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THOMAS C. HORNE
Firm Bar No. 014000
Attorney General
Kevin D. Ray (#007485)
Gregory D. Honig (#018804)
Laura T. Flores (#028057)
Assistant Attorney General
1275 West Washington Street
Phoenix, Arizona 85007
Telephone: (602) 542-8328
Facsimile: (602) 364-0700
E-mail: [email protected]
Attorneys for Respondent Arizona Department of Health Services
IN THE OFFICE OF ADMINISTRATIVE HEARINGS
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MAGELLAN HEALTH SERVICES OF
ARIZONA, INC. and MAGELLAN
COMPLETE CARE OF ARIZONA, INC.,
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Appellants,
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vs.
ARIZONA DEPARTMENT OF
HEALTH SERVICES,
Respondent,
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MERCY MARICOPA INTEGRATED
CARE,
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and
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ARIZONA HEALTH CARE COST
CONTAINMENT SYSTEM,
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ADHS’S RESPONSE TO
MAGELLAN’S MOTION
SEEKING DETERMINATION
OF THE APPLICABLE
STANDARD OF REVIEW,
STANDARD OF PROOF, AND
BURDEN OF PROOF
(Assigned to the Honorable Diane
Mihalsky)
and
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Case No. 13F-006-ADM
Intervenors.
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Respondent Arizona Department of Health Services (“ADHS”) files this
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Response to Magellan’s Motion Seeking a Determination of the Applicable Standard of
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Review, Standard of Proof, and Burden of Proof (“Magellan’s Motion”). For the
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reasons stated below, ADHS asserts that the applicable standard of review requires
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Magellan to show that 1) there was a significant error in the procurement process, 2) the
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significant error was materially prejudicial to Magellan, and 3) Magellan would have
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been awarded the contract but for the significant error. The appropriate standard of
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proof is preponderance of the evidence, generally, and clear and convincing for any
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claims involving bias, and this burden of proof is borne by Magellan Health Services of
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Arizona, Inc. and Magellan Complete Care of Arizona, Inc. (collectively, “Magellan”).
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Because Magellan asserts an incorrect standard of review and standard of proof on
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claims involving bias in its Motion, ADHS respectfully requests that Magellan’s Motion
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be denied and that an order be issued reflecting the appropriate standards and burden.
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This Response is supported by the following Memorandum of Points and
Authorities.
MEMORANDUM OF POINTS AND AUTHORITIES
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I.
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The standard of review is not de novo as urged by Magellan. Rather,
the standard of review requires Magellan to show that there was a
significant error in the procurement process, that the significant error
was materially prejudicial to Magellan, and that Magellan would have
been awarded the contract but for the significant error.
Magellan incorrectly urges that the standard of review in this appeal is de novo.
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Magellan’s Motion at 4-9. Not only is this standard of review unsupported by any legal
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authority, it would put the Administrative Law Judge (“ALJ”) in an untenable position
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of re-evaluating both Magellan’s and Mercy Maricopa Integrated Care (“MMIC”)’s
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proposals.
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If this appeal were subject to a de novo standard of review, the ALJ would be
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allowed to substitute her judgment for that of the ADHS Chief Procurement Officer
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(“CPO”) as well as the entire team of subject-matter experts who comprised the ADHS
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Evaluation Committee. There is no way the ALJ could or should be expected to re-
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evaluate the entire procurement award. First, the ALJ does not have the requisite
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procurement or subject-matter expertise to do so. Second, if the ALJ were required to
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re-score Magellan’s bid under a de novo standard, she would also have to hear evidence
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on and re-score MMIC’s entire bid. And, third, a de novo standard of review would
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render useless the entire evaluation process that was delegated to ADHS by the Arizona
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Department of Administrative (“ADOA”) in accordance with Arizona Revised Statutes
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(“A.R.S.”) § 41-2511, A.R.S. § 41-2512, and Arizona Administrative Code (“A.A.C.”)
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R2-7-202. It would be a waste of Arizona’s limited resources to require a rigorous
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evaluation process that is ultimately given no deference. Any losing bidder could
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demand a new evaluation simply by filing a protest and appeal. Such an absurd result
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cannot have been intended and, thus, should not be read into Arizona’s Procurement
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Code and related statutes and rules. See, e.g., Arizona Health Care Cost Containment
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Sys. v. Bentley, 187 Ariz. 229, 233, 928 P.2d 653, 657 (Ct. App. 1996) (holding that
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statutes should not be interpreted in a way that produces absurd results). A de novo
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standard of review would absolutely undermine the authorized procurement process that
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was delegated to ADHS by ADOA and is entirely improper.
Magellan cites to A.A.C. R2-7-A909, A.A.C. R2-7-A911, and A.A.C. R2-7-
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C317(A) as supporting its theory of a de novo standard of review. See Magellan’s
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Motion at 4-5. However, nothing in these rules addresses a standard of review, so this
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contention is incorrect and confusing. Magellan itself is confused, alternatively arguing
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that A.A.C. R2-7-A909 applies to burden of proof and/or standard of review.
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Magellan’s Motion at 3. Magellan asserts that A.A.C. R2-7-A909 sets forth the burden
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of proof and that the burden of proof is for Magellan to “establish only that the award
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does not comply with the procurement statutes and regulations in order for its appeal to
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be sustained and the contract awarded to MMIC overturned.” Id. What Magellan
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describes as a burden of proof actually is a restatement of the standard of review it
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believes applies. In reality, A.A.C. R2-7-A909 applies to remedies by the director if an
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appeal is ultimately sustained. This statute, therefore, is not relevant as to the burden of
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proof or standard of review to be applied by the ALJ.
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Because there are no applicable rules, statutes, or reported Arizona cases that
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address the standard of review for procurement protest appeals, such as this case, the
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Office of Administrative Hearings (“OAH”) should look to other legal persuasive
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authorities, including other OAH opinions and federal case law, for direction. In the
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absence of applicable state law, Arizona administrative law judges and courts of record
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look to federal law for guidance. See, e.g., New Pueblo Constructors, Inc. v. State of
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Arizona, 144 Ariz. 95, 696 P.2d 185 (1985). Moreover, there is a previous decision
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from OAH that is on point. Magellan’s suggestion that OAH’s own precedent is
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improper to cite to is nonsensical and incorrect. See Magellan’s Motion at 11. OAH
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decisions are not subject to Supreme Court Rule 111(c). See Arizona State Bar Ethics
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Op. 87-14 at 2 (concluding that Supreme Court Rule 111(c) applies only to opinions of
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the Supreme Court and Court of Appeals). In fact, Cigna Healthcare of Arizona, Inc.
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and Conn. Gen’l Life Ins. Co. v Arizona State Procurement Office, United Healthcare,
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2005 AZ Admin. Hearings LEXIS 762 (May 2, 2005) is entirely instructive for purposes
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of this case. Cigna involved a similar, large procurement protest appeal heard by OAH
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in 2005 when the Arizona State Procurement Office (“SPO”) awarded a contract to
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United Healthcare for the provision of integrated physical health care services to current
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and former State employees. The Cigna case, and the federal cases it cites, demonstrate
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that the standard of review is a three-prong test requiring Magellan to show that there
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was a significant error in the procurement process, that the significant error was
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materially prejudicial to Magellan, and that Magellan would have been awarded the
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contract but for the significant error. See id. at **64.
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A. The proper standard of review is the three-part test cited in Cigna.
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Magellan’s faulty argument for a de novo standard of review was already argued
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and rejected in the Cigna case. In fact, when rejecting Cigna’s argument that the ALJ
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should review the proposals and determine that Cigna’s was the most advantageous to
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the State, the OAH ALJ stated the following. “The [ALJ] rejects Cigna’s formulation of
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the burden of proof because it would transform the hearing process and the resulting
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[ALJ] decision into a de novo review of the underlying determination, and would, in
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effect, ask the [ALJ] to substitute his or her judgment for that of the evaluation
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committee and the procurement officer. On this point the [ALJ] agrees with SPO and
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United that such is not the [ALJ’s] function, and that it would be inappropriate for the
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[ALJ] to engage in such an analysis,” Id. at **62-63.
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The OAH ALJ went on to adopt the following standard of review: “Upon review
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and consideration of relevant federal case law, the [ALJ] concludes that in order to
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prevail in this matter, Cigna must prove, by a preponderance of the evidence, the
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following: (i) the procurement process was tainted by violations of applicable statutes or
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rules, by substantial irregularities in the proceedings, or by improper conduct by any of
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the participants; (ii) such improprieties were materially prejudicial to Cigna; and (iii) but
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for such improprieties, there is a substantial probability that Cigna would have been the
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recipient of the contract award. Id. at 64.
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This standard of review was upheld in Judge Downie’s Ruling in the judicial
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review action of the Cigna decision. “Applying federal law, the ALJ properly
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determined that his role was neither to review the proposals ab initio and make an
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independent determination of which was most advantageous to the State, nor, at the
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other extreme, to apply the highly deferential standard of review dictated by A.R.S. §
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12-910(E) for judicial review in this court.” Cigna Healthcare of Arizona, et al. v.
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Betsey Bayless, et. al., LC2005-000541-001 DT (October 4, 2006) at 8.
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ADHS adopts this analysis and asserts that this is the appropriate standard of
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review for this procurement protest appeal as well. The ALJ is not to step into the shoes
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of the CPO and the ADHS Evaluation Committee and re-determine the entire
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procurement under A.A.C. R2-7-C317(A), as suggested by Magellan. Rather, the ALJ
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is to examine whether Magellan has proven, by the applicable standard of proof, all of
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the following requirements: 1) that the procurement process was tainted by a significant
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error; 2) that the significant error was materially prejudicial to Magellan; and 3) that but
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for the significant error, Magellan would have been the recipient of the contract award.
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To constitute significant error, the government’s actions during the procurement
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process must be such that they did not “[evince] rational reasoning and consideration of
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relevant factors.” DMS All-Star Joint Venture v. United States, 90 Fed. Cl. 653, 661-
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662 (Fed. Cir. 2009) (internal citation omitted). Not all errors, however, require a court
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to reject an agency’s decision—the error must be both significant and prejudicial.
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Minor or harmless errors or irregularities committed during the course of a procurement
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are not sufficient to warrant judicial intrusion to upset an award. See Anderson
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Consulting v. United States, 959 F.2d 929, 933 (Fed Cir. 1992) (noting that not every
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bid deviation compels a bid rejection). Instead, “[i]f the court finds a reasonable basis
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for the agency’s action, the court should stay its hand even though it might, as an
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original proposition, have reached a different conclusion as to the proper administration
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and application of the procurement regulations.” DMS All-Star Joint Venture, 90 Fed.
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Cl. at 662 (internal citations omitted).
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Therefore, when applying the proper standard of review, the ALJ should review
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the claimed errors by ADHS under a reasonable basis test, which means that the ALJ
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should not find error if there was a reasonable basis for the agency’s action, even if the
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ALJ could have reached a different conclusion and avoided the error.
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B. ADHS and the Evaluation Committee are entitled to deference.
As discussed above, the ALJ is not to substitute her judgment for that of the CPO
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or the ADHS Evaluation Committee. This conclusion is supported by the process
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authorized by the Arizona Procurement Code that was utilized by ADHS in this case.
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This conclusion also recognizes that the work of the CPO in the Solicitation and contract
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award process and the work of experts in the ADHS Evaluation Committee in
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evaluating proposals based on quality, not price, is difficult, that both objective and
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subjective decisions are made, and that the ALJ should appropriately afford deference to
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the CPO and the ADHS Evaluation Committee for their work during this process.
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Magellan’s claims that ADHS engaged in intentional, unlawful bias in scoring the
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proposals reflects only Magellan’s desire for the ALJ to substitute her judgment for that
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of the CPO and the ADHS Evaluation Committee in this process. This is impermissible.
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An agency’s determination is not be re-evaluated; instead, review of the process is
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appropriate only to determine whether the agency’s process, evaluation, and contract
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award were reasonable and consistent with the terms of the solicitation. Gonzales-
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Stoller Remediation Services, LLC, B-406183.2 et al., 2012 WL 1095360, 4 (Comp.
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Gen. March 2, 2012). “A protester’s mere disagreement with a procuring agency’s
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judgment is insufficient to establish that the agency acted unreasonably.” Id. (internal
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citation omitted).
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The ALJ should “give deference to an agency’s interpretation and application of
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statutes it implements.” Bridgestone Retail Tire Operations v. Indus. Comm’n of Ariz.,
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227 Ariz. 453, 456, 258 P.3d 271, 274 (Ct. App. 2011); Degroot v. Ariz. Racing
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Comm’n, 141 Ariz. 331, 336, 686 P.2d 1301, 1306 (App. 1984). In this case, where one
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of Magellan’s primary claims is that ADHS’s interpretation of the stated prohibition in
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ADHS’s own RBHA statute (A.R.S. §36-3410) is ‘illogical’ and ‘flawed,’ deference
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should be afforded to ADHS in the interpretation and application of its own statute. See
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Police Pension Bd. Of City of Phoenix v. Warren, 97 Ariz. 180, 186, 398 P.2d 892, 895
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(1965) (“The rule is well settled in this jurisdiction that the contemporaneous
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construction of a statute by those officials charged with its administration is entitled to
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great weight in arriving at its proper interpretation.”).
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Magellan argues that ADHS is not entitled to deference because ADOA
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delegated its authority to ADHS to award the GSA RBHA Contract, so the only
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deference due would be to ADOA. Magellan’s Motion at 5-6. This argument ignores
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the fact that ADHS was standing in ADOA’s shoes when it conducted this procurement.
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Because ADOA would have been given due deference in conducting its procurement,
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ADHS is due that same deference when it acted pursuant to ADOA’s delegation. See,
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e.g., Bridgestone Retail Tire Operations v. Indus. Comm’n of Ariz., 227 Ariz. at 456,
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258 P.3d at 274; Degroot v. Ariz. Racing Comm’n, 141 Ariz. at 336, 686 P.2d at 1306.
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Thus, ADHS’s determination should not be re-evaluated; rather, the procurement should
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be reviewed only to determine whether ADHS’s process, evaluation, and contract award
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were reasonable and consistent with the terms of the solicitation. See Gonzales-Stoller
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Remediation Services, LLC, B-406183.2 et al., 2012 WL 1095360 at 4.
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As to Magellan’s arguments (Magellan’s Motion at 6-8) that Bridgestone and
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Degroot do not support the premise of deferential review to ADHS, this is incorrect
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because, again, ADHS was standing in ADOA’s shoes by virtue of the delegation.
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Furthermore, the legal principle that agencies are due deference when they act in
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accordance with their authority is not dependent on the procedural posture of a case, as
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Magellan suggests. Rather, this is a universal theme in agency law that Bridgestone and
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Degroot simply highlight. Therefore, ADHS is due the deference that ADOA would
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have been due.
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Furthermore, both the Cigna decision and the judicial review action of Cigna
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make it clear that giving deference to an agency is appropriate. See Cigna, 2005 AZ
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Admin. Hearings LEXIS 762 at **64-65; Cigna, et. al., LC2005-000541-001 DT at 8.
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By applying a standard of review in between de novo and the extremely highly
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deferential standard that is applied in judicial review actions of final agency decisions,
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the ALJ afforded appropriate deference to ADOA. See id. The three-part test used for
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standard of review afforded appropriate deference to the agency since minor errors, and
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even significant errors that did not ultimately prejudice the protesting party, were not
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enough to sustain a procurement protest appeal. Cigna, et al., LC2005-000541-001 DT
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at 8 (citing Statistica Inc. v. Christopher, 102 F. 3d 1577 (Fed. Cir. 1996) as standing for
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the proposition that a bid protestor in a procurement protest must show not only a
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significant error but one that was prejudicial). Therefore, in this appeal, the three-part
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test should also be used so appropriate deference can be afforded to ADHS, which stood
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in the shoes of ADOA.
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II.
The standard of proof in this case depends on the type of claims
asserted by Magellan. Claims asserting bias in the issuance of
Amendments 7 and 9 and in the scoring of the proposals, require
proof by the higher standard of clear and convincing evidence.
On the standard of proof, A.A.C. R2-19-119(A) provides: “Unless otherwise
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provided by law, the standard of proof is a preponderance of the evidence.” Magellan
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is correct that, generally, the standard of proof in an administrative hearing is a
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preponderance of the evidence. Magellan’s Motion at 9. However, A.A.C. R2-19-
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119(A) also recognizes that this standard of proof can change to comply with other
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standards of proof required by law. For Magellan’s claims1 that 1) MMIC is not a
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responsible offeror; 2) MMIC’s bid included an illegal relationship with Maricopa
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Integrated Health System (“MIHS”); 3) MMIC’s corporate structure is fraught with
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impermissible conflicts of interest; and 4) MMIC failed to obtain the required ADOI
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licensure, the general preponderance of evidence standard will apply. However, for
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Magellan’s two remaining claims: 5) alleging a clear and unlawful bias2 by ADHS in
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issuing Solicitation Amendments 7 and 9; and 6) alleging intentional, unlawful bias3 by
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ADHS in favor of MMIC in the evaluation and scoring of the Magellan and MMIC
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proposals, Magellan must prove its claims by a higher standard, that of clear and
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convincing evidence.
An allegation that the bid evaluation process was tainted by bias is especially
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serious, and as such implicates a deliberately heightened standard of review. Because
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ADHS and its evaluation committee “are presumed to act in good faith,” Basic
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Concepts, Inc., B-299545, 2007 WL 1574615, 2 (Comp. Gen. May 31, 2007), bad faith
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or bias on the part of the agency must be established by clear and convincing evidence.
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Galen Med. Assocs., Inc. v. United States, 369 F.3d 1324, 1330 (Fed. Cir. 2004); see
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also Am-Pro Protective Agency v. United States, 281 F.3d 1234, 1241 (Fed. Cir. 2002)
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(requiring disappointed bidder to make a showing of clear and convincing evidence to
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support claim that agency did not act in good faith); cf. Roberts v. City of Phoenix, 225
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Ariz. 112, 116, 235 P.3d 265, 269 (Ct. App. 2010) (governmental misconduct is
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reviewed under a clear and convincing standard). Cases applying this exacting standard
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have generally required “evidence of some specific intent to injure the [protesting
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party].” Galen Med. Assocs., Inc., 369 F.3d at 1330 (quoting Torncello v. United States,
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681 F.2d 756, 770 (Fed. Cl.1982)).
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1
See Magellan’s Motion to Extend the Length of the Hearing, Doc. 42, at 3.
See Magellan’s Motion to Extend the Length of the Hearing, Doc. 42, at 3.
3
See Magellan’s Protest, JNT-0040, at 16.
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Magellan’s complaint (Magellan’s Motion at 9) that MMIC only cited one case
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that argues for the proposition that clear and convincing evidence is the proper standard
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for claims involving bias is unfounded as the several federal cases cited above stand for
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the same proposition. OAH looks to relevant federal cases when there is no relevant
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state law on point. See Cigna, 2005 AZ Admin. Hearings LEXIS 762 at **64; see also
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New Pueblo Constructors, Inc., 144 Ariz. 95, 696 P.2d 185.
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In this case, when it comes to Magellan’s claims regarding unlawful bias by
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ADHS in issuing Amendments 7 and 9, or in scoring the two proposals at issue, or any
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other allegations of bias that Magellan may raise in the hearing, Magellan must prove
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evidence of specific intent by ADHS to harm Magellan. See id. At the very least,
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Magellan must prove its claims of unlawful bias by a clear and convincing standard of
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proof. Therefore, the ALJ should issue an order that reflects these different standards of
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proof, depending on the type of claim brought by Magellan.
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III.
Magellan bears the burden of proof in this case.
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Magellan correctly states that it bears the burden of proof in this case, but cites to
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an irrelevant citation as to why. Magellan’s Motion at 10. Magellan’s reliance on
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A.A.C. R2-7-A909 is misplaced and confusing. Quite simply, Magellan bears the
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burden of proof in this case because it is the party who brought the claim or who is
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asserting a right. A.A.C. R2-19-119(B)(1). Because there is no dispute that Magellan
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bears the burden of proof in this case, the ALJ should issue an order confirming this.
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IV.
Conclusion
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Based on the foregoing, ADHS respectfully requests that the ALJ deny
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Magellan’s Motion and instead issue an order that: 1) Magellan bears the burden of
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proof in this case; 2) the standard of proof is preponderance of the evidence, generally,
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and clear and convincing for any claims involving bias; and 3) the standard of review is
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whether there was a significant error in the procurement process that was substantially
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prejudicial to Magellan and, but for the significant error, Magellan would have been
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awarded the contract.
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DATED this 2nd day of August, 2013.
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THOMAS C. HORNE
Attorney General
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By /s/ Kevin D. Ray
Kevin D. Ray
Gregory D. Honig
Laura T. Flores
Assistant Attorneys General
1275 West Washington Street
Phoenix, Arizona 85007
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Attorneys for Arizona Department of
Health Services
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CERTIFICATE OF SERVICE
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ORIGINAL filed using the OAH electronic document filing system
https://portal.azoah.com/oedf this 2nd day of August, 2013, with copies provided to all
parties on the approved mailing list this 2nd day of August, 2013, by posting through the
designated OAH website at https://portal.azoah.com/oedf/documents/13F-006ADM/index.html.
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By: /s/ Koren Lyons
#3494227
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Index of Authorities Attached
1. Am-Pro Protective Agency v. United States, 281 F.3d 1234 (Fed. Cir. 2002)
2. Anderson Consulting v. United States, 959 F.2d 929 (Fed Cir. 1992)
3. Arizona Health Care Cost Containment Sys. v. Bentley, 187 Ariz. 229, 928
P.2d 653 (Ct. App. 1996)
4. Arizona State Bar Ethics Op. 87-14
5. Basic Concepts, Inc., B-299545, 2007 WL 1574615 (Comp. Gen. May 31,
2007)
6. Bridgestone Retail Tire Operations v. Indus. Comm’n of Ariz., 227 Ariz. 453,
258 P.3d 271 (Ct. App. 2011)
7. Cigna Healthcare of Arizona, et al. v. Betsey Bayless, et al., LC2005-000541001 DT (October 4, 2006)
8. Cigna Healthcare of Arizona, Inc. and Conn. Gen’l Life Ins. Co. v Arizona
State Procurement Office, United Healthcare, 2005 AZ Admin. Hearings
LEXIS 762 (May 2, 2005)
9. Degroot v. Ariz. Racing Comm’n, 141 Ariz. 331, 686 P.2d 1301 (App. 1984).
10. DMS All-Star Joint Venture v. United States, 90 Fed. Cl. 653 (Fed. Cir. 2009)
11. Galen Med. Assocs., Inc. v. United States, 369 F.3d 1324 (Fed. Cir. 2004)
12. Gonzales-Stoller Remediation Services, LLC, B-406183.2 et al., 2012 WL
1095360 (Comp. Gen. March 2, 2012).
13. New Pueblo Constructors, Inc. v. State of Arizona, 144 Ariz. 95, 696 P.2d 185
(1985)
14. Police Pension Bd. Of City of Phoenix v. Warren, 97 Ariz. 180, 398 P.2d 892,
(1965)
15. Roberts v. City of Phoenix, 225 Ariz. 112, 235 P.3d 265 (Ct. App. 2010)
16. Statistica Inc. v. Christopher, 102 F.3d 1577 (Fed. Cir. 1996)
17. Torncello v. United States, 681 F.2d 756 (Fed. Cl.1982)
Am-Pro Protective Agency, Inc. v. U.S., 281 F.3d 1234 (2002)
Contractor failed to establish by clear and
convincing evidence that it should be relieved
of its obligation to bring timely claim under
Contract Disputes Act, based on theory of duress,
due to government official's alleged threat to
terminate contract unless contractor released its
claim for additional compensation; official was
entitled to presumption that she acted in good
faith, contractor failed to claim duress until six
years after alleged coercion, contractor's attorney
participated in meetings with official and in
drafting release, and only evidence supporting its
claim was uncorroborated affidavit drafted six
years after dispute arose. Contract Disputes Act,
§ 10(a)(1), 41 U.S.C.A. § 609(a)(1).
281 F.3d 1234
United States Court of Appeals,
Federal Circuit.
AM–PRO PROTECTIVE AGENCY,
INC., Plaintiff–Appellant,
v.
UNITED STATES, Defendant–Appellee.
No. 01–5077.
|
Feb. 26, 2002.
Contractor brought action against United States alleging that
government owed it additional compensation for hours it was
paying its employees to work during “breaker hours.” The
United States Court of Federal Claims, Bohdan A. Futey, J.,
dismissed action. Contractor appealed. The Court of Appeals,
Michel, Circuit Judge, held that: (1) contractor failed to
establish by clear and convincing evidence that government
official did not act in good faith, and (2) affidavit offered
by contractor was not sufficient to create genuine issue of
material fact as to whether contractor was under duress.
19 Cases that cite this headnote
[4]
Evidence
Rebuttal of presumptions of fact
A high burden must be carried to overcome
the presumption that government officials act in
good faith.
Affirmed.
15 Cases that cite this headnote
West Headnotes (7)
[1]
[5]
A party alleging that a government official acted
in bad faith must overcome presumption of good
faith with well-nigh irrefragable proof; “wellnigh irrefragable” proof refers to evidence that
cannot be refuted or disproved, evidence that
is incontrovertible, incontestable, indisputable,
irrefutable, and undeniable.
Federal Courts
Trial de novo
Court of Appeals reviews a trial court's decision
concerning the lack of jurisdiction de novo.
1 Cases that cite this headnote
[2]
Federal Courts
Trial de novo
The Court of Appeals reviews de novo a trial
court's grant of summary judgment. Fed.Rules
Civ.Proc.Rule 56, 28 U.S.C.A.
[3]
Evidence
Rebuttal of presumptions of fact
50 Cases that cite this headnote
[6]
Evidence
Rebuttal of presumptions of fact
The presumption that a government official acts
in good faith is not overcome unless a party
shows otherwise through clear and convincing
proof.
Public Contracts
Evidence
32 Cases that cite this headnote
United States
Evidence
[7]
Federal Civil Procedure
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
1
Am-Pro Protective Agency, Inc. v. U.S., 281 F.3d 1234 (2002)
Contract cases in general
Affidavit offered by contractor, in opposition
to government's motion for summary judgment,
was not sufficient to create genuine issue of
material fact as to whether contractor was
under duress when it released government from
contractor's claim for additional compensation
under contract; although, ordinarily, affidavit
would have met evidentiary standard needed to
avoid summary judgment, government official
was entitled to presumption that she acted in
good faith and that presumption could not be
overcome except through showing by clear and
convincing evidence that she acted otherwise.
Fed.Rules Civ.Proc.Rule 56, 28 U.S.C.A.
27 Cases that cite this headnote
Attorneys and Law Firms
*1235 A. Camden Lewis, Lewis, Babcock & Hawkins,
L.L.P., of Columbia, SC, argued *1236 for plaintiffappellant. On the brief was Mark W. Hardee.
Marian E. Sullivan, Trial Attorney, Commercial Litigation
Branch, Civil Division, Department of Justice, of
Washington, DC, argued for defendant-appellee. With her
on the brief were David M. Cohen, Director; and Mark
A. Melnick, Assistant Director. Of counsel on the brief
was Dennis J. Gallagher, Assistant Legal Adviser, U.S.
Department of State, of Rosslyn, VA.
Because the only evidence Am–Pro relies on in opposition
to summary judgment—an uncorroborated affidavit executed
six years after the government's alleged wrongdoing occurred
—cannot create a genuine issue and meet the high evidentiary
burden of proof needed to overcome the presumption that
government officials act properly and in good faith, we
reject Am–Pro's argument that it was entitled to a trial. We
therefore affirm the grant of summary judgment in favor
of the government. Accordingly, we need not review the
dismissal under RCFC 12(b)(1).
Background
On June 21, 1989, Am–Pro was awarded Contract No. 1038
963119 to provide guard services for the Department of
State's facilities in the Washington, DC, area and at the
United States Mission to the United Nations in New York
City, New York. This dispute first arose in 1991, when
Am–Pro suggested that the government owed it additional
compensation for hours it was paying its employees to work
during “breaker hours.” “Breaker hours,” as defined by Am–
Pro, were the hours for lunch breaks and the two fifteenminute breaks that Am–Pro was required to provide each
guard under the contract. During these times, Am–Pro had
to either have another guard fill in for the guard on break or
else have that guard work through his break. Am–Pro asserted
that it had not been compensated either for the cost of paying
another employee to stand guard while the employee assigned
to a post was taking one of these required breaks or for the
extra cost of paying overtime to these guards who worked
through their breaks.
Before NEWMAN, MICHEL, and RADER, Circuit Judges.
Opinion
MICHEL, Circuit Judge.
Plaintiff–Appellant Am–Pro Protective Agency, Inc. (“Am–
Pro”) appeals from a judgment of the United States Court of
Federal Claims dismissing, as untimely, the contract action
that Am–Pro brought against the government and holding, in
the alternative, that the government was entitled to summary
judgment based on a previously executed release. See Am–
Pro Protective Agency v. United States, No. 98–940C, slip op.
(Feb. 2, 2001). At the same time, the trial court rejected Am–
Pro's assertion that it had executed this release under duress,
meaning (according to Am–Pro) that neither the release nor
the applicable limitations period barred its contract claim.
On January 9, 1992, Am–Pro representatives and counsel
met to discuss the “breaker issue” with the Contracting
Officer (“CO”) and other Department of State representatives.
At this meeting, the CO notified Am–Pro that she would
have to consider the pending breaker issue when deciding
whether to exercise options on the contract. According to
Am–Pro, however, the CO framed this consideration as a
threat, allegedly stating that if Am–Pro chose to file a formal
claim, she would promptly disapprove it and that, if Am–Pro
thereafter appealed her decision, the CO would cancel and resolicit the existing contract. See Brown Affidavit at ¶ 9 (May
20, 1998).
*1237 By letter to Am–Pro dated April 8, 1992, the
CO reiterated her concern about whether Am–Pro's price
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Am-Pro Protective Agency, Inc. v. U.S., 281 F.3d 1234 (2002)
for the contract was known, given its claim for additional
compensation under the contract. The CO maintained that the
intent of the parties at the time of contract formation was that
Am–Pro would provide “breakers” within the contract price
for the first 18 months of performance, and that “the principle
that breakers are not separately compensable was firmly
established by contract performance.” Consequently, the CO
indicated that she would have to consider the government's
future potential liability when deciding whether to exercise
future options on the contract.
On May 29, 1992, Am–Pro submitted a certified claim to
the CO seeking recovery of $2,593,389 for breaker hours
from the date of the contract's inception to April 15, 1992.
In September 1992, the CO denied this claim in its entirety,
finding that the contract was a fixed-price contract and
that all the costs of contract performance were therefore
included in Am–Pro's original bid price. The relevant contract
terms stated “This is a Fixed Price and Time and Materials
Contract.... The initial 120 day period of the contract will
be a Fixed Price arrangement. After the initial 120 day
period, the contract will become Time and Materials.” Am–
Pro nevertheless asserted that the contract was a time and
materials contract. The CO further explained that “[i]n actual
performance and in accord with section B of the contract, the
contract is firm, fixed-price with a composite billing rate that
utilizes time and materials terms to ensure performance and
payment.” The CO also found that “Am–Pro's cost proposal
contain[ed] several elements which provide for compensation
for providing supervisor and guard breaks.” Am–Pro did not
appeal the CO's decision.
The parties met again on November 3, 1992. Am–Pro alleges
that, at this meeting, the CO “repeated her threat of canceling
the Contract if Am–Pro continued to have its Contract rights
protected by appealing her interpretation of the Contract.”
Brown Decl. at ¶ 12. Further, Am–Pro alleges, the CO
threatened to “adversely impact [its] ability to contract with
other agencies of government....” Id. The CO denies the
accuracy of these three allegations. See Cain Decl. at ¶ 10.
In a letter dated November 5, 1992, Am–Pro notified the CO
that it had asked its attorneys to prepare a letter expressing “its
willingness to terminate all claims past and present” regarding
the breakers' issue. By letter dated November 10, 1992, Am–
Pro confirmed that it had “withdrawn” the claim that was
subject to the September 1, 1992, final decision of the CO.
And it agreed that it would not appeal the CO's final decision
or submit any future claim for costs attributable to the
“breaker” issue, thereby effectively releasing the government
from any future claims for breaker hours. Under this release,
the CO agreed that Am–Pro would not be excluded from any
other competition for further Department of State security
services contracts. 1 Nothing in the letters by Am–Pro (and
presumably, its attorneys) alludes to the threats that allegedly
occurred in the January 1992 and November 1992 meetings
with the government.
At the end of the contract option period, the Department
of State entered into another contract with Am–Pro for
the provision of guard services through 1997. In *1238
May 1998, nearly six years after the government allegedly
threatened Am–Pro with cancellation, Am–Pro submitted a
certified claim for $3,832,695.22. Attached to this claim was
Am–Pro's original May 1992 claim for $2,593,389. Alleging
that the letters dated November 5, 1992, and November 10,
1992, were written under duress and that the release was
therefore invalid, Am–Pro sought compensation for the cost
of the breaker hours allegedly incurred from 1989 to 1994.
Shortly thereafter, a new CO was assigned. On July 20, 1998,
the new CO notified Am–Pro that he refused to consider
its claim because Am–Pro had indeed released that claim in
the November 10, 1992, letter and also because the claim
was barred by Am–Pro's failure to timely appeal the first
CO's decision. On December 29, 1998, Am–Pro sued the
government in the Court of Federal Claims, challenging the
new CO's decision and seeking payment in the amount of
$3,832,695.22.
The Court of Federal Claims dismissed Am–Pro's complaint
for lack of jurisdiction. Specifically, the court held that Am–
Pro had failed to contest the CO's 1992 final decision within
the one-year limitations period set forth in the Contract
Disputes Act (“CDA”), 41 U.S.C. § 609(a)(1). See Am–Pro
Protective Agency, No. 98–940C, slip op. at 8. Alternatively,
the court granted the government's motion for summary
judgment, reasoning that Am–Pro's 1992 release of claims for
breaker hours on the contract also barred its present claim.
See id. at 13. In so doing, the court determined that the only
evidence Am–Pro provided to show its allegedly involuntary
acceptance of the government's position on the breaker hours
—an affidavit by Brown, the president and CEO of Am–Pro,
drafted six years after the facts at issue—was insufficient to
overcome the strong presumption that government officials
(like the CO here) carry out their duties lawfully and in good
faith. That Am–Pro's attorneys helped draft the release, the
trial court reasoned, only further weakened Am–Pro's claim
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Am-Pro Protective Agency, Inc. v. U.S., 281 F.3d 1234 (2002)
for duress. It concluded that the November 10, 1992, release
was therefore valid and binding.
acted in good faith”). Nor is the strength of this presumption,
at least insofar as it arises in the context of quasi-criminal
wrongdoing by government officials acting in the course of
Am–Pro timely appealed the Court of Federal Claims'
their public duties. See id. In fact, for almost 50 years this
judgment. We have jurisdiction under 28 U.S.C. § 1295(a)(3).
court and its predecessor have repeated that we are “loath to
find to the contrary [of good faith], and it takes, and should
take, well-nigh irrefragable proof to induce us to do so.”
Schaefer v. United States, 224 Ct.Cl. 541, 633 F.2d 945,
Discussion
948–49 (1980); see also Grover v. United States, 200 Ct.Cl.
[1]
[2] We review the trial court's decision concerning 337, 344 (1973); Kalvar, 543 F.2d at 1302; Torncello v.
United States, 231 Ct.Cl. 20, 681 F.2d 756, 770 (1982); T
the lack of jurisdiction de novo, Brown v. United States, 105
& M Distribs., Inc. v. United States, 185 F.3d 1279, 1285
F.3d 621, 623 (Fed.Cir.1997), as we do its grant of summary
(Fed.Cir.1999).
judgment, Mingus Constructors, Inc. v. United States, 812
F.2d 1387, 1390 (Fed.Cir.1987).
[4] While our court and its predecessor have often used the
[3] In this case, both the jurisdictional and summary “well-nigh irrefragable” language to describe the quality of
evidence required to overcome the good faith presumption,
judgment issues are inextricably intertwined in the
several cases instead use the phrase “clear evidence.” See,
determination of whether Am–Pro's inaction was excused
e.g., Librach, 147 Ct.Cl. at 612 (stating that “clear evidence
by the duress allegedly caused by the CO's threats. As to
to the contrary” is necessary to overcome the presumption
jurisdiction, the CDA allows for two avenues of “appeal”
in favor of the government); George v. United States, 166
from the decision of a CO: (1) appealing to the appropriate
Ct.Cl. 527, 531 (1964) (same). The use of two different but
board of contracting appeals within 90 days; or (2) filing suit
nevertheless similar descriptions of the evidence needed to
in the Court of Federal Claims within one year. See 41 U.S.C.
overcome this presumption may have led to some confusion.
§§ 606, 607, 609(a)(1), 609(a)(3). It is not disputed that Am–
So, in line with our well-established precedent that a high
Pro did not timely file suit with respect to the 1992 claim.
burden must be carried to overcome this presumption, we now
If we were to conclude that the failure to timely file could
consider what proof is needed to show that the government
have resulted from duress, however, a plausible argument
acted in bad faith.
could be made for the equitable tolling of the statutory period.
Similarly, if a reasonable fact finder could find duress, that
duress would render Am–Pro's release invalid.
But given the high burden of proof necessary to overcome
the presumption of good faith, and given the facts that
tend to render Am–Pro's duress theory implausible, *1239
e.g., the failure to claim duress until six years after the
alleged coercion, the participation of Am–Pro's attorney in
the meetings and in the drafting of the release, and the
absence of any evidence supporting its claim except for an
uncorroborated affidavit drafted six years after the dispute
arose, we conclude that Am–Pro has failed to carry its burden
of proof and cannot overcome the strong presumption that
government contract officials exercise their duties in good
faith. Accordingly, we hold that Am–Pro has failed to create
a genuine factual issue about duress. 2
The presumption that government officials act in good faith
is nothing new to our jurisprudence. See, e.g., Knotts v.
United States, 128 Ct.Cl. 489, 492, 121 F.Supp. 630 (1954)
(stating “we start out with the presumption that the official
[5] [6] Courts generally recognize three standards of proof:
preponderance of the evidence, clear and convincing, and
beyond a reasonable doubt. See Price v. Symsek, 988 F.2d
1187, 1191 (Fed.Cir.1993). Of the three, we believe that
clear and convincing most appropriately describes the burden
of proof applicable to the presumption of the governments
good faith. This is so because, for one, the presumption
of good faith, as used here, applies only in the situation
where a government official allegedly engaged in fraud or
in some other quasi-criminal wrongdoing. See Addington v.
Texas, 441 U.S. 418, 423–24, 99 S.Ct. 1804, 60 L.Ed.2d
323 (1979) (discussing the three burdens of proof outlined
above and the situations in which they ordinarily apply).
In addition, we believe the clear and convincing standard
most closely approximates the language traditionally used to
describe the burden for negating the good faith presumption;
namely, the “well-nigh, *1240 irrefragable” proof standard.
Specifically, we have described clear and convincing burden
as such:
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Am-Pro Protective Agency, Inc. v. U.S., 281 F.3d 1234 (2002)
A requirement of proof by clear
and convincing evidence imposes a
heavier burden upon a litigant than
that imposed by requiring proof by
preponderant evidence but a somewhat
lighter burden than that imposed by
requiring proof beyond a reasonable
doubt. Clear and convincing evidence
has been described as evidence which
produces in the mind of the trier of
fact an abiding conviction that the
truth of a factual contention is “highly
probable.”
Price, 988 F.2d at 1191 (internal citations omitted)
(determining the quantum of proof required to establish
priority in an interference proceeding with an issued
patent) (emphasis added). “Well-nigh irrefragable” proof
similarly refers to evidence that “cannot be refuted
or disproved; incontrovertible, incontestable, indisputable,
irrefutable, undeniable (said of a statement, argument, etc.,
or the person who advances it.)” Oxford English Dictionary
93 (2d ed.1991) (defining “irrefragable”). As with the clear
and convincing standard, the requirement of “well-nigh
irrefragable” proof also sets a high hurdle for a challenger
seeking to prove that a government official acted in bad faith:
In the cases where the court has considered allegations
of bad faith, the necessary “irrefragable proof” has been
equated with evidence of some specific intent to injure
the plaintiff. Thus, in Gadsden v. United States, the court
compared bad faith to actions which are “motivated alone
by malice.” In Knotts, the court found bad faith in a civilian
pay suit only in view of a proven “conspiracy ... to get
rid of plaintiff.” Similarly, the court in Struck Constr. Co.
v. United States, found bad faith when confronted by a
course of Governmental conduct which was “designedly
oppressive.” But in Librach, the court found no bad
faith because the officials involved were not “actuated by
animus toward the plaintiff.”
Kalvar, 543 F.2d at 1302 (internal citations omitted); see also
Sanders v. United States Postal Serv., 801 F.2d 1328, 1331
(Fed.Cir.1986) (stating that “there is a strong presumption in
the law that administrative actions are correct and taken in
good faith”) (emphasis added); Caldwell & Santmyer, Inc. v.
Glickman, 55 F.3d 1578, 1581 (Fed.Cir.1995) (reiterating the
principle that “[a] contractor can overcome [the presumption
that the government acts in good faith] only if it shows
through ‘well-nigh irrefragable proof’ that the government
had a specific intent to injure it”) (quoting Torncello v. United
States, 231 Ct.Cl. 20, 681 F.2d 756, 770 (1982)); Torncello,
681 F.2d at 770 (stating “the government ... is assumed always
to act in good faith, subject only to an extremely difficult
showing by the plaintiff to the contrary.”) (emphasis added);
Librach, 147 Ct.Cl. at 612 (stating that “clear evidence to the
contrary” is necessary to overcome the presumption in favor
of the government).
Based on this well-established precedent, it logically follows
that showing a government official acted in bad faith is
intended to be very difficult, and that something stronger than
a “preponderance of evidence” is necessary to overcome the
presumption that he acted in good faith, i.e., properly. This is
especially so when, as in this case, years have passed between
the occurrence of the underlying facts and the allegation of
bad faith.
Am–Pro's Affidavit
Having clarified the standard of proof needed to overcome
the presumption of *1241 good faith, we must now decide
whether Am–Pro submitted sufficient evidence to create a
genuine issue of material fact about whether its inaction and
its release resulted from duress by the government. In other
words, we must determine if a reasonable fact finder could
find, by clear and convincing evidence, that the CO did not
act in good faith.
As stated above, the only evidence Am–Pro offers to support
its allegations of duress, i.e., that the CO acted in bad faith,
is Brown's affidavit. The affidavit states that “Am–Pro was
threatened with the taking of its existing Contract with DOS
and a claim for considerable reimbursement if it wished
to challenge the Contracting Officer's interpretation of the
Contract.... [And the CO] threatened to adversely impact Am–
Pro's ability to contract with other agencies of government
thereafter.” Brown Affidavit at ¶¶ 9, 12. For the reasons
discussed below, this affidavit is insufficient to create a
genuine issue of material fact. In reaching this decision, we
consider multiple factors.
[7] First, the affidavit is utterly uncorroborated. See, e.g.,
Appeal of Starghill Alternative Energy Corp., 98–1 BCA ¶
29, 708 (1998) (indicating that a lack of “contemporaneous,
corroborating proof” that the CO threatened to terminate a
contract if the contractor refused to execute a modification
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5
Am-Pro Protective Agency, Inc. v. U.S., 281 F.3d 1234 (2002)
supported a finding of no duress). Ordinarily, such an
affidavit would probably meet the evidentiary standard
needed to avoid summary judgment. Indeed, if this were a
typical summary judgment issue, one that did not involve a
strong presumption in favor of a particular party, the presence
of Brown's affidavit and the CO's sworn denials would create
a traditional “swearing contest” and thus be inappropriate
for summary disposition. But given the clear and convincing
evidence needed to show that the CO acted in bad faith,
and given the six years of silence and the involvement
of counsel, we hold that Brown's statement alone cannot
withstand summary judgment.
Nothing in Brown's affidavit, moreover, suggests that the
government “had a specific intent to injure” Am–Pro.
Caldwell, 55 F.3d at 1581. And Am–Pro has not alleged that
these threats were “motivated alone by malice,” Gadsden v.
United States, 111 Ct.Cl. 487, 489, 78 F.Supp. 126 (1948);
as part of a proven “conspiracy ... to get rid of [Am–Pro],”
Knotts, 128 Ct.Cl. at 500, 121 F.Supp. 630; as part of a course
of governmental conduct which was “designedly oppressive,”
Struck, 96 Ct.Cl. at 222; or as “actuated by animus toward”
Am–Pro, Librach, 147 Ct.Cl. at 614.
To the contrary, the CO's course of conduct suggests she
acted in good faith. For example, the contract provided
for a two-year base period followed by three one-year
option periods. Despite Am–Pro's assertions that it was
owed additional compensation for breaker hours, the CO
nevertheless exercised the option on each of these three years.
Further, the CO, on behalf of the government, entered into a
second contract with Am–Pro in 1994, when the first contract
expired. The CO did not have to take either action and could
have instead awarded the contract to another contractor.
Moreover, in determining whether to exercise the options
on the first contract, the CO could properly consider the
contractor's performance and the other issues that had arisen
after the contract's award. One would expect such behavior
from a reasonable CO (and, for that matter, a reasonable
businesswoman or businessman). The CO had a legitimate
concern about the cost of the contract: in her opinion, the
contract had been solicited so as to include the cost of breaker
hours in the fixed price. Yet Am–Pro later asserted *1242
that it was owed separate compensation for these hours,
thereby driving up the cost of the contract considerably. The
CO candidly explained this to Am–Pro.
