogatives that were based upon an evaluation of cost factors.*fn1 Although our approach differs somewhat from that adopted by the district court, its judgment will be affirmed.
It is a stated policy of the federal government to rely on the private enterprise system to supply its needs except when the national interest requires that the government provide directly the products and services it uses. This policy is outlined in Office of Management and Budget (OMB) Circular No. A-76, which is addressed to the heads of executive departments and agencies, and is detailed with greater specificity in the directives and regulations issued by them to facilitate its implementation.
Among the limited situations in which the government is permitted to provide a commercial or industrial product or service for its own use is one that obtains when comparative cost analysis indicates that procurement from a private source will result in significantly higher costs to the government. Systematic cost evaluations of existing government activities must be scheduled at least once every three years to determine whether continued reliance on the government to supply the product or service is justified.
Pursuant to the obligations imposed on it by the OMB Circular, by Department of Defense Directive 4100.15, and by Army Regulation 235-5, the Military Traffic Management Command (MTMC) conducted a survey of terminal operation functions at its Military Ocean Terminal in Bayonne, New Jersey (MOTB), in early 1975. Until then, the practice at MOTB was to process cargo both by a private contractor and by civil service personnel. As a result of its cost analysis, MTMC recommended that the Army utilize a private contractor to perform the stevedoring and terminal services then being performed by the plaintiff civil service employees. After various cost projections were updated and additional information compiled, the Army Audit Agency, which studied the MTMC's recommendation, concluded that a substantial cost saving would be realized over a 10-year period if these functions were contracted out.*fn2
Based on these analyses, the Secretary of the Army decided to terminate all in-house performance of stevedoring and terminal services. Reduction in force notices (RIFs), effective June 15, 1976, were sent to the government employees who had been rendering the stevedoring and terminal services,*fn3 and a private contractor was engaged to perform the work.
In this suit the affected employees and their union essentially launch a three-pronged attack on the decision by the Army to contract out the services in question. First, they contend that the cost-analysis studies were faulty on a number of grounds, and that had the available options and their costs been properly evaluated, the use of civil service labor would have been found to be less costly to the government than contracting out. Second, plaintiffs maintain that the RIFs abrogated statutory and regulatory provisions that specify the circumstances in which RIFs may be issued and that grant the plaintiffs preferences as veterans, thereby depriving them of a due process property interest. Finally, plaintiffs argue that the contracting out in this case constitutes an illegal personal service contract, designed to circumvent the government's obligations to civil service employees.
A. General Considerations Regarding the Reviewability of the Army's Decision
Whether and to what extent we may entertain the plaintiffs' challenges to the Army's decision is controlled by the Administrative Procedure Act (APA),*fn4 which contemplates that judicial review be available at the behest of any person adversely affected or aggrieved by agency action*fn5 "except to the extent that (1) statutes preclude judicial review; or (2) agency action is committed to agency discretion by law."*fn6
The Supreme Court has emphasized repeatedly that the APA's " "generous review provisions' must be given a "hospitable' interpretation,"*fn7 and that "only upon a showing of "clear and convincing evidence' of a contrary legislative intent should the courts restrict access to judicial review."*fn8 Thus, in the absence of a specific statutory preclusion of review, agency action may be determined to be "committed to agency discretion by law" only when a fair appraisal of the entire legislative scheme, including a weighing of the practical and policy implications of reviewability, persuasively indicates that judicial review should be circumscribed.*fn9 ...