Later Am–Pro, as previously noted, alleged that this
explanation was actually a threat. But Am–Pro's perception
of this explanation as a threat is implausible; rather, the CO's
statements appear to reflect normal and appropriate business
concerns. In our view, then, Am–Pro faced two alternatives:
either file an appeal; or hope that not doing so would help
persuade the government to exercise its right to purchase the
option years. A reasonable fact finder could only see this as
a free choice—an ordinary business decision, not coercion.
See Johnson, 531 F.2d at 1043 (stating that a “free choice
between two courses of action negatives duress.”). Am–Pro
chose the latter, and it ultimately gained five more years of
contracting with the State Department. Am–Pro cannot now
plausibly argue that its business choice resulted from duress.
In addition to the uncorroborated nature of Brown's affidavit,
other factors support a holding that Am–Pro has failed to
create a genuine issue of material fact about whether the
release letter and failure to file or complain were the product
of duress. Importantly, the affidavit was not prepared until six
years after the alleged threats took place. See Johnson, Drake
& Piper, Inc. v. United States, 209 Ct.Cl. 313, 531 F.2d 1037,
1043 (1976) (stating that where a contractor did not allege
duress until 3 ½ years after its contract work was completed,
“a telling indication that no duress was practiced is the long
delay before plaintiff spoke out and claimed duress”). Equally
significant, the release was prepared by Am–Pro's counsel,
as shown by the November 5, 1992, letter that states “I
[Am–Pro's president] have contacted our lawyers and directed
them to prepare a document indicating our willingness to
terminate all claims for past and present (as associated with
this contract) monies related to ‘breakers'.” Such involvement
of counsel during the alleged period of duress similarly has
been held to present “compelling evidence that there was no
duress in fact.” Id.
We also find Am–Pro's affidavit insufficient because of its
inherent implausibility. Am–Pro's Brown alleged that the CO
threatened to cancel the current contract if Am–Pro did not
withdraw its 1992 breaker claim. This threat was allegedly
first made at the January 1992 meeting, see Brown Affidavit
at ¶ 9, at which no less than twelve people were present,
including Am–Pro's counsel and a representative of the Legal
Adviser's Office, see Government Minutes of January 9, 1992
Meeting. Yet none of the other eleven people has corroborated
this alleged threat.
Corroboration is also lacking for the other two threats Brown
alleged the CO made. He alleged that the CO threatened not
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6
Am-Pro Protective Agency, Inc. v. U.S., 281 F.3d 1234 (2002)
to exercise the remaining option years under the contract and
to “adversely impact Am–Pro's ability to contract with other
agencies of government.” Brown Affidavit ¶ 12. As discussed
earlier, whether the CO was going to exercise the option
years under the contract was a business decision that required
her consideration of unanticipated and additional expenses,
such as for the breaker hours. Such a concern could have
legitimately justified a decision not to exercise further options
on the contract. Thus, the CO would have had no reasonable
motive to issue such a “threat.” Finally, Am–Pro's assertion
that the CO threatened to effectively exclude Am–Pro from
other government contracts is equally implausible. As the CO
stated in her affidavit, she “had no authority to impose such
a ban.” Cain Decl. at ¶ 11.
*1243 Am–Pro's belated assertions, with no corroborating
evidence, therefore fall short of the “clear and convincing”
or “highly probable” (formerly described as “well-nigh
irrefragable”) threshold. This is especially so because nothing
else in the record hints that the CO acted improperly. On the
contrary, the contemporaneous documentary record suggests
the CO acted in good faith and properly. For example, in
view of the dispute regarding breaker hours, the CO issued
Modification 22, which provided for temporary payments
for breaker hours pending her final interpretation of the
contract. Similarly, the CO's candid explanation in her April
8, 1992, letter to Am–Pro that she would need to consider the
breaker hours issue in her decision whether to exercise the
contract options demonstrates a good faith effort to share her
business concerns. On top of that, the CO did extend Am–
Pro's contract.
We also view as telling Am–Pro's lack of contemporaneous
documentary evidence. Had Brown, or any other Am–
Pro representative present when the alleged threats took
place, made a notation or some form of contemporaneous
record either to Am–Pro's attorneys or simply to Am–
Pro's internal files, this might be a different case. A
contemporaneous record of the alleged threats would have
strengthened the plausibility of Brown's allegations. But
when (as here) the only evidence offered by the plaintiff
is an uncorroborated and implausible affidavit prepared six
years after the underlying facts occurred, and given that the
documentary evidence of record, including a release prepared
by plaintiff's own counsel, is contrary to this affidavit, we
hold that such evidence cannot, as a matter of law, meet the
clear and convincing burden of proof necessary to overcome
the presumption the government official acted properly and
in good faith.
Conclusion
For the reasons stated above, we conclude as a matter of
law that Brown's affidavit does not constitute clear and
convincing proof necessary to overcome the presumption that
the CO acted properly and in good faith and that a reasonable
fact finder could not find to the contrary. Therefore, Am–
Pro has failed to create a genuine factual issue about whether
its November 10, 1992, release was procured by duress. The
summary judgment of the Court of Federal Claims that the
release bars the action Am–Pro brought is therefore
AFFIRMED.
Footnotes
1
2
This statement likely stems from Am–Pro's concerns that the Small Business Administration might not release the contract from the
Section 8(a) program for open competition and that Am–Pro had recently “graduated” from Section 8(a) status. See Cain Decl. at ¶ 10.
Because additional monies and time frames are implicated in the 1998 claim which was timely appealed, we do not agree that the
1992 and 1998 claims were identical as held by the court below. Here we do not address the question of untimeliness. See Nippon
Steel v. United States, 219 F.3d 1348, 1351–53 (Fed.Cir.2000) (stating that the practice of bypassing jurisdiction and addressing the
merits is permissible where a jurisdictional and a merits issue are “inextricably intertwined”).
End of Document
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
7
Andersen Consulting v. U.S., 959 F.2d 929 (1992)
37 Cont.Cas.Fed. (CCH) P 76,284
Evidence
959 F.2d 929
United States Court of Appeals,
Federal Circuit.
United States
Scope of review
United States
Scope of review
ANDERSEN CONSULTING, Appellant,
v.
The UNITED STATES, Appellee,
and
Computer Sciences Corporation, Intervenor.
No. 91–1237.
|
The Board of Contract Appeals' conclusions of
law are reviewed de novo, but the reviewing
court defers to its findings of fact unless
unsupported by substantial evidence. Contract
Disputes Act of 1978, § 10(b), 41 U.S.C.A. §
609(b).
March 17, 1992.
5 Cases that cite this headnote
Unsuccessful bidder appealed the Department of Treasury's
award of a contract for the development of an automatic
data processing system. The General Services Administration
Board of Contract Appeals denied the bid protests, and bidder
appealed. The Court of Appeals, Mayer, Circuit Judge, held
that: (1) Board properly determined that errors in contract
procurement were de minimis and did not require the granting
of a protest, and (2) Board did not abuse its discretion
in finding that agency did not engage bidder in improper
discussion after submission of best and final offer.
[3]
United States
Scope of review
General Services Administration Board of
Contract Appeals must consider the significance
of errors in procurement when deciding whether
to grant a protest, as overturning awards on de
minimis errors wastes resources and time, and
needlessly disrupts procurement activities and
governmental programs and operations. Contract
Disputes Act of 1978, § 10, 41 U.S.C.A. § 609;
Federal Property and Administrative Services
Act of 1949, § 111(f)(5)(B), as amended, 40
U.S.C.(1988 Ed.) § 759(f)(5)(B).
Affirmed.
West Headnotes (9)
[1]
Public Contracts
Rights and Remedies of Disappointed
Bidders; Bid Protests
United States
Rights and Remedies of Disappointed
Bidders; Bid Protests
The General Services Administration Board of
Contract Appeals was not bound to grant a
protest upon finding any errors in a procurement,
no matter how minor.
5 Cases that cite this headnote
[2]
Public Contracts
Scope of review
Public Contracts
Scope of review
Public Contracts
Public Contracts
Scope of review
43 Cases that cite this headnote
[4]
Public Contracts
Evaluation process
United States
Evaluation process
General Services Administration Board of
Contract Appeals did not abuse its discretion in
deciding that errors contained in procurement
regarding award of contract for development
of automated data processing system were de
minimis and thus did not require the granting
of a protest. Contract Disputes Act of 1978, §
10, 41 U.S.C.A. § 609; Federal Property and
Administrative Services Act of 1949, § 111(f)(5)
(B), as amended, 40 U.S.C.(1988 Ed.) § 759(f)
(5)(B).
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
1
Andersen Consulting v. U.S., 959 F.2d 929 (1992)
37 Cont.Cas.Fed. (CCH) P 76,284
Evaluation process
8 Cases that cite this headnote
[5]
Board of Contract Appeals' findings that
substantial amount of price difference between
bidders' best and final offers resulted from
successful bidder's proposal of reconditioned
equipment and that successful bidder's price
would still be lower than rival bidder even if
rival's allegations of faulty price analysis were
correct, were sufficient to support agency's price
realism analysis; board did not have to conduct
independent analysis.
Public Contracts
Evaluation process
United States
Evaluation process
General Services Administration Board of
Contract Appeals properly determined that
contractor's errors in preparing best and final
offer software inventory list were merely
clerical, and thus could be corrected without
reopening negotiations. Contract Disputes Act of
1978, § 10, 41 U.S.C.A. § 609; Federal Property
and Administrative Services Act of 1949, §
111(f)(5)(B), as amended, 40 U.S.C.(1988 Ed.)
§ 759(f)(5)(B).
[6]
Public Contracts
Evaluation process
Contract proposals had to be evaluated on the
basis of what they contained, not what their
authors intended that they contain; subjective
unexpressed intent of one of the parties to a
contract was irrelevant.
[7]
[9]
Public Contracts
Form and requisites; responsiveness
“De minimis errors” in bids for public contracts
those that are so insignificant when considered
against a solicitation as a whole that they can
be safely ignored and the main purposes of the
contemplated contract will not be affected if they
are.
9 Cases that cite this headnote
5 Cases that cite this headnote
Attorneys and Law Firms
Public Contracts
Evaluation process
*930 William A. Bradford, Jr., Hogan & Hartson,
Washington, D.C., argued for appellant. With him on the brief
was Douglas R. Duberstein.
United States
Evaluation process
Substantial evidence supported Board of
Contract Appeals' interpretation of contract
requirements for automatic data processing
system, as indicating that “support” language
meant only that proposed software had to “work
with” system functions and that contractor did
not have to provide those protocols in the best
and final offer.
1 Cases that cite this headnote
[8]
1 Cases that cite this headnote
Public Contracts
Evaluation process
Catherine A. Christman, Commercial Litigation Branch,
Dept. of Justice, Washington, D.C., argued for appellee.
On the brief were Stuart M. Gerson, Asst. Atty. Gen. and
David M. Cohen, Director, Dept. of Justice, Washington,
D.C. Also Ingrid D. Falanga and Daniel J. Mazella, Financial
Management Service, Dept. of Treasury, of counsel. Joan
M. Bernott, Dept. of Justice, Washington, D.C., represents
appellee.
James J. Regan, Crowell & Moring, Washington, D.C.,
argued for intervenor Computer Sciences Corp. With him on
the brief was Robert M. Halperin.
Before MAYER, Circuit Judge, FRIEDMAN, Senior Circuit
Judge, and LOURIE, Circuit Judge.
United States
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
2
Andersen Consulting v. U.S., 959 F.2d 929 (1992)
37 Cont.Cas.Fed. (CCH) P 76,284
available as of the date of submission of BAFOs. The RFP
defined commercial availability as:
Opinion
MAYER, Circuit Judge.
Andersen Consulting appeals the decision of the General
Services Administration Board of Contract Appeals denying
its protest of an award by the Department of Treasury to
Computer Sciences Corporation for the development of an
automatic data processing system. GSBCA No. 10833–P, 91–
1 B.C.A. (CCH) ¶ 23,474 (1990). We affirm.
Hardware and software products that:
1) are available for sale and delivery
to Government and commercial
customers as of the date of submission
of Best and Final Offers (BAFOs),
2) require no further development,
and 3) have been fully tested and
demonstrated in the commercial or
Government marketplace to meet the
requirements of this solicitation.
Background
Through the Financial Management Service (FMS), the
Treasury Department issued solicitation RFP–FMS–89–0005
on March 15, 1989. FMS is the arm of Treasury responsible
for processing the federal government's financial transactions
and, in this role, it manages a daily cash flow that averages
$7 billion. The solicitation was part of FMS's System 90
project aimed at upgrading and replacing its current computer
capabilities. Specifically, the request for proposal (RFP)
sought to acquire hardware, software, operations support,
and software development of a new Payments, Claims, and
Enhanced Reconciliation system (PACER).
The relevant provisions of the RFP were as follows. Before
submitting their initial proposals, all bidders were required
to run their hardware and software through an unwitnessed
performance benchmark simulating FMS's workload. The
results were to be submitted with their proposals. The
hardware and software used in the benchmark were required
to be identical to those *931 listed in the initial proposal.
The bidders would resubmit their benchmark results with
their best and final offers (BAFOs) as long as there were no
changes in the proposed software between the initial proposal
and the BAFO. If the bidders wanted to offer different
software in their BAFO, they would have to run another
benchmark. When FMS selected an apparent awardee after
the BAFOs were in hand, the apparent awardee would be
required to rerun the benchmark with government witnesses
to validate the results of the first one.
The RFP permitted bidders to propose either new or
reconditioned hardware as long as the reconditioned
equipment performed and carried the same warrantee as if it
were new. The RFP required that the most current releases of
software be proposed and that all software be commercially
Lastly, the proposals were to be GOSIP compliant. This
required that a Communications Interface Solution (CIS)
be proposed which would provide interconnectivity with
Government Open Systems Interconnection Profile (GOSIP)
compliant networks. In this way, the new System 90 would be
able to interact with other computer systems. At a minimum,
to be GOSIP compliant the proposed software was required
to “support” File Transfer Access Management (FTAM)
protocol, X.400 (a messaging protocol), and Virtual Terminal
Protocol (VTP).
The solicitation stated that the award would be granted to “the
offeror whose overall proposal offers the greatest value and
most advantages to the Government.” The technical proposals
would be point scored and although the scores were to be
given greater weight than cost, as they approached equality,
cost would become a more discriminating factor. Three
companies bid: Andersen Consulting, Computer Sciences
Corporation (CSC), and Grumman Data Systems. CSC's
technical scores ranked slightly above Andersen's and
slightly below Grumman's, but CSC's evaluated price was
substantially lower than either Andersen's or Grumman's.
Because of the significant disparity in prices, FMS hired
Cincinnati Bell Information Systems to independently
analyze CSC's cost estimate. Both Cincinnati Bell and FMS
concluded that the savings resulted from CSC proposing the
use of reconditioned, rather than new, hardware. Andersen
proposed only new hardware. FMS awarded the contract to
CSC.
On appeal to the board, Andersen alleged that FMS's
discussions with it were defective because FMS did not
inform it of “points of weakness” in its proposal; FMS
engaged in improper post-BAFO discussions with CSC;
FMS's price realism analysis of CSC's BAFO was faulty;
four software products offered by CSC were not in fact
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Andersen Consulting v. U.S., 959 F.2d 929 (1992)
37 Cont.Cas.Fed. (CCH) P 76,284
“commercially available” at the time BAFOs were submitted;
requirements for GOSIP compliance were not met by CSC;
and both of CSC's benchmarks were defective. From these
allegations, the board found three errors in the procurement:
(1) at the time FMS awarded the contract, it believed
the software product CA–Datacom/PC to be commercially
available, when in fact it was not; (2) FMS did not require
CSC to run a second unwitnessed benchmark even though its
proposal changed between the initial proposals and its BAFO;
and (3) prior to the government-witnessed benchmark, CSC
had not prepared the capability to upload the software product
Ideal/Escort to the mainframe code. 91–1 B.C.A. (CCH) at
117,759.
of our proscription in Data General Corp. v. United States,
915 F.2d 1544, 1552 (Fed.Cir.1990). We think the board
did just the opposite. We review the board's conclusions
of law de novo, but defer to its findings of fact unless
unsupported by substantial evidence. 41 U.S.C. § 609(b)
(1988); United States v. DeKonty Corp., 922 F.2d 826, 827
(Fed.Cir.1991). The board's interpretations of the applicable
regulations deserve some deference because it has expertise
in this area from daily exposure. SMS Data Prods. Group, Inc.
v. United States, 900 F.2d 1553, 1555 (Fed.Cir.1990).
On the first error, the board stated that CA–Datacom/PC met
two of the three tests for commercial availability, that CA–
Datacom/PC was a very small part of the contract, and that
Andersen had not alleged any problems with the software
or that it would have fared better if it also *932 had been
permitted to introduce software not commercially available.
Second, “the fact that CSC did not rerun the unwitnessed
benchmark has been sapped of most significance by the
fact that the firm ran a Government-witnessed benchmark
with precisely the same configuration of hardware and
software that should have been benchmarked previously.”
Id. Third, the uploading utility for Ideal/Escort could likely
be developed in a “man-day or less” and therefore was
insignificant. Id. at 117,760. Before deciding whether to
grant the protest, the board cautioned, “Any good lawyer
can pick lint off any Government procurement, pundits say.
We will not set aside an award, even if violations of law
are found, unless those violations have some significance.”
Id. at 117,759. It concluded that the errors just discussed
were “simply de minimis violations of law” and therefore the
protest was denied. Id. Andersen appeals.
[3] The Competition in Contracting Act of 1984 (CICA),
which governs this case, states:
I.
If the board determines that a
challenged agency action violates a
statute or regulation or the conditions
of any delegation of procurement
authority issued pursuant to this
section, the board may suspend,
revoke, or revise the procurement
authority of the Administrator or
the Administrator's delegation of
procurement authority applicable to
the challenged procurement.
40 U.S.C. § 759(f)(5)(B) (1988) (emphasis added). The use
of the permissive “may” instead of the mandatory “shall,”
authorizes the board to employ its discretion in determining
how to handle errors in procurement. Furthermore, “[i]n
making a decision on the merits of protests brought under
this section, the board shall accord due weight to the policies
of this section and the goals of economic and efficient
procurement set forth in this section.” Id. § 759(f)(5)(A).
From this it follows that the board must consider the
Discussion
significance of errors in procurement when deciding whether
to grant a protest because overturning awards on de minimis
[1] [2] Andersen invites us to hold as a matter of law that
errors wastes resources and time, and is needlessly disruptive
upon finding any errors in a procurement, no matter how
of procurement activities and governmental programs and
minor, the board is bound to grant a protest. We decline.
operations.
Andersen also requests that we reverse the board's findings
that no improper post-BAFO discussions with CSC occurred,
Andersen directs us to the first board decision under the
that CSC proposed Ideal/Escort as well as Ideal/PC in its
CICA, Lanier Business Prods., Inc., GSBCA No. 7702–P,
BAFO, that CSC's proposal was GOSIP compliant, and
85–2 B.C.A. (CCH) ¶ 18,033 (1985), to support its contention
that the price realism analysis was proper. We affirm the
that every error requires that a protest be granted. Aside
board's findings on these issues. Lastly, Andersen accuses
from the fact that Lanier is not binding on us, Andersen
the board of “second guessing” the agency in direct violation
reads the case incorrectly. The board first noted the “broad
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
4
Andersen Consulting v. U.S., 959 F.2d 929 (1992)
37 Cont.Cas.Fed. (CCH) P 76,284
discretion” granted it by the CICA when it finds errors in
procurement to “suspend, revoke, or revise the procurement
authority.” Id. at 90,496 (quoting 40 U.S.C. § 759(h)(5)(B),
since redesignated § 759(f)(5)(B)). Andersen correctly quotes
the board as stating that “[a]ll that is required here, is a
showing of *933 a violation,” but the board qualified this
broad statement by saying, “If a violation is shown, we will
exercise our own discretion in ordering the relief authorized
by the CICA.” Id. Contrary to Andersen's interpretation that
these statements read together require the board to grant a
protest for any violation, and then to exercise its discretion
in fashioning a remedy, we read the CICA and Lanier as
authorizing the board to use its discretion in deciding whether
to grant a protest or not. If Lanier can be read otherwise, it
will have to give way.
[4] Here, the preparation of CSC's BAFO certainly was
not a model. But, we agree with the board that the errors
it contained do not support Andersen's protest. We have no
quarrel with the board's discussion of the three errors and its
determination that they were de minimis. CD–Datacom/PC
was a tiny part of the contract and was very close to becoming
commercially available; CSC executed the governmentwitnessed benchmark with all proposed software even though
it did not execute a second pre-BAFO benchmark; and the
uploading facility for Ideal/Escort may be prepared in less
than one man-day. Therefore, we affirm the board's decision
that Andersen's protest over the de minimis errors should be
denied.
This is not a new principle. In SMS Data Prods. Group, Inc.,
900 F.2d at 1557, we held that mathematical imbalance is
insufficient to disqualify a bid; the bid must be materially
imbalanced to be rejected. “It is not every bid deviation
or error which automatically compels a bid rejection.”
Excavation Constr., Inc. v. United States, 494 F.2d 1289,
1293 (Ct.Cl.1974). In the related matter of the recovery of bid
proposal costs, admittedly reviewed under the more lenient
arbitrary and capricious standard, “if one thing is plain in this
area it is that not every irregularity, no matter how small or
immaterial, gives rise to the right to be compensated for the
expense of undertaking the bidding process.” Keco Indus.,
Inc. v. United States, 492 F.2d 1200, 1203 (Ct.Cl.1974); see
also Burroughs Corp. v. United States, 617 F.2d 590, 600
(Ct.Cl.1980).
A.
Andersen contends that FMS engaged CSC in improper
discussions after the contractors submitted their BAFOs.
Pursuant to the RFP, the offeror selected to perform the
government-witnessed benchmark, the apparent awardee,
had to certify that the software to be used in
the benchmark was the same as that proposed in
their BAFO. At CSC's government-witnessed benchmark,
FMS discovered discrepancies between CSC's benchmark
software certification (the software actually to be run in
the government-witnessed benchmark) and the software
inventory list submitted with its BAFO. The lists contained
different versions or releases of software products and also
conflicted on whether Ideal/Escort (benchmark certification)
or Ideal/PC (BAFO inventory) was actually proposed. When
FMS asked about the discrepancies, CSC explained that the
errors were clerical and that the benchmark certification was
correct.
[5] The board agreed that CSC's errors in preparing the
BAFO list were clerical. This determination is critical, for
under FAR § 15.607(c), clerical mistakes in a BAFO may be
corrected without reopening negotiations. FAR § 15.607(c)
(3) states:
If an offeror requests permission to
correct a mistake in its proposal,
the agency head (or a designee
not below the level of chief of
the contracting office) may make a
written determination permitting the
correction; provided, that (i) both
the existence of the mistake and
the proposal actually intended are
established by clear and convincing
evidence from the solicitation and
the proposal and (ii) legal review
is obtained before making the
determination.
Further, FAR § 15.607(c)(5) clarifies that if “correction of a
mistake requires reference to documents, worksheets, or other
data outside the solicitation and proposal in order to establish
the existence of the mistake, *934 the proposal intended, or
both, the mistake may be corrected only through discussions
under 15.610.”
II.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
5
Andersen Consulting v. U.S., 959 F.2d 929 (1992)
37 Cont.Cas.Fed. (CCH) P 76,284
The board's finding on the nature of CSC's errors is supported
by substantial evidence. FMS was able to recognize the errors
because of the personal knowledge of their evaluators, 1
by reference to the benchmark certification (part of the
proposal), or by the solicitation requirement that the most
current software releases be provided. Further, the entire
FMS team present at the benchmark, the contracting officer,
the FMS technical team, the Director of FMS' procurement
division and an attorney from FMS' Office of Chief Counsel,
was confident that the software being run on the witnessed
benchmark was the software actually being proposed. It was
not in the government's best interest to reopen discussions
under 48 C.F.R. § 15.611(c). See SMS Data Prods. Group,
Inc. v. Austin, 940 F.2d 1514, 1518 (Fed.Cir.1991).
B.
CSC's initial proposal offered Ideal/Escort, a software
product designed to meet the solicitation's fourth generation
language facilities. Ideal/PC is a software program, similar
to, but more advanced than, Ideal/Escort. At the time
CSC submitted its BAFO, Ideal/Escort was commercially
available but Ideal/PC was not; therefore, if CSC had
proposed Ideal/PC, it would have violated the commercial
availability requirement. In its BAFO, CSC intended to
propose Ideal/PC instead of Ideal/Escort, and to this end
it meant to delete all references to Ideal/Escort from its
BAFO. But many of the references to Ideal/Escort did not get
changed. CSC also did not remove the Ideal/Escort technical
literature from the BAFO. From the mix of references,
the FMS evaluator determined that Ideal/Escort was being
offered instead of Ideal/PC. At the benchmark, FMS asked
why Ideal/PC was listed in the BAFO software list, while
Ideal/Escort was listed in the benchmark certification. CSC
responded that the benchmark would be run with Ideal/Escort
and that Ideal/PC would later be provided free of charge.
[6] The board found that CSC offered Ideal/Escort as well
as Ideal/PC in its BAFO, even though it intended to offer
only Ideal/PC. The board reasoned that “proposals must be
evaluated on the basis of what they contain, not what their
authors intended that they contain.” 91–1 B.C.A. (CCH) at
117,757. We agree; the “subjective unexpressed intent of one
of the parties” to a contract is irrelevant. ITT Arctic Servs.,
Inc. v. United States, 524 F.2d 680, 684, 207 Ct.Cl. 743
(1975) (citing Dana Corp. v. United States, 470 F.2d 1032,
1041, 200 Ct.Cl. 200 (1972)). It is ironic that CSC's errors in
preparation have favorable consequences, but we affirm the
board's finding that Ideal/Escort was proposed because it is
supported by substantial evidence.
C.
[7] While CSC did not offer FTAM, X.400 or VTP
in its BAFO, it did offer a platform that would interact
with any of these protocols. Andersen argues this was
insufficient to meet the GOSIP compliant requirement that
FTAM, X.400 and VTP must be “supported.” According to
Andersen, “support” means “provide” so CSC had to offer
these protocols in its BAFO. The board said that the plain
meaning of “support” is not that CSC had to provide the
functions, only that the proposed software had to “work
with” the functions. Both CSC and Andersen provided expert
testimony on their respective interpretations of “support.” A
FMS systems integrator also testified in support of CSC's
interpretation. The board's interpretation is also supported by
general contract law requiring terms in a contract to be given
their “ordinary and commonly accepted *935 meaning,”
without a “twisted or strained out of context analysis.” ITT
Arctic Servs., 524 F.2d at 684 (citing Hol–Gar Manufacturing
Corp. v. United States, 351 F.2d 972, 976, 169 Ct.Cl. 384
(1965)). We have no reason to quarrel with the meaning of
“support” imputed by the board.
D.
[8] The board found that a substantial amount of the price
difference between CSC's and Andersen's BAFO's resulted
from CSC's proposal of reconditioned equipment. It also
found that even if Andersen was correct about every other one
of its allegations of faulty price analysis, 2 CSC's price would
still be lower than Andersen's. These findings are sufficient
to support the price realism analysis performed by FMS. We
reject the notion that the board had to conduct an independent
analysis.
III.
[9] Finally, Andersen says this case is analogous to Data
General Corp. v. United States, 915 F.2d 1544. There
the government issued a solicitation for automated data
processing equipment, the goal of which was to improve
existing data processing systems located in more than 200
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6
Andersen Consulting v. U.S., 959 F.2d 929 (1992)
37 Cont.Cas.Fed. (CCH) P 76,284
offices throughout the United States. Since the needs of the
individual offices varied widely, the solicitation stressed that
the proposals were required to leave enough flexibility to
custom-configure each individual system. The contracting
officer disqualified SMS Data Products Group, Inc. (SMS)
because its proposal violated the solicitation requirements
that all software be licensed for all processors and that the
software be licensed by the number of processors (not users)
per system. Id. at 1546. SMS protested its disqualification to
the board.
Based on what it determined were the agency's “true needs,”
the board found SMS's proposal to be technically compliant
and granted the protest. We reversed, holding that the board's
independent analysis of needs is both irrelevant and illegal
and that the board must give terms in a solicitation or proposal
their “plain and unambiguous meaning.” Id. at 1551. We
said that “the board has no warrant to question the agency's
judgment or to revise its delegation of procurement authority
to ensure that the agency's assessment of its ‘true’ needs is in
harmony with the board's. The board has neither the authority
nor the expertise to second-guess the agency.” Id. at 1552.
In contrast, here the board deferred to FMS's analysis of its
needs.
Andersen counters that the board must adhere to the agency's
assessment of its needs not only when it awards the contract,
but also when it issues the solicitation. By denying the
protest over de minimis errors, the board has reinterpreted
the solicitation. We do not think so. De minimis errors are
those that are so insignificant when considered against the
solicitation as a whole that they can safely be ignored and
the main purposes of the contemplated contract will not be
affected if they are. That is the case here.
Conclusion
Accordingly, the decision of the board is affirmed.
AFFIRMED.
Parallel Citations
37 Cont.Cas.Fed. (CCH) P 76,284
Footnotes
1
2
Andersen urges that under FAR § 15.607(c)(5) the Treasury officials should not be allowed to use their personal knowledge in
determining whether there are clerical errors in a BAFO. We agree with CSC that this is nonsensical because it would, for example,
require computer experts to forget their expertise when evaluating a proposal.
Andersen alleged that CSC discounted its software products in years 6–10 on the assumption that they would not be purchased; that
CSC proposed that IBM would provide its catastrophic backup services while pricing the services at the cost of providing them inhouse; that CSC offered equipment maintenance in the outyears at below cost; and that CSC did not include the cost of warranting
the reconditioned equipment it proposed.
End of Document
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
7
928 P.2d 653
187 Ariz. 229, 928 P.2d 653
(Cite as: 187 Ariz. 229, 928 P.2d 653)
Court of Appeals of Arizona,
Division 1, Department C.
ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM, Plaintiff–Appellant,
v.
Jacqueline L. BENTLEY and Jerry Bentley, individually and as husband and wife, Defendants–Appellees.
No. 1 CA–CV 95–0032.
May 2, 1996.
Reconsideration Denied July 10, 1996.
Review Denied Dec. 17, 1996.
Arizona Health Care Cost Containment System
(AHCCCS), which did not perfect lien against patient's third-party tort settlement, brought suit to recover full amount paid for indigent patient's medical care from settlement under statutes which
provided for subrogation and assignment rights. On
cross-motions for summary judgment, the Superior
Court, Maricopa County, No. CV 93–06898,Cheryl
K. Hendrix, J., entered summary judgment for patient, ruling that neither statute allowed AHCCCS
to recover. AHCCCS appealed. The Court of Appeals, Lankford, J., held that: (1) statute authorizing
AHCCCS to receive assignments of “all types of
medical benefits” to which indigent patient is entitled did not extend to include tort settlement proceeds, and (2) second statute creating right to recover reasonable value of medical care and treatment through subrogation from third-party tortfeasor included right for AHCCCS to recover for
any medical care that it was required by law to furnish.
Reversed and remanded with directions.
West Headnotes
[1] Appeal and Error 30
893(1)
Page 1
30 Appeal and Error
30XVI Review
30XVI(F) Trial De Novo
30k892 Trial De Novo
30k893 Cases Triable in Appellate
Court
30k893(1) k. In general. Most Cited
Cases
Court of Appeals reviews propriety of summary judgment de novo.
[2] Appeal and Error 30
893(1)
30 Appeal and Error
30XVI Review
30XVI(F) Trial De Novo
30k892 Trial De Novo
30k893 Cases Triable in Appellate
Court
30k893(1) k. In general. Most Cited
Cases
Court of Appeals reviews issues of statutory interpretation de novo.
[3] Administrative Law and Procedure 15A
305
15A Administrative Law and Procedure
15AIV Powers and Proceedings of Administrative Agencies, Officers and Agents
15AIV(A) In General
15Ak303 Powers in General
15Ak305 k. Statutory basis and limitation. Most Cited Cases
Administrative agency has no powers other
than those delegated by legislature.
[4] Statutes 361
1151
361 Statutes
361III Construction
361III(E) Statute as a Whole; Relation of
Parts to Whole and to One Another
361k1151 k. In general. Most Cited Cases
(Formerly 361k205)
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
928 P.2d 653
187 Ariz. 229, 928 P.2d 653
(Cite as: 187 Ariz. 229, 928 P.2d 653)
In construing statutes court looks to statute as a
whole, and construes together all parts of statute relating to same subject.
Page 2
[7] Health 198H
496(2)
198H Health
198HIII Government Assistance
198HIII(B) Medical Assistance in General;
Medicaid
198Hk490 Recovery Back or Recoupment
of Payments
198Hk497 k. Settlements or judgments, recovery from. Most Cited Cases
(Formerly 356Ak241)
“Medical benefits,” as used in statute authorizing state agency administering health care to indigent persons to receive assignments of “all types of
medical benefits to which the person is entitled,”
does not include tort settlement proceeds received
by injured person; term “medical benefit” ordinarily means payment for medical treatment to which
person has some entitlement by contract or statute.
A.R.S. § 36–2903, subd. G.
198H Health
198HIII Government Assistance
198HIII(B) Medical Assistance in General;
Medicaid
198Hk490 Recovery Back or Recoupment
of Payments
198Hk496 Third Persons, Recovery
from
198Hk496(2) k. Tortfeasors in general. Most Cited Cases
(Formerly 356Ak241)
Arizona Health Care Cost Containment System
(AHCCCS) has right to recover cost of health care
benefits under statute creating right to recover from
third-party tort-feasor, through subrogation, reasonable value of medical care and treatment provided
by state or any of its “subdivisions” required by law
to furnish care; legislature did not intend to deny
department or agency of state right to recover in
choosing to specify that state or political subdivision may recover under statute. A.R.S. § 12–962,
subd. B, par. 3.
[6] Health 198H
[8] Statutes 361
[5] Health 198H
497
496(3)
198H Health
198HIII Government Assistance
198HIII(B) Medical Assistance in General;
Medicaid
198Hk490 Recovery Back or Recoupment
of Payments
198Hk496 Third Persons, Recovery
from
198Hk496(3) k. Malpractice tortfeasors. Most Cited Cases
(Formerly 356Ak241)
Statute authorizing state agency administering
health care benefits to indigent persons to receive
assignments of “all types of medical benefits” to
which such persons are entitled did not authorize
state agency to recoup health care benefits paid to
indigent person from proceeds of her medical malpractice settlement with third-party tort-feasors.
A.R.S. § 36–2903, subd. G.
1072
361 Statutes
361III Construction
361III(A) In General
361k1071 Intent
361k1072 k. In general. Most Cited
Cases
(Formerly 361k181(1))
Statutes 361
1404
361 Statutes
361IV Operation and Effect
361k1402 Construction in View of Effects,
Consequences, or Results
361k1404 k. Unintended or unreasonable
results; absurdity. Most Cited Cases
(Formerly 361k181(2))
Statutes must be given sensible construction
that accomplishes legislative intent and which
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
928 P.2d 653
187 Ariz. 229, 928 P.2d 653
(Cite as: 187 Ariz. 229, 928 P.2d 653)
avoids absurd results.
[9] Statutes 361
1374
361 Statutes
361III Construction
361III(M) Presumptions and Inferences as to
Construction
361k1372 Statute as a Whole; Relation of
Parts to Whole and to One Another
361k1374 k. Giving effect to entire
statute and its parts; harmony and superfluousness.
Most Cited Cases
(Formerly 361k212.4)
In interpreting statute, it is presumed that legislature does not intend to do futile act when it enacts
statute.
[10] Health 198H
496(2)
198H Health
198HIII Government Assistance
198HIII(B) Medical Assistance in General;
Medicaid
198Hk490 Recovery Back or Recoupment
of Payments
198Hk496 Third Persons, Recovery
from
198Hk496(2) k. Tortfeasors in general. Most Cited Cases
(Formerly 356Ak241)
Fact that Arizona Health Care Cost Containment System (AHCCCS) contracted with others to
provide medical care instead of providing care directly to indigent persons did not preclude it from
exercising subrogation rights under statute creating
right of recovery from third-party tort-feasors,
through subrogation or assignment, of reasonable
value of medical care and treatment provided by
state or any of its subdivisions required by law to
furnish care. A.R.S. § 12–962, subd. B, par. 3.
[11] Health 198H
492
198H Health
198HIII Government Assistance
Page 3
198HIII(B) Medical Assistance in General;
Medicaid
198Hk490 Recovery Back or Recoupment
of Payments
198Hk492 k. Liens in general. Most
Cited Cases
(Formerly 356Ak241)
Health 198H
496(2)
198H Health
198HIII Government Assistance
198HIII(B) Medical Assistance in General;
Medicaid
198Hk490 Recovery Back or Recoupment
of Payments
198Hk496 Third Persons, Recovery
from
198Hk496(2) k. Tortfeasors in general. Most Cited Cases
(Formerly 356Ak241)
Availability of lien rights against indigent patient's tort recoveries from third parties did not
preempt recovery by Arizona Health Care Cost
Containment System (AHCCCS) under separate
statute granting right to recover, through subrogation or assignment, from third-party tort-feasor
reasonable value of medical care and treatment
provided by state or its political subdivisions.
A.R.S. §§ 12–962, subd. B, par. 3, 12–964,
36–2915.
[12] Health 198H
496(2)
198H Health
198HIII Government Assistance
198HIII(B) Medical Assistance in General;
Medicaid
198Hk490 Recovery Back or Recoupment
of Payments
198Hk496 Third Persons, Recovery
from
198Hk496(2) k. Tortfeasors in general. Most Cited Cases
(Formerly 356Ak241)
Arizona Health Care Cost Containment Sys-
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
928 P.2d 653
187 Ariz. 229, 928 P.2d 653
(Cite as: 187 Ariz. 229, 928 P.2d 653)
tem's (AHCCCS') right to recover through subrogation for “medical care and treatment” provided to
indigent patients encompassed at least those services that state was required by law to provide,
such that AHCCCS could seek reimbursement from
third-party tort recovery for all services it was required by law to provide. A.R.S. §§ 12–961,
12–962.
**654 *230 Johnston Maynard Grant and Parker,
P.L.C. by Logan T. Johnston, Margo F. Shein,
Phoenix, for Plaintiff–Appellant.
Haralson, Kinerk & Morey by Carter Morey, Linda
S. Sherrill, Tucson, for Defendants–Appellees.
Page 4
ations with which it contracts to provide
care. The health plan or health care service
is then responsible for either providing the
health care or for subcontracting with other
health care providers. A.R.S. § 36–2904
(1993). AHCCCS remains the payor of last
resort in situations in which the individual
is determined to be AHCCCS eligible but
has not yet been enrolled in a health plan.
A.R.S. § 36–2903(G) (1993). In this instance, Bentley had been enrolled in medical plans, which paid for her medical
treatment and care. According to AHCCCS, it will distribute its recovery proportionately among the plans.
OPINION
LANKFORD, Judge.
The Arizona Health Care Cost Containment
System (“AHCCCS”) appeals from summary judgment denying its claim for recovery of the costs of
medical treatment for Jacqueline Bentley. AHCCCS also appeals from the award of attorneys' fees
to Bentley.
Due to the alleged negligence of her health care
providers in failing to timely diagnose and treat this
condition, Bentley suffered catastrophic injuries.
Bentley filed a medical malpractice claim against
the health care providers. The defendants paid
$2,500,000.00 in settlement. Her net recovery, after
attorneys' fees and costs were deducted, was
$1,084,050.94.
**655 *231 The superior court decided that
AHCCCS lacked a statutory basis for recovery
from the proceeds of Bentley's settlement from
third-party tortfeasors. We reverse because Ariz.Rev.Stat.Ann. (“A.R.S.”) section 12–962(B)(3)
(1992) authorizes AHCCCS's recovery.
After the settlement, AHCCCS sought to recover from Bentley the $89,497.51 paid for her
medical care. AHCCCS discussed a possible compromise of its claim with Bentley. When no agreement could be reached, AHCCCS sued to recover
the full amount.
The facts are undisputed. Bentley was admitted
to the University Medical Center after experiencing
Toxic Shock Syndrome. Bentley was enrolled in
AHCCCS, the state agency that administers the delivery of health care services to Arizona's eligible
indigent population pursuant to A.R.S. section
36–2901 et seq. (1993). Through the AHCCCS system, $89,497.51 was paid to Bentley's health care
providers for the medical care and treatment she
FN1
had received to date for her injuries.
AHCCCS argued that two statutory provisions
authorized it to recover from Bentley: A.R.S. section 12–962 (1992), which provides for subrogation
rights; and A.R.S. section 36–2903(G) (1993),
FN2
which provides for assignment rights.
Crossmotions for summary judgment were filed. The superior court granted summary judgment to Bentley,
ruling that neither statute allowed AHCCCS to recover. AHCCCS timely appealed to this court.
FN1. AHCCCS will enroll a person who is
eligible for AHCCCS benefits in one of the
health plans or health care service organiz-
FN2. It is undisputed that AHCCCS would
have been entitled to recover the costs of
the medical care and treatment from Bentley's tort settlement proceeds if it had
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
928 P.2d 653
187 Ariz. 229, 928 P.2d 653
(Cite as: 187 Ariz. 229, 928 P.2d 653)
timely perfected a lien pursuant to A.R.S.
section 36–2915. It is also undisputed that
AHCCCS did not perfect a lien for this
medical care and treatment.
A.R.S. section 36–2915(A) provides in
relevant part:
The [AHCCCS] administration is entitled to a lien for the charges for hospital or medical care and treatment of an injured person for which the administration or a provider is responsible, on any
and all claims of liability or indemnity
for damages accruing to the person to
whom hospital or medical services is
rendered, or to the legal representative of
such person, on account of injuries giving rise to such claims and which necessitated such hospital or medical care and
treatment.
[1][2] Summary judgment is appropriate when
there are no genuine issues of material fact and the
moving party is entitled to judgment as a matter of
law. Orme School v. Reeves, 166 Ariz. 301, 305,
802 P.2d 1000, 1004 (1990). We review the propriety of summary judgment de novo. Hawkins v. Department of Econ. Sec., 183 Ariz. 100, 103, 900
P.2d 1236, 1239 (App.1995). We also review issues
of statutory interpretation de novo. Id.
I.
We first consider whether AHCCCS could recover through the assignment rights afforded by
A.R.S. section 36–2903(G). This statutory subsection provides in relevant part:
[T]he administrator shall coordinate benefits
provided under this article to any eligible person
who is covered by workers' compensation, disability insurance, a hospital and medical service
corporation, a health care services organization
or other health or medical or disability insurance
plan, or who receives payments for accident-related injuries, so that any costs for hospitalization
Page 5
**656 *232 and medical care paid by the system
are recovered from any other available third
party payors. ... The director may require eligible
persons to assign to the system rights to all types
of medical benefits to which the person is entitled, including but not limited to first party
medical benefits under automobile insurance
policies. The state has a right to subrogation
against any other person or firm to enforce the assignment of medical benefits.
(Emphasis added).
AHCCCS obtained three separate assignments
from persons authorized to act on Bentley's behalf.
These documents assigned all of Bentley's rights to
“insurance and any other third party liability benefits” and to “medical support and payments for
medical care from any third party payor.”
[3] The issue is whether insurance and third
party liability payments are assignable under the
statute. An administrative agency has no powers
other than those delegated by the Legislature.
Cochise County v. Kirschner, 171 Ariz. 258,
261–62, 830 P.2d 470, 473–74 (App.1992). “The
scope of an agency's power is measured by statute
and may not be expanded by agency fiat.” Cochise
County v. Arizona Health Care Cost Containment
Sys., 170 Ariz. 443, 445, 825 P.2d 968, 970
(App.1991).
The only assignment authorized by A.R.S. section 36–2903(G) is assignment of “all types of medical benefits to which the person is entitled.”
(Emphasis added). Thus, the assignments that AHCCCS obtained apply to proceeds from a thirdparty tort settlement only if the proceeds are
“medical benefits.”
[4] We therefore must consider the meaning of
the statute's words, “medical benefits.” “Words
contained in statutes are to be given their ordinary
meaning unless the context in which they are used
suggests another meaning.” Sunpower of Arizona v.
Arizona State Registrar of Contractors, 166 Ariz.
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
928 P.2d 653
187 Ariz. 229, 928 P.2d 653
(Cite as: 187 Ariz. 229, 928 P.2d 653)
437, 440, 803 P.2d 430, 433 (App.1990). In construing statutes we look to the statute as a whole,
and construe together all parts of the statute relating
to the same subject. Talley v. Industrial Comm'n,
137 Ariz. 343, 346, 670 P.2d 741, 744 (App.1983).
[5][6] “Medical benefits” does not include tort
settlement proceeds. The term “medical benefits”
ordinarily means payments for medical treatment to
which a person has some entitlement by contract or
statute. The context does not suggest a different
meaning. Indeed, the omission of tort liability payments from the other listed benefits to be recovered
from third parties reveals that the Legislature did
not intend “medical benefits” to include tort settlement proceeds. Cf. Sawyer v. Ellis, 37 Ariz. 443,
449, 295 P. 322, 325 (1931); Geller v. Meek, 496
N.E.2d 103, 108 n. 21 (Ind.App.1986) (applying the
maxim expressio unius exclusio alterius, which
means “the enumeration of certain things in a statute implies the exclusion of all others”). A.R.S. section 36–2903(G) provides no right to recover Bentley's tort settlement proceeds.
II.
[7] The next question is whether another statute, A.R.S. section 12–962(B)(3), provides AHCCCS with a basis for recovering from Bentley's setFN3
tlement proceeds. A.R.S. section 12–962
creates a right to recover from **657 *233 a third
party tortfeasor, through subrogation or assignment,
the reasonable value of medical care and treatment
provided by the State or any of its subdivisions required by law to furnish the care.
FN3. Section 12–962 provides:
A. If this state or any of its political subdivisions is required by law to furnish
medical care and treatment to a person
who is injured or suffers a disease under
circumstances creating tort liability upon
a third person, the state or political subdivision, either jointly or severally, may
recover from the third person or the
claimant the reasonable value of the
Page 6
medical care and treatment. To the extent of this right, this state or a political
sub-division is subrogated to the injured
or diseased person, his guardian, personal representative, estate, dependents or
survivors with reference to any right or
claim they might have against the third
person. The head of the department or
agency furnishing the medical care or
treatment may require the injured or diseased person, his guardian, personal representative, estate, dependents or survivors to assign his claim or cause of action
against the third person to the extent of
the reasonable value of the medical care
or treatment.
B. To enforce such right, the state or
political subdivision may do the following:
1. Intervene or join in any action or proceeding brought by the injured or diseased person, his guardian, personal representative, estate, dependents or survivors against the third person who is liable
for the injury or disease.
2. If an action or proceeding is not
brought by the injured or diseased person, his guardian, personal representative, estate, dependents or survivors within six months after the first day on which
the medical care and treatment was furnished, institute and prosecute legal proceedings against the third person who is
liable for the injury or disease for which
the medical care and treatment was furnished. The action or proceeding may be
brought in state or federal court, either in
the name of the state or political subdivision, or in the name of the injured or diseased person, his guardian, personal representative, estate, dependents or survivors, or in conjunction with the injured or
diseased person, his guardian, personal
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
928 P.2d 653
187 Ariz. 229, 928 P.2d 653
(Cite as: 187 Ariz. 229, 928 P.2d 653)
representative, estate, dependents or survivors.
3. Recover the cost of care from the injured or diseased person or his estate to
the extent that such person has received
money in settlement of his claim or satisfaction of a judgment against the third
party.
C. If an action or proceeding is brought
in the name of the state or political subdivision pursuant to subsection B, paragraph 2 of this section, the injured or
diseased person, his guardian, personal
representative, estate, dependents or survivors shall not be required to join such
action or proceeding.
It is undisputed that AHCCCS was legally required to furnish medical care and treatment to
Bentley and that it did so. It is also undisputed that
Bentley recovered on a third-party tort claim including the same injuries for which the AHCCCS
system provided medical care.
The superior court, however, denied recovery
under A.R.S. section 12–962(B)(3). It found that
AHCCCS could not recover because it is a “state
agency” rather than the “state” or “political subdivision” mentioned in the statute. Additionally, the
superior court denied recovery because AHCCCS
itself is not legally required to provide medical
care, but is merely required to enter into contracts
with entities that provide the care.
We hold that AHCCCS has a right of recovery
FN4
pursuant to A.R.S. section 12–962(B)(3).
We
reject the superior court's conclusion that in specifying that the State or political subdivision may
recover under the statute, the Legislature intended
to deny a department or an agency of the State the
right to recover.
FN4. AHCCCS argues that two cases have
already recognized that AHCCCS has a
Page 7
right to recover under A.R.S. section
12–962. See Matter of Yakel, 97 B.R. 580,
581 (D.Ariz.1989) (stating that “[t]he Arizona Legislature passed A.R.S. § 12–962
(Supp.1987) to provide state agencies like
AHCCCS a variety of methods to seek reimbursement.”); Nationwide Mut. Ins. Co.
v. Arizona Health Care Cost Containment
Sys., 166 Ariz. 514, 517, 803 P.2d 925,
928 (App.1990) (stating that A.R.S. section 12–962(A) “allows AHCCCS to recover the cost of medical care furnished to
a person who is injured ‘under circumstances creating tort liability upon a third
person’ directly from that third person or
from the claimant”). While both decisions
observed that AHCCCS may recover pursuant to A.R.S. section 12–962, whether
AHCCCS was a proper party to bring the
action was not squarely before the courts.
These cases do not dispose of the issue.
Initially, we note that Bentley conceded at oral
argument that recovery would be proper if this action had been filed in the name of the State instead
of AHCCCS. Absent a clear legislative directive to
the contrary, we will not deny recovery on such a
distinction.
[8][9] Statutes must be given a sensible construction that accomplishes the legislative intent
and which avoids absurd results. Collins v. State,
166 Ariz. 409, 415, 803 P.2d 130, 136 (App.1990).
It is presumed that the Legislature does not intend
to do a futile act when it enacts a statute. State v.
City Court of Tucson, 138 Ariz. 244, 246, 673 P.2d
988, 990 (App.1983).
An interpretation that would deny recovery to a
state agency or department would render the statute
meaningless. We know of no instance in which the
State—without involving one of its agencies or departments such as AHCCCS—is required by law to
furnish medical care and treatment. On the other
hand, section 12–962(A) suggests that the Legislature intended the term “state” to encompass “state
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
928 P.2d 653
187 Ariz. 229, 928 P.2d 653
(Cite as: 187 Ariz. 229, 928 P.2d 653)
department or agency” by referring to the
“department or agency furnishing the medical care
or treatment.”
[10] We also reject the superior court's conclusion that AHCCCS may not recover because it contracted with others to provide **658 *234 medical
care instead of providing care directly. Section
12–962 provides the State with a right to recover
the costs of the medical care and treatment that it is
required by law to provide. The federal Medicaid
program requires participating states to make
“medical
assistance”
available
to
those
“categorically eligible.” Mercy Healthcare Arizona,
Inc. v. Arizona Health Care Cost Containment System, 181 Ariz. 95, 97, 887 P.2d 625, 627
(App.1994). AHCCCS is the agency through which
Arizona participates in the federal Medicaid program. Id. In addition, the Arizona Legislature has
extended the coverage to be provided by AHCCCS
to three “non-categorical” groups. See id. Even
though AHCCCS provides its assistance through
contracts, it is still the agency legally responsible
for furnishing the medical care and treatment. See
id.
[11] We also reject Bentley's argument that the
availability of lien rights under section 36–2915
preempts recovery by AHCCCS under section
12–962. Section 12–964 states that the remedy
provided for in section 12–962 is in addition to any
FN5
other remedies.
Moreover, the nature of AHCCCS's rights under these statutes differs, and thus
the remedies are complementary rather than merely
cumulative. The term “lien” generally “is a charge
or encumbrance upon property to secure the payment or performance of a debt, duty, or other obligation,” and it “is distinct from the obligation which
it secures.” Matlow v. Matlow, 89 Ariz. 293,
297–98, 361 P.2d 648, 651 (1961) (citing 53 C.J.S.
Liens § 1, at 826). Thus A.R.S. section 36–2915
provides AHCCCS with new and different rights
from those it had under A.R.S. section 12–962.
FN5. The statute provides that “[t]his article does not affect any other provision of
Page 8
law providing for recovery by this state or
any of its political subdivisions of the cost
of care and treatment described in §
12–962.” A.R.S. § 12–964 (1992).
[12] Bentley also argues that, even if AHCCCS
may seek recovery under section 12–962, it cannot
recover all of its costs. Bentley claims that most
services provided to Bentley at the Posada Del Sol
Nursing Home and Pima County Home Health are
not included within the statutory definition of medFN6
ical care and treatment.
“Medical care and
treatment” is defined—somewhat circularly—by
section 12–961, which provides in part:
FN6. Bentley conceded at oral argument
that some nursing services, such as administering medication and taking blood pressure, constitute medical care under the statute.
[U]nless the context otherwise requires:
1. “Medical care and treatment” includes hospital, medical, psychological, surgical and dental
care, ambulance services, prostheses, medical appliances and supplies, pharmaceutical supplies
and physical therapy.
A.R.S. § 12–961 (1992) (emphasis added).
We believe that section 12–962 provides the
State with a right to recover the costs of all medical
care and treatment that it was required by law to
provide. The Arizona Legislature enacted this statute to provide “state agencies like AHCCCS a variety of methods to seek reimbursement.” See Yakel,
97 B.R. at 581 (dictum). Given the context, we believe the Legislature intended the term “medical
care and treatment” to encompass at least those services that the State is required by law to provide.
A.R.S. section 36–2939(A) requires AHCCCS
to provide nursing facility services to “those determined to need institutional services.” Thus, if
AHCCCS was required to provide the nursing services, then pursuant to section 12–962, AHCCCS
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
928 P.2d 653
187 Ariz. 229, 928 P.2d 653
(Cite as: 187 Ariz. 229, 928 P.2d 653)
may seek reimbursement for the services it
provided.
While the record fails to disclose the necessary
detail to determine whether all costs may be recovered, at least some appear to be recoverable. On
remand the parties may present evidence as to
whether the costs constitute reimbursable medical
care.
Another issue remains to be considered on remand. Because of its decision that **659 *235 AHCCCS could not recover, the superior court did not
decide whether AHCCCS should be required to
compromise its claim pursuant to A.R.S. section
36–2915(I) and (J), and, if so, what the amount of
FN7
the compromise should be.
AHCCCS states
that it made an attempt to compromise, but that
Bentley's representatives refused to agree to the
offered amount. It argues that no further compromise should be required. On remand, the court should
consider AHCCCS's effort to compromise the claim
as one of the several factors contemplated by the
statute.
Page 9
3. Any other factor relevant for a fair
and equitable settlement under the circumstances of a particular case.
For the reasons explained in this opinion, we
conclude that the superior court erred in holding
that A.R.S. section 12–962(B)(3) provides AHCCCS with no basis for recovery in this case. We reverse the judgment denying relief under this statute
and remand for further proceedings consistent with
this opinion. Because AHCCCS may be entitled to
recover some or all of its claim after further proceedings are held, we also reverse the superior
court's award of attorneys' fees made to Bentley as
the prevailing party.
FIDEL, P.J., and SULT, J., concur.
Ariz.App. Div. 1,1996.
Arizona Health Care Cost Containment System v.
Bentley
187 Ariz. 229, 928 P.2d 653
END OF DOCUMENT
FN7. A.R.S. section 36–2915(I) and (J)
state:
I. A public entity shall compromise a
claim it has pursuant to ... 12–962 ... if,
after considering the factors listed in
subsection J of this section, the compromise provides a settlement of the
claim which is fair and equitable.
J. In determining the extent of the compromise of the claim required by subsection I of this section, the public entity
shall consider the following factors:
1. The nature and extent of the patient's
injury or illness.
2. The sufficiency of insurance or other
sources of indemnity available to the patient.
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
OPINION NO. 87-14
July 20, 3987
FACTS AND QUESTIONS:
%nquiring attorney seeks an opinion as to the ethical
propriety of
a)
Citing to a trial court in Arizona a memorandum decision of the Arizona Suprtme Court or
Arizona Court of App~alS, other than for the
purpose of establishing res judicata, collateral estoppel or the law of the case? ~ he
makes clear in his brief
and argument that the
memorandum ~ecision is not precedent and is
cited for its persuasiv~alue
b)
Citing a decision of the Superior Court in his
jurisdiction (sittingas a reviewing
court in
a special action or a lower court appeal),
again solely and expressly for its persuasive
value. .
.
ETHICAL RULES INVOLVED:
ER 3.4.
only; and
Fairness to Opposinq Party and Counsel
A iawyer Shall not:
.
-
*****
.
(c)
knowingly disobey an obligation under the
rules of a tribunal except fot an open
that no
refusal based on an assertion
valid obligation exists;
● ☛☛☛☛
ER 3.5.
Impartiality and Decorum of
the
Tribunal
A Xawyer shall not:
.
juror,
prospective
~uror or an official
ofaa tribunal by means prohibited by law;
.
(a) seek to influence a judge,
*****
OPXNION:
In our opinion 190.78-4, we ●ddressed the issue posed by
inquiry. The zule under discussion in that opinion has
now become Rule 111(c) of the Rules of the Arizona supreme
and Bule
28(c)
of the Arizona Rules of
Court [“Rule 111(c)”]
[“Rule 28(c)”].
There has been no
Civil Appellate Procedure
this
,
change in the language of the rule,
rules provide:
however.
The current
Memoranda decisions shall not be regarded as precedent nor cited in any court except for the purpose
of establishingthe defense of res judicata, collateral estoppel oz the law of the case.
Effective
February Ir 1985, the Supreme iourt of Arizona
discarded the Code of ProfessionalResponsibility,under
which Opinion No. 78-4 was decided~ and adopted the Rules of
Although the adoption of the
ProfessionalConduct (“Rules”).
Rules effected substantivechanges in many areas of ethical
responsibilityof lawyers~ in our opinion no substantive
change in the area under inquiry here was effected by adoption of the Rules.
the
For purposes
of this di6CUSShn,
ER 3.4(c)
is virtually
same as flR7-106(A) of the Code of ProfessionalResponsi-
bility. For purposes of this discussion,ER 3.5(a) imposes
similar ethical obligationsas DR 7-1OG(C)(7)* The committee
therefore reaches the same conclusionas to Question a) as it
did in Opinion No. 78-4. Insofar as the citation contemplated would be of a “memorandumdecision” as defined in
Rules 111(c) and 28(c), such a citation would disregard a
(.
rule of the Supreme Court~ would appear to be seeking to
influence a judge by means prohibited by law, and would
therefore be unethical.
-.
There does not, on the face of either Rule 28(c) or Rule
111(c),
appear to be any prohibition
against
citin9
to another court a decision
of the Superior Court in a special action or in a lower court appeal. There does not appear to be
any rule in the Superior Court Rules of Appellate Procedure
that would make either Rule lll(c)C Rules of the Arizona
Supreme court, or Rule 28(c), Arizona Rules of Civil Appe3late Procedure, applicable to opinions of the Superior Court
sitting on a lower court appeal or which would prohibit such
citation. On the other hand, Rule 9 of the Rules of Procedure for Special
Actions
make the Arizona Rules of Civil
Appellate Procedure applicable to special
actions.
Therefore,
perhaps the argument could be made that Rule 28(c)
would prohibit the citation of a memorandum decision of the
Superior Court deciding a special action. The committee is
of the opinion, however~ that Rule 288 by its title, indito be applicable to any court
cates that it was not intended
other than the Supreme court or Courts of Appea16. Moreover,
the terms of the Rule indicate inapplicabilityto a situation
where only one $udge~ such a6 a Superior Court judge, is renfinds no ethical
dering a decision. The committee therefore
to a decision of the Superior
improprietyin the citation
Court regarding
the disposition of a special ●ction or a
lowex court ●ppeal.
.
(87-14)2
“
e
We accordinglyconclude that the proposed conduct set
forth in question a) would be unethical, but that the pro:
posed conduct set forth in question b) would not be unethxcal.
@
9
.
.
@
.
.
(87-14) 3
Page 1
B- 299545, 2007 CPD P 98, 2007 WL 1574615 (Comp.Gen.)
COMPTROLLER GENERAL
*1 Matter of:
Basic
Concepts
, Inc.
May 31, 2007
Russell Guffee, Basic Concepts, Inc., for the protester.
Edward R. Murray, Esq., Defense Logistics Agency, for the agency.
Linda C. Glass, Esq., and Ralph O. White, Esq., Office of the General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Contracting agency's decision to satisfy its immediate requirements for hazardous spill containment units using a
contract awarded under the Small Business Administration's section 8(a) business development program, while
completing an ongoing competition reserved for small businesses, is unobjectionable where acquiring the items
using the 8(a) program does not violate any statute or regulation.
DECISION
Basic Concepts, Inc., a small business concern, protests the award of a contract for hazardous material spill con[FN1]
tainment units (or berms)
, National Stock Number (NSN) 4235–01–419–4798, by the Defense Logistics
Agency (DLA) under the Small Business Administration's (SBA) section 8(a) business development program.
The contract was awarded on a noncompetitive basis to Bowhead Manufacturing Company, following a decision
by DLA to terminate an earlier award to Bowhead because of errors pointed out by the protester in an agency[FN2]
level protest.
Basic argues that the agency acted improperly in not holding a new competition for these
units.
We deny the protest.
BACKGROUND
On October 25, 2005, the agency issued, as a small business set-aside, a solicitation seeking a long-term supplier
for these berms. That solicitation is ongoing and both Basic and Bowhead are eligible to compete.
As the more significant procurement continues, DLA reports that it has backorders for these units that cannot
await completion of the ongoing competition. As a result, the agency issued, on October 17, 2006, an unrestricted solicitation for 177 small hazardous spill containment berms, identified as NSN 4235–01–419–4798. Agency
Report (AR), Tab B–3. In addition to listing the NSN, the solicitation set forth the salient characteristics of the
item, and identified—by manufacturer's part number—four approved products, including products manufactured
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 2
[FN3]
by Basic and Bowhead.
Although it was not noticed until later, the manufacturer's part number listed in
the solicitation for Bowhead's approved product was incorrect. Specifically, the solicitation listed Bowhead's
“Snap-up” berm (Part No. B–040408–SU), rather than its “Throw N Go” berm (Part No. 4235014194798, which
is the same number as the NSN). AR at 2.
On November 1, Bowhead was awarded the contract based on its lowest price. As the solicitation requested,
Bowhead offered to provide its “Snap-up” berm, rather than its “Throw N Go” berm. Basic filed an agency-level
protest objecting to the award, arguing that Basic had a patent that prevented Bowhead from supplying the
“Snap-up” berm. Although Bowhead conceded that it could not provide the “Snap-up” berm, it explained that it
recognized the mistake in the solicitation, and in fact, planned to supply its “Throw N Go” berm instead. As a
result, the agency decided to terminate Bowhead's award, as well as two other contracts for larger berms awar[FN4]
ded to Bowhead on December 15 and 18.
*2 By letter dated January 4, 2007, the agency advised both Basic and Bowhead that it was canceling the three
awards, and that the agency would correct the item description to identify the Bowhead “Throw N Go” berm as
an acceptable item and resolicit the requirement. AR, Tab 4, Letter from Agency to Basic and Bowhead dated
Jan. 4, 2007. This letter also advised that the needed items were in short supply and that the agency would
“likely again utilize urgent and compelling procedures” to fulfill its immediate requirements. Id.
DLA explains that immediately after deciding to cancel the award, on January 9, 2007, Bowhead contacted the
agency's Small Business Office to advise that it qualifies as an 8(a) firm, and that it was approved to supply both
the small and large sizes of berms. AR, Tab G, Declaration of Procurement Analyst. After verifying Bowhead's
status as an 8(a) business, and confirming that the item description had been updated, the Small Business Office
decided to add the item to its 8(a) database. Id. After receipt of a purchase request for 250 berms, the Small
Business Office notified the agency that the berms should be reserved for a direct award to Bowhead under the
SBA's 8(a) business development program. AR, Tab H, Small Business Coordination Record.
On January 24, the agency solicited Bowhead directly using an 8(a) set-aside, and simplified acquisition procedures. Bowhead responded on January 29, and after its offer was evaluated, Bowhead received an award for 250
berms on February 8. Basic again filed an agency-level protest on February 15, which was denied on March 3.
This protest to our Office followed on March 12.
DISCUSSION
Basic argues that it was not appropriate for the agency to procure these interim quantities of berms under the
SBA's 8(a) program after the January 4 DLA corrective action letter advised that the agency would “resolicit”
the item in response to Basic's original agency-level protest. In Basic's view it has been unfairly excluded from
this procurement.
In reviewing Basic's complaint that it has been treated unfairly here, we have looked at the January 4 letter advising Basic that the earlier award would be canceled and resolicited. As an initial matter, there was no representation in the January 4 letter that there would be a new competition for this item. In fact, the letter advised that
the agency would likely take steps to expedite its reprocurement. See AR, Tab 4, Letter from Agency to Basic
and Bowhead dated Jan. 4, 2007. While Basic clearly feels misled by the events here, upon review—and looking
at this situation as a whole—we see nothing improper or unreasonable about the agency's actions.
Moreover, the protester's contention that the agency's use of the 8(a) program was merely an attempt to exclude
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 3
Basic from competing is not supported by the record here. Government officials are presumed to act in good
faith, and a protester's claim that contracting officials were motivated by bias or bad faith must be supported by
convincing proof; our Office will not attribute unfair or prejudicial motives to procurement officials on the basis
of inference or supposition. Shinwa Elecs., B–290603 et al., Sept. 3, 2002, 2002 CPD para. 154 at 5 n.6. Here,
the protester has provided no evidence of bad faith; rather, it draws an inference from a series of facts to support
its belief that someone in the Small Business Office has “targeted Bowhead as a favorite vendor.”Protest at 3.
[FN5]
The protester's conclusion is based on speculation, and is insufficient to support a finding of bad faith.
*3 A second theme in Basic's protest, though not argued with specificity, is that it was somehow improper to
award this requirement under the SBA's 8(a) program. In this regard, we note that the earlier award to Bowhead,
which was cancelled, was conducted on an unrestricted basis; the ongoing competition to select a long-term supplier for these products is being conducted as a small business set-aside.
Section 8(a) of the Small Business Act, 15 U.S.C. sect. 637(a) (2000), authorizes the SBA to enter into contracts
with government agencies and to arrange for performance through subcontracts with socially and economically
disadvantaged small business concerns. Federal Acquisition Regulation (FAR) sect. 19.800(a). The Act affords
SBA and contracting agencies broad discretion in selecting procurements for the 8(a) program; we will not consider a protest challenging a decision to procure under the 8(a) program unless, as here, the protester alleges possible fraud or bad faith on the part of government officials, or that specific laws or regulations have been violated. Bid Protest Regulations, 4 C.F.R. sect.21.5(c)(2); Korean Maintenance Co., B–243957, Sept. 16, 1991,
91–2 CPD para. 246 at 5.
Under the Act's implementing regulations, SBA may not accept any procurement for award as an 8(a) contract if
doing so would have an adverse impact on an individual small business, a group of small businesses in a specific
geographic location, or other small business programs. 13 C.F.R. sect. 124.504(c)(1)-(3) (2006). The purpose of
the adverse impact concept is to protect incumbent small businesses who are currently performing an offered requirement outside the program. 13 C.F.R. sect. 124.504(c); Korean Maintenance Co., supra, at 2. In response to
the protester's concerns about this procurement, our Office asked the SBA to review DLA's actions and provide
its views about whether this procurement violated the above-described restrictions.
By letter dated May 18, SBA stated that the agency here properly utilized its streamlined procedures for 8(a)
awards for acquisitions valued at or below the simplified acquisition threshold. SBA Response to Protest, May
18, 2007. The SBA states that where, as here, it has delegated its contract execution function to a procuring
agency, offer and acceptance of acquisitions valued at or below the simplified acquisition threshold is not required. The SBA also explained that its regulations specifically provide that the adverse impact concept does not
apply to any requirement offered to the 8(a) program under simplified acquisition procedures. 13 C.F.R. sect.
[FN6]
124.504(c).
*4 Given our review of the record associated with the earlier agency-level protest, and SBA's view that DLA's
approach does not violate small business regulations, we have no basis to conclude that DLA acted improperly
here.
The protest is denied.
Gary L. Kepplinger
General Counsel
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 4
FN1. These units are placed under a vehicle to prevent and contain the release of potentially hazardous materials
during repairs or maintenance.
FN2. Department of Defense (DOD) agencies have been delegated authority to enter into 8(a) contracts on behalf of the SBA. DOD Federal Acquisition Regulation Supplement sect. 219.80.
FN3. DLA explains that, originally, the only approved hazardous material spill containment units were manufactured by Basic, but in November 2005, Bowhead's “Throw N Go” berm was approved by the agency as an acceptable product. AR, Tab B, Agency Dismissal Request at 2.
FN4. Contracts SPM4A6–07–V–1048 and SPM4A6–07–V–0998 were awarded to Bowhead on December 18
and 15 respectively and had been solicited as small business set-asides because they were anticipated for award
under $100,000. AR, Tabs E and F. These contracts were for a larger-sized spill containment berm, identified as
NSN 4235–01–419–4801. AR, Tabs E and F.
FN5. Basic also questions whether or not Bowhead can properly be considered an 8(a) contractor under the
SBA's regulations. Challenges of a small business's size status, or eligibility for award under the 8(a) program,
are for review solely by the SBA, not our Office. 4 C.F.R. sect. 21.5(b) (2007). In addition, the protester's complaints about DLA's decision to qualify Bowhead's “Throw N Go” berm as an equal product—an ongoing theme
in these filings—are raised over a year after Basic knew the item had been approved. This matter is raised far
too late for consideration in our bid protest forum. Bid Protest Regulations, 4 C.F.R. sect. 21.2(a)(2).
FN6. The SBA also concluded that the adverse impact concept does not apply to this procurement because the
SBA has determined that based on the facts here, this procurement is considered a new requirement because it
involves a much smaller quantity than the larger ongoing competitive set-aside procurement. See13 C.F.R. sect.
124.504(c)(1)(ii), (c)(2). In addition, as noted above, the award to Bowhead that was canceled was conducted
using an unrestricted solicitation, so nothing about that procurement triggers these restrictions either.
B- 299545, 2007 CPD P 98, 2007 WL 1574615 (Comp.Gen.)
END OF DOCUMENT
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
Bridgestone Retail Tire Operations v. Industrial Com'n of Arizona, 227 Ariz. 453 (2011)
258 P.3d 271, 612 Ariz. Adv. Rep. 13
number of teeth lost, regardless of whether there
is accompanying disfigurement. A.R.S. § 23–
1044(B)(22).
227 Ariz. 453
Court of Appeals of Arizona,
Division 1, Department A.
BRIDGESTONE RETAIL TIRE
OPERATIONS, Petitioner Employer,
Old Republic Insurance Co./
Sedgwick CMS, Petitioner Carrier,
v.
INDUSTRIAL COMMISSION
OF ARIZONA, Respondent,
Carl Truelock, Respondent Employee.
No. 1 CA–IC 10–0059.
|
July 14, 2011.
[2]
When courts cannot ascertain the intent behind
a particular legislative enactment, the appellate
courts attempt to interpret the statute in a manner
that furthers the goals of the relevant body of
legislation.
[3]
Synopsis
Background: Employer and workers' compensation insurer
brought special action to review the Industrial Commission
of Arizona (ICA), No. 20043–490084, J. Matthew Powell,
Administrative Law Judge, award for scheduled permanent
partial disability benefits.
[1]
[5]
Workers' Compensation
Loss of, or injury to, member in general
Industrial Commission of Arizona (ICA) was
warranted in finding that workers' compensation
claimant was entitled to a scheduled permanent
partial disability benefit in the amount of fiftyfive percent of his average monthly wage for
eighteen months for loss of his teeth from an
industrial accident, even if he did not sustain
a permanent disfigurement; ICA's consistent
position has been that a worker who loses
teeth in an industrial accident is entitled to an
award for permanent disability based on the
Workers' Compensation
Liberal or strict construction in general
The workers' compensation act is remedial in
character and is to be construed liberally. A.R.S.
§ 23–901 et seq.
[Holding:] The Court of Appeals, Downie, J., held that the
ALJ was warranted in awarding permanent partial disability
benefits due to claimant's loss of teeth.
West Headnotes (5)
Workers' Compensation
Purpose of legislation
The goal of the workers' compensation act is to
ensure that injured employees receive maximum
available benefits. A.R.S. § 23–901 et seq.
[4]
Affirmed.
Statutes
Purpose and intent
Administrative Law and Procedure
Deference to agency in general
Administrative Law and Procedure
Plain, literal, or clear meaning; ambiguity
Although the appellate court resolves questions
of statutory construction de novo, it gives
deference to an agency's interpretation and
application of statutes that it implements; such
deference is particularly appropriate when a
statute is reasonably susceptible to differing
interpretations.
Attorneys and Law Firms
**272 Jardine, Baker, Hickman & Houston By Stephen C.
Baker, Scott H. Houston, Phoenix, Attorneys for Petitioner
Employer and Carrier.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
1
Bridgestone Retail Tire Operations v. Industrial Com'n of Arizona, 227 Ariz. 453 (2011)
258 P.3d 271, 612 Ariz. Adv. Rep. 13
Andrew Wade, Chief Counsel, The Industrial Commission of
Arizona, Phoenix, Attorney for Respondent.
951(A), and Arizona Rules of Procedure for Special Actions
10.
Terry F. Hall, Phoenix, Attorney for Respondent Employee.
DISCUSSION
Opinion
*454 OPINION
DOWNIE, Judge.
¶ 1 Bridgestone Retail Tire Operations (“Bridgestone”)
and Old Republic Insurance Company/Sedgwick CMS
(collectively, “petitioners”) challenge the award of workers'
compensation benefits to Carl Truelock. Petitioners contend
an employee who loses teeth in an industrial accident must
prove disfigurement in order to recover permanent partial
disability benefits under Arizona Revised Statutes (“A.R.S.”)
section 23–1044(B)(22). We disagree and therefore affirm the
award of benefits to Truelock.
FACTS AND PROCEDURAL HISTORY
¶ 2 In 2004, Truelock was injured while working as a
mechanic for Bridgestone. He hit his nose and mouth on
the running board of a truck that was on a lift for an oil
change. Truelock filed a workers' compensation claim that
was accepted for benefits. He received extensive dental work,
and his claim was closed with no permanent impairment. At
Truelock's request, the carrier reopened his claim in 2008.
Truelock underwent substantial additional dental treatment,
including the replacement of all of his teeth with permanent
implants. Truelock also received dentures that snap over the
implants.
¶ 3 In December 2009, the carrier again closed the claim with
no permanent impairment. Truelock challenged the closure,
arguing, inter alia, he was entitled to compensation for the
loss of his teeth. After a hearing, the Administrative Law
Judge (“ALJ”) denied Truelock's claim. Truelock filed a
timely request for review. Upon review, the ALJ amended
his earlier decision. Citing A.R.S. § 23–1044(B)(22), the ALJ
ruled that Truelock was entitled to a scheduled permanent
disability benefit in the *455 **273 amount of fifty-five
percent of his average monthly wage for eighteen months.
¶ 4 Petitioners timely sought review in this Court. We have
jurisdiction pursuant to A.R.S. §§ 12–120.21(A)(2), 23–
[1] ¶ 5 The parties disagree about the proper interpretation
of A.R.S. § 23–1044(B)(22), which reads:
B. Disability shall be deemed permanent partial disability
if caused by any of the following specified injuries,
and compensation of fifty-five per cent of the average
monthly wage of the injured employee, in addition to the
compensation for temporary total disability, shall be paid
for the period given in the following schedule:
....
22. For permanent disfigurement about the head or
face, which shall include injury to or loss of teeth, the
commission may, in accordance with the provisions of §
23–1047, allow such sum for compensation thereof as it
deems just, in accordance with the proof submitted, for a
period of not to exceed eighteen months.
(Emphasis added.)
¶ 6 According to petitioners, § 23–1044(B)(22) “does not
state that compensation is payable even where there is no
disfigurement.” Truelock, on the other hand, contends that,
“When teeth are lost as a result of an industrial injury, the
injured worker is entitled to a scheduled award pursuant to
A.R.S. § 23–1044(B)(22) without regard to whether there is
permanent disfigurement.”
¶ 7 In construing a statutory provision, we first consider the
statute's language, as the best and most reliable index of the
statute's meaning. Zamora v. Reinstein, 185 Ariz. 272, 275,
915 P.2d 1227, 1230 (1996). If the “language is clear and
unambiguous, we apply it without resorting to other methods
of statutory interpretation.” Hayes v. Cont'l Ins. Co., 178 Ariz.
264, 268, 872 P.2d 668, 672 (1994).
¶ 8 Both proffered interpretations of § 23–1044(B)(22)
are plausible. One could read the statute as requiring
permanent disfigurement as a condition precedent for any
award thereunder, as petitioners suggest. But the statute can
also be read as carving out “injury to or loss of teeth” from
the disfigurement requirement. Cf. State v. Witwer, 175 Ariz.
305, 308, 856 P.2d 1183, 1186 (App.1993) (holding that the
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
2
Bridgestone Retail Tire Operations v. Industrial Com'n of Arizona, 227 Ariz. 453 (2011)
258 P.3d 271, 612 Ariz. Adv. Rep. 13
word “includes” “is a term of enlargement” when used in a
statute). To resolve the ambiguity, we turn to accepted tools
of statutory construction, see Hayes, 178 Ariz. at 268, 872
P.2d at 672, beginning with the statute's legislative history.
157 Ariz. 93, 96, 754 P.2d 1368, 1371 (App.1988) (same).
Such deference is particularly appropriate when a statute is
reasonably susceptible to differing interpretations.
¶ 13 The ICA's consistent position has been that a worker
who loses teeth in an industrial accident is entitled to an
¶ 9 Section 23–1044 has been revised substantially over the
award under § 23–1044(B)(22) based on the number of
years. There is, however, limited legislative history relevant
teeth lost, regardless of whether there is accompanying
to subsection (B)(22). The language about compensation for
disfigurement. See ICA Procedures Manual, Claims Div.,
permanent disfigurement and the loss of teeth was added over
Indust. Comm'n of Ariz., at 134 (1990), reprinted in Ariz.
fifty years ago. See 1953 Ariz. Sess. Laws, ch. 55, § 1 (1st
Workers' Comp. Handbook, at app. B. If a claimant suffers
Reg. Sess.).
both facial disfigurement and lost teeth, the ICA awards
[2] [3] [4] ¶ 10 When courts cannot ascertain the intent benefits “on both the facial and loss of teeth.” Id. at 136;
cf. Moreno v. Indus. Comm'n, 122 Ariz. 298, 299, 594 P.2d
behind a particular legislative enactment, we attempt to
552, 553 (App.1979) (“[A]n injury which results in functional
interpret the statute in a manner that furthers the goals of the
impairment other than disfigurement or loss of teeth does not
relevant body of legislation. Hayes, 178 Ariz. at 268, 872
fall within the plain language of paragraph 22.”) (emphasis
P.2d at 672. The goal of Arizona's workers' compensation
added).
act is to ensure that injured employees “receive maximum
available benefits.” Aitken v. Indus. Comm'n of Ariz., 183
¶ 14 If we were writing on a clean slate, we might conclude
Ariz. 387, 392, 904 P.2d 456, 461 (1995). The act is “remedial
that petitioners' statutory interpretation is more reasonable,
in character and is to be construed liberally.” S.H. Kress &
especially given the significant advances in dental technology
Co. v. Indus. Comm'n, 38 Ariz. 330, 337, 299 P. 1034, 1037
that have occurred since the legislature added the language
(1931).
in question. 3 Ultimately, however, the continuing wisdom of
this longstanding statute is a policy matter for the legislative
¶ 11 It is significant that the Industrial Commission of
branch to consider.
Arizona (“ICA”) has a long-standing and consistent policy
of interpreting § 23–1044(B)(22) in the manner Truelock
advocates. 1 Indeed, in amending his initial award denying
benefits under § 23–1044(22), the ALJ cited the ICA
guidelines, which he characterized as “provid[ing] that the
full *456 **274 eighteen month benefit is appropriate for
the loss of all teeth.” 2
[5] ¶ 12 Although we resolve questions of statutory
construction de novo, we give deference to an agency's
interpretation and application of statutes that it implements.
See E. Vanguard Forex, Ltd. v. Ariz. Corp. Comm'n, 206
Ariz. 399, 410, ¶ 35, 79 P.3d 86, 97 (App.2003); see also
Baca v. Ariz. Dep't of Econ. Sec., 191 Ariz. 43, 46, 951
P.2d 1235, 1238 (App.1998) (holding that judicial deference
should be given to agencies charged with the responsibility
of carrying out specific legislation); Blake v. City of Phoenix,
CONCLUSION
¶ 15 We affirm the award of benefits to Truelock. Petitioners'
appeal was neither frivolous nor brought for purposes of
delay. We thus deny Truelock's request for an award of
attorneys' fees pursuant to Rule 25, Arizona Rules of Civil
Appellate Procedure, and A.R.S. § 12–349.
CONCURRING: DIANE M. JOHNSEN, Presiding Judge
and JON W. THOMPSON, Judge.
Parallel Citations
258 P.3d 271, 612 Ariz. Adv. Rep. 13
Footnotes
1
2
At oral argument, counsel for petitioners stated that the ICA's interpretation has been applied for over twenty years.
A different ALJ, who considered other aspects of Truelock's claim, opined that the loss of teeth would be compensable under § 23–
1044(B)(22). In a January 2009 decision, ALJ Mosesso stated:
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
3
Bridgestone Retail Tire Operations v. Industrial Com'n of Arizona, 227 Ariz. 453 (2011)
258 P.3d 271, 612 Ariz. Adv. Rep. 13
3
Even though [Truelock] will have implants and dentures to replace the lost teeth, [Truelock] has, none-the-less, lost teeth due
to the industrial injury and is entitled to a permanent impairment rating at the point of closure of the claim. The Industrial
Commission Claim's Division, at the point of closure, should be referred [to] this file for a determination of the number of
months of disability for the loss of teeth pursuant to A.R.S. § 23–1044(B)(22) and as outlined on page 54 of the 2008 handbook.
There was testimony below, by a board-certified oral and maxillofacial surgeon, that Truelock has experienced a “positive impairment
or whatever the opposite of that is, meaning that these teeth of his, he's been given a gift, and I'm sure his existing teeth prior to the
injury were not in anywhere nearly as nice a shape as these are.”
End of Document
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
4
2005 AZ Admin. Hearings LEXIS 762
Arizona Department of Administration
October 18-22, 2004, October 25-29, 2004 and November 22-24, 2004, Heard May 6, 2005, Decided May 2, 2005, Record Closed
No. 04-0008-ADM
Reporter: 2005 AZ Admin. Hearings LEXIS 762
CIGNA HEALTHCARE OF ARIZONA, INC. and CONNECTICUT GENERAL LIFE INSURANCE
COMPANY, Appellants v. ARIZONA STATE PROCUREMENT OFFICE, Respondent AND UNITED
HEALTHCARE, Intervener
Subsequent History:
[*1] Final agency action regarding decision below: ALJCERT ALJ decision certifed as final
Note: Page and line references are to original ALJ document. Please see original document for pagination and line numbers.
Core Terms
offerors, network, pages, discounts, procurement, strengths and weaknesses, disease, conflicting interest, region,
recommend, administrative fees, management program, mischaracterized, non-integrated, protest, set forth, enrolled,
self-insurance, credible, retirees, audits, voided, evaluation process, evaluation report, present evidence, health
benefits, methodology, coverage, interest statute, gatekeeper
Opinion By: Daniel G. Martin, Administrative Law Judge
Opinion
APPEARANCES:Vaughn A. Crawford, Esq. (Snell & Wilmer, LLP) and Courtney Odishaw, Esq. (CIGNA Healthcare Companies) represented Appellants CIGNA Healthcare of Arizona, Inc. and Connecticut General Life Insurance
Company. Kevin O’Malley, Esq. and Mark Deatherage, Esq. (Gallagher & Kennedy, PA) represented Respondent Arizona State Procurement Office. David J. LaBrec, Esq. (Strasburger & Price, LLP) represented Intervener United Healthcare.
Appellants CIGNA Healthcare of Arizona, Inc. and Connecticut General Life Insurance Company (collectively
″CIGNA″) appealed a July 29, 2004 decision by Respondent Arizona State Procurement Office (″SPO″) that denied
CIGNA’s protest of SPO’s decision to award a contract to Intervener United Healthcare (″United″) for the provision of integrated health care services to employees and retirees of the State of Arizona (the ″State″) through Arizona Benefit Options, the State’s self-funded health insurance [*2] program. Based on the evidence of record, and the
written arguments of counsel, the Administrative Law Judge makes the following Findings of Fact, Conclusions of
Law and Recommended Order.
FINDINGS OF FACT
1. Since 1982, the State has provided health benefits to its employees and retirees, and their dependents, through
one or more fully-insured group health plans. See SPO Exhibit 5, at page 14.
2. In 2002, the State began to consider the possibility of switching from the traditional, fully-insured health insurance model under which it had been operating, to a self-insured model under which the State would directly assume
the risk for providing health benefits to its employees and retirees. That program became known as ″Arizona Benefit Options.″
3. The Arizona Department of Administration (the ″Department″ or ″ADOA″) assumed responsibility for evaluating
and ultimately implementing the State’s self-insurance program. To assist it in that process, the Department engaged a consultant, Mercer Government Human Services Consulting (″Mercer″). The Department selected Mercer
SARA AGNE
Page 2 of 21
2005 AZ Admin. Hearings LEXIS 762, *4
based on Mercer’s ″national resources and experience with other State programs under self-insurance″. Reporter’s
[*3] Transcript of Proceedings (hereinafter ″R.T.″), Vol. XI, at page 2420.
4. The Department originally contemplated that it would contract for various health care services on a ″nonintegrated″ basis; that is, the State would enter into contracts with different providers for different components of
the health care system including medical networks (e.g., physicians and hospitals), pharmacy benefits, utilization review and utilization management, third party administration and stop loss. 1
5. In December 2002, SPO, acting on behalf of the Department, issued requests for proposals for the non-integrated contracts. SPO received 41 proposals in response to those requests.
6. Subsequent to the issuance of the requests for proposals for the non-integrated contracts, several of Arizona’s
large health insurance companies (including CIGNA) challenged the non-integrated approach, asserting, in essence,
that they were being shut out of the process. See R.T., Vol. XI, at page 2437. Thereafter, the State determined that it
would also allow for the submission of ″integrated″ proposals. See id. at pages 2437-39. As the name implies,
[*4] such proposals would be allowed to incorporate most or all of the various components of the State’s health
care system into a single offer.
7. The Department, through SPO and with Mercer’s assistance, prepared a request for proposals for the integrated contracts. The Administrative Law Judge finds that the Department’s intent when drafting the request for integrated proposals was to seek offers that presented a shift away from the traditional ″managed care″ paradigm and its emphasis on cost controls, to a system that was specifically tailored towards providing the State’s employees and retirees with
the most comprehensive health care possible.
8. On March 18, 2004, SPO issued a formal Notice of Request for Proposal (the ″RFP″) for the integrated contracts under Solicitation No. AD040404. See SPO Exhibit 5. The proposals were due not later than April 23, 2004. See id.2
9. The RFP identified Gecola Ward as the solicitation contact person. Ms. Ward is the SPO contracting officer responsible for employee benefits contracts, and served as the procurement officer for the RFP.
10. At the time that SPO issued the RFP, CIGNA was [*5] the sole provider of health care services to the State’s employees, a position it had occupied since 2001. Prior to 2001, CIGNA had provided health care services to the
State in various forms for a period of approximately 30 years.
11. SPO structured the RFP as a competitive sealed proposal in accordance with A.R.S. § 41-2534 and A.A.C. R2-7325. In a competitive sealed proposal process, proposals are evaluated according to criteria that are set forth within
the request for proposal. See A.R.S. § 41-2534(G). As a general rule, competitive sealed proposals are used when price
is not the determining factor, and when, due to the nature of the service being sought, the agency involved in the procurement may wish to conduct discussions (negotiations) with the offerors and afford offerors an opportunity to revise their proposals. See, e.g., A.A.C. R2-7-325(B).
12. In the instant case, the RFP identified the following criteria by which the proposals would be evaluated:
10.1 Claims, reporting and service capabilities (including ability to administer plan designs and coordinate/
compile data from other contractors).
10.2 Ability to comply with the [Department’s] goals and service/ [*6] performance standards.
10.3 Company’s overall financial status, reputation and qualifications of key personnel.
10.4 Cost effectiveness of overall service.
See SPO Exhibit 5, at page 84 (Special Instructions to Offerors § 10).
13. The RFP described the relative importance of each of the criteria as follows:
1
″Stop loss″, also known as excess risk insurance, refers to an insurance product that provides coverage for claims (either individual or aggregate) that exceed a certain dollar amount.
2
Although the main thrust of the RFP was to solicit proposals for integrated health care services for all State employees and retirees, the RFP also sought proposals for a Medicare Plus Choice plan that would provide supplemental benefits to retirees who
were also eligible for Medicare. The Medicare Plus Choice contract, which was awarded to a separate offeror (PacifiCare of Arizona), is not at issue in this appeal and therefore will not be addressed further.
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An award of a competitive sealed proposal shall be made to the responsible offeror whose proposal is determined in writing to be the best value to the State and to be the most advantageous to the State based
on the evaluation criteria. Evaluation criteria are listed in relative order of importance. All factors other than
cost are significantly more important than cost.
See SPO Exhibit 5, at page 84 (Special Instructions to Offerors § 9) (emphasis added).
14. The RFP further advised the offerors: ″The State intends to evaluate proposals and award a contract without discussions with offerors, except for clarifications. Therefore, the offeror’s initial proposal should contain the offeror’s best terms from a cost or price and technical standpoint. The State reserves the right to conduct discussions (negotiations) if the procurement officer later determines them [*7] to be necessary.″ See SPO Exhibit 5, at page 86
(Special Instructions to Offerors § 12). The Administrative Law Judge finds, based on the foregoing language, that although the Department might choose to conduct discussions with the offerors, none of the offerors should have expected that it would receive an opportunity to negotiate or revise its initial proposal.
15. The RFP was broken down into seven major sections: (i) Pricing Schedule; (ii) Scope of Work; (iii) Uniform
Terms and Conditions; (iv) Special Terms and Conditions; (v) Uniform Instructions to Offerors; (vi) Special Instructions to Offerors; and (vii) Questionnaire. See SPO Exhibit 5. The questionnaire section contained 482 questions
aimed at eliciting data on a range of topics including claims administration, membership, billing, network management, network access, care management (including disease management, utilization review and case management), prescription drugs, stop loss and reporting. See SPO Exhibit 5 (Questionnaire).
16. Under the terms of the RFP, offerors could include proposals for prescription drugs and stop loss in their offers. However, the Department retained the right to ″carve out″ these [*8] benefits from any integrated contract that it
awarded (i.e., the Department could elect to award these services on a non-integrated basis). See SPO Exhibit 5, at
pages 140 and 165.
17. The RFP instructed the offerors that their proposed medical plans could include an exclusive provider organization (″EPO″) plan, a preferred provider organization (″PPO″) plan, ″or any combination of both or each.″ See SPO Exhibit 5, at page 25. Offerors were further instructed that awards could be made for different regions, as follows: (i) central (Maricopa, Pinal and Gila counties); (ii) southern (Pima and Santa Cruz counties); (iii) western (Yuma, La
Paz and Mohave counties); (iv) northern (Yavapai, Coconino, Navajo and Apache counties); (v) southeastern (Greenlee, Graham and Cochise counties); and (vi) out-of-state (each of the additional 49 states and worldwide coverage)
. See id.
18. An EPO plan, which is akin to the traditional health maintenance organization (″HMO″) system with which
many health care consumers are familiar, is based on the premise that coverage for health care benefits is provided
only for services rendered by providers (hospitals, physicians, etc.) within the [*9] health plan’s network, i.e., those
with whom the health plan has contracts. Except in limited circumstances (such as emergencies), coverage does
not extend to providers outside of the health plan’s EPO network.
19. Under the PPO system, the greatest level of coverage is provided for services rendered by providers within the
health’s plan’s network (the ″preferred″ providers) ; however, a member may also obtain services from providers outside of that network. Thus, a PPO generally affords more flexibility to the member in terms of choices for accessing health care services.
20. As a general rule, EPO plans are significantly less expensive than PPO plans, and therefore garner significantly
larger enrollments when both options are offered as part of a health benefits package.
21. On March 25, 2004, the Department conducted a ″pre-proposal″ conference during which potential offerors were
able to ask questions regarding the RFP. Ms. Ward and Susan Strickler, ADOA’s health benefits manager, represented the Department at the conference. Also present, from Mercer, were Steve Schramm and Nicole Gyllstrom. R.T.,
Vol. IV, at pages 910-11.
22. Mr. Schramm is, and was at all material times [*10] hereto, the second highest ranking employee at Mercer,
and the primary contact between Mercer and the Department with respect to the RFP.
23. At the conclusion of the pre-proposal conference, the offerors were instructed to submit their questions in writing (including those that had been asked and answered during the conference) so that a clear record could be maintained of the Department’s responses to those questions. R.T., Vol. IV, at pages 911-12.
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24. The Department received numerous written questions, and responded to those questions through a series of amendments to the RFP. See SPO Exhibits 6-10.
25. On April 23, 2004, the Department received proposals in response to the RFP from eight companies: Benesight,
BlueCross BlueShield of Arizona (″BCBS″), CIGNA, Great West Life, Multiplan, Inc., PacifiCare of Arizona (″PacifiCare″), Schaller Anderson of Arizona (″Schaller Anderson″) and United. 3
26. All of the offerors, with the exception of United, modeled their EPO plans on what is known as a ″gatekeeper″ system. Under the gatekeeper system, a person enrolled in an EPO plan selects a primary care physician (″PCP″),
who in [*11] turn guides the delivery of that person’s medical care. As a general rule, a person participating in a gatekeeper system must obtain a referral from his or her PCP in order to receive specialty treatment.
27. United modeled its EPO plan on what is known as an ″open access″ system. Under the open access system, a person enrolled in the health plan is not required to have a PCP (though in practice many do), and does not require a referral to see a specialist. In other words, a person under an open access system has direct access to any and all of
the providers in the network. 4
28. The RFP did not specify whether offerors were to model their EPO plan designs on any particular system, gatekeeper or otherwise. One of the offerors raised this issue in a written question to the Department, as follows: ″. . .
is the EPO function like an HMO product with such features as gatekeeper and referral requirements?″ The Department responded: ″EPO is intended to function similar to an HMO product, which could include features such as a
gatekeeper and referral requirements.″ See SPO Exhibit 7, Solicitation Amendment No. 2, at pages 2-3 [*12] (emphasis added). 5
29. In accordance with A.R.S. § 41-2516 and A.A.C. R2-7-203, SPO appointed a technical evaluation committee
(the ″TEC″) to review the proposals submitted in response to the RFP. The TEC had four voting members and two non
-voting members. The four voting members (hereinafter referred to as the ″TEC members″) were Ms. Strickler
(chair), Loretta Coates, Frank Hinds and Nan Jeannero. The two non-voting members were Marcia Jarvis and Paul Shannon. 6
30. Ms. Strickler, in her role as the Department’s health benefits manager, brought to the TEC a broad range of experience in health benefits programs and direct knowledge with respect to the State’s health benefits program. Ms.
Coates, a benefits manager at Arizona State University, was not only familiar with health benefits in general, but also
represented the interests of the university community, which made up (and makes up) a large part of the State’s employee base (approximately 33%). Mr. Hinds is the State’s risk manager, and served as the manager of the State’s self
-insurance project. In that capacity, Mr. Hinds [*13] acted as a liaison between the Department and the Legislature,
and became intimately familiar with the facts upon which the State based its decision to self-insure. Mr. Hinds
also had direct experience in self-insurance as the administrator (in his capacity as the State’s risk manager) of the
State’s self-insured worker’s compensation program. Ms. Jeannero, by virtue of her position as the manager of health
plan operations at the Arizona Health Care Cost Containment System (″AHCCCS″), the agency responsible for the
State’s Medicaid program, was well-versed not only in health care but also in health care procurements.
31. Based on the foregoing, the Administrative Law Judge finds that each of the TEC members was well qualified
to review and evaluate the proposals, and that each brought a particular expertise to the process.
32. On April 23, 2004, after the proposals had been submitted, John Adler, the State’s procurement administrator
and the highest ranking person at SPO, and Ms. Ward met with the TEC members to provide them with copies of the
proposals and to instruct them on the evaluation process.
3
United’s proposal was admitted into evidence as SPO Exhibit 12. CIGNA’s proposal was admitted into evidence as Appellant Exhibit 663 (all of CIGNA’s hearing exhibits were marked as ″Appellant Exhibit ″; however, for ease of reference, the Administrative Law Judge has referred to such exhibits in this Decision as ″CIGNA Exhibit ″).
4
This direct access is not without limitation. For example, an enrollee could not, without further authorization, obtain an organ transplant or other significant, high cost procedure.
5
CIGNA understood that it had the option to propose either a gatekeeper or an open access model for its EPO plan. See R.T.,
Vol. II, at page 297 and Vol. III, at pages 795-96.
6
Ms. Jarvis is a systems manager for the Department, and advised the TEC with respect to information technology issues. Mr.
Shannon is a budget manager for the Department, and advised the TEC with respect to banking and related financial arrangements.
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33. During their instruction on the evaluation process, each TEC member received [*14] a copy of SPO’s written evaluation guidelines. See SPO Exhibit 19. The guidelines instructed the TEC members as follows: ″The goal of the evaluation/ selection process is to select and recommend to the Contracting Officer the proposal(s) (offer(s)) that,
based on the evaluation factors set forth in the solicitation, are the most advantageous to the State.″ See id. at page
1. The guidelines further instructed the TEC members that they were to review each proposal separately, identify
strengths and weaknesses for each proposal, and record those strengths and weaknesses in narrative form in their final evaluation report. See id. at pages 3 and 8. 7
34. Mr. Adler instructed the TEC that the cost information in the proposals would be analyzed by Mercer, and that Mercer would report back to the TEC. See R.T., Vol. XII, at pages 3019-20.
35. The TEC met on Saturday, April 24, 2004 to review the proposals. None of the TEC members was able to complete his or her review of the proposals at that time, and no substantive discussions took place.
36. The TEC met again on April 28, 2004. As of this date, the TEC members had completed [*15] their initial reviews of the proposals, and were in a position to begin to discuss the proposals’ strengths and weaknesses. The TEC
members were in agreement that of the eight proposals, those submitted by United, CIGNA, Schaller Anderson
and BCBS were the top contenders. Of these four, the consensus of the TEC was that United was the top candidate;
CIGNA and Schaller Anderson were both considered as second place candidates.
37. Ms. Strickler testified at hearing that she was disappointed with CIGNA’s proposal. Ms. Strickler believed that
CIGNA, as the incumbent provider with a wealth of knowledge about the State’s employees, could have offered more.
See R.T., Vol. XI, at page 2498. Instead, according to Ms. Strickler, CIGNA offered basically the same package
that it already had in place. See id.
38. In contrast, United’s proposal was deemed to contain a number of features that distinguished it from the other proposals, such as (i) United’s proposal for an open access system (which the TEC members considered a very significant feature as it provided a high degree of flexibility and choice to the EPO enrollees), (ii) United’s disease management program (which the TEC found [*16] to be both comprehensive and proactive), (iii) United’s extensive
national coverage, (iv) United’s inclusion of the university health centers in its network (which provided an added
benefit to university employees), and (v) United’s ability to efficiently process claims and the manner in which claims
data was made available to the State.
39. After the TEC’s April 28, 2004 meeting, SPO issued a series of clarification questions to all of the offerors regarding issues that had arisen during the review of the proposals. See, e.g., CIGNA Exhibit 664. The offerors submitted their responses to those questions in early May 2004.
40. The TEC met again on May 6, 2004 to consider the clarifications provided by the offerors and to continue its identification of the offerors’ strengths and weaknesses. As of this date, each member of the TEC still considered
United to be the top candidate. Also as of this date, the general consensus among the TEC members was that CIGNA
had moved ahead of Schaller Anderson as the second place candidate. 8
41. The TEC met again on May 7, 2004. At this meeting, Mercer presented its findings with regard to its [*17]
cost and network analyses. The gravamen of Mercer’s presentation was that as between the leading contenders, no material differences existed either in provider networks or total program cost, and therefore the TEC should make its decision based on the other evaluation criteria. With regard to cost, Mercer specifically advised the TEC that each
of the proposals fell within the limits of the State’s total program cost budget (both as to administrative fees and claims
costs), and therefore, that as to the cost criterion, each of the offerors could be considered as susceptible for award
of the contract.
7
CIGNA suggested at hearing that in the course of her review, Ms. Strickler disregarded the instruction to review each proposal separately. CIGNA based this argument on a chart Ms. Strickler prepared that identified strengths and weaknesses for each
of the offerors. See CIGNA Exhibit 761. The Administrative Law Judge finds no merit to CIGNA’s contention, as Ms. Strickler credibly testified at hearing that she prepared the chart only as a means of consolidating information contained in the proposals, and that it was not intended to function as a side by side comparison of the proposals. See R.T., Vol. XII, at pages 270708.
8
Even so, the evidence presented at hearing demonstrated that if United had not been selected for award, CIGNA would not necessarily have emerged as the top candidate. At least two of the TEC members, Ms. Jeannero and Mr. Hinds, testified that they
could not say which offeror they would have recommended for award if United had not been selected. See R.T., Vol. XII, at pages
2891 and 2911-13 (testimony of Ms. Jeannero) and pages 2970-71 (testimony of Mr. Hinds).
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42. In consequence of the foregoing, the TEC did not place any significant weight on the cost criterion, nor did cost
have any significant impact on the TEC’s decision to recommend United for the contract award. Ms. Strickler testified that Mercer’s conclusions that the proposals were comparable from a network and financial perspective ″just kind
of validated where the committee was going anyway with United.″ R.T., Vol. XI, at page 2488.
43. At hearing, CIGNA suggested that Mercer ″steered″ the TEC either towards United or away from CIGNA. The Administrative Law Judge finds no merit to [*18] this contention. The weight of the credible evidence presented at hearing demonstrated that Mercer did not make any recommendations to the TEC either for or against any of the offerors, and that Mercer in no way attempted to influence the TEC’s decision. Further, CIGNA’s suggestion that Mercer
influenced the outcome of the evaluation process is inconsistent with the evidence presented at hearing, which demonstrated that the TEC had selected United as the leading candidate prior to receiving any input from Mercer.
44. On May 11, 2004, in accordance with A.R.S. § 41-2534(F), the Department conducted discussions (negotiations)
with those offerors whose proposals had been deemed reasonably susceptible of being selected for award of the contract, including CIGNA and United. During those meetings, the Department provided feedback to the offerors regarding weaknesses that had been identified during the evaluation process.
45. The evidence demonstrated that with respect to CIGNA’s proposal, the Department and CIGNA discussed the following issues: timing of contract award; account management/implementation team; ADOA’s timeline, provider network; fees/credits/pricing; performance guarantees; [*19] banking and financial arrangements; open enrollment
timeline; CIGNA’s care management and disease management programs; and issues pertaining to contract performance (including CIGNA’s willingness to allow financial and claims audits) . See SPO Exhibit 14, at IC100001-05
and IC100009-11, and SPO Exhibit 80. The Department advised CIGNA that its fees fell within Mercer’s competitive fee range, though they were in the high end. See SPO Exhibit 14, at IC100011, and SPO Exhibit 80.
46. The evidence demonstrated that with respect to United’s proposal, the Department and United discussed the following issues: account management/ implementation; eligibility testing; banking and financial arrangements; United’s care management program; transition of care; claims and member service; and issues pertaining to contract performance (including financial accuracy guarantees). See SPO Exhibit 15.
47. By letters dated May 12, 2004, Ms. Ward requested that CIGNA and United submit Final Proposal Revisions
(″FPRs″) (sometimes also referred to herein as Best and Final Offers or ″BAFOs″). See CIGNA Exhibit 665 and SPO
Exhibit 15.
48. Both CIGNA and United submitted their FPRs to the Department [*20] on May 13, 2004. See CIGNA Exhibit
665 (CIGNA) and SPO Exhibit 15 (United).
49. CIGNA used its FPR to make several enhancements to its proposal, including (i) waiver of its 7 day imprest requirement for weekly bank account funding, and (ii) addition of a clinical guarantee that, in essence, provided for credits to the State if certain defined health outcomes were not met. See CIGNA Exhibit 665.
50. United also used its FPR to make several enhancements to its proposal, including (i) lower fees for its employee assistance program and nurseline benefits, and (ii) an implementation credit for 10% of the State’s first month’s administrative costs (subject to a minimum enrollment of 10,000 employees). See SPO Exhibit 15.
51. On May 13, 2004, the TEC met to consider the FPRs. Ms. Jeannero participated in that meeting by telephone,
as she was traveling at the time. The Administrative Law Judge finds that although Ms. Jeannero did not have copies of the FPRs at the time of the meeting, she was sufficiently apprised as to their contents during the course of the meeting that she was able to make an informed evaluation of the FPRs and their impact on the TEC’s review of the
proposals [*21] and its decision as to which company should be awarded the integrated contract.
52. Ms. Strickler summarized the May 13, 2004 meeting as follows: ″We already pretty much knew who we were going to make the recommendation for, but we wanted to wait until we got the BAFOs in to see if anything significantly had changed.″ R.T., Vol. XI, at page 2505. As the evidence demonstrated, the information contained in the BAFOs did not alter the TEC’s determination that United’s was the proposal most advantageous to the State.
53. At the conclusion of the May 13, 2004 meeting, the TEC reached final consensus to recommend that the contract be awarded to United. At hearing, Ms. Strickler captured that consensus as follows:
Q. You have touched on a whole series of things that you saw as benefits to the United proposal. Is
there a way that you can capture for us why it is that the committee ultimately made its final decision,
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which was to go with United versus CIGNA? How would you sort of give us the composite basis for
your decision?
A. In reading the proposal, they really put together something that I felt they wanted the State’s business. They put together a very comprehensive proposal. It was [*22] very well read. Again, there was a
lot of patient friendly components to it. And I think as a committee, when we met that first time that opinion was throughout the committee, that it was a very holistic, something of a paradigm shift from the typical HMO managed approach, old school approach, and this was something that would be, something
that would be well received by employees and hirees.
See R.T., Vol. XI, at pages 2594-95.
54. On May 14, 2004, Ms. Strickler began compiling the TEC’s final report. Ms. Strickler circulated drafts of that report to, and received feedback from, both Mercer and Mr. Adler and Ms. Ward.
55. On May 27, 2004, the TEC members signed the final evaluation report (the ″Evaluation Report″ ) that recommended the award of the contract to United. See SPO Exhibit 21, at page 14. There is no evidence that any of the TEC
members reviewed any of the drafts prepared by Ms. Strickler, and CIGNA suggested that the absence of such participation constituted improper conduct. The Administrative Law Judge disagrees. The TEC reached its final decision to recommend the award of the contract to United on May 13, 2004. While CIGNA is correct that the Evaluation [*23] Report is the written determination required by A.R.S. § 41-2534(G) in support of that award, CIGNA cited
no authority (and the Administrative Law Judge is aware of none) that required the participation of all of the TEC members in the drafting of the report. Each TEC member had an opportunity to review the Evaluation Report prior to signing, and each TEC member signed the Evaluation Report, signifying his or her agreement with its contents.
56. Although the TEC had reached final consensus on May 13, 2004 to recommend that the contract be awarded to
United, a final award could not be made until the Department had reviewed the contribution strategy for the contract with the Joint Legislative Budget Committee (″JLBC″). 9 See A.R.S. § 38-658. That review took place on
May 25, 2004.
57. On June 4, 2004, after the expiration of a 10 day waiting period required by A.R.S. § 38-658, SPO notified
United that its offer had been accepted and that State Contract AD040404-02 (the ″Contract″) had been awarded to
United for the central and southern regions (the contracts for the remaining regions were awarded on a nonintegrated basis). [*24] See SPO Exhibit 18. 10 Not included in that award were the pharmacy benefits and stop
loss coverage, which had been carved out and awarded separately as non-integrated contracts.
58. In its closing memorandum, CIGNA contended that after the TEC reached its decision on May 13, 2004 to recommend that the contract be awarded to United, but prior to the formal award of the Contract on June 4, 2004 (following the required review by the JLBC), Ms. Strickler engaged in improper communications with United. See
CIGNA Closing Memorandum, at page 28. In making the foregoing assertion, CIGNA relied on documents that the Administrative Law Judge ruled at hearing to be irrelevant to the issues referred for hearing and therefore inadmissible. See id. (CIGNA openly refers to the documents as the ″excluded documents″). The Administrative Law Judge
finds CIGNA’s argument to be improper and unsupported by any competent evidence, and has not considered it further. 11
59. By letter dated June 4, 2004, SPO advised CIGNA that the Contract had been awarded to United. See CIGNA
Exhibit [*25] 665. SPO further advised CIGNA that if it wished to review the procurement files, it could request an
appointment to do so.
60. On June 4, 2004, following its receipt of SPO’s letter, CIGNA submitted a request to the Department for an appointment to review the procurement files. See CIGNA Exhibit 629, at Tab 3.
9
″Contribution strategy″ refers to the determination of how much the State is going to pay for a particular health plan (e.g.,
EPO or PPO), and how much the employee or retiree must pay for that plan.
10
Mr. Adler testified that but for the requirement that the JLBC review the contribution strategy, he would have made the
award shortly after receiving the TEC’s report. R.T., Vol. XIII, at page 3043.
11
The Administrative Law Judge notes for the record that the documents on which CIGNA relied were accepted into the record as part of an offer of proof, but were not admitted into evidence.
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61. On June 8, 2004, SPO advised CIGNA that it was organizing the files and that it would soon start setting appointments. See CIGNA Exhibit 629, at Tab 4. SPO subsequently set June 14, 2004 as the date on which CIGNA could review the procurement files.
62. On June 14 and 15, 2004, CIGNA reviewed the procurement files at the Department for both the integrated and non
-integrated contract awards. In or about this same time frame, CIGNA engaged Milliman, Incorporated (″Milliman″), a health care consulting firm, to assist in that review. Steve Kaczmarek, an actuary employed by Milliman, conducted actuarial analyses of the data and consulted with CIGNA regarding various issues raised by CIGNA’s
review of the files. 12
63. On June 15, 2004, and again on June 21, 2004, CIGNA sought additional documents from the Department
[*26] through public records requests. See CIGNA Exhibit 629, at Tabs 5 and 7.
64. By letter to Mr. Adler dated June 24, 2004, CIGNA protested the award of the Contract to United. See SPO Exhibit 23. CIGNA urged that it was the best qualified responsive bidder, and that ″the ADOA and its consultant
failed to properly apply the evaluation criteria contained in the RFP and improperly relied on false information in evaluating the competing proposals.″ See id. CIGNA specifically identified the following six allegations of impropriety:
1. The State’s consultant mischaracterized the nature and extent of the provider networks included in the
proposal to hide the fact that CIGNA had the best breadth and depth of network coverage. 13
2. The State’s consultant mischaracterized the nature and extent of the offeror’s network discounts and
the fact that CIGNA offered superior discounts.
3. The State’s consultant mischaracterized the offeror’s administrative fees, thus overstating any possible
difference between CIGNA and United, the successful bidder, in this category.
4. The State’s consultant mischaracterized the offeror’s [*27] utilization data to hide the fact that
CIGNA provided the most cost-effective medical service coverage.
5. The Evaluation Committee’s methodology was arbitrary, capricious, ignored many of the evaluation criteria stated in the RFP, and misstated CIGNA’s strengths and weaknesses.
6. The ADOA’s evaluation process was procedurally flawed.
See id. at pages 1-2.
14
65. Upon receipt of CIGNA’s June 24, 2004 protest, Mr. Adler commenced an investigation into CIGNA’s allegations. In the course of that investigation, Mr. Adler conferred with Mercer and with Ms. Strickland in her capacity as
chair of the TEC.
66. By letter to Mr. Adler dated July 6, 2004, Mercer (through Mr. Schramm) responded to those portions of CIGNA’s protest that cast doubt on the integrity of Mercer’s analysis. See SPO Exhibit 25. Mercer denied that it had engaged in any improper conduct, and affirmatively asserted that it had applied its analytical methodologies in a uniform manner to each of the proposals.
67. On July 29, 2004, Mr. Adler issued a ″Procurement Officer’s Decision, Pursuant to A.A.C. R2-7-907″ (the ″Procurement Officer’s Decision″). [*28] See SPO Exhibit 29. Mr. Adler carefully reviewed each of CIGNA’s allegations, and concluded that the procurement process had been conducted properly and in accordance with law, that United
was a responsible offeror whose proposal was the most advantageous to the State, and that United’s proposal was superior to CIGNA’s proposal. Based on these conclusions, Mr. Adler denied CIGNA’s protest. See id. at page 15.
68. In reaching the foregoing conclusions, Mr. Adler agreed with CIGNA that certain weaknesses that had been listed
for CIGNA in the Evaluation Report should be removed, and that CIGNA should be credited with certain strengths.
12
Mr. Kaczmarek testified extensively at hearing as an expert witness. The Administrative Law Judge carefully considered
that testimony, and the absence of further references to Mr. Kaczmarek herein should not be construed as evidence to the contrary.
13
″Depth″ refers to the number of providers in a network, while ″breadth″ refers to the geographic dispersion of those provid-
ers.
14
On July 2, 2004, CIGNA submitted several minor corrections to its June 24, 2004 protest. See SPO Exhibit 24.
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Specifically, Mr. Adler agreed with CIGNA that all weaknesses pertaining to pharmacy should be removed, as pharmacy had been carved out of the Contract. Further, Mr. Adler agreed with CIGNA that the following weaknesses
should be removed: (i) does not have capability to pay interim bills; (ii) limits ID cards available to members; and
(iii) mail[s] materials to agency and not to member residence. See Exhibit 3 to SPO Exhibit 29.
69. With regard to strengths, Mr. Adler agreed with CIGNA that the following strengths should be added to the list
[*29] for CIGNA: (i) has a system ″rebundler module″ to identify unbundled claims; (ii) has comprehensive reporting system of call tracking system; (iii) offers Spanish-speaking customer service representatives; (iv) has comprehensive program management for care management, including Welcome Home Program, IMPACT, admission counseling and inpatient care advocacy; and (v) offers seminar programs for preventive care, on-line health risk
assessment, management summary reports on the entire population for stratification, and a healthy pregnancy program. See Exhibit 4 to SPO Exhibit 29.
70. Although Mr. Adler agreed with CIGNA that the foregoing changes to the Evaluation Report were appropriate,
he disagreed with CIGNA’s contention that such changes required rescission of the contract award to United. As Mr.
Adler stated (and as was demonstrated by the evidence presented at hearing):
The [Evaluation Report] is not a point-based score card. Points were not added and deducted based on
each strength and weakness. The technical evaluation committee evaluated and reported its findings based
on the entire proposal submitted by each offeror, following discussions and best and final offers. The
[*30] technical evaluation committee recommended award of contracts to PacifiCare and United based
on the overall quality of their respective proposals.
See SPO Exhibit 29, at page 11.
71. At hearing, Ms. Strickler corroborated Mr. Adler’s conclusion, stating ″[n]one of the items that were part of CIGNA’s concerns in their letter would have been significant enough to change the way the committee submitted their recommendations or who they recommended.″ See R.T., Vol. XI, at page 2551.
72. On August 3, 2004, CIGNA submitted to the Department an appeal from the Procurement Officer’s Decision.
See SPO Exhibit 33. In that appeal, CIGNA urged the following claims: (i) CIGNA was the best offeror but was not selected because the Department did not conduct a reasonable review and comparison of the various offerors’ RFP responses; and (ii) the Department’s process itself did not enable the selection of the best offeror. See id.
73. Also in its appeal, CIGNA raised, for the first time, an allegation that Mercer had a conflict of interest and that
the Contract should therefore be voided pursuant to A.R.S. § 38-503, Arizona’s conflict of interest statute. The gravamen of CIGNA’s [*31] allegation was that Mercer had a conflict of interest because Stephanie Davis, the head of Mercer’s Phoenix office, was married to Benton Davis, the CEO of United’s western region.
74. CIGNA’s appeal also raised a challenge to the awards of the non-integrated contracts. However, the Director of
the Department determined that CIGNA did not have standing to challenge those awards, and did not refer that issue for hearing. See SPO Exhibit 45.
75. The Administrative Law Judge notes that there is contained in the record a second CIGNA appeal letter that is
dated August 4, 2004. See SPO Exhibit 34. No testimony was provided at hearing to explain why CIGNA filed a second appeal (which is for all intents and purposes identical to the first appeal), and the Administrative Law Judge
has relied on the contents of the August 3, 2004 appeal as the relevant statement of CIGNA’s claims.
76. For the reasons set forth in Conclusions of Law Nos. 15 through 17, the Administrative Law Judge finds that CIGNA’s conflict of interest allegation is untimely and therefore not a proper ground upon which to challenge the
award of the Contract to United. However, the Administrative Law Judge addresses [*32] the issue in further detail below in order to ensure a complete record.
77. By letter dated August 10, 2004 that was prepared at Mr. Adler’s request, Mercer responded to certain of the
points that had been raised by CIGNA in its August 3, 2004 appeal. See SPO Exhibit 37. As it had done in its July
6, 2004 letter, Mercer responded point by point to those issues, and asserted the propriety of its analysis and the methodologies that it used to perform that analysis.
78. On August 13, 2004, Mr. Adler issued an Agency Report addressing the issues raised in CIGNA’s appeal as reSARA AGNE
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quired by A.A.C. R2-7-912(A). See SPO Exhibit 39.
See id.
15
Mr. Adler recommended that CIGNA’s appeal be denied.
79. By letter dated August 23, 2004, CIGNA submitted comments on the August 13, 2004 Agency Report as required by A.A.C. R2-7-912(C). See SPO Exhibit 43.
80. By Order dated August 30, 2004, Ms. Bayless referred CIGNA’s appeal to the Office of Administrative Hearings, an independent state agency, for hearing. See SPO Exhibit 45. Because the matters raised in CIGNA’s appeal delineate the scope of the Department’s referral, the Administrative [*33] Law Judge has limited his determination
to those issues. See A.A.C. R2-7-909. To the extent that CIGNA attempted to raise new issues at hearing (such as,
for example, CIGNA’s argument that United had attempted to influence the procurement process by payment of override commissions to Mercer), such issues were not considered because they are outside the scope of the Department’s referral and therefore not properly before this tribunal.
81. The parties presented evidence over the course of thirteen hearing days.
its were admitted into the record.
16
Twelve witnesses testified; 167 exhib-
82. On November 24, 2004, the Administrative Law Judge issued an Order for the submission of written closing memoranda. That briefing period closed on December 23, 2004.
83. By Order dated January 4, 2005, the Administrative Law Judge ordered further briefing on the issue of whether
the Administrative Law Judge could consider certain Comptroller General decisions cited in SPO’s and United’s closing memoranda. That briefing period closed on January 19, 2005.
84. The record in this matter closed on May 2, 2005. See May 3, 2005 Order Closing [*34] Record.
85. As set forth in Findings of Fact Nos. 72 and 73, CIGNA’s appeal presented three broad issues: (i) CIGNA was
the best offeror but was not selected because the Department did not conduct a reasonable review and comparison of
the various offerors’ RFP responses; (ii) the Department’s process did not enable the selection of the best offeror;
and (iii) Mercer had a conflict of interest and therefore the contract awarded to United should be voided. The Administrative Law Judge addresses each of these issues in turn. As a preliminary matter, however, the Administrative
Law Judge addresses a fundamental defect in CIGNA’s appeal pertaining to the criteria that were used to evaluate
the proposals.
86. As set forth in Finding of Fact No. 12, the RFP identified the criteria by which the proposals would be evaluated as follows: (i) claims, reporting and service capabilities; (ii) ability to comply with the Department’s goals and service/performance standards; (iii) company’s overall financial status, reputation and qualifications of key personnel;
and (iv) cost effectiveness of overall service.
87. On April 2, 2004, SPO issued Solicitation Amendment No. 1 to the RFP (″Amendment No. [*35] 1″). See
SPO Exhibit 6. Amendment No. 1 set forth the Department’s responses to clarification questions that had been submitted by the offerors pursuant to the instructions given at the March 25, 2004 pre-proposal meeting.
88. Question No. 9 in Amendment No. 1 asked: ″Please clarify how the State will handle the contribution strategy if Non
-Integrated/ Best in Class and Integrated plans are offered?″ See SPO Exhibit 6, at page 3.
89. In response to the foregoing question, the Department stated:
Our review of the revised non-integrated offers shows that they are still well within the actuarial estimates used by ADOA to estimate the cost of self-insurance. The integrated model will be evaluated using the same criteria developed for the non-integrated offers, including using the same actuarial range for
total costs:
. Quality- the depth of the network/ services submitted
. Access- the breadth of the network/ services submitted
. Cost- the discounts available in the network/ services submitted
. Administration- availability of data/reporting and ability to meet ADOA’s management
15
The Agency Report erroneously states that it was issued pursuant to A.A.C. R2-7-907.
16
Those hearing days were: October 18, 19, 20, 21, 22, 25, 26, 27, 28 and 29, 2004, and November 22, 23 and 24, 2004.
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needs
. Customer Service- ability to meet the needs of State Employees, Retirees and Dependents
[*36]
See SPO Exhibit 6, at page 3.
90. When CIGNA received Amendment No. 1 and reviewed the Department’s response to Question No. 9, it concluded that the Department had elected to modify the RFP’s evaluation criteria. Such conclusion was erroneous. As
the evidence presented at hearing demonstrated, on a matter as significant as the amendment of evaluation criteria, the
Department would, at the very least, have clearly indicated that it intended to amend the original criteria either by explicitly stating such intent, or by physically lining out the words and replacing them. 17 No such indication was
made in the Department’s response to Question No. 9; yet, on much less significant points, the Department clearly indicated when it intended to implement revised language. See, e.g., SPO Exhibit 6, at pages 6-7 (Section II, Question 1) (specifically deleting and replacing one of the special terms and conditions); see also SPO Exhibit 7 (Solicitation Amendment No. 2), at page 4 (Question No. 18) (stating that ″Section 26.1 should read . . .″) (emphasis
added).
91. Further to the foregoing, the criteria identified in [*37] the Department’s response to Question No. 9 are
clearly related to the State’s contribution strategy; nowhere in the wording of the question or answer can there be discerned any indication that the intent of either the questioner or the Department was to modify the evaluation criteria. Additionally, the placement of cost as the third of the five criteria in the Department’s response to Question No.
9 is plainly inconsistent with the Department’s previous instruction to the offerors that ″[a]ll factors other than
cost are significantly more important than cost, and thus, in the absence of further explanation, stands as another indicator that the Department did not intend, through its answer to Question No. 9, to modify the evaluation criteria.
92. The Administrative Law Judge further finds that if CIGNA believed that the evaluation criteria had changed upon
the issuance of Amendment No. 1, it should have confirmed or clarified that change with SPO. As the evidence demonstrated, no such request for confirmation or clarification was submitted.
93. For all of the above reasons, the Administrative Law Judge finds that one of the fundamental points on which CIGNA’s appeal is premised [*38] is simply wrong; that is, CIGNA cannot be heard to complain that the Department improperly applied the evaluation criteria when the evaluation criteria CIGNA claims the Department improperly applied were not in fact the criteria by which the proposals were to be evaluated. The foregoing notwithstanding, the
Administrative Law Judge addresses, on the merits, CIGNA’s arguments regarding the evaluation process.
Appeal Issue No. 1
CIGNA Was the Best Offeror But Was Not Selected Because the Department Did Not Conduct a Reasonable Review and Comparison of the Various Offerors’ RFP Responses
94. CIGNA’s appeal breaks the above issue down into two sub-issues. The first sub-issue is CIGNA’s allegation
that Mercer’s summaries and conclusions mischaracterized CIGNA’s proposal as compared to the other offerors’ proposals. Specific to this sub-issue are CIGNA’s claims that Mercer mischaracterized CIGNA’s network access figures, that Mercer mischaracterized CIGNA’s network discounts, that Mercer mischaracterized CIGNA’s administrative fees, and that Mercer mischaracterized CIGNA’s utilization data.
95. The second sub-issue is CIGNA’s claim that the TEC ″arbitrarily and inadequately [*39] assessed the offerors.
″ See SPO Exhibit 33, at page 6. Specific to this sub-issue are CIGNA’s claims that the TEC’s methodology was imprecise and fostered subjectivity, and that CIGNA was mischaracterized in the TEC’s listing of strengths and weaknesses (specifically as to disease management and performance guarantees).
Mercer’s Alleged Mischaracterization of Cigna’s Proposal
Network Access
17
According to Mr. Adler, a change in the evaluation criteria would be such a significant event that it probably would have
resulted in the re-issuance of the RFP; at the very least, the offerors would have been provided additional time to reconfigure their
proposals to meet the new criteria. See R.T., Vol. XIII, at page 3036.
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96. The RFP requested that offerors submit detailed information (through what are known as ″GeoAccess″ reports)
to demonstrate the accessibility of health care providers within the offerors’ networks to the State’s employees and retirees. See SPO Exhibit 5 (Questionnaire), at page 113.
97. In its appeal, CIGNA contended that Mercer improperly tabulated the network access data in two respects: (i) in contravention of the definition set forth in the RFP, Mercer included obstetricians (″OBs″) and gynecologists (″GYNs″)
(collectively ″OB/GYNs″) in its assessment of PCP depth and breadth; and (ii) Mercer overstated United’s combined roster of PCPs and OB/GYNs. CIGNA alleged that Mercer’s improper analysis misled the TEC and was prejudicial to CIGNA. The Administrative Law Judge disagrees. [*40]
98. CIGNA correctly observes that Mercer included OBs and GYNs in its measurement of PCP access. However,
such inclusion was not improper for several reasons. First, the weight of the credible evidence presented at hearing demonstrated that OBs and GYNs are commonly treated as PCPs for female members of a health plan, and therefore
may reasonably be included in assessments of PCP access. Second, OBs and GYNs were subject to the same GeoAccess standards as PCPs (2 physicians per 5 mile radius), thus lending themselves to a similar level of access analysis. Third, although CIGNA is correct that the RFP did not define PCPs to include OBs or GYNs, there is nothing in
the record to suggest that the RFP definition in any way precluded Mercer from performing a PCP network analysis that included OB/GYNs.
99. With respect to Mercer’s assessment of United’s combined roster of PCPs and OB/GYNs, the evidence demonstrated that Mercer applied a common methodology to all of the proposals under which it adjusted the physician count
upwards to reflect multiple office locations, and by which it deleted physicians located in areas in which no State employees or retirees resided. The Administrative Law [*41] Judge finds no error in this approach, which treated
each offerors’ access data equally.
100. Even assuming that CIGNA was correct and that Mercer’s tabulations constituted an improper manipulation of
the physician data, there is no evidence that such tabulations misled the TEC or prejudiced CIGNA. When Mercer presented its network access analyses to the TEC, it advised the TEC that each of the leading offerors had comparable networks, and therefore that network access could not be considered as a discriminating factor. The evidence demonstrated that the TEC accepted this analysis, and did not consider network access as a factor that distinguished one offeror
from another.
Network Discounts
101. The RFP requested that offerors submit detailed information regarding the discounts they had negotiated with providers. See SPO Exhibit 5 (Questionnaire), at pages 106-12.
102. CIGNA reported its discounts on a per-county basis for inpatient services, outpatient services, physician services and other services in Maricopa and Pima counties. 18 In the central region, CIGNA reported its EPO discounts
as follows:
Maricopa
Inpatient
Outpatient
Physician
Other
67%
67%
51%
35%
Gila
36%
22%
42%
35%
Pinal
36%
22%
42%
35%
[*42]
See CIGNA Exhibit 710A; see also SPO Exhibit 85.
103. When Mercer tabulated the offerors’ EPO and PPO network discounts for the central region (as well as the southern region) , it applied a straight average to the individual county discounts to generate a total average discount.
Thus, for example, Mercer reported that CIGNA’s average discount for EPO inpatient services in the central region
was 46% (the sum of 67%, 36% and 36% divided by three).
104. CIGNA contends that Mercer’s ″straight averaging″ methodology was improper and misleading because it
failed to take into account the fact that the vast majority of services rendered in the central region (a figure suggested at hearing to be as high as 99%) will be provided in Maricopa County. Thus, CIGNA argued, a much more ap18
CIGNA’s discounts for the remaining counties were calculated and reported as an average discount.
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2005 AZ Admin. Hearings LEXIS 762, *42
propriate (and accurate) methodology would entail using a weighted average. For example, according to CIGNA, its average discount for inpatient services in the central region (giving substantially greater weight to the 67% Maricopa
County discount) should have been reported as 65% instead of 46%.
105. When Mercer applied its straight averaging methodology to United’s EPO discounts for the central region,
[*43] it calculated United’s overall discount (across all categories) to be 48.5%, compared to 43% for CIGNA. According to CIGNA, if Mercer had applied a weighted average, the result would have been significantly different; United’s overall discount would have come out as 51.5%, while CIGNA’s would have come out as 54.5%. See CIGNA
Exhibit 710A.
106. The Administrative Law Judge agrees with CIGNA that the use of a weighted average might have more accurately represented the average discounts for the central and southern regions; however, Mercer’s use of a straight average was not error. First, although the spreadsheets presented to the TEC may have included total region discounts, they also included the discounts for each county. The Administrative Law Judge finds that each of the TEC
members was sophisticated enough to recognize the most pertinent data points (those being, for the central and southern regions, the discounts for the more heavily populated counties of Maricopa and Pima).
107. Second, there is no evidence in the record that any of the TEC members viewed the average regional discounts
as a discriminator between any of the proposals. To the contrary, the evidence demonstrated, [*44] as was the
case with the network access data, that Mercer specifically advised the TEC that the network discounts were comparable among the leading contenders, and that the network discounts could not be considered as a factor that distinguished any one offeror from another.
108. Based on the foregoing, the Administrative Law Judge finds that Mercer did not err in its use of straight averaging, nor did such straight averaging prejudice CIGNA.
Administrative Fees
109. The evidence presented at hearing demonstrated that administrative fees (the costs that the State would incur
for administration of its health benefits program) would comprise approximately 10% of the total program cost.
110. The RFP instructed offerors to quote their proposed administrative fees on a per-employee-per-month (″PEPM″)
basis. See SPO Exhibit 5, at page 4.
111. When Mercer calculated the EPO administrative fees for CIGNA and United, it determined that CIGNA’s administrative fees totaled to $ 33.04 PEPM, and that United’s administrative fees totaled to $ 29.29 PEPM.
112. At hearing, CIGNA urged that Mercer had improperly calculated the administrative fees, and that as a result of
such miscalculation, [*45] the TEC was inappropriately led to believe that United’s offer was significantly stronger than CIGNA’s. See, e.g., CIGNA Exhibit 712. The Administrative Law Judge disagrees.
113. As set forth above, the evidence presented at hearing demonstrated that the TEC members had reached a consensus that United’s was the most advantageous proposal before they received Mercer’s financial analyses, including Mercer’s analysis of the offerors’ administrative fees. Further, and perhaps more importantly, Mercer advised the TEC
when it made its presentation that each of the proposals fell within the State’s budget for total program cost, and that
there were no material differences among the offerors from a financial perspective. See Finding of Fact No. 41.
114. Even accepting, for purposes of argument, that Mercer’s analysis did not capture all of the administrative fees
that should have been attributed to United, the weight of the evidence demonstrated that United’s administrative fees
were in fact lower than CIGNA’s by a factor of approximately 5%. 19
115. Based on the foregoing, the Administrative Law Judge finds no merit to CIGNA’s [*46] contention that it was unfairly evaluated with respect to administrative fees.
Utilization Data
19
CIGNA acknowledged that United’s fees were lower, but argued that any perceived savings from such lower fees were illusory because the claims costs under United’s open access system would be substantially higher. Upon consideration of all of
the evidence, the Administrative Law Judge finds that CIGNA failed to demonstrate by any substantial evidence that claims costs under United’s open access system would be materially higher than claims costs under a more traditional gatekeeper model such
as that proposed by CIGNA.
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2005 AZ Admin. Hearings LEXIS 762, *46
116. CIGNA did not present any evidence at hearing to support its claim that Mercer had mischaracterized its utilization data, and the Administrative Law Judge does not further consider this issue.
The TEC’s Alleged Failure To Have Adequately Assessed the Offerors
TEC Methodology
117. While CIGNA’s precise argument regarding its objections to the methodology used by the TEC is somewhat elusive, CIGNA appears to be contending that the TEC should have applied a more consistent approach to the development of the offerors’ strengths and weaknesses, and should have tied those strengths and weaknesses more directly to the evaluation criteria. Additionally, CIGNA argues that the TEC’s evaluation process was too subjective.
118. The Administrative Law Judge agrees with CIGNA that the TEC’s assessment of strengths and weaknesses could
have been more uniform as among the offerors, but disagrees that such lack of uniformity was excessive, a violation of statute or rule, or otherwise prejudicial to CIGNA. Having considered the Evaluation Report, the Administrative Law Judge finds that the [*47] relative lack of uniformity appears to have derived, in large part, from the
fact that the TEC evaluated each proposal on its own merits (as it was instructed to do), and thus evaluated what it considered to be the most pertinent strengths and weaknesses for each offeror without regard to the strengths and weaknesses of the other offerors.
119. As to CIGNA’s subjectivity argument, the short answer is that a competitive sealed proposal process contains,
by its nature, an element of subjectivity. In contrast to a competitive bidding process, where price is by and large the
controlling element, a competitive sealed proposal process requires balancing of many factors, some of which are inherently subjective. CIGNA failed to present any substantial evidence that the TEC’s reliance on such subjective factors was either unduly pervasive or prejudicial to CIGNA.
Strengths and Weaknesses
General Findings
120. As noted above, the TEC prepared a list of strengths and weaknesses for each offeror during the course of its evaluation of the proposals.
121. At hearing, CIGNA urged that the TEC had improperly attributed to CIGNA a number of weaknesses, while failing to attribute to CIGNA a [*48] number of strengths. CIGNA appeared to suggest that had the TEC done so, it
would have reached the conclusion that CIGNA’s was the superior proposal.
122. The fallacy in CIGNA’s argument is that it ignores the fundamental decisionmaking process of the TEC, which
looked at each proposal as a whole and then drew conclusions as to which of those proposals was the most advantageous to the State. The process of drawing up strengths and weaknesses facilitated that process, but was not the ultimate driver of that process (i.e., the final lists of strengths and weaknesses did not determine the TEC’s decision). 20
123. Further, CIGNA’s reliance on relative numbers of strengths and weaknesses ignores the fact that the evaluation process was qualitative, not quantitative, and that certain strengths and weaknesses weighed more heavily (and sometimes significantly more heavily) with the TEC members than others. The TEC members were specifically discouraged from using numerical weighting (see SPO Exhibit 19, at page 6), and the weight of the credible evidence presented
at the hearing demonstrated that each of them adhered to this instruction. [*49]
124. Finally, CIGNA’s claim that it was not fairly evaluated with respect to its strengths and weaknesses must fail because in advancing this argument, CIGNA relied on the incorrect premise that the evaluation criteria had changed.
Findings Specific to Disease Management and Performance Guarantees
20
CIGNA attempted to counter this line of reasoning at hearing by suggesting that it was Mr. Adler, not the TEC, who made
the ultimate decision to award the contract to United, and therefore (by implication) that a different set of strengths and weaknesses would have compelled a different result. The Administrative Law Judge finds no merit to this contention. Mr. Adler specifically testified that he is not a technical expert and that he relied on the TEC’s recommendation to make the contract award. See
R.T., Vol. XIII, at pages 3041-42.
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2005 AZ Admin. Hearings LEXIS 762, *49
125. In its August 3, 2004 appeal, CIGNA specifically faulted the TEC for its evaluation of CIGNA’s disease management program and performance guarantees. The Administrative Law Judge addresses each of those issues.
Disease Management
126. Disease management constituted a significant aspect of the RFP, as the State was seeking to take a more proactive approach to the treatment of chronic conditions among its employees and retirees.
127. In the RFP, offerors were asked, through a series of 72 questions, to describe in detail their disease management programs. See SPO Exhibit 5 (Questionnaire), at pages 114-30. Offerors were specifically instructed to describe their proposed programs for 13 conditions ranging from arthritis and asthma to diabetes and hypertension. See,
e.g., id. at pages 114-15, 124-25 and 127-28.
128. In its response to the RFP, CIGNA excluded from its proposed [*50] disease management program 4 of the 13 conditions (arthritis, asthma, oncology and rare diseases) . See CIGNA Exhibit 663 (Questionnaire), at pages 90-91.
CIGNA stated, however, that such conditions ″are managed by Case Management and identified with predictive modeling.″ See id. at page 94.
129. United excluded from its proposed disease management program 3 of the 13 conditions (chronic pain management, hypercholesteremia and rare diseases) . See SPO Exhibit 12, Vol. 3, at IU400100-01. With respect to hypercholesteremia, United explained:
We believe that an integrated approach to managing individuals has proven to be very effective. Using
this approach, we manage care for each individual across the continuum of care. We do not use lab results to identify candidates for our disease management programs, and thus have no way of knowing that
an individual’s cholesterol is high. However, in the course of working with the individual, if we discover that he/she has high cholesterol, we will work with him/her to provide vital education regarding individual care and self-care, and provide support throughout the process.
See id. at IU400101.
130. Both CIGNA and United [*51] provided further information regarding their disease management programs in
the FPRs. See CIGNA Exhibit 665 and SPO Exhibit 15.
131. The TEC discussed the offerors’ disease management programs at length during the evaluation process. With respect to CIGNA and United, Ms. Strickler testified that CIGNA ″had more of a clinical approach, kind of more of
an old-school approach″, whereas United’s responses demonstrated a more holistic approach, i.e., United ″not only
looked at what they addressed as far as conditions but how they approach it, and it gave you a really good flavor
for how they manage it, how their nurses interact, how their whole culture is set up to approach that.″ See R.T., Vol.
XI, at pages 2500 and 2502. Ms. Strickler continued: ″And on the CIGNA side, you didn’t get that feel for understanding their complete program, how it worked, what’s in it for the patient, what’s in it for the employer since, you
know, how we’re self-insured and we’re responsible for this. So it was just a difference in the way it was expressed on the question.″ See id. at page 2502.
132. Ms. Jeannero testified that in her opinion, United’s disease management proposal ″was stronger [*52] in the
fact that it was much more interactive with those that were enrolled in [United’s] disease management program . . .″
R.T., Vol. XII, at page 2862.
133. One of the factors that the TEC considered to distinguish United from CIGNA on the issue of disease management concerned the manner in which members were enrolled in the programs. Under CIGNA’s system, members
meeting particular disease criteria would automatically be enrolled in CIGNA’s ″Well Aware Program″, and members enrolled in the program would be considered to be enrolled even if they were not actively participating in the program. Under United’s system, members would only be enrolled in the disease management program upon their agreement to do so.
134. In view of the foregoing, and upon consideration of all of the evidence, the Administrative Law Judge finds
that the TEC carefully considered CIGNA’s and United’s proposals with respect to disease management, and that there
is no merit to CIGNA’s complaint that its disease management proposal was not fairly evaluated.
Performance Guarantees
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135. The Scope of Work section of the RFP requested that offerors provide performance guarantees for 26 specified standards. [*53] See SPO Exhibit 5, at pages 37-44. 21 The amount at risk for each guarantee ranged from 1% to 3%
of the annual administrative fee, with the total risk capped at 25%. See id. at page 36 (P 39).
136. The Department proposed various measurements to ensure compliance with the standards, including supplier reports, random audits and member surveys.
137. In its proposal, United took a number of exceptions to the requested performance guarantees, and the TEC
viewed these exceptions as a weakness.
138. CIGNA, in its proposal, agreed in whole or in part to provide guarantees on almost all of the standards (25 out
of the 26); however, CIGNA qualified its agreement in two significant respects as follows:
CIGNA’s standard performance guarantee agreement is included in the Exhibit section. Upon selection
of CIGNA as a finalist, we will confirm CIGNA’s commitments and provisions. 22
CIGNA does not allow audits of Performance Guarantees.
See CIGNA Exhibit 663 (Scope of Work), at pages 66 and 74 (emphasis added). [*54]
23
139. The evidence presented at hearing demonstrated that the State’s ability to audit performance guarantees was a significant issue because, once the State turned to a self-insured model, it needed to be able to confirm that its contracted health care providers were performing in accordance with their contracts.
140. Ms. Strickler credibly testified at hearing that CIGNA’s stated refusal to allow audits of performance guarantees, coupled with its submission of a draft performance guarantee agreement, did not give her any level of comfort
that CIGNA was providing any guarantees on which the State could rely. See R.T., Vol. XI, at page 2561.
141. Mr. Adler corroborated Ms. Strickler’s testimony, stating that CIGNA’s refusal to allow audits of performance guarantees and its submission of a draft performance guarantee agreement constituted ″major, major weaknesses in [CIGNA’s] offer. Basically the performance guarantees were virtually worthless.″ R.T., Vol. XIII, at pages 3040-41.
142. At hearing and in its post-hearing submissions, CIGNA professed not to understand why the statement ″CIGNA
does not allow audits of Performance [*55] Guarantees″ caused so much consternation among the TEC members. According to CIGNA, it resolved any questions regarding performance guarantee audits in its FPR. However, a
close examination of CIGNA’s FPR (see CIGNA Exhibit 665, at page 5) reveals that CIGNA was only willing to allow claim administrationaudits, which, as Jeff Terrill, the president and general manager of CIGNA HealthCare of Arizona, Inc. confirmed at hearing, are not the same as performance guarantee audits. See R.T., Vol. XIII, at pages 3144
-45.
143. Based on the foregoing, the Administrative Law Judge finds no merit to CIGNA’s contention that it was unfairly evaluated with respect to its performance guarantees.
Appeal Issue No. 2
The Department’s Process Did Not Enable the Selection of the Best Offeror
144. CIGNA’s appeal breaks the above issue down into three parts. First, CIGNA alleges that ″[t]he time frame for
[the TEC’s] review was insufficient and precluded the State from reaching a correct outcome.″ Second, CIGNA contends that ″[t]he ADOA did not deploy appropriate resources to evaluate the impact of the data supplied by integrated and non-integrated offerors. ″ Third, CIGNA [*56] urges that ″[t]he records made available to CIGNA reflect a materially flawed ADOA procurement process.″ See SPO Exhibit 33, at pages 8-9.
21
The standards included items such as ID card issuance and accuracy, claims processing accuracy, claims turnaround time,
telephone response time, member satisfaction, etc.
22
A copy of CIGNA’s draft performance guarantee exhibit is included in CIGNA Exhibit 629, at Tab 11.
23
The above statements appear twice in CIGNA’s proposal -- once at the beginning of the performance guarantee section, and
once at the end of the performance guarantee section.
SARA AGNE
Page 17 of 21
2005 AZ Admin. Hearings LEXIS 762, *56
The Time Frame for the TEC’s Review
145. The weight of the credible evidence presented at hearing demonstrated that the TEC had sufficient time to perform its evaluation of the proposals in a careful and deliberate manner. CIGNA did not present any substantial evidence to the contrary, and the Administrative Law Judge finds that the time frame provided for the TEC’s review was
sufficient to allow for a thorough review and analysis of each proposal.
Evaluation Resources
146. CIGNA did not specifically address this issue in its closing memoranda, and no explanation has been provided
as to which ″evaluation resources″ CIGNA believes were inappropriate. To the extent this argument is intended to assert that the TEC members lacked the qualifications to properly evaluate the proposals (a point touched on briefly in
CIGNA’s responsive closing memorandum), the evidence presented at hearing was to the contrary. See Findings of
Fact Nos. 29 through 31.
Production of Records
147. CIGNA’s complaint with respect to the production of records [*57] pertaining to the procurement process was
the subject of a special action brought by CIGNA in Maricopa County Superior Court in CV2004-015132. See
SPO Exhibit 30 (Verified Complaint for Special Action).
148. On October 4, 2004, after conducting a trial on Count 3 of CIGNA’s Complaint for Special Action, Maricopa
County Superior Court Judge Kenneth L. Fields issued a Minute Entry in which he concluded that the State had complied with its obligations to produce records to CIGNA pertaining to the procurement, and in which he ruled that
″[CIGNA] is not entitled to the relief sought based on Count Three of the complaint.″ See SPO Exhibit 78, at page
2.
149. The Administrative Law Judge finds, in view of the foregoing, that CIGNA’s complaint with respect to the production of records is moot.
Appeal Issue No. 3
Mercer Had a Conflict of Interest and Therefore the Contract Awarded to United Should Be Voided
150. At all times relevant to CIGNA’s appeal, Stephanie Davis was the head of Mercer’s Phoenix office. Mrs. Davis was married to Benton Davis, who in early April, 2004 became the chief executive officer for United’s western region, which is officed in Phoenix. [*58]
151. CIGNA claimed, based on the fact that Mrs. Davis worked for Mercer and Mr. Davis worked for United, that Mercer had a conflict of interest under A.R.S. § 38-503, that Mercer failed to disclose that conflict of interest, and that
as a result of Mercer’s conflict the award to United must be voided.
152. The weight of the evidence presented at hearing demonstrated that Mr. Terrill was aware of the Davis’ respective positions at Mercer and United, and of their marriage, not later than May 2004. R.T., Vol. II, at page 472. 24
153. Based on the foregoing, the Administrative Law Judge finds that CIGNA had knowledge that a potential conflict existed as of May 2004, yet failed to raise that conflict with the Department until filing its August 3, 2004 appeal from the Procurement Officer’s Decision.
154. At hearing, CIGNA claimed that it did not include its conflict of interest claim in its June 24, 2004 protest because, according to Mr. Terrill, ″the last thing I wanted to do was make an unfounded allegation in a bid protest.
″ R.T., Vol. II, at page 289.
24
The Administrative Law Judge makes the foregoing finding based on Mr. Terrill’s testimony during cross-examination. On
direct examination, Mr. Terrill testified that he did not learn about the Davis’ marriage until after June 4, 2004 (the date of the contract award to United). However, the Administrative Law Judge did not find Mr. Terrill’s testimony on this point to be credible,
and discounted it. Even assuming that Mr. Terrill did not learn about the Davis’ marriage until after June 4, 2004, his testimony was
that he learned of it ″within a week of the award.″ R.T., Vol. II, at page 286. Therefore, CIGNA still could have included its conflict of interest claim in its June 24, 2004 protest.
SARA AGNE
Page 18 of 21
2005 AZ Admin. Hearings LEXIS 762, *58
155. The Administrative Law Judge finds the foregoing testimony to be inconsistent [*59] with the thrust of CIGNA’s conflict of interest claim, which is based not on any evidence of wrongdoing (as noted below, no such evidence exists), but on the existence of an organizational conflict created by the mere fact of the Davis’ marriage
and their respective positions at Mercer and United. Given that CIGNA is relying on an organizational conflict to
press its claim, such conflict could have, and should have, been raised as soon as CIGNA learned about the underlying facts. See Conclusion of Law No. 16.
156. Even if CIGNA had raised its conflict of interest claim in a timely manner, the evidence of record does not support CIGNA’s assertion that the contract award to United should be voided.
157. Neither Mr. Davis nor Mrs. Davis played any role in the procurement process, nor is there any substantial or credible evidence in the record that either of them influenced, or attempted to influence, that process. In the case of
Mr. Davis, the evidence demonstrated that United’s government procurement business is conducted on a national
level, separately from the regional operations for which Mr. Davis is responsible. The same type of organizational isolation was present in the [*60] case of Mercer and Mrs. Davis; the Mercer government division, for which Mr. Schramm works, is national in scope and independent of the state operations for which Mrs. Davis is responsible.
The nature of the division was such that Mrs. Davis could not have accessed Mercer’s files on the procurement
even if she had wanted to. Further, the evidence demonstrated that Mrs. Davis was not even aware that United had submitted a proposal in response to the RFP until after CIGNA raised its conflict of interest claim. R.T., Vol. X, at
page 2347.
158. In short, there is no evidence that either Mercer or United engaged in any inappropriate contact, no evidence
that Mr. or Mrs. Davis had any influence on the evaluation of the proposals or the award of the Contract to United,
and no evidence to suggest that any taint attached to the process, much less a taint sufficient to require that the Contract be voided.
CONCLUSIONS OF LAW
Burden of Proof
1. In their post-hearing memoranda, the parties sharply disagreed as to what CIGNA must prove in order to prevail
on appeal (there is, at present, no Arizona statute, rule or case law that addresses this issue). SPO and United, citing
federal [*61] law, assert that CIGNA must demonstrate, by a preponderance of the evidence, that SPO’s decision
to award the contract to United ″was an abuse of discretion, was arbitrary and capricious, clearly unreasonable, or in
violation of procurement statutes or regulations.″ SPO Closing Memorandum, at page 4 (citing Bank Street College
of Education, 63 Comp. Gen. 393, Comp. Gen. Dec. B-213209 (1984)); see also United Closing Memorandum, at pages
2-3. 25
2. SPO and United further argued that CIGNA must demonstrate, by a preponderance of the evidence, that it was prejudiced by any alleged impropriety, i.e., ″CIGNA must show there was a substantial chance it would have received
the contract award but for any significant violations of state law.″ SPO Closing Memorandum, at page 4 (citing Data
Gen. Corp. v. Johnson, 78 F.3d 1556 (Fed. Cir. 1996)Statistica, Inc. v. Christopher, 102 F.3d 1577 (Fed. Cir. 1996)
and McDonald-Bradley, 96-1 Comp. Gen. Dec. P54, Comp. Gen. Dec. B-270126 (1996)); see also United Closing
Memorandum, at page 3. [*62]
3. CIGNA, citing A.R.S. § 41-2534(G), argued that it must prove, by a preponderance of the evidence, that its proposal was the proposal most advantageous to the State. See CIGNA Closing Memorandum, at page 3. CIGNA also contended that the substantive standard advanced by SPO and United was inapplicable because that standard applies
only to review of final administrative decisions, and not to the underlying decision of the Administrative Law Judge.
4. Upon consideration of the foregoing, the Administrative Law Judge concludes that although the parties agree on
the applicable standard of proof (i.e., preponderance of the evidence), neither party has properly articulated the applicable burden of proof (i.e., what an appellant, in this case CIGNA, must actually show).
5. The Administrative Law Judge rejects CIGNA’s formulation of the burden of proof because it would transform
25
SPO’s and United’s citations to federal law are based on the Arizona Supreme Court’s decision in New Pueblo Constructors, Inc. v. State of Arizona, 144 Ariz. 95, 696 P.2d 185 (1985), wherein the Court stated: ″In the absence of controlling state authority, state courts naturally look for guidance in public contract law to the federal court of claims and the federal boards of contract appeals.″ See id. at 101, 696 P.2d at 191.
SARA AGNE
Page 19 of 21
2005 AZ Admin. Hearings LEXIS 762, *62
the hearing process and the resulting Administrative Law Judge Decision into a de novo review of the underlying determination, and would, in effect, ask the Administrative Law Judge to substitute his or her judgment for that of
the evaluation committee and the procurement officer. On this point, [*63] the Administrative Law Judge agrees
with SPO and United that such is not the Administrative Law Judge’s function, and that it would be inappropriate for
the Administrative Law Judge to engage in such an analysis. See, e.g., Tech. Sys., Inc. v. United States, 50 Fed. Cl.
216, 222 (2001)Bank Street, Comp. Gen. Dec. B-213209, at 10.
6. The Administrative Law Judge rejects SPO’s and United’s assertion of the arbitrary and capricious/abuse of discretion formulation because it attempts to incorporate, at the hearing level, a highly deferential standard that in Arizona is reserved for review of an agency’s final administrative decision. See, e.g., Sundown Imports, Inc. v. Arizona
Dep’t of Transp., 115 Ariz. 428, 431, 565 P.2d 1289, 1292 (App. 1977). On this point, the Administrative Law
Judge agrees with CIGNA that the federal case law on which SPO and United rely is not directly analogous to the instant appeal because those decisions involved review of final agency decisions, and did not address the burden of
proof applicable at the administrative hearing level.
7. Although the Administrative Law Judge agrees [*64] with CIGNA that the federal authorities cited by SPO and
United are not directly analogous to the instant case, they do provide guidance, in the absence of any Arizona authority, as to the appropriate burden of proof to be applied in this case. 26
8. Upon review and consideration of relevant federal case law, the Administrative Law Judge concludes that in order to prevail in this matter, CIGNA must prove, by a preponderance of the evidence, the following: (i) the procurement process was tainted by violations of applicable statutes or rules, by substantial irregularities in the proceedings, or by improper conduct by any of the participants to the process; (ii) such improprieties were materially prejudicial
to CIGNA; and (iii) but for such improprieties, there is a substantial probability that CIGNA would have been the recipient of the contract award. See, e.g., Tech. Sys., Inc., supraEllsworth Assocs., Inc. v. United States, 45 Fed. Cl.
388 (1999)Johnson, supraChristopher, supraLabarge Products, Inc. v. West, 46 F.3d 1547, 1556 (Fed. Cir. 1995)
[*65] Matter of Quality Elevator Company, Inc., 96-2 Comp. Gen. Proc. Dec. P89, Comp. Gen. Dec. B-271899 (1996);
Bank Street, supra.
9. Applying the foregoing principles, the Administrative Law Judge makes the following conclusions of law.
Analysis
Appeal Issue No. 1
10. CIGNA asserted that it was the best offeror but that it was not selected because the Department did not conduct
a reasonable review and comparison of the various offerors’ RFP responses. The Administrative Law Judge disagrees.
11. The weight of the credible evidence presented at hearing demonstrated that Mercer did not mischaracterize CIGNA’s proposal or improperly manipulate data, and that the TEC fairly evaluated all of the proposals, including CIGNA’s. Therefore, as to this issue, the Administrative Law Judge concludes that CIGNA failed to meet its burden of proof.
Appeal Issue No. 2
12. CIGNA urged that the Department’s procurement process did not enable the selection of the best offeror. The Administrative Law Judge disagrees.
13. The weight of the credible evidence presented at hearing demonstrated that the TEC members were well qualified to [*66] review and evaluate the proposals, and that the TEC had sufficient time to perform its evaluation. (As
26
During post-hearing briefing, CIGNA challenged SPO’s and United’s citations to certain decisions of the United States
Comptroller General that CIGNA claimed were unpublished decisions subject to Ariz. R. Civ. App. P. 28(c) (″Memoranda decisions shall not be regarded as precedent nor cited in any court except for (1) the purpose of establishing the defense of res judicata, collateral estoppel or the law of the case or (2) informing the appellate court of other memorandum decisions so that the
court can decide whether to publish an opinion, grant a motion for reconsideration or grant a petition for review″). After reviewing the parties’ briefs on the issue, the Administrative Law Judge recognizes that a good faith dispute exists as to whether decisions of the Comptroller General that pre-date September 1994 and which were not published in Decisions of the Comptroller General should be considered memoranda decisions for purposes of Rule 28(c). Ultimately, however, the Administrative Law Judge
found CIGNA’s arguments on this issue to be more persuasive, and the Administrative Law Judge has therefore declined to consider the challenged decisions (a list of those decisions is attached to CIGNA’s brief as Exhibit A).
SARA AGNE
Page 20 of 21
2005 AZ Admin. Hearings LEXIS 762, *66
stated in Finding of Fact No. 149, CIGNA’s complaint with respect to the production of records is moot). Therefore, as to this issue, the Administrative Law Judge concludes that CIGNA failed to meet its burden of proof.
Appeal Issue No. 3
14. CIGNA claimed that Mercer had a conflict of interest and therefore that the contract awarded to United should
be voided. The Administrative Law Judge disagrees for two reasons.
15. CIGNA’s conflict of interest claim fails in the first instance because it was untimely. A.A.C. R2-7-904(B) provides, subject to exceptions not applicable here, that ″protests shall be filed within ten days after the protester knows
or should have known the basis of the protest, whichever is earlier.″
16. The evidence demonstrated that CIGNA knew or should have known about Mercer’s alleged conflict of interest
in May 2004. See Finding of Fact No. 152. Yet, CIGNA did not assert that alleged conflict until the filing of its appeal on August 3, 2004. On these facts, CIGNA’s conflict of interest claim was plainly untimely, and therefore not
a proper ground upon [*67] which to challenge the award of the Contract to United.
17. In its responsive closing memorandum, CIGNA argues that the ten day period set forth in A.A.C. R2-7-904(B)
is effectively superseded by the remedies section of Arizona’s conflict of interest statute, A.R.S. § 38-506, which does
not contain a specific time requirement for bringing a claim. The Administrative Law Judge disagrees. Although it
is true, as CIGNA states, that A.R.S. § 38-506 allows for a contract to be voided at any time, such language does not
excuse the explicit requirement, set forth in A.A.C. R2-7-904(B), that the initial claim be raised in a timely manner. 27
18. CIGNA’s claim fails for the further reason that CIGNA failed to demonstrate that any grounds exist to void the Contract.
19. At hearing and in its closing memorandum, CIGNA argued that Mercer is subject to the provisions of Arizona’s conflict of interest statute, A.R.S. § 38-503. The Administrative Law Judge agrees.
20. A.R.S. § 38-503 provides:
A. Any public officer or employee of a public agency who has, or whose relative has, a substantial interest in any contract, sale, purchase or service [*68] to such public agency shall make known that interest in the official records of such public agency and shall refrain from voting upon or otherwise participating in any manner as an officer or employee in such contract, sale or purchase.
B. Any public officer or employee who has, or whose relative has, a substantial interest in any decision
of a public agency shall make known such interest in the official records of such public agency and shall
refrain from participating in any manner as an officer or employee in such decision.
21. A.R.S. § 38-502(2) defines ″employee″ as including ″all persons who are not public officers and who are employed on a full-time, part-time or contract basis by an incorporated city or town, a political subdivision or the state
or any of its departments, commissions, agencies, bodies or boards for remuneration.″ (Emphasis added.)
22. A.R.S. § 38-502(11) defines ″substantial interest″ as ″any pecuniary or proprietary interest, either direct or indirect, other than a remote interest.″
23. Applying the foregoing authorities, the Administrative Law Judge concludes that Mrs. Davis must be considered
an employee of the State for purposes of the conflict [*69] of interest statute; the State retained Mercer on a contract basis, and the definition of ″employee″ in A.R.S. § 38-502(2) is clearly intended to extend to persons who work
for the State on a contract basis. 28 Further, Mrs. Davis must be regarded under A.R.S. § 38-502(11) as having a ″substantial interest″ in the procurement decision by virtue of her marriage.
27
Although not raised as a defense in its closing memoranda, CIGNA also failed to demonstrate that its conflict of interest
claim could be considered timely under the good cause exception set forth in A.A.C. R2-7-904(D).
28
The Administrative Law Judge acknowledges that at some point the relationship between the State and an employee of a
large organization with which the State has contracted (such as Mercer) might be considered so attenuated as to limit the statute’s effective reach. That, however, is not the case in the instant appeal. Even though Mrs. Davis did not work for Mercer’s gov-
SARA AGNE
Page 21 of 21
2005 AZ Admin. Hearings LEXIS 762, *69
24. In its responsive closing memorandum, CIGNA suggests that it need prove nothing more than the existence of a conflict in order to be entitled to relief. See CIGNA Responsive Closing Memorandum, at pages 6-8. The Administrative Law Judge disagrees.
25. A.R.S. § 38-506(A) provides: ″In addition to any other remedies provided by law, any contract entered into by a public agency in violation of this article is voidable at the instance of the public agency. ″ (Emphasis added). Given
the discretionary nature of the statute, it is not enough for an appellant to establish the existence of a conflict; there
must also be a showing that the conflict tainted the process to such a degree that it would be unreasonable for the procuring agency not to void the contract.
26. As set [*70] forth in Findings of Fact Nos. 157 and 158, there is no evidence that Mr. or Mrs. Davis had any influence on the evaluation of the proposals or the award of the Contract to United, and no evidence to suggest that
any taint attached to the process by virtue of the Davis’ marriage, much less a taint sufficient to require that the Contract be voided. 29
27. Based on the foregoing, the Administrative Law Judge concludes that CIGNA failed to demonstrate that any
grounds exist to reverse the award of State Contract AD040404-02 to United. CIGNA’s appeal should be denied.
RECOMMENDED ORDER
The Administrative Law Judge recommends that CIGNA’s appeal be denied and that the Director of the Department affirm the award of State Contract AD040404-02 to United.
Done this day, May 6, 2005.
Original mailed this day of May, 2005 to:
Betsey Bayless, Director
Department of Administration
ATTN: Alex Turner, Esq.
100 N. 15th Ave., Suite 401
Phoenix, AZ 85007
By
IN THE OFFICE OF ADMINISTRATIVE HEARINGS
ernment division, her position as head of Mercer’s Arizona operations placed her close enough to the procurement process to dictate the conclusion that she is subject to the conflict of interest statute.
29
The Administrative Law Judge considered Medco Behavioral Care Corp. v. State of Iowa Dep’t of Human Services, 553
N.W.2d 556 (Iowa 1996), an Iowa case on which CIGNA relied in support of its conflict of interest argument, and found that decision unpersuasive both as to its facts and the law on which it relied.
SARA AGNE
DeGroot v. Arizona Racing Com'n, 141 Ariz. 331 (1984)
686 P.2d 1301
When review of an agency's decision under the
Administrative Review Act is on the record,
trial court may not reweigh evidence in order
to resolve perceived conflicts; rather, in order to
reverse agency's decision, trial court must find
that there was no substantial evidence to support
agency decision. A.R.S. § 12–901 et seq.
141 Ariz. 331
Court of Appeals of Arizona,
Division 1, Department D.
Mitch DeGROOT, Plaintiff-Appellee,
v.
The ARIZONA RACING
COMMISSION, Defendant-Appellant.
1 CA–CIV 6121.
|
July 31, 1984.
Horse trainer's owner trainer racing license was suspended
for period of two years by the Racing Commission based
on finding that presence of drug had been detected in urine
sample taken from trainer's horse after race, and trainer
appealed. The Superior Court, Maricopa County, Cause
No. C–424700, A. Melvin McDonald, Jr., J., reversed, and
Commission appealed. The Court of Appeals, Haire, P.J., held
that: (1) evidence established rigorous chain-of-custody as to
urine specimen allegedly taken from trainer's horse and tested
at unofficial laboratory, and thus, supported Commission's
decision to admit results of tests taken from such specimen;
(2) procedures adopted by Racing Commission relating to
splitting of urine samples and transmitting split samples to
a “nonofficial” additional laboratory for testing did not vary
from requirements of its regulation to extent which would
require exclusion of report received from such laboratory;
(3) trainer, who failed to raise claim that destruction of a
urine specimen which was found negative prior to hearing
violated his right to due process of law before the Racing
Commission failed to timely raise such issue, and therefore,
could not urge due process claim as basis for reversal; and
(4) remarks by one of commissioners to witness prior to
hearing were insufficient to establish any improper approach
or prejudgment by members of the Commission in the instant
proceeding so as to deny trainer due process.
12 Cases that cite this headnote
[2]
Administrative Law and Procedure
Discretion of Administrative Agency
Administrative Law and Procedure
Wisdom, Judgment or Opinion
Administrative Law and Procedure
Arbitrary, Unreasonable or Capricious
Action; Illegality
Trial judge may not merely substitute his
judgment for that of administrative agency
involved; instead, before reversal is justified,
trial court must find that agency has acted
arbitrarily, capriciously, or has abused its
discretion.
10 Cases that cite this headnote
[3]
Administrative Law and Procedure
Substantial Evidence
In resolution of factual issues, standard of
review requires determination of whether there
was substantial evidence to support agency's
decision; if two inconsistent factual conclusions
could be supported by record, then there is
substantial evidence to support administrative
decision that elects either conclusion.
13 Cases that cite this headnote
Judgment of Superior Court reversed and decision entered by
Commission reinstated as modified.
West Headnotes (20)
[1]
Administrative Law and Procedure
Conflicting Evidence
[4]
Administrative Law and Procedure
Wisdom, Judgment or Opinion
Trial court may not function as “super agency”
and substitute its own judgment for that of
the agency where factual questions and agency
expertise are involved.
16 Cases that cite this headnote
Administrative Law and Procedure
Substantial Evidence
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
1
DeGroot v. Arizona Racing Com'n, 141 Ariz. 331 (1984)
686 P.2d 1301
[5]
of test substance from racehorse by Racing
Commission was not violated by presence of
additional investigators during taking of test for
purpose of witnessing urine specimen procedure,
and thus, presence of such additional witnesses
did not preclude admissibility of test performed
on urine sample.
Public Amusement and Entertainment
Horse and Dog Racing
For purposes of establishing chain of custody
of urine sample taken from winning racehorse,
substantial evidence in record supported Racing
Commission's determination that specimen taken
from horse was immediately split into two
containers, which were then sealed, including
testimony of two witnesses who testified in detail
concerning taking of specimen, despite another
witness' testimony that he did not observe any
splitting of the sample.
[9]
Nothing in regulation providing that samples of
saliva, urine or any other test substance taken
from racehorse shall be forwarded to Official
Racing Commission laboratory for chemical
analysis precluded admission of evidence of
test results performed on winning horse's urine
specimen at an “unofficial” laboratory; therefore,
Commission did not abuse its discretion in
relying upon unofficial laboratory report which
indicated presence of drug in sample rather than
official report, given fact that there was ample
evidence presented explaining reason for failure
of official report to discern presence of drug in
urine. A.R.S. § 41–1010.
1 Cases that cite this headnote
[6]
Public Amusement and Entertainment
Horse and Dog Racing
Evidence, including agent's testimony that he
received sealed sample identified as urine of
winning racehorse, that sample arrived with
seal intact, and that sample was sent to
laboratory for testing, established chain-ofcustody of such sample, and thus, supported
Racing Commission's resolution of questions
relating to integrity of specimen involved; fact
that additional samples were also received and
tested by laboratory was irrelevant to such
determination.
[7]
1 Cases that cite this headnote
[8]
[10]
Public Amusement and Entertainment
Horse and Dog Racing
Regulation requiring presence of horse owner,
trainer, or their authorized agent during taking
Public Amusement and Entertainment
Horse and Dog Racing
Regulation by Racing Commission creating
internal agency procedure for orderly collection
and testing of urine or blood specimens in
order that Commission might enforce prohibition
against use of drugs in state-regulated racing
meets does not create vested procedural rights
which may be relied upon by any person
for purpose of excluding evidence which is
otherwise of competent and probative nature.
Public Amusement and Entertainment
Horse and Dog Racing
Racing Commission, which took urine sample
from winning racehorse, split sample into two
containers, and then sealed each container,
complied with its rule requiring such specimens
to be immediately sealed in a container; fact that
an additional sample was also taken would not
justify conclusion that regulation itself was not
complied with.
Public Amusement and Entertainment
Horse and Dog Racing
[11]
Administrative Law and Procedure
Preservation of Questions Before
Administrative Agency
General rule is that failure to raise an issue before
an administrative tribunal precludes judicial
review of that issue on appeal unless issue is
jurisdictional in nature.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
2
DeGroot v. Arizona Racing Com'n, 141 Ariz. 331 (1984)
686 P.2d 1301
of laboratory which conducted tests on urine
specimen taken from racehorse, “had missed a
positive” did not establish improper approach
or prejudgment by members of the Commission
so as to deny trainer due process. U.S.C.A.
Const.Amends. 5, 14.
3 Cases that cite this headnote
[12]
Public Amusement and Entertainment
Horse and Dog Racing
On appeal from decision of the Racing
Commission suspending horse trainer's owner
trainer racing license for period of two years
based on finding of presence of drug in urine
sample taken from horse, trainer, who failed to
raise claim that destruction of a urine specimen
which was found negative prior to hearing
violated his right to due process of law before the
Racing Commission and who urged such claim
for first time in motion for stay order filed in
superior court, failed to timely raise such issue,
and therefore, could not urge due process claim
as basis for reversal. U.S.C.A. Const.Amends. 5,
14.
1 Cases that cite this headnote
[15]
Day-to-day ministerial operations of the Racing
Commission in its enforcement activities may
appropriately be delegated to its executive
secretary. A.R.S. § 38–431 et seq.
[16]
Administrative Law and Procedure
Initiation of Proceedings for Investigation
Administrative Law and Procedure
Hearing
Constitutional Law
Hearings and Adjudications
In any agency proceeding in which agency
occupies a dual investigative and adjudicative
capacity, it will be necessary for agency
to receive results of investigations, to make
preliminary decisions or approve filing of formal
charges, and then to participate in resulting
hearings; such type of procedure does not violate
due process of law. U.S.C.A. Const.Amends. 5,
14.
[14]
[17]
Public Amusement and Entertainment
Horse and Dog Racing
Evidence, including exhibit defining Nalbuphine
as a powerful analgesic of a potency
equivalent to that of morphine, supported Racing
Commission's determination that Nalbuphine
was a prohibited drug under regulation
prohibiting certain drugs, including analgesics.
Constitutional Law
Public Amusement and Entertainment
In proceeding before Racing Commission
to determine whether horse trainer's owner
trainer racing license should be suspended
due to allegation that drug had been used
on horse, statement allegedly made by one
of commissioners to witness that Commission
was unhappy because witness, who was owner
Public Amusement and Entertainment
Horse and Dog Racing
Racing Commission's failure to vote in open
meeting to have certain urine specimens from
racehorse analyzed by unofficial laboratory did
not constitute a violation of the open meeting law
since such ministerial operations of Commission
in its enforcement activities could appropriately
be delegated to its executive secretary; even
if such action violated open meeting law,
such violation would not justify exclusion of
any resulting substantial and reliable evidence
tending to prove violation of Commission's
regulations relating to use of prohibited drugs.
A.R.S. § 38–431 et seq.
2 Cases that cite this headnote
[13]
Public Amusement and Entertainment
Administrative Agencies and Proceedings
[18]
Public Amusement and Entertainment
Horse and Dog Racing
Rule requiring racehorse trainer to protect
and guard horse against administration of
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
3
DeGroot v. Arizona Racing Com'n, 141 Ariz. 331 (1984)
686 P.2d 1301
prohibited drug is a type of rule known
as “trainer-responsibility rules,” which are
generally interpreted as imposing strict liability
upon trainer as condition for holding of his
license; he is made strictly responsible for
condition of horse, even though prohibited drug
might be administered without his knowledge.
[19]
Public Amusement and Entertainment
Horse and Dog Racing
Racing Commission was not required to
establish that owner trainer of racehorse
administered drug found in urine specimen in
order to find violation of rule requiring trainer to
protect and guard horse against administration of
prohibited drugs, since rule made trainer strictly
responsible for condition of horse.
[20]
Public Amusement and Entertainment
Horse and Dog Racing
Racing Commission exceeded its authority in
imposing $2,000 fine upon owner trainer of
racehorse for violating rule requiring trainer
to protect horse against administration of
prohibited drugs, since maximum fine it could
impose would be $500.
Attorneys and Law Firms
*334 **1304 Tucker & Jessen by G. Michael Jessen and
James E. Vieh, Phoenix, for plaintiff-appellee.
Robert K. Corbin, Atty. Gen. by Evelyn R. Epstein, Asst.
Atty. Gen., Phoenix, for defendant-appellant.
Opinion
OPINION
HAIRE, Presiding Judge.
This appeal involves a decision entered by the Arizona Racing
Commission suspending the owner-trainer racing license of
appellee Mitch DeGroot for a period of two years and
imposing a fine against him in the amount of $2,000. The
suspension was based upon the Commission's finding that
the presence of a drug, “Nalbuphine” had been detected in
a urine sample taken from DeGroot's horse, Bingo Arrive,
after a race at Prescott Downs. Pursuant to A.R.S. § 12–
901, et seq., DeGroot appealed the Commission's decision
to the Maricopa County Superior Court. After reviewing the
record, the superior court entered judgment reversing the
Commission's decision. The Commission has appealed to this
court requesting that its decision be reinstated.
On appeal the Commission contends that its decision was
based upon substantial, reliable and probative evidence, that
the trial judge erroneously substituted his judgment for that
of the Commission in resolving factual conflicts, and that the
trial judge also erred in his resolution of various legal issues
relating to the interpretation of the Commission's regulations.
We agree and reverse the judgment entered in the superior
court.
The background facts, stated in a light most favorable to
the Commission's decision, are as follows. In the Fall of
1980, based upon reports by its investigators, the Commission
became concerned that drugs had been and were being
used on various animals and that Valley Racing Laboratory,
the laboratory which customarily tested urine specimens
for the Commission, was not detecting the presence of
prohibited drugs in the specimens. Consequently, a decision
was made to “split” certain urine samples and to send one
part of the sample to Valley Racing Laboratory, and the
other part to a laboratory in Denver, Industrial Laboratories
Company. This procedure was followed on races conducted
at Prescott Downs on September 1, 1980, and included
appellee DeGroot's horse, Bingo Arrive, *335 **1305
which finished first in the third race on that date.
On the portion of the specimen taken from Bingo Arrive
which was submitted to Valley Racing Laboratory, the report
came back negative, with no prohibited drugs detected. On the
portion of the specimen submitted to Industrial Laboratories
Company, the report revealed the presence of Nalbuphine,
a powerful analgesic of a potency equivalent to that of
morphine. After detecting the presence of Nalbuphine, Dr.
Francis Ozog, Chief of the Racing Chemistry Division of
Industrial Laboratories Company, requested that Dr. George
Maylin, Chief of the New York Racing and Wagering Board
Drug Testing and Research Program at Cornell University,
perform an independent chemical analysis of the urine
specimen from Bingo Arrive. Dr. Maylin performed the
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4
DeGroot v. Arizona Racing Com'n, 141 Ariz. 331 (1984)
686 P.2d 1301
requested analysis and also concluded that the specimen
contained Nalbuphine.
At the Commission hearing evidence was presented that
Industrial Laboratories Company tested each urine specimen
separately. On the other hand, Valley Racing Laboratory
“composited” or poured together specimens from six
different racehorses for the initial testing. John Long, the
owner of Valley Racing Laboratory, acknowledged that the
compositing procedure would tend to dilute the particular
specimen, and that this would explain his laboratory's failure
to detect the Nalbuphine in the Bingo Arrive specimen.
Mr. Long stated that the Denver laboratory tests would
have six times the sensitivity that his tests had. After being
advised of the procedures followed by Dr. Ozog of Industrial
Laboratories Company and Dr. Maylin of Cornell, Mr. Long
changed his procedures and at the time of the hearing was no
longer compositing specimens for testing.
After considering all the evidence, the Commission found
that owner-trainer DeGroot had violated the Commission's
regulation concerning a trainer's duty to protect the racehorses
for which he is responsible from the administration of
prohibited drugs, and imposed the penalties previously set
forth in this opinion. See A.C.R.R. R4–27–107(A), R4–27–
107(D) and R4–27–208(A). 1
Although the judgment entered in the superior court did not
indicate the basis for the court's reversal of the Commission's
decision, the trial judge's reasoning is set forth in a detailed
minute entry order. These reasons can be categorized as
follows:
(1) The Racing Commission violated its regulation
A.C.R.R. R4–27–107(R) by:
(a) Splitting the urine specimen taken from Bingo
Arrive, and
(b) Transmitting the split specimen to a non-official out
of state testing company.
(2) There were serious conflicts in the evidence concerning
the integrity of the urine specimens taken at the Prescott
race, the sample taken from Bingo Arrive, the number
of samples taken from all racehorses, and the number
of samples received by the Denver laboratory from the
Commission.
(3) The state violated DeGroot's right to due process of law
when the urine specimen transmitted to the Valley Racing
Laboratory and found negative was thereafter destroyed by
the Valley Racing Laboratory prior to the hearing.
(4) That DeGroot was denied fundamental due process of
law because of the Commission's failure to approach the
issues with impartiality and objectivity.
[1]
[2]
[3]
[4] We consider first the trial judge's
reasoning concerning the alleged “serious conflicts” in the
testimony presented before the Commission. Preliminarily
we note that the superior court review of the Commission's
decision was pursuant to Arizona's Administrative Review
Act, and was based on the record made before the
Commission. See generally §§ 38.79 and 32.3.9, Vol. 3,
Arizona Appellate Handbook. When review of an agency's
decision under the Administrative Review Act is on the
record, the trial court may not re-weigh the *336 **1306
evidence in order to resolve perceived conflicts. Rather, in
order to reverse the agency's decision, the trial court must
find that there was no substantial evidence to support the
agency decision. See, e.g., Schade v. Arizona State Retirement
System, 109 Ariz. 396, 510 P.2d 42 (1973). As we have stated
in Webster v. State Board of Regents, 123 Ariz. 363, 599 P.2d
816 (App.1979):
“The trial judge may not merely substitute his judgment for
that of the administrative agency involved. Instead, before
a reversal is justified, the trial court must find that the
agency has acted arbitrarily, capriciously, or has abused its
discretion. See Arizona Department of Economic Security
v. Lidback, 26 Ariz.App. 143, 546 P.2d 1152 (1976). In
the resolution of factual issues, this standard requires a
determination of whether there was substantial evidence to
support the agency's decision. If two inconsistent factual
conclusions could be supported by the record, then there is
substantial evidence to support an administrative decision
that elects either conclusion. Sundown Imports v. Arizona
Department of Transportation, 115 Ariz. 428, 565 P.2d
1289 (App.1977).” 123 Ariz. at 365–66, 599 P.2d 818–19
(footnote omitted).
See also J.W. Hancock Enterprises, Inc. v. Registrar of
Contractors, 126 Ariz. 511, 617 P.2d 19 (1980). A trial court
may not function as a “super agency” and substitute its own
judgment for that of the agency where factual questions and
agency expertise are involved. Arizona Board of Regents v.
Superior Court, 106 Ariz. 430, 477 P.2d 520 (1970).
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5
DeGroot v. Arizona Racing Com'n, 141 Ariz. 331 (1984)
686 P.2d 1301
It is apparent from the record that the trial court in
reviewing the Commission's decision in this matter violated
the above-stated fundamental standards governing review of
agency decisions under our Administrative Review Act. More
importantly, however, our review of the record convinces
us that the trial judge's characterization of the record as
containing “serious conflicts” concerning various evidentiary
aspects highly overstates the minor conflicts which do exist in
the record. When the smokescreen created by strong appellate
advocacy is put aside and the evidentiary record is objectively
evaluated, it is apparent that the weight of the evidence
supports the Commission, and not the trial judge, on all
aspects of the case concerning which the trial judge voiced
“serious questions” or found “serious conflicts.”
[5] It is true that some conflict in the record was created by
the testimony of witness Joe Woods concerning the splitting
of the urine sample from Bingo Arrive. Mr. Woods had
claimed Bingo Arrive in the race and took the horse from the
paddock to the test barn. However, when the testimony of
Woods is considered in its entirety, a trier of fact readily could
have concluded that Woods was not particularly attentive and
that a splitting of the sample could have occurred without
his noticing it. This is especially true when consideration is
given to the direct, positive testimony of witnesses Guia and
Horstman, who testified in detail concerning the taking of the
specimen from Bingo Arrive, the immediate splitting of the
specimen into two containers, and the immediate sealing of
both containers.
[6] The trial judge further notes a serious conflict concerning
“the number of samples received by the Denver laboratory
from law enforcement officials.” The record does not reveal
any conflict in that regard. Both oral and documentary
evidence shows that 16 clearly identified specimens from the
September 1, 1980 race were received in the Denver shipment
and that a portion of the specimen from Bingo Arrive was
included in that shipment. Perhaps the trial judge's confusion
arises from appellee's arguments concerning the testimony
of witness Burdick. For example, in appellee's answering
brief it is urged that “[t]he documentary evidence before
the A.R.C. demonstrated that the Denver laboratory received
four more samples of equine urine than Mr. Burdick sent to
Denver.” (Emphasis added). However, the record reveals that
Mr. Burdick did not purport to ship or send any samples to the
Denver laboratory. His testimony was *337 **1307 that
he delivered 12 samples to agent Haw of the Department of
Public Safety. From evidence in the record a trier of fact could
readily conclude that Burdick was mistaken as to the exact
number of containers delivered or that additional specimens
were otherwise delivered to agent Haw. Witness Denneny
had previously testified that samples were taken not only
from the winners of the 12 races, but also from additional
horses randomly selected. In any event, it was agent Haw
who thereafter made the shipments to the Denver laboratory.
Although agent Haw testified that he received a stack of
identifying cards from Burdick, with one card identifying
each individual container, he was never questioned as to
the total number of cards or containers received by him.
Moreover, it is clear from his testimony that he shipped a total
of 32 containers to the Denver laboratory in three cartons,
and that these three cartons were received by the Denver
laboratory, containing 16 specimens for races held on August
31, 1980 and 16 specimens for races held on September 1,
1980. We also note that it is uncontroverted that 16 similarly
identified split specimens were received and tested by the
Valley Racing Laboratory for the September 1, 1980 race.
Under these circumstances, forgetting for the moment that
it is the Commission's function to resolve conflicts in the
record, whatever conflicts might have been raised by witness
Burdick's testimony cannot be considered to be substantial.
In any event, there is absolutely no conflict, and agent Haw's
testimony is very specific that the Bingo Arrive specimen was
delivered to him by Burdick and thereafter shipped by him
to the Denver laboratory, where it arrived with its seal intact.
The fact that additional samples were also received and tested
by the Denver laboratory is irrelevant.
In summary on this issue, we find no substantial basis
in the record for the trial judge's concerns relating to the
“serious conflicts” or “serious questions” concerning the
record relating to the integrity of the specimens involved
in this case. The evidence established a rigorous chain-ofcustody, and the weight of the evidence was overwhelmingly
in support of the Commission's resolution of these issues.
We next consider the contention that the testing results from
the Denver laboratory should have been excluded because,
in the trial court's opinion, the Commission violated its
regulation R4–27–107(R) by splitting the samples and by
transmitting the split sample to a “non-official” out-of-state
testing company. In this connection, the trial judge stated
that the Commission was implementing new procedures
which directly contradicted or significantly varied its own
established rules.
A.C.R.R. R4–27–107(R) provides as follows:
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6
DeGroot v. Arizona Racing Com'n, 141 Ariz. 331 (1984)
686 P.2d 1301
“R. Samples of saliva, urine or any other test substance
shall be taken by persons appointed by the Arizona Racing
Commission, under the supervision of the Commission
veterinarian. During the taking and sealing of such tests
the owner, or trainer, or their authorized agent may be
present at all times. The sample shall be immediately
sealed in a container and the evidence of such procedure
witnessed by the signature of the owner, or trainer,
or their representative. The sample shall thereupon be
forwarded with dispatch to the Official Racing Commission
Laboratory for chemical analysis and report to the Arizona
Racing Commission. No person shall interfere in any
manner with the testing procedures conducted under this
Rule.” (Emphasis added).
a “non-official” laboratory for testing. Extensive argument
was presented before the Commission, in the trial court,
and in the briefs on appeal in this court as to whether the
Valley Racing Laboratory was the one and only official
racing commission laboratory within the meaning of the
Commission's regulation, or whether the Denver laboratory
could also qualify as an official laboratory under the
arrangements made with the Denver laboratory by the
Commission for these tests. We find it unnecessary to decide
the “official laboratory” issue. If we assume, as urged by
appellee, and as apparently found by the trial court, that
the Valley Racing Laboratory was the one and only official
laboratory, there was still no violation of the regulation since
the specimen was in fact sent to Valley Racing Laboratory for
a chemical analysis and report as required by the regulation.
It is our opinion that the procedures adopted by the Racing
Commission relating to the splitting of urine samples and
transmitting the split samples to a “non-official” additional
laboratory for testing did not vary from the requirements of its
regulation R4–27–107(R) to an extent which would require
or justify the exclusion of the report received from the Denver
laboratory.
There is nothing in the regulation which purports to limit
laboratory reports or any other proof of drug violations to the
report which might be received from the “official” laboratory.
The regulation itself does not purport to be exclusive in
that regard. In Martinez v. State Racing Commission, 10
Mass.App. 909, 410 N.E.2d 740 (1980), the issue presented
concerned whether the Massachusetts racing commission
could consider the results of urine tests conducted by a
[7]
[8] Concerning the splitting of the sample, the laboratory other than the specific or official laboratory
contention appears to be that if the sample was split into
designated in a regulation adopted by the Commission. The
two containers and each container then sealed, the specimen
Commission held that the test results constituted “substantial
was not “immediately sealed in a container.” *338 **1308
evidence” within the pertinent statutory requirements, and
(Emphasis added). The evidence reveals that the splitting
therefore the test results were considered by the Commission
of the sample occurred immediately after the sample was
in arriving at its decision to suspend certain horsetrainers.
caught and that the two containers were then immediately
As in this case, the Massachusetts Superior Court reversed
sealed. Therefore, there can be no argument raised concerning
the Commission's decision. On appeal, however, the appellate
the time constraints of the regulation. The contention that
court noted that nothing in the Commission's regulation
the regulation was violated because, in addition to being
purported to preclude the consideration of reports from other
immediately sealed in “a container,” a portion was also
laboratories, and, agreeing with the Commission that such
sealed in another container is hairsplitting at best. Actually
reports constituted substantial evidence, the court reinstated
the regulation was fully complied with when a portion
the Commission's decision. Similarly here, we agree with
of the sample was sealed in “a container.” The fact that
the Commission that the regulation does not purport to
additional procedures were undertaken over and beyond the
preclude evidence of test results from other laboratories, that
requirements imposed by the regulation does not justify a
such evidence is substantial evidence as required in agency
conclusion that the regulation itself was not complied with.
hearings by A.R.S. § 41–1010, and that the Commission
The foregoing analysis is equally applicable to appellee's
did not commit error in considering the test results from
contention that the regulation was violated because the
the Denver laboratory in arriving at its decision to suspend
Commission had additional investigators present for the
appellee DeGroot. Given the fact that there was ample
purpose of witnessing the urine specimen procedure. The
evidence presented explaining the reason for the failure of
regulation simply does not preclude the presence of additional
the Valley Racing Laboratory test to discern the presence
witnesses.
of the drug, the Commission did not abuse its discretion in
relying upon the Denver laboratory report rather than the
[9] We next consider the contention that the regulation Valley Racing Laboratory report in this case.
was violated because a portion of the specimen was sent to
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7
DeGroot v. Arizona Racing Com'n, 141 Ariz. 331 (1984)
686 P.2d 1301
[10] We conclude our discussion on this issue by noting
that our R4–27–107(R) is a regulation creating an internal
agency procedure for the orderly collection and testing of
urine or blood specimens in order that the Commission might
enforce the prohibition against the use of drugs in stateregulated racing meets. Such a rule does *339 **1309 not
create vested procedural rights which may be relied upon by
any person for the purpose of excluding evidence which is
otherwise of a competent and probative nature. See United
States v. Caceres, 440 U.S. 741, 99 S.Ct. 1465, 59 L.Ed.2d
733 (1979).
The trial judge was also of the opinion that reversal of the
Commission's decision was required because, after testing the
composited urine sample and finding the composited sample
negative, the Valley Racing Laboratory then disposed of
the samples. The trial judge's reasoning in this regard was
based upon the due process principles set forth in Scales
v. City Court of the City of Mesa, 122 Ariz. 231, 594
P.2d 97 (1979). Although the due process underpinnings of
Scales have been substantially, if not entirely, eroded by
the recent decision of the United States Supreme Court in
California v. Trombetta, 467 U.S 479, 104 S.Ct. 2528, 81
L.Ed.2d 413 (1984), and, although we have substantial doubts
that the Scales due process principles would have justified
reversal when applied to the facts of this case, we find that
appellee failed to timely raise this due process issue before the
Commission and that the trial court should not have addressed
this issue on its merits. Our conclusion that the issue was
not timely raised before the Commission is based upon the
following. On September 7, 1980, appellee DeGroot was
given written notice of his initial suspension in this matter.
That written notice expressly set forth that the suspension
was based upon a report from Industrial Laboratories in
Denver which found a prohibited drug in the urine sample
of Bingo Arrive, the sample being taken at Prescott Downs
on September 1, 1980. The Commission hearing did not take
place until October 24, 1980, some 47 days after the written
notice. Although appellee now urges that it was extremely
important to his defense that he be given the opportunity to
exonerate himself by having independent laboratory testing
of the specimen, during this entire interim period he made no
request or attempt to obtain the samples from either laboratory
for retesting. In the subpoena duces tecum for John Long,
which appellee requested prior to the Commission hearing,
appellee specified in detail that reports concerning the Valley
Racing Laboratory's tests on the Bingo Arrive specimen and
other documentary evidence be produced. However, he failed
to specify or require that any remaining urine specimen be
produced.
At the evidentiary hearing on October 24, 1980, the testimony
revealed that although Industrial Laboratories of Denver had
retained a portion of the Bingo Arrive specimen, the Valley
Racing Laboratory had disposed of its portion of the specimen
after its testing of the composited sample had not revealed
the presence of any prohibited drugs. After the disclosure of
the foregoing at the evidentiary hearing, appellee still did not
make any request that he be allowed to arrange for re-testing
of the Bingo Arrive urine specimen or object or argue in any
way that he had been deprived of due process by reason of
the disposal of the Valley Racing Laboratory's portion of the
Bingo Arrive specimen.
Some two weeks after the conclusion of the evidentiary
hearing at which appellee was to have presented all of
his evidence, his counsel apparently advised opposing
counsel that he wished to examine the remaining Valley
Racing Laboratory unused portion of Bingo Arrive's urine
specimen. 2 Of course, the request at that late date could be
made in absolute safety, since it had already been established
at the trial that this portion of the sample had been disposed
of and was therefore not available for examination. However,
even at that late date appellee did not present any argument or
contention to the Commission that the disposal of that portion
of the sample had violated his due process rights under Scales
or otherwise.
On November 24, 1980, one month after the evidentiary trial
of this matter, but *340 **1310 before the Commission
issued its decision, appellee filed a petition for preliminary
injunction in the superior court, seeking to enjoin further
proceedings by the Commission in this matter. In support
of the petition, appellee argued that he had been denied
due process of law by the Commission, urging the “official
laboratory” arguments previously discussed in this opinion
and also an alleged conflict on behalf of the attorney general
in representing the Commission and at the same time acting as
the prosecutor in this matter. Again, there was no contention
that appellee's due process rights had been violated by reason
of the disposal of the Valley Racing Laboratory portion of
the Bingo Arrive sample. 3 Thereafter, on December 8, 1980,
appellee filed with the Commission his requested findings of
fact and conclusions of law together with a memorandum of
points and authorities. Appellee had previously been advised
by the Commission that it would afford him the opportunity
to submit a memorandum of law setting forth any argument
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8
DeGroot v. Arizona Racing Com'n, 141 Ariz. 331 (1984)
686 P.2d 1301
that he desired to raise. He did not request any findings
or conclusions concerning a purported denial of his due
process rights by reason of the disposal of the Valley Racing
Laboratory portion of the sample, nor was any argument made
in that regard in his memorandum of points and authorities.
On January 27, 1981, the Commission entered its
“Memorandum, Findings of Fact and Conclusions of Law”
which constituted the basis for its decision in this matter.
Since no due process contentions had been raised by appellee
relating to the disposal of the Valley Racing Laboratory
portion of the Bingo Arrive sample, these findings and
conclusions did not address or discuss that issue. On February
2, 1981, appellee filed his motion for rehearing before the
Commission. Again, appellee did not present any argument
that the Commission's decision should be set aside because of
due process violations concerning the disposal of the Valley
Racing Laboratory portion of the Bingo Arrive specimen. 4
[11]
[12] In view of the trial judge's ruling that this
issue required reversal, we have gone into some detail in
our examination of the record to show that the Commission
record fully supports the Commission's contention that this
issue was not timely raised and that its alleged impact on
appellee's due process rights was not perceived by appellee
himself to be of any great importance until after the filing
of appellee's complaint in the superior court seeking review
of the Commission's decision. In a motion for stay order
filed in the superior court with his complaint, appellee for
the first time urged that the disposal of the Valley Racing
Laboratory portion of the Bingo Arrive specimen violated his
due process rights and required that the Commission action
taken against him be dropped. The general rule is that failure
to raise an issue before an administrative tribunal precludes
judicial review of that issue on appeal unless the issue is
jurisdictional in nature. Calixto v. Industrial Commission, 126
Ariz. 400, 616 P.2d 75 (App.1980); Stephens v. Industrial
Commission, 114 Ariz. 92, 559 P.2d 212 (App.1977). We
agree with the Commission's contention that the issue was not
timely raised and therefore may not be urged as a basis for
reversal.
allegedly made by one of the commissioners to witness Long
prior to the hearing. The statement was to the effect *341
**1311 that the Commission was unhappy because Long
(owner of the Valley Racing Laboratory) “had missed a
positive.” 5 We have examined in detail the transcript of the
Commission hearing and other parts of the record relating to
these proceedings, and we find no substantial indication that
appellee has been denied due process because of any improper
approach or pre-judgment by the members of the Commission
in this case. Of course in any agency proceeding in which
the agency occupies a dual investigative and adjudicative
capacity, it will be necessary for the agency to receive the
results of investigations, to make preliminary decisions or
approve the filing of formal charges, and then to participate in
the resulting hearings. This type of procedure does not violate
due process of law. See Withrow v. Larkin, 421 U.S. 35, 95
S.Ct. 1456, 43 L.Ed.2d 712 (1975); In re Davis, 129 Ariz. 1,
628 P.2d 38 (1981).
In the past this court has not hesitated to severely criticize
and condemn the Arizona Racing Commission for hearing
procedures and conduct which we deemed improper and of
a nature impinging upon a party's due process right to a fair
hearing. See Arizona Downs v. Turf Paradise, Inc., 682 P.2d
443 (Ariz.App.1984). The record presented in this matter
does not merit such criticism. In addition to the reasons set
forth in the trial judge's minute entry order, appellee has raised
other contentions in support of the trial judge's reversal of
the Commission's decision. Since in general we find these
contentions to be without merit, we will not further lengthen
this opinion with a detailed discussion and analysis of each
contention, but will dispose of each in a summary fashion.
[15]
[16] We first note that the Commission's failure
to vote in open meeting to have certain urine specimens
analyzed by the Denver laboratory did not constitute a
violation of Arizona's open meeting law (A.R.S. § 38–431,
et seq.). We agree with the Commission that the day-to-day
ministerial operations of the Commission in its enforcement
activities may appropriately be delegated to its executive
secretary. In any event, while a violation of the open meeting
law might have operated to invalidate any contract entered
[13] [14] Proceeding now to the next issue raised by the into between the Commission and the Denver laboratory,
trial judge in his minute entry order, we note that he expressed
such a violation would not justify the exclusion of any
concerns relating to whether the Commission approached its
resulting substantial and reliable evidence tending to prove a
duties in this hearing with the objectivity and impartiality
violation of the Commission's regulations relating to the use
essential to the appropriate performance of its quasi-judicial
of prohibited drugs.
function. These comments by the trial judge were apparently
prompted by appellee's arguments relating to a statement
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9
DeGroot v. Arizona Racing Com'n, 141 Ariz. 331 (1984)
686 P.2d 1301
[17] We also reject appellee's contention that there was
no evidence to support a finding that Nalbuphine was
a prohibited substance. A.C.R.R. R4–27–107(F) includes
among prohibited substances “any drug, medicine or other
substance foreign to the horse's or greyhound's body which
does or could affect the racing condition of a horse or
greyhound ... [t]hese foreign substances include but are not
limited to stimulants, depressants, local anesthetics, narcotics
and analgesics.” (Emphasis added). Exhibit 18 in evidence
defines Nalbuphine as a powerful analgesic of a potency
equivalent to that of morphine. From this evidence alone the
Commission in the application of agency expertise could have
found that Nalbuphine was a prohibited drug, particularly in
the absence of any contention to the contrary.
his license. He is made strictly responsible for the condition
of the horse, even though the prohibited drug might be
administered without his knowledge. Rules of this nature
have been repeatedly upheld against due process and other
attacks as a reasonable exercise of the state's authority to
enforce its laws relating to horseracing. See, e.g., Division of
Pari-Mutuel Wagering, Department of Business Regulation
v. Caple, 362 So.2d 1350 (Fla.1978); Sandstrom v. California
Horseracing Board, 31 Cal.2d 401, 189 P.2d 17, cert. denied,
335 U.S. 814, 69 S.Ct. 31, 93 L.Ed. 369 (1948).
[20] Appellee has urged that the fine of $2,000 imposed
upon him was in excess of the Commission's authority under
the charges involved, and that the statutory maximum is $500.
Although this issue was contested by the Commission in its
[18]
[19] We further note that there was no necessity briefs filed in this court, at oral argument counsel for the
Commission confessed error on this issue and admitted that
that evidence be presented or that it be proven that appellee
the maximum fine allowed is $500.
DeGroot administered the drug. Under A.C.R.R. R4–27–
107(D), a trainer is required “to protect and guard the horse
For the reasons set forth in this opinion the judgment entered
or greyhound against the administration, either internally or
in the trial court is reversed. The decision entered by the
externally, of any prohibited drug.” A.C.R.R. R4–27–208(A)
Commission is reinstated, with the exception that the fine
provides:
imposed on appellee is reduced to $500.
“The trainers are responsible for the
condition of horses under their care
and are required to protect such horses
EUBANK and MEYERSON, JJ., concur.
from acts of other parties.”
*342 **1312 These types of rules are known as trainerresponsibility rules and are generally interpreted as imposing
strict liability upon the trainer as a condition for the holding of
Parallel Citations
686 P.2d 1301
Footnotes
1
2
3
4
5
All references in this opinion to Commission regulations are to those regulations which were in effect prior to the Commission's
1983 revision.
The Commission record does not reveal any formal request of this nature or that the request was ever presented to the Commission.
However, a letter attached to a pleading filed in the superior court does indicate that such a request was made to counsel.
This petition for preliminary injunction was denied by the trial court.
In the “Conclusion” portion of appellee's motion for rehearing he does for the first time mention in a factual manner that “thereafter
the sample was destroyed. It cannot be examined again by the Commission.”
We do not find persuasive appellee's arguments that such alleged statement and the scheduling of a hearing relating to Valley Racing
Laboratory's general testing performance constituted an attempt by the Commission to intimidate witness Long.
End of Document
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
10
DMS All-Star Joint Venture v. U.S., 90 Fed.Cl. 653 (2010)
economic interest would be affected by contract's
award or by failure to award contract.
90 Fed.Cl. 653
United States Court of Federal Claims.
DMS ALL–STAR JOINT VENTURE, Plaintiff,
v.
The UNITED STATES, Defendant,
He and I Construction, Inc., Intervenor-defendant.
No. 09–737 C.
|
3 Cases that cite this headnote
[2]
United States
Parties; standing
Jan. 26, 2010. 1
Synopsis
Background: Unsuccessful bidder filed pre-award bid
protest complaint challenging Department of Army's
proposed award of indefinite delivery, indefinite quantity
(IDIQ) contract for maintenance, repair, and minor
construction work on base. Successful bidder intervened.
Parties filed cross-motions for judgment on administrative
record.
Public Contracts
Parties; standing
Bid protestor possessing substantial chance
of winning government contract has direct
economic interest in procurement, and has
standing before Court of Federal Claims.
5 Cases that cite this headnote
[3]
Public Contracts
Scope of review
United States
Scope of review
Procurement decision may be set aside if it
lacked rational basis or if agency's decisionmaking involved violation of regulation or
procedure.
Holdings: The Court of Federal Claims, Bush, J., held that:
[1] unsuccessful bidder had standing to challenge award;
[2] Army's price realism analysis of final proposals was
rational;
[3] Army adequately discussed bid; and
1 Cases that cite this headnote
[4]
United States
Evidence
[4] Army's discussions with bidders were not impermissibly
unequal.
Bid protest plaintiff bears burden of proving
that significant error marred procurement in
question.
Government's motion granted.
West Headnotes (18)
[1]
Public Contracts
Evidence
[5]
Public Contracts
Scope of review
Public Contracts
Parties; standing
United States
Scope of review
United States
Parties; standing
Court may not substitute its judgment for
agency's expertise in procuring services to meet
government's needs.
Bid protest standing is limited to those plaintiffs
who are actual or prospective bidders for
government contract or offerors whose direct
2 Cases that cite this headnote
[6]
Public Contracts
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
1
DMS All-Star Joint Venture v. U.S., 90 Fed.Cl. 653 (2010)
Scope of review
Solicitation evaluation criteria control in court's
review of agency's price realism analysis of
proposals for contract. 48 C.F.R. § 15.404–1.
United States
Scope of review
If court finds reasonable basis for agency's
award of contract, court should stay its hand
even though it might, as original proposition,
have reached different conclusion as to proper
administration and application of procurement
regulations.
[7]
4 Cases that cite this headnote
[10]
United States
Determinative Factors in Making Award
Department of Army's price realism analysis of
final proposals was rational and carried forth
evaluation promised in solicitation for contract
for indefinite delivery, indefinite quantity (IDIQ)
contract for maintenance, repair, and minor
construction work on base, even though financial
liaison advisor (FLA) found that successful
bidder's vehicle gas, maintenance, and insurance
(VGMI) costs appeared to be overstated in its
initial proposal, where solicitation gave broad
discretion to Army in its choice of price
realism methodology, source selection authority
(SSA) decided that bidder's proposed price
coefficient was adequately documented and
concluded that its submitted price presented no
performance risk, Army's price analyst reported
that bidder explained its cost element revisions
by referencing historical job order data, and
largest cost driver in bidder's price proposal was
in line with same factor found in other offerors'
proposals. 48 C.F.R. § 15.404–1.
Public Contracts
Parties; standing
United States
Parties; standing
To establish standing to file bid protest, plaintiff
must show that there was substantial chance that
plaintiff would have received contract award but
for government's errors in procurement process.
4 Cases that cite this headnote
[8]
Public Contracts
Parties; standing
United States
Parties; standing
Unsuccessful bidder had standing to challenge
Department of Army's proposed award of
indefinite delivery, indefinite quantity (IDIQ)
contract, where bidder's proposal was initially
rated to have best overall value to government
and it was awarded contract, but contract
was terminated for government's convenience,
and bidder's final revised proposal received
comparable ratings to successful bidder's
proposal for technical and present and past
performance factors, but other bidder's lower
price became determinative selection factor.
3 Cases that cite this headnote
[11]
Qualified proposal for government contract will
not be rejected for mere clerical errors, when all
material information required by solicitation is
present.
Public Contracts
Scope of review
United States
Scope of review
Public Contracts
Form and requisites; responsiveness
United States
Form and requisites; responsiveness
1 Cases that cite this headnote
[9]
Public Contracts
Determinative Factors in Making Award
[12]
Public Contracts
Evaluation process
United States
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
2
DMS All-Star Joint Venture v. U.S., 90 Fed.Cl. 653 (2010)
Evaluation process
Procuring agency's discussions with offeror
become impermissibly misleading when
communications from government misdirect
offeror as it revises its proposal. 48 C.F.R. §
15.306(d)(3).
Contracting agencies need not discuss every
aspect of proposal that receives less than
maximum score or identify relative weaknesses
in proposal that is technically acceptable but
presents less desirable approach than others. 48
C.F.R. § 15.306(d)(3).
2 Cases that cite this headnote
[13]
2 Cases that cite this headnote
[16]
Public Contracts
Evaluation process
United States
Evaluation process
United States
Evaluation process
Department of Army was not required to bring
disappointed bidder's indirect labor salaries and
its vehicle gas, maintenance, and insurance
(VGMI) costs to bidder's attention during its
discussions regarding its bid for contract for
indefinite delivery, indefinite quantity (IDIQ)
contract for maintenance, repair, and minor
construction work on real property located
on base, where Army never considered those
aspects bidder's price proposal to be deficiencies
or significant weaknesses in its proposal,
obvious omission in bidder's price proposal was
pointed out in rational and neutral manner, and
bidder was given repeated opportunities to revise
its price proposal. 48 C.F.R. § 15.306(d)(3).
When contracting agency holds discussions
with offeror, contracting officer must address
those elements of proposal that suggest offeror's
misunderstanding of solicitation's requirements,
but need not discuss every aspect of proposal
that receives less than maximum score or
identify relative weaknesses in proposal that is
technically acceptable but presents less desirable
approach than others. 48 C.F.R. § 15.306(d)(3).
7 Cases that cite this headnote
[14]
Public Contracts
Evaluation process
United States
Evaluation process
Unless offeror's costs constitute significant
weakness or deficiency in its proposal for
government contract, contracting officer is not
required to address in discussions costs that
appear to be higher than those proposed by
other offerors, but it is mandatory for agency to
discuss costs or pricing when prices submitted
in proposal would preclude award. 48 C.F.R. §
15.306(d)(3).
5 Cases that cite this headnote
[15]
Public Contracts
Evaluation process
3 Cases that cite this headnote
[17]
Public Contracts
Good faith; fairness
United States
Good faith; fairness
Procuring agency may not withhold crucial and
advantageous piece of information from one
offeror while providing it to another. 48 C.F.R.
§ 15.306(e).
[18]
Public Contracts
Good faith; fairness
Public Contracts
Evaluation process
United States
Good faith; fairness
United States
Evaluation process
Department of Army's discussions with bidders
for indefinite delivery, indefinite quantity (IDIQ)
contract were not impermissibly unequal, even
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
3
DMS All-Star Joint Venture v. U.S., 90 Fed.Cl. 653 (2010)
though Army asked one bidder to include much
more information in its proposal revision than
it asked of another bidder, where discussions
were tailored to aspects of each bidder's initial
proposals that required either clarification or
improvement, and directly reflected results of
price analysis of those proposals. 48 C.F.R. §
15.306(e).
1 Cases that cite this headnote
Attorneys and Law Firms
*655 John C. Dulske, San Antonio, TX, for plaintiff. Joan
Kelley Fowler Gluys and Bryan Kost, San Antonio, TX, of
counsel.
Scott T. Palmer, United States Department of Justice, with
whom were Tony West, Assistant Attorney General, Jeanne
E. Davidson, Director, Donald E. Kinner, Assistant Director,
Washington, DC, for defendant. Charles D. Halverson,
Captain, United States Army Legal Services Agency,
Arlington, VA, of counsel.
Johnathan M. Bailey, San Antonio, TX, for intervenordefendant.
Opinion
OPINION
BUSH, Judge.
DMS All–Star Joint Venture (DMS) filed its pre-award
bid protest complaint in this court on October 28, 2009,
challenging the Department of the Army's proposed award
of a contract to intervenor He & I Construction, Inc. (He
& I) under Solicitation No. W9124J–06–R–0031. Compl. ¶
2. This bid protest is now before the court on the parties'
cross motions for judgment on the administrative record. The
administrative record (AR) was filed on November 4, 2009,
and briefing followed according to an expedited schedule.
Oral argument was held on December 2, 2009. For the reasons
set forth below, defendant's motion for judgment on the
administrative record is granted, and plaintiff's motion is
denied.
BACKGROUND
I. Solicitation
On March 9, 2007, the Army issued Solicitation No.
W9124J–06–R–0031 for a job order contract at Fort Sill,
Oklahoma. AR Tab 4. The contract is an indefinite delivery,
indefinite quantity (IDIQ) contract for maintenance, repair,
and minor construction work on real property located on the
base. AR at 235. The contract contemplates the procurement
of services through individual task orders. Id. Under the
contract, the contracting officer will issue task orders to
the contractor in response to requests from the Directorate
of Public Works, and the contractor will perform specific
projects based on those task orders. Id. Defendant issued eight
amendments and modifications to the original solicitation
between March 30, 2007 and February 13, 2009. See AR Tabs
5–7, 43, 45, 47, 53, and 56.
The contract will cover an initial one-year base period plus
four one-year option periods. AR at 220–24. The “maximum
estimated” value of the contract is $20 million per year,
for a total potential value of $100 million over the life
of the contract. 2 Id. at 220. The solicitation contemplates
a negotiated procurement process in which participation
is limited to Small Business Administration (SBA) 8(a)
business concerns located in Oklahoma or having a bona fide
office within Oklahoma. AR at 218.
The solicitation required the submission of proposals in four
separate parts: administrative, price, technical, and past and
present performance. AR at 310. The controversy in this bid
protest largely relates to the price proposal evaluations, and
for this reason, the court will limit its analysis primarily to that
part of the solicitation. In their price proposals, offerors were
required to submit a firm fixed-price coefficient for each of
several contract line item numbers (CLINs) for the base year
and each option year. 3 AR 311–12. Those coefficients would
then be multiplied by unit prices provided in the most current
edition of the R.S. Means Facilities Construction Cost Data
Book (RSM) to derive prices for individual tasks performed
under the contract. AR at 311. The solicitation provides that
the price coefficients will take into account *656 the indirect
costs of the contractor, including, inter alia, overhead and
profit for both the prime contractor and its subcontractors. AR
at 312. These indirect costs are distinguishable from and in
addition to the costs of labor, material and equipment, which
are represented by the RSM unit prices. 4 AR at 312.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
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DMS All-Star Joint Venture v. U.S., 90 Fed.Cl. 653 (2010)
The solicitation provides that the government was to
evaluate proposals based on three independent factors:
technical/management approach (Factor 1), past and present
performance (Factor 2), and price (Factor 3). AR at 318. The
solicitation also describes the relative importance of the three
factors in the evaluation of proposals:
Technical/Management
Approach
(Factor 1) and Past and Present
Performance (Factor 2) are equal
in importance. Factor 1 and Factor
2, when combined, are significantly
more important than Price (Factor
3). The Government desires proposals
that offer the overall best value
in meeting the requirements with
acceptable risk at a fair and
reasonable price. Price could become
the determinative selection factor if
the technical proposals and Past
and Present Performance (Risk)
evaluations are determined to be equal.
Id. The solicitation further provides that a “proposal that
is unrealistic in terms of technical quality or price will be
deemed reflective of an inherent lack of technical competence
or indicative of failure to comprehend the complexity and
risks of the contractual requirements ... and may be rejected
as unacceptable without further evaluation or discussion.” Id.
The solicitation section providing a description of the
government's methodology for the evaluation of price
proposals is reproduced here in its entirety:
a. The Price Factor Coefficients will be evaluated using
price analysis techniques. In selecting the best overall
proposal, the Government will consider the value of each
proposal in terms of the quality offered for the price. Each
proposal will be evaluated for price reasonableness. For
evaluation purposes, each offeror's coefficient proposed
will be evaluated based on the following:
100% of the work will be performed on Fort Sill,
Oklahoma.
b. NOTICE: For the purpose of proposal evaluation only,
offerors should base their proposals on a notional target
cost of $20,000,000.00 for the base period. This figure is
for proposal evaluation only and may not reflect the actual
dollar amount of projects delivered during the contract
period.
c. FIRM FIXED PRICE: Offerors are advised that only
offers submitted on a firm fixed price basis will be
considered.
The Financial Liaison Advisor (FLA) will evaluate each
offeror's coefficients using price analysis techniques to
determine fair and reasonable price.
Price/Cost will be evaluated using price and/or cost
analysis techniques. The price will be evaluated to
determine cost reasonableness and completeness of the
coefficient in terms of the government's requirement. The
Government is interested in proposals that offer value in
meeting the requirements, with an acceptable performance
risk, at a fair and reasonable price. Price/Cost, however,
could become the determining selection factor if technical
proposals are determined to be substantially equal or if a
technically superior proposal is deemed not to be worth the
high cost premium.
AR at 318–19.
Thus, offerors were on notice that the evaluation of their
price proposals would utilize price analysis techniques. Price
reasonableness and cost reasonableness would be evaluated,
as would the completeness of the offerors' coefficients. In
addition, offerors were warned that unrealistic price proposals
might be eliminated from the competition. There is no
promise in the solicitation, however, that a *657 particular
type of “price realism” analysis would be conducted for
each price proposal. 5 Indeed, no specific mention of a price
realism analysis can be found in the original or amended
versions of the acquisition plan, the source selection plan,
or the solicitation. See AR at 7, 20 (Acquisition Plan)
(containing no more than a brief mention of “price analysis
techniques”); id. at 35, 38–39, 1051, 1054–55 (Source
Selection Plan) (describing various aspects of the price and
cost analysis, but not mentioning a “price realism” analysis);
id. at 139–40, 318–19, 2112 (solicitation) (not mentioning
the term “price realism” in the price proposal evaluation
description).
Although the solicitation expresses the government's intent
to evaluate proposals and award the contract without
discussions, it nonetheless reserves to the Army the right to
conduct discussions with offerors if these are deemed to be
necessary by the contracting officer. AR at 318. To this end,
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
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DMS All-Star Joint Venture v. U.S., 90 Fed.Cl. 653 (2010)
the Contracting Officer may determine
the competitive range, conduct
discussions with offerors in the
competitive range, and request final
proposal revisions from those offerors.
These revised proposals will be
evaluated by the Source Selection
Evaluation Board (SSEB) and the
Financial Liaison Advisor (FLA) and
written results will be provided to
the Source Selection Authority (SSA).
Award will be based on overall best
value and will not necessarily be made
to the low offeror.
Id. Because plaintiff challenges the Army's price realism
analysis of He & I's final price proposal, and the adequacy and
fairness of discussions held with DMS, the court will restrict
its account of the extensive history of this procurement to
events relevant to those actions by the government.
II. Proposal Evaluations and Initial Award
A. Initial Evaluation of Proposals
In April of 2007, defendant received proposals from three
offerors in response to the solicitation: DMS, He & I, and
White Hawk/Todd Joint Venture (White Hawk/Todd). See
AR Tabs 8–10. Defendant subsequently established a SSEB
to review the offerors' technical and performance proposals.
See AR Tab 11. Defendant also requested a price analysis of
the proposals from the FLA, Ms. [ ]. In a report dated June
7, 2007, Ms. [ ] identified a number of issues related to the
proposals submitted by DMS and He & I. AR Tab 13.
With respect to the DMS proposal, Ms. [ ]'s report first noted
that the price proposal included a line item for RSM cost
data in the amount of [ ] per year that was not included in
the cost totals for the proposal. AR at 1040. The report also
noted that the indirect labor salaries proposed by DMS were
approximately [ ] higher than salaries obtained by Ms. [ ]
from Internet sources for similar occupational descriptions.
AR at 1041. The report stated that substituting the salary
amounts found on the Internet by Ms. [ ] for those proposed
by DMS would reduce the base coefficient for CLIN 0001AA
from [ ] to [ ]. Id. Finally, the report indicated that the nonlabor costs allocated by DMS to vehicle gas, maintenance,
and insurance (VGMI) was nearly three times as much as
what DMS had allocated for the vehicles themselves, and
expressed the FLA's opinion that the VGMI costs appeared
to be overstated. AR at 1043–44. Ms. [ ] stated that she
was unable to perform a price realism analysis on the price
proposal submitted by He & I because that proposal did not
include an adequate breakdown of the cost data needed to
complete such an analysis. AR at 1044. The report further
noted, however, that the FLA was able to reconcile the
summary data in He & I's proposal with its price coefficients.
AR at 1040. Ms. [ ] saw no problems with the price realism
of DMS's proposal. AR at 1044.
*658 B. First Round of Discussions, October 2007
The Army created a competitive range of all three offerors
in September 2007, AR Tab 17, and mailed discussion letters
to these contractors on October 2, 2007, AR Tab 18. In the
letter to DMS, defendant identified a number of elements in
DMS's technical proposal that required supplementation or
clarification. AR at 1145–46. The Army's letter also noted
that DMS's price proposal identified a line item for RSM cost
data, but failed to include this line item in the calculation of
its price coefficient. AR at 1145. The letter directed DMS to
indicate whether it intended to include that line item in its
price coefficient and requested an updated coefficient in the
event that DMS elected to include the RSM cost data line item
in its calculations. Id.
In its discussion letter to He & I, defendant requested
clarification of three areas of He & I's technical proposal. AR
at 1149–50. In addition, the letter informed He & I that its
price proposal had failed to include sufficient data to support
its price coefficients. In that regard, the letter requested the
following information:
Please
address
general
price
components including, but not limited
to, materials, direct labor, indirect
costs, overhead, and profit. Please
include a cost breakdown for each
price component. For example, for
direct labor, please identify each labor
category along with the number of Full
Time Equivalents, rate and extended
costs. The proposed profit rate shall be
supported with quantitative evaluation
of market conditions, anticipated order
volume and risk assessment in addition
to being justified with narrative
rationale.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
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DMS All-Star Joint Venture v. U.S., 90 Fed.Cl. 653 (2010)
AR at 1149. All of the discussion letters sent by defendant
instructed the offerors to review their entire proposal. AR at
1145, 1149, 1151.
All three offerors submitted revised proposals to defendant
in early October 2007. See AR Tabs 19–21, 73. The SSEB
convened on October 12, 2007 to evaluate the revised
proposals. See AR Tab 22. Ms. [ ] performed a price analysis
on the revised proposals on October 17, 2007. See AR Tabs
23 (missing two pages), 76 (complete version). In its revised
proposal, DMS included the previously omitted line item in
its coefficient calculation, which resulted in a small increase
in its price coefficients and in its overall price. AR at 2708.
Even after that increase, however, DMS remained the lowest
overall bidder. AR at 2707. The FLA's report noted that
while He & I had provided a number of new coefficient
components apparently representing various cost categories
and an extended narrative explaining its anticipated costs,
it did not provide the specific cost data requested in the
discussion letter. AR at 2709. The report concluded that the
revised DMS price proposal was realistic, but that Ms. [ ] was
unable to perform a price realism analysis on the revised He
& I proposal. 6 AR at 2707, 2714.
C. A Short–Lived Contract Award to DMS
The SSA noted that He & I had failed to provide certain
requested information as to its costs, but concluded that there
was no performance risk from He & I's price, and that He
& I's price was realistic overall, citing Federal Acquisition
Regulation (FAR) 15.404–1(d)(3), 48 C.F.R. § 15.404–1(d)
(3) (2008). AR at 1826–27. The Army reasoned that He
& I had complied with material solicitation requirements
regarding documentation of its costs, and that there was no
logical reason to find He & I's price to be unrealistic. AR at
1848–49. However, the SSA concluded that DMS provided
the best value to the government and that DMS's price was
reasonable; therefore, the SSA directed that the contract be
awarded to DMS. AR at 1827. DMS was notified that it was
the successful offeror on November 30, 2007. AR at 1853.
III. Protests, Final Proposal Revisions and More
Protests
A. DMS's Contract is Terminated for the Convenience
of the Government and Award to He & I is Proposed
White Hawk/Todd protested the award to DMS, arguing
that DMS did not meet the *659 business size limitation
specified by the solicitation. AR Tab 30. White Hawk/Todd's
size protest, and, in particular, White Hawk/Todd's standing
to bring such a protest, has been the subject of protracted
litigation, which now continues before another judge of this
court. 7 He & I filed its own protest of the award to DMS with
the Government Accountability Office (GAO), which, due
to proposed corrective action by the Army, was dismissed.
AR Tab 31. A new SSEB was formed to re-evaluate the
previously submitted proposals of the three offerors. AR Tab
32. Based on the re-evaluation of proposals, changes in the
ratings for various technical elements led the SSA to direct
contract award to He & I. AR at 2016. The contract award to
DMS was terminated for the convenience of the government
on July 7, 2008. AR Tab 38.
B. Second Round of Discussions, October 2008
On July 29, 2008, DMS filed a pre-award protest with GAO
regarding the proposed award of the contract to He & I.
AR Tab 40. Because the Army proposed corrective action
in response to DMS's protest, GAO dismissed the protest.
Id. The Army again appointed a SSEB, AR Tab 42, which
re-evaluated the previously submitted proposals of the three
offerors. On October 30, 2008, the Army sent discussion
letters to the offerors requesting revised proposals. 8 AR Tab
44.
The Army's discussion questions to DMS focused on
technical elements of DMS's proposal and perceived
problems therein, and offered DMS an opportunity to revise
its technical proposal. AR at 2118. DMS was also informed
that it could update its price proposal. AR at 2118–19. He
& I was similarly informed that it could revise its technical
proposal, as well as its price proposal. AR at 2120–21.
Revised proposals were due January 9, 2009.
In December 2008, the Army “requested a supplemental
review and evaluation [of the October 2007 price proposals]
in preparation of the receipt of revised proposals.” AR at
2126. An Army price analyst, Mr. [ ], performed an additional
analysis of the previously received price proposals. Id. Mr.
[ ] indicated that he was able to augment previous price
analysis techniques with a price reasonableness analysis, and
determined that the offerors' October 2007 proposals were
reasonably priced. AR at 2126–27.
DMS chose not to revise its price proposal, AR at 2246,
whereas He & I made changes that lowered its coefficients,
and, thus, its overall price for the proposal, AR at 2175–
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
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DMS All-Star Joint Venture v. U.S., 90 Fed.Cl. 653 (2010)
80. The Army sent offerors a letter on January 28, 2009,
informing the offerors that discussions were now closed, and
that a final revised proposal would be accepted no later than
February 3, 2009. AR at 2423, 2427. None of the offerors
updated their January 2009 revised proposals. AR Tab 54.
C. First Price Analysis of Final Proposals by Mr. [ ]
Mr. [ ] performed an initial price analysis of the offerors' final
price proposals, including He & I's revised price proposal, on
February 9, 2009, and found He & I's price to be reasonable.
AR at 2436–37. Mr. [ ] paid particular attention to the lower
price in He & I's revised price proposal, which amounted to a
reduction of approximately [ ] in the overall price for the base
and option years of the contract. In this analysis, Mr. [ ] did
not discuss whether He & I's revised price was realistic. The
Army then determined that He & I was a responsible bidder
and eligible under the SBA 8(a) program. AR Tab 58. Based
on the final, revised proposals, the SSA recommended that
the contract be awarded to He & I. AR at 2485.
Offerors were notified that He & I was the proposed awardee
of the contract. AR Tab *660 61. After DMS was debriefed
on the procurement, DMS first lodged a business size protest
with the SBA, which was denied on May 12, 2009. AR
Tab 64. DMS then turned to GAO and filed a protest there,
which was dismissed when the Army proposed to take limited
corrective action. AR Tab 65. The proposed corrective action
was to conduct a price realism analysis of the offerors' final
proposals, and to issue a new source selection decision. AR
at 2583.
D. Second Price Analysis of Final Proposals by Mr. [ ]
On May 28, 2009, Mr. [ ] performed a supplemental price
analysis of the offerors' price proposals, including He & I's
final price proposal. AR Tab 66. Mr. [ ] found all of the
price proposals to be realistic. AR at 2588. Mr. [ ] noted
the risks associated with the prices proposed by each offeror,
and determined that the government's interests in contract
performance were adequately protected. Id. A new source
selection decision, relying upon Mr. [ ]'s price analysis,
including his conclusion that He & I's price proposal was
realistic, again proposed that He & I be awarded the contract.
AR at 2600–01. Because DMS and He & I were equally rated
on other overall factors, He & I's realistic, lower price was
determinative for contract award. AR at 2594, 2601, 2612–
13.
E. DMS Protests the Army's Price Realism Analysis and
the Propriety of Discussions
The offerors were notified of the proposed contract award
to He & I on June 26, 2009. AR Tab 69. On July 6, 2009,
DMS again protested to GAO, pointing to, among other
alleged problems with the Army's procurement decision, an
inadequate price realism analysis of He & I's price proposal.
AR Tab 70. On August 17, 2009, DMS lodged a supplemental
protest with GAO alleging that the Army had failed to
conduct meaningful and equal discussions with DMS in this
procurement. AR at 2863–76. 9 GAO denied the protest on
October 9, 2009, finding no flaws in the price realism analysis
of He & I's proposal, or in the discussions held with DMS and
He & I. AR at 2954–60. On October 28, 2009, DMS filed its
bid protest in this court, again contesting the validity of the
Army's price realism analysis of He & I's price proposal, and
the propriety of discussions held with DMS and He & I.
DISCUSSION
I. Jurisdiction
This court “shall have jurisdiction to render judgment on
an action by an interested party objecting to a solicitation
by a Federal agency for bids or proposals for a proposed
contract or to a proposed award or the award of a contract
or any alleged violation of statute or regulation in connection
with a procurement or a proposed procurement.” 28 U.S.C. §
1491(b)(1) (2006). The jurisdictional grant is “without regard
to whether suit is instituted before or after the contract is
awarded.” Id. Because DMS objects to the proposed award
of the contract to He & I, this court has subject matter
jurisdiction to entertain this bid protest.
II. Standards of Review
A. Judgment on the Administrative Record
Rule 52.1(c) of the Rules of the United States Court of
Federal Claims (RCFC) provides *661 for judgment on the
administrative record. To review a motion, or cross-motions,
under RCFC 52.1(c), the court asks whether, given all the
disputed and undisputed facts, a party has met its burden of
proof based on the evidence in the record. Bannum, Inc. v.
United States, 404 F.3d 1346, 1356–57 (Fed.Cir.2005). The
court must make factual findings where necessary. Id. The
resolution of RCFC 52.1 cross-motions is akin to an expedited
trial on the paper record. Id.
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B. Bid Protest Review
[1] [2] As a threshold matter, the plaintiff in a bid protest
case must show that it has standing to bring the suit. Info.
Tech. & Applications Corp. v. United States, 316 F.3d 1312,
1319 (Fed.Cir.2003). Standing arises from prejudice, which
is present if the plaintiff establishes that it is an interested
party with a direct economic interest in the procurement.
Id. (citing Am. Fed'n of Gov't Employees v. United States,
258 F.3d 1294, 1302 (Fed.Cir.2001) (AFGE)). Thus, bid
protest standing is limited to those plaintiffs who are “ ‘actual
or prospective bidders or offerors whose direct economic
interest would be affected by the award of the contract
or by the failure to award the contract.’ ” Weeks Marine,
Inc. v. United States, 575 F.3d 1352, 1359 (Fed.Cir.2009)
(quoting AFGE, 258 F.3d at 1302). A protestor possessing
a “substantial chance” of winning the contract has a “direct
economic interest” in the procurement, and has standing
before this court. 10 Rex Serv. Corp. v. United States, 448
F.3d 1305, 1307–08 (Fed.Cir.2006) (citations omitted).
[3]
[4] As the United States Court of Appeals for the
Federal Circuit has stated, “the proper standard to be applied
in bid protest cases is provided by 5 U.S.C. § 706(2)(A)
[(2006)]: a reviewing court shall set aside the agency action
if it is ‘arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.’ ” Banknote Corp. of
Am. v. United States, 365 F.3d 1345, 1350–51 (Fed.Cir.2004)
(citing Advanced Data Concepts, Inc. v. United States, 216
F.3d 1054, 1057–58 (Fed.Cir.2000)). Under this standard,
a procurement decision may be set aside if it lacked a
rational basis or if the agency's decision-making involved a
violation of regulation or procedure. Impresa Construzioni
Geom. Domenico Garufi v. United States, 238 F.3d 1324,
1332 (Fed.Cir.2001) (citations omitted). De minimis errors
in the procurement process, however, do not justify relief.
Grumman Data Sys. Corp. v. Dalton, 88 F.3d 990, 1000
(Fed.Cir.1996) (citing Andersen Consulting v. United States,
959 F.2d 929, 932–33, 935 (Fed.Cir.1992)). The bid protest
plaintiff bears the burden of proving that a significant
error marred the procurement in question. Id. (citing CACI
Field Servs., Inc. v. United States, 854 F.2d 464, 466
(Fed.Cir.1988)).
[5] The higher the degree of discretion allotted the
contracting officer, the more difficult it is for a protestor
to prove that the procurement decision was arbitrary or
capricious. Burroughs Corp. v. United States, 223 Ct.Cl. 53,
617 F.2d 590, 597 (1980) (citing Keco Indus., Inc. v. United
States, 203 Ct.Cl. 566, 492 F.2d 1200, 1203–04 (1974)).
Negotiated procurements give a “breadth of discretion” to
the contracting officer, and impose a heavier burden of proof
on a protestor. Id. at 598 (citing Keco, 492 F.2d at 1204).
In addition, the court may not substitute its judgment for
the agency's expertise in procuring services to meet the
needs of the government. See, e.g., Ala. Aircraft Indust.,
Inc.-Birmingham v. United States, 586 F.3d 1372, 1376
(Fed.Cir.2009) (Alabama Aircraft) (reversing this court when
it “substitut [ed] ... the court's judgment for the agency's with
regard to how the contract work should be designed” (citing
Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co.,
463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983))).
Instead, the court must “determine whether the agency's ...
analysis [of proposals] was consistent with the evaluation
criteria set forth in the [solicitation].” Id. (citation omitted).
The court will “sustain an agency action evincing rational
reasoning and *662 consideration of relevant factors.”
Advanced Data Concepts, 216 F.3d at 1058 (citation omitted).
[6]
[7] “ ‘If the court finds a reasonable basis for
the agency's action, the court should stay its hand even
though it might, as an original proposition, have reached
a different conclusion as to the proper administration and
application of the procurement regulations.’ ” Honeywell,
Inc. v. United States, 870 F.2d 644, 648 (Fed.Cir.1989)
(quoting M. Steinthal & Co. v. Seamans, 455 F.2d 1289,
1301 (D.C.Cir.1971)). If, on the other hand, “the trial court
determines [that] the government acted without rational basis
or contrary to law when evaluating the bids and awarding
the contract[,] ... it proceeds to determine, as a factual
matter, if the bid protester was prejudiced by that conduct.”
Bannum, 404 F.3d at 1351. Plaintiff again bears the burden
of proof, and must “show that there was a ‘substantial
chance’ [plaintiff] would have received the contract award but
for the [government's] errors in the [procurement] process.”
Id. at 1358 (citations omitted). If a protestor can show that
there was a substantial chance that it would have won the
contract award but for the procurement error of the agency,
prejudice has been established. Id. at 1353 (citations omitted).
“Prejudice is a question of fact.” Id. (citing Advanced Data
Concepts, 216 F.3d at 1057).
III. Standing
[8]
Neither defendant nor intervenor-defendant has
contested plaintiff's standing to bring this suit. The record
shows that DMS had a substantial chance of winning the
contract, but for the procurement errors alleged in the
complaint. On November 5, 2007, DMS's proposal was rated
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to have the best overall value to the government and DMS
was awarded the contract. AR at 1819. After that contract
was terminated for the convenience of the government,
DMS's final revised proposal for the contract work received
comparable ratings to He & I's proposal for the technical and
present and past performance factors, but He & I's lower price
became the “determinative selection factor.” Id. at 2484–
85. But for the alleged errors in the evaluation of He &
I's price, and the consequences of allegedly unequal and
insufficient discussions with DMS, DMS would have had a
substantial chance of being awarded the contract. Thus, DMS
has standing to bring this bid protest.
contracts when new requirements
may not be fully understood by
competing offerors, there are quality
concerns, or past experience indicates
that contractors proposed costs have
resulted in quality or service shortfalls.
Results of the analysis may be
used in performance risk assessments
and responsibility determinations.
However, proposals shall be *663
evaluated using the criteria in the
solicitation, and the offered prices
shall not be adjusted as a result of the
analysis.
IV. Merits
A. The Adequacy of Defendant's Price Realism Analysis
of He & I's Final Proposal
1. Regulatory Framework
FAR 15.404–1, 48 C.F.R. § 15.404–1 (2008), has the general
objective of “ensur[ing] that the final agreed-to price [of
a government contract] is fair and reasonable.” 48 C.F.R.
§ 15.404–1(a). FAR 15.404–1(d) defines the purpose and
methodology of a cost realism analysis:
Cost realism analysis is the process
of independently reviewing and
evaluating specific elements of each
offeror's proposed cost estimate to
determine whether the estimated
proposed cost elements are realistic
for the work to be performed;
reflect a clear understanding of the
requirements; and are consistent with
the unique methods of performance
and materials described in the offeror's
technical proposal.
48 C.F.R. § 15.404–1(d)(1). Cost realism analysis is a
technique that is applied to cost-reimbursement contracts. See
48 C.F.R. § 15.404–1(d)(2) (“Cost realism analyses shall be
performed on cost-reimbursement contracts to determine the
probable cost of performance for each offeror.”). In what the
FAR describes as “exceptional cases,” cost realism analyses
may also be used in fixed-price contract procurements:
Cost realism analyses may also be used
on competitive fixed-price incentive
contracts or, in exceptional cases,
on other competitive fixed-price-type
48 C.F.R. § 15.404–1(d)(3). A “price realism analysis,” a
term not employed in the FAR, examines the performance
risk of proposals in a fixed-price contract procurement, with
particular attention to the risk of low-priced proposals, and
may include the cost realism analysis referenced in FAR
15.404–1(d). 11 See, e.g., Erinys Iraq Ltd. v. United States,
78 Fed.Cl. 518, 530 (2007) (noting that “the FAR is silent
on how to conduct a price realism analysis”) (citing 48
C.F.R. § 15.404–1); Int'l Outsourcing Servs., L.L. C. v.
United States, 69 Fed.Cl. 40, 47 n. 7 (2005) ( “Various
commentators have recognized that the FAR provisions
discussing “cost realism” provide guidance in conducting
price realism analyses, where the offeror's proposed prices are
unrealistically low.”) (citation omitted); Labat–Anderson Inc.
v. United States, 50 Fed.Cl. 99, 106 (2001) (discussing price
realism and citing FAR 15.404–1(d)(3) as permitting the “use
of cost realism analyses in fixed-price contracts in exceptional
cases”).
2. Caselaw and Commentary 12
There are several general principles that guide the review of
an agency's price realism analysis of proposals in a fixedprice contract procurement. It is commonly acknowledged
that a contracting officer has broad discretion in conducting
a price realism analysis. See, e.g., Labat -Anderson, 50
Fed.Cl. at 106 (stating that “the nature and extent of an
agency's price realism analysis are matters within the agency's
discretion”) (citation omitted). This discretion is bounded
by the evaluation criteria stated in the solicitation. See, e.g.,
Afghan Am. Army Servs. Corp. v. United States, No. 09–
388C, 2009 WL 3768441, at * 12 (Fed.Cl. Nov.4, 2009)
(Afghan American) (stating that “the nature and extent of a
price realism analysis is ultimately within the sound exercise
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of the agency's discretion, unless the agency commits itself
to a particular methodology in a solicitation”); see also 48
C.F.R. § 15.404–1(d)(3) (stating that “proposals shall be
evaluated using the criteria in the solicitation”). When a
solicitation is silent as to the particulars of a price realism
analysis, the agency's discretion in conducting the analysis is
“even more pronounced.” Info. Scis. Corp. v. United States,
73 Fed.Cl. 70, 102 (2006) (citations omitted). An agency's
price-realism analysis must not, however, rely on “irrational
assumptions or critical miscalculations.” OMV Med., Inc. v.
United States, 219 F.3d 1337, 1344 (Fed.Cir.2000).
The purpose of a price realism analysis has been described as
a verification that the offeror's price is not overly optimistic
and impractically low:
Price realism is not ordinarily
considered in the evaluation of
proposals for the award of a fixedprice contract, because these contracts
place the risk of loss upon the
contractor. However, in light of
various negative impacts on both
the agency and the contractor that
may result from an offeror's overly
optimistic proposal, an agency may,
as here, expressly provide that a
price realism analysis will be applied
in order to measure the offerors'
understanding of the requirements
and/or to assess the risk inherent in an
offeror's proposal.
Pemco Aeroplex, Inc., B–310372.3, 2008 CPD ¶ 126,
2008 WL 2684841, at *5 (Comp.Gen. June 13, 2008)
(citation omitted); see also Afghan American, 2009 WL
3768441, at *11 (noting that price realism analyses are
not *664 normally required in fixed-priced IDIQ task
order contracts, because “the fixed-price task order puts the
risk of underpriced offers on the contractor”). A variety
of techniques may be utilized in the agency's assessment
of performance risk from low bid prices. See, e.g., Grove
Res. Solutions, Inc., B–296228, B–296228.2, 2005 CPD
¶ 133, 2005 WL 1551222, at *5 (Comp.Gen. July 1,
2005) (“Agencies have discretion in determining whether
an offeror's proposed prices are realistic, and ... are free to
use a number of techniques in assessing price realism.”).
“In reviewing protests challenging an agency's evaluation
of [price realism], our focus is whether the agency acted
reasonably and in a way consistent with the solicitation's
requirements.” Pemco Aeroplex, 2008 WL 2684841, at *5
(citation omitted).
3. Price Realism Evaluation Criteria in the Solicitation
[9] Plaintiff argues that the solicitation in this case required
a detailed “four-point” price realism analysis of proposals.
See Pl.'s Reply at 8. In plaintiff's view, the price realism
analysis identified in the solicitation included these four
components: cost reasonableness, completeness of the price
coefficient in terms of the government's requirements, value
in meeting the government's requirements, and acceptable
performance risk. Id. This is a tortured and indefensible
reading of the solicitation. At the outset the court notes that
the only reference to the “realism” of each offeror's proposal
is contained in these two sentences of Section M of the
solicitation:
A proposal that is unrealistic in terms
of technical quality or price will
be deemed reflective of an inherent
lack of technical competence or
indicative of failure to comprehend the
complexity and risks of the contractual
requirements. Such proposals may
be rejected as unacceptable without
further evaluation or discussion.
AR at 318. Furthermore, there are no “four points” in the
solicitation's discussion of price realism. If plaintiff believes
that the Army should have been more explicit and should
have proposed a more detailed price realism analysis in the
solicitation, the time for lodging such a protest has long since
passed. See Femme Comp Inc. v. United States, 83 Fed.Cl.
704, 756 (2008) (noting that “[c]hallenges to the extent and
scope of [an agency's] price analysis ... are [in some cases]
challenges to the terms of the solicitation, and should have
been dealt with ‘prior to the close of the bidding process'
” (quoting Blue & Gold Fleet, L.P. v. United States, 492 F.3d
1308, 1313 (Fed.Cir.2007))). If, on the other hand, plaintiff is
proposing that the court should substitute plaintiff's version
of a detailed, four-point price realism analysis for the simplystated price realism concerns set forth in the solicitation, the
Federal Circuit has made it clear that solicitation evaluation
criteria control in the review of an agency's price realism
analysis of proposals:
The trial court's duty was to determine
whether the agency's price-realism
analysis was consistent with the
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evaluation criteria set forth in the
RFP, see Galen Med. Assocs., Inc. v.
United States, 369 F.3d 1324, 1330
(Fed.Cir.2004), not to introduce new
requirements outside the scope of the
RFP. The court's attempt to rewrite
the RFP ... went beyond the scope of
the court's review, and amounted to
an impermissible substitution of the
court's judgment for the agency's with
regard to how the contract work should
be designed.
Alabama Aircraft, 586 F.3d at 1375–76.
The solicitation is not silent, however, as to the elements
of the Army's price and cost analyses of proposals in this
procurement, and two sentences in particular appear to be
relevant to a price realism analysis:
Price/Cost will be evaluated using
price and/or cost analysis techniques.
The price will be evaluated to
determine cost reasonableness and
completeness of the coefficient
in terms of the government's
requirement.
AR at 319. The first sentence is of a general nature and notes
that the Army may choose among price analysis and cost
analysis techniques for the evaluation of the offerors' price
proposals. The second sentence is more specific and warns
that the Army will evaluate cost reasonableness, which is a
cost analysis technique that could help identify unrealistic
price proposals by identifying unrealistic *665 costs in a
price proposal. 13 The second sentence also states that each
offeror's price coefficient will be evaluated for completeness,
a review which might be useful in determining the accuracy,
and thus the realism, of each offeror's price.
Because the solicitation is silent as to the precise methodology
of the price realism analysis contemplated by the Army,
the Army enjoyed broad discretion in conducting its price
realism analysis. Nonetheless, the Army identified certain
price/cost analyses that it sought to undertake, and because
these analyses would appear to have utility in a price realism
analysis, the court will verify that the Army conducted the
promised analyses. The court will also consider whether
the results of these analyses are consistent with the Army's
conclusion that all of the offerors' price proposals were
realistic. The court notes, however, that the price realism
“analysis” proposed in the solicitation is lacking in specifics
and accordingly has limited vulnerability to a challenge on
“adequacy” grounds. 14
[10] The task before the court is to determine whether the
Army's price realism analysis of final proposals was rational
and consonant with the solicitation. Specifically, the Army
must have assessed the performance risk of He & I's low
price. As a part of its price/cost analysis, the Army must have
examined critical elements of He & I's costs, and must have
considered the completeness of He & I's price coefficient. As
the court explains below, the Army's price realism analysis of
final proposals was rational and carried forth the evaluation
promised in the solicitation.
4. Final Price Proposals Evaluation
a. Completeness of He & I's Price Coefficient
In 2007, Ms. [ ], the FLA, criticized He & I's first two price
proposals, stating that He & I's price coefficient supporting
data was inadequate for a price realism (or cost realism)
analysis. AR at 1044, 2714. The Army's contracting team,
however, questioned whether the FLA's concerns about He
& I's supporting data had identified a material flaw in He &
I's 2007 price proposals. AR at 1848–49. Despite the FLA's
concerns, the Army, relying on advice from legal counsel and
a review of the data supplied by He & I, viewed He & I's
2007 price proposal as having satisfied the “completeness of
the coefficient” requirement identified in the solicitation. Id.
The SSA decided that He & I's proposed price coefficient
was adequately documented, and concluded that He & I's
submitted price presented no performance risk. AR at 1826–
27. The court finds nothing *666 irrational in the Army's
positive assessment of the completeness of He & I's price
coefficient in November 2007.
Mr. [ ] conducted the evaluation of final price proposals on
February 9, 2009 and May 28, 2009. AR Tabs 55, 66. In
doing so, he explicitly relied on three prior price analyses
of proposals from these offerors, including the analyses
performed by Ms. [ ]. AR at 2436, 2586. Mr. [ ], unlike
the FLA, “accept[ed] each offeror's method of calculating its
respective coefficients and the individual sub-factors.” AR at
2588. Mr. [ ]'s assessment of the completeness of He & I's
price coefficient has not been shown to be irrational.
[11] In 2007 and 2009, He & I submitted similar supporting
data for its price coefficient. Compare AR at 2175–80 with
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AR at 2677–81. Mr. [ ] noted that the solicitation required
evaluation of the completeness of price coefficients in the
proposals he was reviewing. AR at 2436. Mr. [ ] accepted He
& I's data as adequate for his analysis, and relied on He & I's
price coefficient supporting data. AR at 2437, 2587–88. Mr.
[ ]'s conclusion that He & I's price coefficient satisfied the
solicitation's requirements is fully supported by the record in
this case and has not been shown to be irrational. The SSA
accepted Mr. [ ]'s analysis, and plaintiff has not shown that
the Army's positive evaluation of the completeness of He &
I's price coefficient was irrational. 15 For these reasons, the
court finds that the Army rationally conducted an evaluation
of the completeness of He & I's price coefficient, as required
by the solicitation. 16
b. Cost Analysis of He & I's Final Price Proposal
Mr. [ ] twice analyzed the cost elements of He & I's final
price proposal. In February 2009, Mr. [ ] generally noted that
He & I's final price had been reduced by approximately [ ]
for the base year plus four option years. AR at 2437. Mr.
[ ] noted particular reductions in price coefficients for the
CLINs in the contract, the “AA,” “AB,” “AC,” and “AD”
price coefficients. Id. Mr. [ ] remarked upon the justifications
for these lower coefficients, stating that these reductions
“reflect[ed] a lower [ ].” Id. The Army's price analyst also
reported that He & I explained its cost element revisions by
referencing historical job order data, and by consulting the
2009 edition, not the 2007 edition of the RSM cost data book.
Id. Mr. [ ] concluded that He & I, in its revised price proposal,
had [ ]. Id.
It is evident from Mr. [ ]'s February 2009 report that the Army
had at least begun a cost analysis of He & I's final price
proposal, and had found He & I's costs to be acceptable, based
upon this preliminary analysis. The February 2009 report
does not specifically state, however, that He & I's revised
costs were reasonable and realistic. Therefore, *667 as of
February 2009, the cost realism of He & I's price proposal had
only been summarily addressed.
Mr. [ ] conducted a second evaluation of the offerors' final
price proposals in May 2009, and stated that he relied upon
previous price evaluations he had conducted, as well as those
evaluations conducted by the FLA, Ms. [ ]. AR Tab 66. Mr.
[ ]'s second evaluation of final price proposals supplemented
his first evaluation, and explicitly addressed price realism.
AR at 2586–87. Mr. [ ] explained his methodology, which
was to focus his analysis primarily on “the largest cost
driver” subfactor, the Book Efficiency/Adjustment Factor,
as it affected the AA CLINs, which constitute 95% of the
contract's work in terms of dollar value. AR at 2587. Mr. [ ]
also examined He & I's justifications for its price coefficients,
and whether other subfactors of its price coefficients were
in line with those of other offerors. AR at 2588. This
methodology addressed both cost reasonableness, through
a comparison of the offerors' Book Efficiency/Adjustment
Factors, and cost and price realism, through an analysis, in
particular, of whether the individual cost subfactors in He
& I's final price proposal reflected an understanding of the
contract work. AR at 2587–88.
Mr. [ ]'s methodology and conclusions were rational. The
offerors' Book Efficiency/Adjustment Factors were [ ] for
White Hawk/Todd, [ ] for He & I, and [ ] for DMS. AR
at 2587. These factors, based on Mr. [ ]'s comparative
analysis, were deemed to be acceptable. Id. The offerors'
Book Efficiency/Adjustment Factors were also judged to be
realistic, based on the justifications for these factors provided
by each offeror. AR at 2587–88. Mr. [ ] noted that He &
I's subfactors of its price coefficients, other than the largest
cost driver expressed in the Book Efficiency/Adjustment
Factor, were similar to the subfactor rates in other proposals.
AR at 2588. The court finds that Mr. [ ]'s two evaluations
of the offerors' costs in their final price proposals fulfilled
the solicitation's requirements for a cost analysis of price
proposals.
c. Performance Risk of He & I's Price
The court now turns to plaintiff's allegation that the Army
conducted an inadequate price realism analysis of He &
I's final price proposal. The solicitation required a rational
assessment of the performance risk of He & I's low price. Mr.
[ ] examined, first, the reduction in He & I's overall price,
from [ ] to [ ]. AR at 2437. Mr. [ ] concluded that He & I had
“opt[ed] for a [ ].” Id.
Mr. [ ] later examined whether or not this pricing strategy
was realistic. The Army's price analyst verified that the largest
cost driver in He & I's price proposal was in line with the
same factor found in other offerors' proposals. AR at 2587–
88. Mr. [ ] also examined the justification for He & I's Book
Efficiency/Adjustment Factor, and found these justifications
to be acceptable. AR at 2588. Mr. [ ] reasoned, for example,
that the higher performance risk of the low-priced subfactors
in He & I's price coefficients, such as the [ ] and [ ] subfactors,
was balanced by the lower performance risk of He & I's
Book Efficiency/Adjustment Factor, the largest cost driver in
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DMS All-Star Joint Venture v. U.S., 90 Fed.Cl. 653 (2010)
He & I's price coefficients. See AR at 2588 (“The evaluator
recognizes [He & I's] total proposed coefficient of [ ] offers
slightly less room for calculation error than does [DMS's]
total coefficient of [ ] ... [,] [h]owever, [He & I] offers
significantly less risk in the key factor, ‘Book Efficiency/
Adjustment Factor’ ..., and similar rates in the remaining
factors.”). Finally, Mr. [ ] noted that there was only a 2.225%
difference between the base year prices proposed by DMS and
those proposed by He & I. Id.
The solicitation in this case gave broad discretion to the
Army in its choice of price realism methodology. Information
Sciences, 73 Fed.Cl. at 102 (noting that broad discretion is
allotted to the contracting officer when the solicitation is
silent as to the specifics of a price realism analysis). The court
finds nothing irrational in the extent or scope of the price
realism analysis conducted by the Army in this procurement,
and is not at liberty to substitute other price realism measures
for those chosen by the Army. Alabama Aircraft, 586 F.3d at
1375–76. The analytical techniques used here led Mr. [ ] and
the SSA to conclude that He & I's price *668 proposal was
realistic. 17 AR at 2588, 2601. The court finds that the Army
conducted a rational price realism analysis in accordance with
the terms set forth in the solicitation.
B. Meaningful Discussions
1. Regulatory Framework
FAR 15.306(d)(3), 48 C.F.R. § 15.306(d)(3) (2008) provides
that:
At a minimum, the contracting
officer must ... indicate to, or
discuss with, each offeror still being
considered for award, deficiencies,
significant weaknesses, and adverse
past performance information to
which the offeror has not yet had
an opportunity to respond. The
contracting officer also is encouraged
to discuss other aspects of the offeror's
proposal that could, in the opinion
of the contracting officer, be altered
or explained to enhance materially
the proposal's potential for award.
However, the contracting officer is not
required to discuss every area where
the proposal could be improved. The
scope and extent of discussions are a
matter of contracting officer judgment.
48 C.F.R. § 15.306(d)(3). Plaintiff suggests that discussions
between the Army and DMS in October 2007 and October
2008 failed to conform to this standard, because the
discussions with DMS were not meaningful. Pl.'s Mot. at 25–
28. In its reply brief, plaintiff also alleges that DMS was
misled by discussions with the Army. 18 Pl.'s Reply at 16,
22. The court disagrees with plaintiff's arguments. There is
ample evidence in the record to show that the discussions with
DMS satisfied the standard set forth in FAR 15.306(d)(3),
and that discussions with DMS were not misleading. 19 The
court turns first to a brief review of analogous caselaw on the
topic of meaningful discussions with offerors in a negotiated
procurement.
2. Caselaw
[12] [13] A “contracting officer has broad discretion in
conducting discussions.” Advanced Data Concepts, Inc. v.
United States, 43 Fed.Cl. 410, 422 (1999) (citations omitted),
aff'd on other grounds, 216 F.3d 1054 (Fed.Cir.2000).
For discussions to be meaningful, they must “generally
lead offerors into the areas of their proposals requiring
amplification or correction, which means that discussions
should be as specific as practical considerations permit.” Id.
(internal quotations and citations omitted); see, e.g., ManTech
Telecomms. & Info. Sys. Corp. v. United States, 49 Fed.Cl.
57, 71 (2001) (stating that meaningful discussions have not
occurred “if an offeror is not advised, in some way, of
defects in its proposal that do not meet the requirements of
the solicitation”) (citations omitted). When discussions are
held, “a contracting officer must address those elements of
a proposal that suggest an offeror's misunderstanding of a
solicitation's requirements.” *669 Structural Assocs., Inc./
Comfort Sys. USA (Syracuse) Joint Venture v. United States,
89 Fed.Cl. 735, 743–44 (2009) (Structural Associates). The
court in Structural Associates observed, however, that such
“discussions ... are designed to point out shortcomings
in an offeror's proposal as judged from the standpoint
of the government's stated needs, rather than from the
standpoint of the proposal's relative competitiveness.” Id.
Indeed, “[a]gencies need not discuss every aspect of the
proposal that receives less than the maximum score or
identify relative weaknesses in a proposal that is technically
acceptable but presents a less desirable approach than others.”
WorldTravelService v. United States, 49 Fed.Cl. 431, 439
(2001) (internal quotations and citations omitted).
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Structural Associates is an instructive example of the
requirement that discussions with offerors be meaningful.
The plaintiff in that case complained that during discussions
“the contracting officer made no mention of the issue that
the SSA ultimately found dispositive” for awarding the
contract. Structural Associates, 89 Fed.Cl. at 743. The court
nonetheless held that discussions with the protestor were
meaningful, because the evaluation of the protestor's proposal
had not identified any deficiencies or significant weaknesses.
Id. at 743–44. Under FAR 15.306(d)(3), the court reasoned
that the agency was not required to discuss the element of the
protestor's proposal that eventually proved determinative of
the contract award, because that element was not a significant
weakness or deficiency in its proposal. Id.
[14] As to discussions regarding an offeror's costs, unless an
offeror's costs constitute a significant weakness or deficiency
in its proposal, the contracting officer is not required to
address in discussions costs that appear to be higher than
those proposed by other offerors. SOS Interpreting, Ltd.,
B–287477.2, 2001 CPD ¶ 84, 2001 WL 527349, at *3
(Comp.Gen. May 16, 2001) (citation omitted). In other words,
“if an offeror's costs are not so high as to be unreasonable
and unacceptable for contract award, the agency may conduct
meaningful discussions without raising the issue of the
offeror's costs.” Yang Enters., Inc.; Santa Barbara Applied
Research, Inc., B–294605.4, B–294605.5, B–294605.6, 2005
CPD ¶ 65, 2005 WL 832109, at *9 (Comp.Gen. April 1,
2005) (citation omitted). In essence, it is mandatory for
the agency to discuss costs or pricing when the prices
submitted in a firm's proposal “would preclude award to
the firm.” Gen. Dynamics–Ordnance & Tactical Sys., B–
401658, B–401658.2, 2009 CPD ¶ 217, 2009 WL 4023548, at
*5 (Comp.Gen. Oct.26, 2009) (General Dynamics) (citation
omitted). In General Dynamics, the Comptroller General
determined that the protestor's pricing was not unreasonable,
so as to require discussions, where high-priced items and
favorable prices combined to produce a reasonable offer well
within an acceptable overall bid price range. Id. Because
the protestor was not precluded from winning the contract
because of its costs, no discussions of the protestor's costs
were necessary. Id.
Finally, caselaw from this court examining allegedly
“misleading” discussions is sparse. See, e.g., Academy
Facilities Mgmt. v. United States, 87 Fed.Cl. 441, 458–
60 (2009) (considering a bid protest founded in part
on allegations of misleading discussions); Analytical &
Research Tech., Inc. v. United States, 39 Fed.Cl. 34, 48
(1997) (“ ‘An agency may not inadvertently mislead an
offeror, through the framing of a discussion question, into
responding in a manner that does not address the agency's
concerns; or that misinforms the offeror concerning its
proposal weaknesses or deficiencies; or the government's
requirements.’ ”) (quoting SRS Techs., B–254425, B–
254425.2, 94–2 CPD ¶ 125, 1994 WL 576118, at *3
(Comp.Gen. Sept.14, 1994)). In bid protests at GAO, the
Comptroller General has stated that “[i]t is a fundamental
precept of negotiated procurement that discussions, when
conducted, must be meaningful and must not prejudicially
mislead offerors.” Metro Mach. Corp., B–281872, B–
281872.2, B–281872.3, B–281872.4, 99–1 CPD ¶ 101, 1999
WL 385741, at *3 (Comp.Gen. April 22, 1999) (citations
omitted). This court has similarly noted that “an agency's
discretion in holding discussions ‘is not a license to mislead
an offeror.’ ” AshBritt, Inc. v. United States, 87 Fed.Cl. 344,
369 (2009) *670 (quoting Gentex Corp. v. United States, 58
Fed.Cl. 634, 653 (2003)).
[15] This is not to say, however, that to avoid misleading
an offeror discussions must address all aspects of a proposal
that are less than optimal. See WorldTravelService, 49 Fed.Cl.
at 439 (stating that “[a]gencies need not discuss every
aspect of the proposal that receives less than the maximum
score or identify relative weaknesses in a proposal that is
technically acceptable but presents a less desirable approach
than others”). Rather, discussions become misleading when
communications from the government misdirect the protestor
as it revises its proposal. See, e.g., Metro Mach. Corp., 1999
WL 385741, at *5 (sustaining protest where “the agency's
discussions effectively communicated to [the protestor] that
its proposal ... was acceptable, ..., when, in fact, only a
[radically different] proposal ... would have been considered
acceptable”); Ranor, Inc., B–255904, 94–1 CPD ¶ 258, 1994
WL 130018, at *3 (Comp.Gen. April 14, 1994) (sustaining
protest where the protestor was told by the agency during
discussions that its price was too low, although award was
later made to an offerer whose price was similar to the
protestor's initial bid price); Vitro Servs. Corp., B–233040,
89–1 CPD ¶ 136, 1989 WL 240342, at *2–*3 (Comp.Gen.
Feb.9, 1989) (sustaining protest where the deficiency noted
in a discussion question was ambiguous, and the protestor's
reasonable revision of its proposal after discussions was
rejected as technically unacceptable); Woodward Assocs.,
Inc.; Monterey Techs., Inc., B–216714, B–216714.2, 85–
1 CPD ¶ 274, 1985 WL 52378, at *3 (Comp.Gen. March
5, 1985) (sustaining protest because a confusing phone call
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misled the protestor into believing proposal revisions would
no longer be accepted). As these GAO decisions show,
misleading discussions are characterized by communications
from the government that are incorrect, confusing or
ambiguous. See, e.g., SRS Techs., 1994 WL 576118, at *4
(sustaining protest where the agency told the protestor to not
lower certain prices in its offer, erroneously depriving the
protestor of the opportunity to win the contract).
3. Discussions with DMS
[16] Plaintiff argues that FAR 15.306(d)(3) required the
Army to bring two aspects of DMS's price proposal, DMS's
indirect labor salaries and DMS's vehicle gas, maintenance
and insurance (VGMI) costs, to the attention of DMS during
discussions in 2007 or 2008. Pl.'s Mot. at 25–27. In particular,
plaintiff suggests that the Army was obligated to lead DMS
into these areas of its proposal because DMS's indirect labor
salaries and VGMI costs were either significant weaknesses
or deficiencies that needed to be corrected. Id. at 25, 28;
Pl.'s Reply at 16. Unfortunately for plaintiff's argument, the
administrative record shows that these aspects of DMS's
price proposal were never considered by the Army to be
deficiencies or significant weaknesses in DMS's proposal.
At worst, these two costs included in DMS's proposal were
considered to be higher than necessary. See AR at 1041, 1043,
2710–11, 2713.
Each of the price analyses conducted by the government
found DMS's prices to be satisfactory overall, under all of
the measures and techniques used by Ms. [ ] and Mr. [ ],
including price reasonableness and price realism measures.
See AR at 1044, 2127, 2437, 2588, 2714. The results of
these price analyses were adopted by the SSA, who concluded
that DMS's price proposal was “reasonable, realistic, and
complete.” AR at 1827, 2015; see also id. at 2601 (“I
accept the price analyst[']s finding.”). The administrative
record is devoid of any references to weaknesses, significant
weaknesses, or deficiencies attributable to DMS's indirect
labor salaries or VGMI costs, and this record cannot be
read to suggest that the Army considered these two aspects
of DMS's proposal to be impediments to award. Indeed,
the Army did, in fact, award the contract to DMS in an
early phase of this procurement, AR Tab 28, despite its
indirect labor salaries and VGMI costs. Because these aspects
of DMS's price proposal did not render DMS's proposal
unacceptable for award, the Army was not obliged to raise
these issues during discussions with DMS. See Yang Enters.,
Inc., 2005 WL 832109, at *9. The discussions held with
DMS were meaningful and met the standard *671 set forth
in FAR 15.306(d)(3). See WorldTravelService, 49 Fed.Cl.
at 439 (stating that “[a]gencies need not discuss every
aspect of the proposal that receives less than the maximum
score or identify relative weaknesses in a proposal that is
technically acceptable but presents a less desirable approach
than others”).
The court now turns to plaintiff's misleading discussions
argument. Because the Army raised one price concern with
DMS, and not DMS's indirect labor salaries and VGMI costs,
plaintiff argues that DMS was misled into believing that
only one adjustment to its price proposal was needed. Pl.'s
Reply at 22 (complaining that the government's “laser beam
focus on a single, relatively small price component ... misled
[DMS] into maintaining its proposed price”). Unlike the GAO
decisions cited supra, the record in this bid protest contains
no misdirection by the government. An obvious omission
in DMS's price proposal was pointed out, in a rational and
neutral manner: “Your detailed price information included
a line item for [RSM data costs]; however, this item was
not included in the totals nor was it carried forward to
the coefficient calculation. Please clarify your intention of
either including or excluding this proposed item.” AR at
1145. Nothing in this communication suggested that DMS
should not review its price proposal for higher-than-necessary
cost estimates. Nothing in this communication suggested that
DMS's price proposal was too low, or that DMS should not
consider lowering certain cost elements. The record does not
show that the Army conducted misleading discussions with
DMS.
At oral argument plaintiff advanced the proposition that it is
misleading for the government to point to only one problem
in a price proposal, when there are additional problems in
that proposal. Tr. at 56 (“Once they undertook the discussion
issue, and once they identified the [RSM data costs] as being
the only problem they had with our price, they misle[ ]d us.”).
Plaintiff principally relied on a GAO decision, Multimax, Inc.
et al., B–298249.6 et al., 2006 CPD ¶ 165, 2006 WL 3300346
(Comp.Gen. Oct.24, 2006), as support for plaintiff's argument
that the discussions with DMS were misleading. Tr. at 55.
Multimax, however, is easily distinguishable on its facts.
That GAO protest examined discussions with offerors
wherein certain proposed labor rates, among 208 labor
rates included in each offeror's proposal, were noted to
be excessive. Multimax, 2006 WL 3300346, at *2, *9.
The agency told two protestors during discussions that “
‘[y]our proposed labor rates are significantly higher than
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DMS All-Star Joint Venture v. U.S., 90 Fed.Cl. 653 (2010)
the Independent Government Cost Estimate (IGCE) rates
for the following labor categories....' ” Id. at *9 (quoting
letters to protestors). The agency even confirmed, during
oral discussions with one protestor, that the government's
list of overly high labor rates provided in the letter was
exhaustive. Id. at * 12 n. 6. The protest was sustained because
“not only were offerors not adequately advised of all of
their significantly overstated rates, but the agency's failure to
identify the additional rates actually misled the offerors into
believing that those rates did not require further adjustment.”
Id. at *10.
In this case, the Army did not choose a certain few
unreasonably high cost categories to discuss with DMS,
thereby fooling DMS into believing that all other cost
categories in its price proposal were reasonably priced. The
Army discussed with DMS an omitted cost detail that was
not carried through in summary calculations, and completely
avoided any commentary on the reasonableness of DMS's
costs and prices. This case is not analogous to Multimax, and
there is no evidence of misleading discussions in the record
before the court.
DMS, along with the other offerors, was given repeated
opportunities to revise its price proposal. AR Tabs 44, 52, 57.
DMS was also aware that its competitors had been made privy
to DMS's October 2007 bid price. Compl. ¶ 39. Nonetheless,
DMS did not choose to revise its October 2007 price proposal.
The Army is not responsible, through misleading discussions
or any other alleged violation of FAR 15.306(d)(3), for DMS's
decision to maintain its bid price at a level that proved to be
determinative in the proposed award of the contract to He & I.
contractors shall be treated fairly and impartially but need not
be treated the same.”). Plaintiff asserts that the Army held
unequal discussions with He & I and DMS and thus violated
48 C.F.R. § 15.306(e) and 48 C.F.R. § 3.101–1. Pl.'s Mot. at
29–35. The court disagrees. The administrative record shows
that the discussions with He & I and DMS were not unequal
and were fair. The court turns first to a brief discussion of
analogous caselaw on the topic of unequal discussions.
2. Caselaw
[17]
Unequal discussions are characterized by
impermissible and prejudicial conduct favoring one offeror
over another. E.g., Gentex, 58 Fed.Cl. at 653 (citing 48 C.F.R.
§ 15.306(e)(1)). For example, a procuring agency may not
withhold a crucial and advantageous piece of information
from one offeror while providing it to another. See, e.g.,
Metcalf Constr. Co. v. United States, 53 Fed.Cl. 617, 634–35
(2002) (holding, in that case, that “the bidders were treated
unequally where one bidder was advised, in no uncertain
terms, not to exceed the budget ceilings, and a second bidder
under identical circumstances was not”). In addition, each
offeror within the competitive range must be afforded a
“similar opportunity” to revise its proposal. Dynacs Eng'g
Co. v. United States, 48 Fed.Cl. 124, 136 (2000) (citing
48 C.F.R. § 15.306(e)(1)). Nonetheless, “agencies are not
required to conduct identical discussions with each offeror.”
Femme Comp, 83 Fed.Cl. at 735 (citing WorldTravelService,
49 Fed.Cl. at 440). Rather, the procuring agency should tailor
discussions to each offeror's proposal, WorldTravelService,
49 Fed.Cl. at 440, with the scope and extent of discussions
resting squarely within the judgment of the contracting
officer, 48 C.F.R. § 15.306(d)(3).
*672 C. Discussions Must Not Be Unequal
1. Regulatory Framework
Discussions must be held with each offeror in the competitive
range of a negotiated procurement. 48 C.F.R. § 15.306(d)
(1) (2008). FAR 15.306(e) provides that the government,
when conducting discussions with offerors in the competitive
range, may not “engage in conduct that ... [f]avors one
offeror over another.” 48 C.F.R. § 15.306(e) (2008); see also
48 C.F.R. § 3.101–1 (2008) (“Government business shall
be conducted in a manner above reproach and, except as
authorized by statute or regulation, with complete impartiality
and with preferential treatment for none.”). It is also true,
however, that discussions must be “tailored to each offeror's
proposal.” 48 C.F.R. § 15.306(d)(1); see also 48 C.F.R.
§ 1.102–2(c)(3) (2008) (“All contractors and prospective
3. Discussions with DMS and He & I Compared
[18] The court has described the two rounds of discussions
held with the offerors in this procurement, supra. In October
2007, DMS was asked during discussions if it meant to
omit its figure for RSM data from cost totals and its price
coefficient formula. AR at 1145. Also in October 2007, He &
I was asked during discussions to provide a greater amount
of supporting information to explain its price coefficient,
because more specific information was deemed necessary
to perform a complete price analysis. AR at 1149. Plaintiff
correctly states that He & I was asked to include much
more information in its October 2007 proposal revision,
but incorrectly concludes that the October 2007 discussions
were thus made unequal. Pl.'s Mot. at 29–35. The discussion
questions given to DMS and He & I in October 2007 were
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tailored to aspects of their initial proposals that required either
clarification or improvement, and directly reflect the results
of the price analysis of these offerors' initial proposals. See
AR Tab 13. The October 2007 discussions were not unequal
and were fair. 20
The October 2008 discussion letters sent to DMS and He & I
are identical in their discussion of revisions to price proposals,
and contain no specific comments requesting particular
information or improvements. AR at 2118–19, 2121. Thus,
the record shows that the October 2008 discussions were not
only *673 equal as to the revision of the offerors' price
proposals, they were exactly the same. Plaintiff apparently
believes that some lingering aftershock from the October
2007 discussion letter to He & I tainted the October 2008
discussions and spurred He & I into revising its price
coefficient. Pl.'s Mot. at 34 (discussing the October 2007
discussion letter and noting the significant reduction of He &
I's bid price in January 2009). The record does not support
such speculation.
The Army's analysis of He & I's reduced final price noted that
He & I had relied upon “five years of actual historical cost
figures from 222 actual job order contract projects at Fort Sill”
and a new, 2009 edition of the RSM. AR at 2588. The October
2008 discussion letters to DMS and He & I had mentioned
the “passage of time” and “updated price information.” AR at
2118–19, 2121. He & I (and White Hawk/Todd) had learned
that their initial bid prices were higher than DMS's October
2007 bid price. Compl. ¶ 39. All of these facts show that
He & I had ample reason to reduce its bid price. The record
contains no indication that the Army's request for supporting
information for He & I's price coefficient in October 2007 had
any connection to He & I's decision to lower its final bid price.
Plaintiff has not shown that the October 2008 discussions
favored He & I or were unequal. The court finds no violation
of FAR 15.306(e) or of FAR 3.101–1 in this procurement.
CONCLUSION
DMS has failed to demonstrate that defendant's decision to
award the contract to He & I was arbitrary or capricious, an
abuse of discretion, or otherwise contrary to law. Because
DMS's protest has not succeeded on the merits, the court need
not proceed to the question of whether DMS has shown that it
is entitled to injunctive relief from this court. For the reasons
discussed above, plaintiff's cross motion for judgment on the
administrative record is denied, and defendant's cross motion
for judgment on the administrative record is granted.
Accordingly, it is hereby ORDERED that
(1) Plaintiff's Cross–Motion for Judgment on the
Administrative Record, filed November 16, 2009, is
DENIED;
(2) Defendant's Cross–Motion for Judgment upon the
Administrative Record, filed November 16, 2009, is
GRANTED;
(3) The Clerk's Office is directed to ENTER final
judgment in favor of defendant and intervenordefendant, dismissing the complaint with prejudice;
(4) On or before January 22, 2010, counsel for the parties
shall CONFER and FILE with the Clerk's Office a
redacted copy of this opinion, with any material deemed
proprietary marked out and enclosed in brackets, so that
a copy of the opinion can then be prepared and made
available in the public record of this matter; and
(5) Each party shall bear its own costs.
Footnotes
1
2
3
4
This opinion was issued under seal on December 23, 2009. Pursuant to ¶ 4 of the ordering language, the parties were invited to
identify source selection, proprietary or confidential material subject to deletion on the basis that the material was protected/privileged.
Brackets ( [ ] ) identify the redacted portions of the opinion.
The solicitation provided that the contract would have a minimum value of $500,000 for the base year and each option year. AR at 220.
The solicitation explains the term coefficient: “A coefficient, as defined in AFARS 5117.9001, is ‘a numerical factor that represents
costs (generally indirect costs) not considered to be included in RSM unit prices (e.g., general and administrative and other overhead
costs, insurance costs, bonding and alternative payment protection costs, protective clothing, equipment rental, and also contractor's
profit).” AR at 311.
It is important to note that a contractor may expect to pay less than RSM amounts for labor, material and equipment required by the
contract, and to structure its bid according to this expectation that its costs will be below RSM costs. This type of cost adjustment
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5
6
7
8
9
10
11
12
13
is referred to by the parties as the “book efficiency” or “book adjustment” factor, and is reflected in the formulas the offerors used
to calculate their price coefficients. See AR at 2587–88.
Price analysis techniques, and the differences between the terms “price reasonableness” and “price realism,” will be discussed in
more detail infra. At the risk of over-simplification, a price reasonableness analysis has the goal of preventing the government from
paying too much for contract work. A price realism analysis, on the other hand, investigates whether the contractor is proposing a
price so low that performance of the contract will be threatened. See AR at 2764 (Army guidance document discussing the distinction
between price reasonableness and price realism).
Ms. [ ] used the terms “price realism” and “cost realism” interchangeably in her price proposal evaluations. Compare AR at 1039,
1044 with AR at 2707, 2714.
On November 17, 2009, White Hawk/Todd filed a motion to intervene in this bid protest or, in the alternative, to consolidate this
case with its size protest, White Hawk Group, Inc. v. United States, No. 09–374. The undersigned denied White Hawk/Todd's motion
in an order dated November 20, 2009, and the judge in White Hawk Group denied a similar motion on December 4, 2009.
On October 30, 2008, the solicitation was amended and a revised Section M was provided to offerors. AR Tab 43. None of the changes
to Section M alter language quoted in this opinion; thus, for consistency, the court's page citations to Section M of the solicitation
are to AR Tab 7, even where the provisions cited apply to proposals received in 2009.
As part of the proceedings at GAO, the Army submitted the declaration of Mr. [ ], dated August 27, 2009, which attempts to expand
upon his May 28, 2009 report describing the price realism analysis he performed on the offerors' final price proposals. AR at 2905–
07. The court does not rely on Mr. [ ]'s declaration for its analysis of the issues in this bid protest, because the agency procurement
decision reviewed here cannot be supported by analyses not before the agency at the time it made its award decision. See, e.g., Arch
Chems., Inc. v. United States, 64 Fed.Cl. 380, 386 (2005) (stating that “courts reviewing an administrative record recognize that
they must reject ‘post hoc rationalizations' as a basis for the agency action”) (citations omitted); Al Ghanim Combined Group Co.
Gen. Trad. & Cont. W.L.L. v. United States, 56 Fed.Cl. 502, 510–11 (2003) (rejecting a post hoc declaration where “the declarant
supplies the elements missing from the already completed [and fully explained] price analysis” in the administrative record); All
Seasons Constr., Inc. v. United States, 55 Fed.Cl. 175, 177 (2003) (noting that “this Court lacks authority to uphold an agency action
on grounds not considered by the agency” (citing OMV Med., Inc. v. United States, 219 F.3d 1337, 1343–44 (Fed.Cir.2000))).
Weeks Marine offers an alternative formulation of bid protest standing applicable in a pre-award protest of the terms of a solicitation.
575 F.3d at 1362 (requiring that the protestor demonstrate a non-trivial competitive injury, rather than a substantial chance of contract
award). Here, DMS is not challenging the terms of the solicitation, but the proposed award to He & I.
Price realism is differentiated from price reasonableness. A price realism analysis “is analysis to determine if the offeror's proposed
prices are unrealistically low.” Ralph C. Nash & John Cibinic, Price Realism Analysis: A Tricky Issue, 12 No. 7 Nash & Cibinic
Rep. ¶ 40 (July 1988) (citing 48 C.F.R. § 15.404–1(d)(1), (3)). The evaluation of price reasonableness, on the other hand, has the
aim of preventing the government from paying too high a price for a particular contract. Serco Inc. v. United States, 81 Fed.Cl. 463,
494 n. 48 (2008) (citation omitted).
In addition to cases decided by the Federal Circuit and this court, GAO bid protests discuss many of the claims asserted here, and,
in many instances, provide a valuable perspective. See Planning Research Corp. v. United States, 971 F.2d 736, 740 (Fed.Cir.1992)
(stating that while Comptroller General “decisions are not binding authority, they may nevertheless be considered because of the
Comptroller General's experience in dealing with bid protests” (citing United States v. Lockheed Corp., 817 F.2d 1565, 1567
(Fed.Cir.1987))).
Cost reasonableness and cost realism are distinguishable, but both of these analytical frameworks critically examine the cost elements
of a price proposal. See 48 C.F.R. § 15.404–1(a)(4) (“Cost analysis may ... be used ... to determine cost reasonableness or cost
realism.”). Plaintiff references FAR provisions that address both cost reasonableness, see Pl.'s Mot. at 8 (citing 48 C.F.R. § 15.404–
1(c)(1)), and cost realism, see Pl.'s Mot. at 11 (citing 48 C.F.R. § 15.404–1(d)(1)). Plaintiff's main concern, however, is that the
Army's price realism analysis did not incorporate an adequate cost realism analysis, so as to avoid unrealistically low bids. Compare
Pl.'s Mot. at 12 (describing the solicitation's price realism analysis as a determination of whether “the price proposal is inconsistent
with the technical approach” and is thus “unrealistic”) with FAR 15.404–1(d)(1) (stating that “[c]ost realism analysis is the process of
independently reviewing and evaluating specific elements of each offeror's proposed cost estimate to determine whether the estimated
proposed cost elements are realistic for the work to be performed”). To the extent that the solicitation term “cost reasonableness”
is applicable to the price realism analysis conducted in this procurement, the court agrees with plaintiff that cost realism, not cost
reasonableness, is the more pertinent analytical framework. See AR at 1044 (FLA report) (discussing the price realism of proposals);
id. at 2714 (FLA report) (discussing the cost realism of proposals); id. at 2588 (Mr. [ ]'s Final Price Proposals Evaluation) (examining
the performance risk of each offeror's most significant price coefficient subfactor to confirm that the offerors' total price coefficients
were realistic).
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14
15
16
17
18
19
20
Intervenor-defendant argues that no price realism analysis of offers was required by the language of the solicitation. The government
disagrees with intervenor-defendant on this point and sides with plaintiff, asserting that a price realism analysis was called for by the
solicitation. However, even if the court agreed with He & I's argument, the Army conducted and relied upon a price realism analysis
of proposals, and that analysis must have had a rational basis to survive this court's review.
One of plaintiff's arguments in this regard is that He & I's price coefficients did not include enough of the indirect cost subfactors
listed in Section L of the solicitation. See Pl.'s Mot. at 16 (stating that “He & I failed to include in its coefficient each cost element
required by the Solicitation”). The court does not read the solicitation to require more subfactor detail than He & I included in its
price coefficient. See AR at 311–12 (noting that a price coefficient represents a contractor's indirect costs). Plaintiff's suggestion that
the solicitation required more subfactor detail than He & I provided is not consistent with either the solicitation or the record in this
case. See AR at 1848–49 (Price Negotiation Memorandum) (noting that He & I quantified some of the categories of indirect costs
listed in Section L of the solicitation, and finding this level of detail to be responsive to the material requirements of the solicitation
and sufficient).
Plaintiff argues that because He & I's revised price proposal lacked a revised Section B, containing specific CLIN costs, He & I's
revised price proposal was either unresponsive to the solicitation or incomplete for the purposes of a price realism analysis. Pl.'s Mot.
at 19–20. The court disagrees. He & I submitted all of the information required to substantiate the CLIN costs of its revised proposal
and to support a price realism analysis, but neglected to format some of this information in a new Section B. See AR Tab 49. A
qualified proposal will not be rejected for mere clerical errors, when all material information required by the solicitation is present. See,
e.g., Am. Spare Parts, Inc., B–224745, 87–1 CPD ¶ 4, 1987 WL 101290, at *2 (Comp.Gen. Jan.2, 1987) (“A solicitation requirement
is not material, however, simply because bidders are warned that bids will be rejected should they fail to furnish information, if the
government does not need the information in order to evaluate bids or the information otherwise does not have an impact on the
bidder's promise to perform as specified.”).
Plaintiff alleges that He & I “gamed” its price coefficient and that the Army did not correctly assess the performance risk of He &
I's “below cost offer.” Pl.'s Mot. at 16. The court notes that below-cost offers, also known as “buy-in” offers, are not prohibited, and
that a price realism analysis will not necessarily reject below-cost offers from consideration. See Nash & Cibinic, supra note 11 (“An
unrealistically low price can indicate that the offeror does not understand the work to be done. However, such a conclusion is not
inevitable because the offeror might have intentionally offered a low price to win the competition (the so-called ‘buy-in’).”).
Defendant had no opportunity to brief a response to plaintiff's misleading discussions argument, because the parties filed simultaneous
cross-motions and, subsequently, simultaneous reply briefs. Arguments raised for the first time in a reply brief are not properly
before the court. See Arakaki v. United States, 62 Fed.Cl. 244, 246 n. 9 (2004) ( “The court will not consider arguments that were
presented for the first time in a reply brief or after briefing was complete.” (citing Novosteel SA v. United States, 284 F.3d 1261, 1274
(Fed.Cir.2002))). The court will nonetheless discuss plaintiff's “misleading discussions” allegation, infra.
Plaintiff also cites briefly to 48 C.F.R. § 15.306(b)(3)(i) (2008) and 48 C.F.R. § 15.306(d)(1)-(2) (2008). Pl.'s Mot. at 25. To the
extent that these statements in the FAR are relevant to plaintiff's arguments, the discussions with DMS met the standards expressed
in these provisions. Specifically, the court notes that FAR 15.306(b)(3)(i) is irrelevant when an agency has found no ambiguities or
errors in a proposal, that discussions with DMS were appropriately tailored to DMS's proposal pursuant to FAR 15.306(d)(1), and
that discussions with all three offerors appropriately furthered the government's objective of obtaining best value in the selection
process in accordance with FAR 15.306(d)(2).
The court notes that DMS was awarded the contract on the basis of these discussions and the October 2007 revised proposals.
End of Document
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
20
Galen Medical Associates, Inc. v. U.S., 369 F.3d 1324 (2004)
369 F.3d 1324
United States Court of Appeals,
Federal Circuit.
GALEN MEDICAL ASSOCIATES,
INC., Plaintiff–Appellant,
v.
UNITED STATES, Defendant–Appellee,
and
Deborah Downing MD, PLLC, Defendant–Appellee.
West Headnotes (21)
[1]
United States
Scope of review
Court of Appeals reviews the grant of motions
for judgment upon the administrative record in
bid protest actions de novo, and reapplies the
standards of the Administrative Procedure Act. 5
U.S.C.A. § 706; 28 U.S.C.A. § 1491(b)(4).
No. 03–5113. | DECIDED: May 25,
2004. | Rehearing Denied July 20, 2004.
Synopsis
Background: Disappointed bidder brought post-award bid
protest. Contract awardee intervened. On cross-motions for
judgment on the administrative record, the Court of Federal
Claims, Eric G. Bruggink, J., 56 Fed.Cl. 104, denied plaintiff's
motion and granted defendant and intervenor's motion.
Plaintiff appealed.
2 Cases that cite this headnote
[2]
Under the Administrative Procedure Act (APA)
standard, a bid award may be set aside if either
(1) the procurement official's decision lacked a
rational basis; or (2) the procurement procedure
involved a violation of regulation or procedure.
[1] disappointed bidder had standing to bring bid protest;
48 Cases that cite this headnote
[3]
When reviewing a judgment in a bid protest
case, the Court of Appeals' task is to address
independently any legal issues, such as the
correct interpretation of a solicitation, and then to
determine whether there are any genuine issues
of material fact as to whether the agency decision
lacked a rational basis or involved a prejudicial
violation of applicable statutes or regulations.
[4] mere fact that two of successful bidder's references were
on evaluation panel did not support presumption of bias;
[5] disappointed bidder did not show that agency was biased
in favor of contract awardee; and
Affirmed.
Public Contracts
Scope of review
United States
Scope of review
[3] allegations that government officials failed to provide
statement advising offerors of post-award debriefing was
moot;
[6] fact that best and final offer (BAFO) materials submitted
by successful bidder might have been received both before
and after the BAFO “request” date did not prove bias on part
of agency.
Public Contracts
Scope of review
United States
Scope of review
Holdings: The Court of Appeals, Michel, Circuit Judge, held
that:
[2] disappointed bidder did not show improper discussions
with contract awardee;
Public Contracts
Scope of review
10 Cases that cite this headnote
[4]
Public Contracts
Evidence
United States
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
1
Galen Medical Associates, Inc. v. U.S., 369 F.3d 1324 (2004)
Evidence
Where the bid protest at issue involves a
negotiated procurement, the protestor's burden of
proving that the award was arbitrary, capricious,
an abuse of discretion, or otherwise not in
accordance with law is greater than in other
types of bid protests; the higher burden exists
because the contracting officer engages in what
is inherently a judgmental process.
evaluation criteria and applicable statutes and
regulations, since the relative merit of competing
proposals is primarily a matter of administrative
discretion.
34 Cases that cite this headnote
[8]
56 Cases that cite this headnote
[5]
United States
Rights and Remedies of Disappointed
Bidders; Bid Protests
Public Contracts
Evidence
To prevail in a post-award bid protest the
protester must show not only a significant error
in the procurement process, but also that the error
prejudiced it.
United States
Evidence
The greater the discretion granted to a
contracting officer, the more difficult it will
be for the protestor to prove the decision was
arbitrary and capricious.
42 Cases that cite this headnote
[9]
19 Cases that cite this headnote
[6]
When a bidder alleges bad faith, in order to
overcome the presumption of good faith on
behalf of the government, the proof must be
almost irrefragable; almost irrefragable proof
amounts to clear and convincing evidence.
United States
Evaluation process
38 Cases that cite this headnote
[10]
5 Cases that cite this headnote
[7]
Public Contracts
Parties; standing
United States
Parties; standing
Public Contracts
Determinative Factors in Making Award
Disappointed bidder had standing to bring bid
protest, where it finished second to contract
awardee and thus had a substantial chance of
receiving the award and a direct economic
interest.
United States
Determinative Factors in Making Award
Where a contract is to be awarded based on best
value, the contracting officer has even greater
discretion than if the contract was to have been
awarded on the basis of cost alone; where an
evaluation is challenged, the Court of Appeals
will examine the agency's evaluation to ensure
that it was reasonable and consistent with the
Public Contracts
Evidence
United States
Evidence
Public Contracts
Evaluation process
In formally advertised bidding the pertinent
statutes and regulations are far more strict
about the conduct of the procurement than in a
negotiated one, and consequently in negotiated
procurement the contracting officer is entrusted
with a relatively high degree of discretion.
Public Contracts
Rights and Remedies of Disappointed
Bidders; Bid Protests
20 Cases that cite this headnote
[11]
Public Contracts
Rights and Remedies of Disappointed
Bidders; Bid Protests
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
2
Galen Medical Associates, Inc. v. U.S., 369 F.3d 1324 (2004)
United States
Rights and Remedies of Disappointed
Bidders; Bid Protests
Disappointed bidder did not show that agency
engaged in improper, or any, discussions
with contract awardee, as required to
prevail on argument that agency waived
“without discussions” requirement for award
of government contract; agency was allowed
to receive clarifying information from offerors
during bidding process. 48 C.F.R. § 15.306(a)
(3).
Where a challenge to a contract award is based
on alleged violations of regulation or procedure,
a claimant must show a clear and prejudicial
violation of applicable statutes or regulations;
to establish prejudice, the claimant must show
that there was a substantial chance it would have
received the contract award but for that error.
1 Cases that cite this headnote
39 Cases that cite this headnote
[16]
[12]
Federal Courts
Matters or evidence considered
United States
Evaluation process
Court of Appeals relies on the written opinion
of the Court of Federal Claims rather than its
oral statement during a hearing on a motion for
judgment on the administrative record.
In the context of a government contract proposal,
the term “discussions” has a specific legal
definition: discussions involve negotiations and
are undertaken with the intent of allowing the
offeror to revise its proposal. 48 C.F.R. §
15.306(d).
1 Cases that cite this headnote
[13]
Federal Courts
Proceedings preliminary to trial or hearing
Plaintiff's failure to pursue broader discovery or
to object to the denial of its request for broader
discovery constituted waiver of the issue, thus
the Court of Appeals would not consider the
issue on appeal.
[14]
2 Cases that cite this headnote
[17]
Disappointed
bidder's
allegations
that
government officials failed to provide statement
advising offerors of post-award debriefing in
pre-corrective action solicitation and failed to
provide information about what documents
were subject to disclosure was moot, where
government officials ordered a new solicitation.
Federal Property and Administrative Services
Act of 1949, § 303B(e)(1, 4), as amended, 41
U.S.C.A. § 253b(e)(1, 4).
Public Contracts
Determination and disposition
In post-award bid protest action, Court of Federal
Claims considered all facts in their totality,
where court concluded its discussion of events by
stating none of disappointed bidder's assertions
individually or collectively demonstrated bias.
Public Contracts
Evaluation process
United States
Evaluation process
Public Contracts
Judicial Remedies and Review
United States
Judicial Remedies and Review
United States
Determination and disposition
[15]
Public Contracts
Evaluation process
1 Cases that cite this headnote
[18]
Public Contracts
Good faith; fairness
United States
Good faith; fairness
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
3
Galen Medical Associates, Inc. v. U.S., 369 F.3d 1324 (2004)
Mere fact that two of successful bidder's
references were on evaluation panel did not
support presumption of bias in award of
government contract; no code section forbade
an agency official listed as one to validate
past performance reference from serving as an
evaluator.
2 Cases that cite this headnote
[19]
Evidence
Official Proceedings and Acts
To the extent there is a presumption, it is
that government officials act in good faith in
awarding contracts.
11 Cases that cite this headnote
Attorneys and Law Firms
*1326 Terry Wallace, of Ridgeland, Mississippi, argued for
plaintiff-appellant.
Brian S. Smith, Attorney, Commercial Litigation Branch,
Civil Division, Department of Justice, of Washington, DC,
argued for defendant-appellee, the United States. With him on
the brief were Peter D. Keisler, Assistant Attorney General,
David M. Cohen, Director, and Mark Melnick, Assistant
Director.
J. Michael Littlejohn, Wickwire Gavin, P.C., of Vienna,
VA, argued for defendant-appellee, Deborah Downing, MD,
PLLC. With him on the brief was Stephanie M. Himel–
Nelson.
Before MICHEL, LOURIE, and DYK, Circuit Judges.
[20]
Public Contracts
Good faith; fairness
Opinion
United States
Good faith; fairness
MICHEL, Circuit Judge.
Disappointed bidder did not show that agency
was biased in favor of contract awardee, even
though two of awardee's references were on
evaluation panel; technical scores given to
awardee by references were never highest given
by any member of panel, and were roughly in line
with average of what other members gave, and
disappointed bidder consistently received low
technical scores from majority of evaluators.
Galen Medical Associates, Inc. (“Galen”) appeals from the
order of the United States Court of Federal Claims granting
the motions of the government and Deborah Downing M.D.,
PLLC (“Downing”) for judgment on the administrative
record. Galen Med. Assocs. v. United States, 56 Fed.Cl. 104
(Fed.Cl.2003). We conclude Galen has failed to establish
that the award of the contract to Downing was arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with the law, and we therefore affirm the Court
of Federal Claims' judgment.
2 Cases that cite this headnote
[21]
Public Contracts
Time for making bid
United States
Time for making bid
Fact that best and final offer (BAFO) materials
submitted by successful bidder might have
been received both before and after the BAFO
“request” date did not prove bias on part of
agency, as the deadline was not a hard and fast
cut-off, and thus late receipt of the documents
was not necessarily improper.
*1327 BACKGROUND
The G.V. Sonny Montgomery Veterans Affairs Medical
Center (“VA”) solicited bids on May 4, 2001, for provision
of medical care to veterans in Meridian, Mississippi. The
solicitation stated that the VA would evaluate proposals
based on technical capability, past performance, and price.
The solicitation was a “best value” procurement and noted
that technical capability was weighted “slightly” higher
than past performance. However, of the 200 total points
possible, technical capability was assigned ninety and past
performance was assigned only ten. In the final evaluation of
the proposals, technical capability and past performance were
combined into a single “technical score” worth a maximum
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
4
Galen Medical Associates, Inc. v. U.S., 369 F.3d 1324 (2004)
of 100 points. The score for bid price made up the remaining
100 points.
Three companies submitted proposals for the project: Galen,
Downing (the incumbent contractor), and CR Associates. Six
VA-appointed evaluators used score sheets awarding point
values based on the evaluators' opinion of how well each
proposal met the criteria set forth in the bid solicitation. One
of the six evaluators, Frank Tuminello, was also listed in
Downing's proposal as a “past-performance reference.” On
June 5, 2001, the VA concluded its evaluations, and Galen
received an overall score of 189 (89 technical score and 100
price score). Downing scored 183 (90 technical and 93 price),
and CR Associates scored 187 (95 technical and 92 price).
Galen's bid price was $4,261,950, and Downing's bid price
was $4,564,800.
On June 6, 2001, the VA asked the competitors to submit
best and final offers (“BAFOs”) by June 8, but Downing,
according to the trial court, submitted some documents
after the request date for the BAFOs. After the BAFOs
were submitted, the VA evaluators re-scored the proposals.
Downing had lowered her bid price to $4,206,900 and
received a new score of 190 (90 technical and 100 price).
Galen received a new score of 188 (89 technical and 99 price).
In a letter dated July 27, 2001, the VA notified Galen that the
contract had been awarded to Downing.
On August 3, 2001, Galen informed the VA that it
wanted to engage the agency protest process and requested
an opportunity for discussions with the agency pursuant
to Federal Acquisition Regulations. Galen also requested
documentation regarding the acquisition process. However,
the VA supplied only the names of the bidders and denied
Galen's request for discussions.
Galen filed a formal protest with the VA alleging bias and
wrongful award of contract. The VA took no action, and
Galen notified the VA that it would file a protest with
the General Accounting Office (“GAO”) if the VA did
not address its assertions. The VA responded with three
letters dated August 17 supplying additional documentation
regarding the solicitation.
On August 24, 2001, Galen filed a formal protest with the
GAO alleging a pattern of procurement violations. Before
any action by the GAO, the VA elected to perform corrective
action and decided to permit the bidders to submit new
proposals for evaluation. As part of the corrective action, the
VA changed the solicitation's characterization of the weight
of technical capability from “slightly” more important to
“significantly” more important than past performance. After
the VA agreed to take corrective action, the GAO dismissed
Galen's protest as moot.
Galen asked the VA whether the new solicitation would be
with or without “discussions,” and the VA replied that the
solicitation was a “negotiated procurement,” *1328 that
all offerors had an opportunity to re-submit proposals, and
that the VA was currently in the negotiation process. Galen
submitted its new bid with a reduced price of $3,648,900, but
did not change its technical proposal. Downing's bid price
was unchanged. CR associates first submitted a bid price of
$4,583,348, but later revised its proposal and lowered its price
to $4,165,572. VA's contracting officer concluded that CR
Associates' revised proposal did not meet the solicitation's
technical specifications, therefore, the evaluators considered
only CR Associates' unrevised bid with a price of $4,583,348.
Of the members of the original panel, only Gloria Matory
was an evaluator in the post-corrective action evaluation.
But again, one of the evaluators for this evaluation, Ron
Kirkpatrick, was listed as a past-performance reference
by Downing. Kirkpatrick had been the contracting officer
technical representative (“COTR”) for Downing's clinic. This
time, the evaluators gave Downing's bid a score of 179
(92 technical and 87 price), Galen's bid a score of 175 (75
technical and 100 price) and CR Associates' bid a score of
173 (93 technical and 80 price). The VA again awarded the
contract to Downing.
Galen filed another protest with the GAO, but after
concluding that Galen's proposal failed to include an adequate
site for the clinic and was thus ineligible for the award, the
GAO dismissed the case for lack of standing. 1 On April 30,
2002, Galen filed a complaint with the United States Court of
Federal Claims pursuant to 28 U.S.C § 1491 (incorporating
the standard of 5 U.S.C. § 706) alleging that the VA contract
award was “arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with the law.” Galen also asserted
that VA officials were biased in favor of Downing during
the evaluation process, a violation of 48 C.F.R. § 15.306(e)
(1) which provides, “[g]overnment personnel involved in the
acquisition shall not engage in conduct that favors one offeror
over another.” 48 C.F.R. § 15.306(e)(1) (2003).
The Court of Federal Claims determined that, rather than
rejecting Galen's proposal as ineligible because of a lack
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
5
Galen Medical Associates, Inc. v. U.S., 369 F.3d 1324 (2004)
of an adequate facility, the VA had evaluated it on the
merits and reduced Galen's score. The court noted that
Galen had a substantial chance of receiving the award and
therefore had standing. The court allowed limited discovery
—specifically, depositions were permitted only to determine
what documents existed that must be considered part of
the administrative record. After discovery, the parties crossmoved for judgment on the administrative record. Oral
argument was heard on March 28, 2003. One week after oral
argument, the Court of Federal Claims issued an order and
opinion, noting that the VA's record-keeping may have been
sloppy and that the agency could have been more forthcoming
in its discussions with Galen, but nonetheless granted the
defendants' motions for judgment on the administrative
record because Galen had not offered sufficient evidence of
bias or any other basis for finding an arbitrary and capricious
award of the contract.
DISCUSSION
A disappointed bidder may make a claim against the agency
pursuant to the Administrative Procedure Act, 5 U.S.C § 702,
which states:
*1329 A person suffering legal
wrong because of agency action, or
adversely affected or aggrieved by
agency action within the meaning of a
relevant statute, is entitled to judicial
review thereof. An action in a court of
the United States seeking relief other
than money damages and stating a
claim that an agency or an officer or
employee thereof acted or failed to act
in an official capacity or under color of
legal authority shall not be dismissed
nor relief therein be denied on the
ground that it is against the United
States or that the United States is an
indispensable party.
5 U.S.C. § 702 (2000); Scanwell Lab., Inc. v. Shaffer, 424
F.2d 859, 864, 868 (D.C.Cir.1970) (reasoning that suits
challenging the award process are in the public interest
and disappointed bidders are the parties with an incentive
to enforce the law); CACI, Inc.–Federal v. United States,
719 F.2d 1567, 1574 (Fed.Cir.1983) (making the Scanwell
doctrine applicable to the Claims Court).
In 1996, Congress amended 28 U.S.C § 1491 to add a
specific provision granting both the district courts and the
United States Court of Federal Claims jurisdiction to render
judgment on an action brought by a disappointed bidder in
a government contract procurement. Administrative Dispute
Resolution Act of 1996 (“ADRA”), Pub.L. No. 104–320, §
12, 110 Stat. 3870, 3874. Thus, the Court of Federal Claims
has jurisdiction “to render judgment on an action by an
interested party objecting to a solicitation by a Federal agency
for bids or proposals for a proposed contract or to a proposed
award or the award of a contract or any alleged violation
of statute or regulation in connection with a procurement
or a proposed procurement.” 28 U.S.C. § 1491(b)(1) (2000)
(emphases added). We have jurisdiction to review any Court
of Federal Claims final decision under 28 U.S.C. § 1295(a)
(3). 2
[1] [2] [3] We review the grant of motions for judgment
upon the administrative record in bid protest actions de
novo, and we reapply the standard of section 706 of the
Administrative Procedure Act, adopted in section 1491(b)(4)
and applied by the Court of Federal Claims. JWK Int'l Corp. v.
United States, 279 F.3d 985, 987 (Fed.Cir.2002) (reviewing
judgment on the administrative record in a bid protest without
deference). Our inquiry is whether the VA's contract award
was shown to be “arbitrary, capricious, an abuse of discretion,
or otherwise not in accordance with law.” 28 U.S.C. § 1491(b)
(4) (2000) (adopting the standard of 5 U.S.C. § 706(2)(A)
(2000)). In bid protest cases filed under the ADRA the
court implements this APA standard by applying the standard
previously interpreted by the district courts in the Scanwell
line of cases. “Under the APA standard as applied in the
Scanwell line of cases, and now in ADRA cases, ‘a bid
award may be set aside if either (1) the procurement official's
decision lacked a rational basis; or (2) the procurement
procedure involved a violation of regulation or procedure.’
” Banknote Corp. of Am. v. United States, 365 F.3d 1345,
1351 (Fed.Cir.2004) (quoting Impresa Construzioni Geo.
Domenico Garufi v. United States, 238 F.3d 1324, 1332
(Fed.Cir.2001)). Thus, “when reviewing a judgment in a bid
protest case, our task is to address independently any legal
issues, such as the correct interpretation of a solicitation,
and then to determine whether there are any genuine issues
of material fact as to whether the *1330 agency decision
lacked a rational basis or involved a prejudicial violation of
applicable statutes or regulations.” Id. at 1353.
[4] [5] [6] Because the bid protest at issue here involved
a “negotiated procurement,” the protestor's burden of proving
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
6
Galen Medical Associates, Inc. v. U.S., 369 F.3d 1324 (2004)
that the award was arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law is greater
than in other types of bid protests. LaBarge Prods., Inc. v.
West, 46 F.3d 1547, 1555 (Fed.Cir.1995) (citing Burroughs
Corp. v. United States, 223 Ct.Cl. 53, 617 F.2d 590, 597–98
(1980)). “The higher burden exists because the contracting
officer engages in what is ‘inherently a judgmental process.’
” Omega World Travel v. United States, 54 Fed.Cl. 570,
578 (2002) (citing Burroughs, 617 F.2d at 598). “[T]he
greater the discretion granted to a contracting officer, the
more difficult it will be to prove the decision was arbitrary
and capricious.” Burroughs, 617 F.2d at 597. “In formally
advertised bidding the pertinent statutes and regulations are
far more strict about the conduct of the procurement than in
a negotiated one, consequently in negotiated procurement the
contracting officer is entrusted with a relatively high degree
of discretion.” Id.
[7] Additionally, as the contract was to be awarded based
on “best value,” the contracting officer had even greater
discretion than if the contract were to have been awarded
on the basis of cost alone. E.W. Bliss Co. v. United States,
77 F.3d 445, 449 (Fed.Cir.1996) (“Procurement officials
have substantial discretion to determine which proposal
represents the best value for the government.”). “ ‘Where
an evaluation is challenged, we will examine the agency's
evaluation to ensure that it was reasonable and consistent
with the evaluation criteria and applicable statutes and
regulations, since the relative merit of competing proposals is
primarily a matter of administrative discretion.’ ” Id. (quoting
In re General Offshore Corp., B–251969.5, B–251969.6,
94–1 Comptroller Gen.'s Procurement Decisions (Federal
Publications, Inc.) ¶ 248, at 3 (Apr. 8, 1994)).
[8] “[I]t may be that even a proven violation of some
procurement regulation, in selecting the competitor, will
not necessarily make a good claim. Not every regulation
is established for the benefit of bidders as a class, and
still fewer may create enforceable rights for the awardee's
competitors.” Id. (quoting Keco Indus., Inc. v. United States,
203 Ct.Cl. 566, 492 F.2d 1200, 1206 (1974)). “[T]o prevail
in a protest the protester must show not only a significant
error in the procurement process, but also that the error
prejudiced it.” Data Gen. Corp. v. Johnson, 78 F.3d 1556,
1562 (Fed.Cir.1996).
[9] Moreover, when a bidder alleges bad faith, “[i]n order
to overcome the presumption of good faith [on behalf of
the government], the proof must be almost irrefragable.”
Info. Tech. Applications Corp. v. United States, 316 F.3d
1312, 1323 n. 2 (Fed.Cir.2003). “Almost irrefragable proof”
amounts to “clear and convincing evidence.” Am–Pro
Protective Agency, Inc. v. United States, 281 F.3d 1234,
1239–40 (Fed.Cir.2002). “In the cases where the court has
considered allegations of bad faith, the necessary ‘irrefragable
proof’ has been equated with evidence of some specific intent
to injure the plaintiff.” Torncello v. United States, 231 Ct.Cl.
20, 681 F.2d 756, 770 (1982).
I.
A.
[10]
[11] As a threshold matter, where, as here, a
challenge to a contract award is based on alleged violations
of “regulation *1331 or procedure,” a claimant must show
“ ‘a clear and prejudicial violation of applicable statutes or
regulations.’ ” Banknote, 365 F.3d at 1351 (quoting Impresa,
238 F.3d at 1333). To establish prejudice, the claimant must
show that there was a “substantial chance it would have
received the contract award but for that error.” Statistica,
Inc. v. Christopher, 102 F.3d 1577, 1582 (Fed.Cir.1996).
Downing argues Galen has not suffered any prejudice because
the facilities listed in its proposal did not meet the technical
specifications of the VA solicitation, and therefore, Galen
could not have been awarded the contract. The Court of
Federal Claims found that the VA did not reject Galen's
proposal because of non-complying facilities, but rather, only
reduced its technical score. Galen Med., 56 Fed.Cl. at 106–
07. The court also found that Galen finished second after
both evaluations, and therefore, but for the alleged errors, had
a substantial chance of receiving the award. Id. at 107. We
agree, and proceed to the merits.
B.
Galen asserts the Court of Federal Claims erred by applying
an improper standard of proof to its post-award bid protest
action. Specifically, Galen argues the court required Galen to
establish bias “beyond a shadow of a doubt.”
[12] We reject this argument. The court stated the standard
of proof as follows:
We note first that our standard of
review in post-award bid protest
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7
Galen Medical Associates, Inc. v. U.S., 369 F.3d 1324 (2004)
cases is narrow. We may only set
aside the contract if the VA's actions
were arbitrary and capricious, or
otherwise not in accordance with the
law. Additionally, we assume that
the government acts in good faith
while contracting and a protester
needs “well-nigh irrefragable proof”
that the government had an intent to
injure it to overcome this presumption.
The burden is therefore on the
plaintiff to show that, but for the
alleged error in the procurement,
it likely would have been awarded
the contract. A protestor's burden is
higher for a negotiated procurement
because the contracting officer has
broad discretion when engaging in an
inherently judgmental process.
Id. at 108 (citations omitted) (emphasis added). Galen,
however, points to the court's statement during oral argument
on motions for judgment on the administrative record before
the Court of Federal Claims:
It would not be possible for me to write
a decision with a straight face, saying
I am so well satisfied that there was
bias here, or an abuse of the system to
try to benefit Downing that it's clear
beyond a shadow of a doubt and this
whole procurement has to be undone.
Tr. 85. We rely on the court's written opinion rather than its
oral statement during a hearing on a motion for judgment
on the administrative record. We conclude the court clearly
stated the proper standard of proof, and we see no evidence
that it applied a different standard than articulated in its
opinion.
C.
[13] At oral argument, Galen asserted that it requested
depositions of all the VA evaluators, but that this request was
denied by the Court of Federal Claims. However, after review
of the Court of Federal Claims status conference transcripts,
we conclude that Galen did not request depositions of all
four post-corrective action evaluators, did not object when the
Court of Federal Claims tentatively limited the depositions'
scope to whether certain documents existed that should
be part of the administrative record, and did not *1332
properly preserve any issue of insufficient discovery for
appeal. Galen's failure to pursue broader discovery and to
object to its denial constitutes waiver of the issue and we will
not consider it here.
D.
[14] Galen also argues the court erred in not considering
all the facts in their totality, but instead viewed each fact “in
isolation from the others.” We disagree. The court stated:
Plaintiff's complaints regarding the
initial solicitation, however, were
rendered moot when the VA vacated
the award and agreed to amend
the solicitation. On the other hand,
plaintiff's allegations of a pattern
of bias are based on these same
events as well as events relating to
the amended solicitation. We will
assume, without deciding, that a
long pattern of questionable activity
might be relevant to prove agency
bias. In considering plaintiff's claims,
therefore, we take into account
all circumstances surrounding the
procurement.
Galen Med., 56 Fed.Cl. at 109 (emphasis added). The court
then went on to address serially the multiple events of each
solicitation that Galen asserted as evidence of the VA's
alleged bias in favor of Downing. The court concluded its
discussion of the events surrounding the pre-corrective action
evaluations, saying, “[i]n short, none of these assertions
individually or collectively demonstrate bias.” Id. at 110
(emphasis added). That the court also considered Galen's
numerous allegations one by one does not demonstrate that,
despite its statement quoted above to the contrary, it actually
viewed each fact only in isolation. We discern no error in the
court's method of analysis.
II.
A.
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Galen Medical Associates, Inc. v. U.S., 369 F.3d 1324 (2004)
Additionally, Galen asserts that the court erred by ignoring
or improperly discounting clear violations of the statutes
and regulations governing the procurement at issue. Before
the Court of Federal Claims, Galen asserted that the VA
failed to conduct meaningful discussions with offerors after
the post-corrective action solicitation as was supposedly
required under 48 C.F.R. § 15.306(d)(3). However, the
Court of Federal Claims held that the VA was permitted
to forego discussions by section 15.306(a)(3), which states,
“[a]ward may be made without discussions if the solicitation
states that the Government intends to evaluate proposals and
make award without discussions.” 48 C.F.R. § 15.306(a)(3)
(2003). The court found that the VA solicitation stated that
the contract would be awarded “without discussions.” It is
Galen's burden to show that the court's finding was clearly
erroneous, and we can discern no clear error.
offeror such as Downing during the bidding process, such
communication was not a prohibited “discussion.”
Galen points mainly to certain changes made to Downing's
pre-corrective action bid price by the contracting officer,
Newton, as evidence she was in improper communication
(“discussions”) with Downing. Moreover, Galen argues that
erasures made by evaluators Harbor and Matory during the
pre-corrective action evaluation indicate that some of those
evaluators must have improperly received new information
from Downing. 3
We doubt that the VA's behavior before corrective action
could constitute a waiver of a post-corrective action
solicitation provision. We need not make that determination
here, because, as discussed below, Galen has failed to
show the VA engaged in improper, indeed any, discussions
with Downing. The Court of Federal Claims concluded that
Galen's complaints regarding the initial solicitation were
B.
rendered moot when the VA vacated the award and agreed
[15]
[16] On appeal, Galen also argues that the VA to amend the solicitation. We agree that the complaints based
waived the “without discussions” provision and then violated
on pre-corrective action events are moot where charged as a
48 C.F.R. § 15.306(d)(3) by communicating with Downing
specific violation of a code or statute, but are relevant in order
but not with Galen. But no evidence established any such
to establish a possible pattern of bias.
communication with Downing. The trial court did not
clearly err in failing to find such communication proven.
Regarding Newton's change to Downing's bid price during the
Moreover, in the context of a government contract proposal,
pre-corrective action solicitation, the Court of Federal Claims
the term “discussions” has a specific legal definition:
found that Newton's change was in the nature of a correction
“discussions involve negotiations” and “are undertaken with
of an obvious mathematical error, and, moreover, actually
the intent of allowing the offeror to revise its proposal.”
increased Downing's bid price. That finding of fact is correct.
Info. Tech., 316 F.3d at 1321 (quoting 48 C.F.R. § 15.306(d)
Certainly, Galen has failed to show clear error in it. Galen
(2002)). In contrast to discussions, “clarifications” are
does not contest the nature of the error in the bid, it only
“limited exchanges, between the Government and offerors,
asserts Newton must have been told to correct it by Downing.
*1333 that may occur when award without discussions
However, even if an exchange of information leading to a
is contemplated.” 48 C.F.R. § 15.306(a)(1) (2003). The
correction of this type occurred, it would fall squarely within
regulation further states:
the definition of “clarification” rather than “discussion.” In
light of the legal definition of “discussions” and the court's
[i]f award will be made without
finding of fact concerning the nature of the error in Downing's
conducting discussions, offerors may
bid, we conclude that Galen has failed to show clear error in
be given the opportunity to clarify
the court's conclusion that Newton's change to Downing's bid
certain aspects of proposals (e.g.,
price was not the result of an improper “discussion” between
the relevance of an offeror's past
Newton and Downing.
performance information and adverse
past performance information to which
As to the evaluators' changed score sheets, the Court of
the offeror has not previously had an
Federal Claims stated:
opportunity to respond) or to resolve
minor or clerical errors.
The evaluator score sheets were works
in progress. The lack of explicit
48 C.F.R. § 15.306(a)(2) (2003) (emphasis added). Thus,
evaluator documentation of changes
even if the VA received clarifying information from an
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Galen Medical Associates, Inc. v. U.S., 369 F.3d 1324 (2004)
by itself does not support a finding
of bias. Moreover, without strong
evidence to the contrary, unexplained
changes to the score sheets are
assumed to be properly within the
scope of the evaluation.
Galen Med., 56 Fed.Cl. at 109. As Galen has presented no
evidence to the contrary, we conclude the court's finding
that the score sheets were works in progress was not clearly
erroneous. Evaluators need *1334 not document every
clerical step taken during filling out score sheets as part of
the bid evaluation process. Additionally, the record shows
many of Galen's scores were explained on the face of the
score sheets. Galen, however, argues the absence of complete
documentation of all changes demonstrates that improper
discussions must have occurred. However, Galen's burden
was to produce evidence of improper discussions, not simply
advance a theory as to why changes were made to score sheets
during an ongoing scoring process. In fact, Galen produced
no evidence, and instead asked the Court of Federal Claims to
draw inference upon inference in its favor. The court declined,
and we think properly so. Whether examined separately or as
a whole, Galen's purely speculative assertions fail to support
a conclusion that improper discussions occurred between the
VA and any offeror. Accordingly, we conclude that the VA
did not conduct improper discussions with Downing, and has
not violated section 15.306(d)(3).
Galen also argues that no documentation was produced
explaining the need for a second, different evaluation panel.
The Court of Federal Claims made no findings of fact on
this issue. However, it is apparent from the record that
the evaluation panel was changed only after Galen's formal
protest to the GAO spurred the VA voluntarily to undertake
corrective action and request submittal of new proposals.
Galen was so informed. Galen has offered no reason why
further explanation is necessary, and we find none.
Galen also asserts that a gap in documentation arises because
the instructions provided to each evaluation panel were not
in written form. There again, the court made no finding
of fact on this issue, but we discern from the deposition
testimony of Newton, the VA's contracting officer, that no
written instructions are legally required and as a general
practice, they are not provided. Rather, only oral instructions
are given. Therefore, an absence of written instructions for the
evaluators is not evidence of failure to make or keep required
records, or otherwise improper. We have considered Galen's
many other assertions concerning inadequate documentation
and consider them also to lack merit. The court entered final
judgment in favor of the defendants, and by implication,
found that the administrative record was not so incomplete as
to preclude meaningful review. We agree.
D.
C.
In addition, Galen states that it adduced evidence of several
examples of the VA's failure to properly document the
proposal and award process and that the grant of judgment on
so incomplete an administrative record was per se legal error.
Specifically, Galen alleges that gaps in the administrative
record prevented the court from conducting a meaningful
review of the award process, and, therefore, that the contract
award should be set aside. As evidence of improper gaps in
documentation, Galen again points to several undocumented
changes in evaluators' scores. As explained above, Galen has
failed to show clear error in the Court of Federal Claims'
finding that the score sheets were works in progress. As
such, they need not have been documented at every turn.
Also, the many comments that did appear on the score sheets
themselves added information to the record and would have
assisted the court to conduct a meaningful review.
[17] Galen alleges VA officials failed to provide a
statement advising offerors of a post-award debriefing in
the pre-corrective action solicitation and failed to provide
information *1335 about what documents were subject to
disclosure, violations of 41 U.S.C. § 253b(e)(1) and (4).
Galen also alleges the VA refused to engage in open and frank
discussions as required by 48 C.F.R. § 33.101. We agree with
the Court of Federal Claims that such alleged violations were
rendered moot by the order of a new solicitation by the VA.
Galen also alleges the VA violated 48 C.F.R. § 15.303 by
not establishing a source selection strategy. It is unclear from
Galen's brief whether it is referring to the pre-correction
solicitation or the post-correction solicitation. The Court of
Federal Claims made no findings of fact on this issue, indeed,
it is not apparent whether it was raised before this appeal.
In any event, the evidence presented by Galen is entirely
unpersuasive. Galen points only to Newton's deposition
testimony where she states she in fact drafted a source
selection strategy as reflected in the score sheets.
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Galen Medical Associates, Inc. v. U.S., 369 F.3d 1324 (2004)
III.
Galen asserts that the VA's evaluation process manifested a
conflict of interest, or that the VA acted in bad faith.
A.
[18] Galen points to an alleged conflict of interest on the
evaluation panel. Specifically, Galen asserts that because
Downing listed one of the post-corrective action technical
evaluators as a “past performance reference,” the evaluation
panel was tainted with a conflict of interest. The amended
solicitation requested three references to “validate past
experience and any current contracts providing services
of this type.” In her proposal Downing listed as past
performance references: Tuminello, Dayton, and Kirkpatrick.
Tuminello served as an evaluator on the first round evaluation
panel, and Kirkpatrick served on the post-corrective action
panel. The pre-corrective action panel was comprised of six
members, and the post-corrective action panel had only four
members.
[19] In order to prevail on its conflict of interest claim, Galen
must establish a violation of statutory or regulatory conflict
of interest provisions. See 18 U.S.C. § 208 (2000); 5 C.F.R.
§ 2635.403(c) (2003); 48 C.F.R. §§ 1–18 (2003). The mere
presence of one of Downing's past performance references
on each evaluation panel alone does not constitute proof of a
conflict of interest. The Court of Federal Claims commented
on Downing's list of past performance references:
Plaintiff highlights Dr. Downing's
incumbent status and her close ties
with the VA as evidence of bias.
For example, two of Dr. Downing's
references participated as evaluators
during the solicitation process.
Accepting
plaintiff's
argument,
however, would improperly penalize
Dr. Downing simply for the
experience and familiarity with the
agency she acquired as the incumbent
contractor. The mere fact that Dr.
Downing's references were included
on the panel as evaluators does not
support a presumption of bias.
Galen Med., 56 Fed.Cl. at 111 (emphasis added) (citing
Omega World Travel, 54 Fed. Cl. at 575). We agree. Indeed,
to the extent there is a presumption, it is that government
officials act in good faith. Am–Pro Protective Agency, 281
F.3d at 1239.
This court's case law does not define “conflict of interest”
so broadly as to include the mere listing of an evaluator as
a past performance reference to “validate past experience.”
No case so holding has been cited by Galen. Indeed, our
precedent points to the contrary. For example, in CACI,
Inc.–Federal, we discussed *1336 whether a conflict of
interest existed when four of the five members of the proposal
evaluation board were alleged to have prior professional
and social relationships with the vice president of the
successful bidder. 719 F.2d at 1567. This court reversed
the trial court's decision that the award of the contract was
arbitrary, capricious and an abuse of discretion, rejecting
the argument that discussions of employment between two
evaluators and the successful bidder supported reversal of
the contract award, and noting that the discussions were
“only preliminary exploratory talks, directed to possibilities
that never materialized, not negotiations,” and occurred long
before the Department issued the request for proposals. Id.
at 1578. We also rejected the argument that an increase in
scores for the successful bidder in the second round of bidding
showed favoritism toward that company, where the scores
for the losing company were also increased and the losing
company received the highest score on its technical proposal.
Id. at 1580.
In contrast to the facts in CACI, the VA's evaluation panel
in the present case had only one evaluator out of four
with alleged ties to Downing. During the pre-corrective
action evaluation, one of Downing's three past-performance
references was on a panel of six technical evaluators. During
the post-corrective action evaluation, one past-performance
reference was on a panel of four technical evaluators.
Moreover, there is no evidence that either Tuminello or
Kirkpatrick had been contacted and agreed to serve as a pastperformance reference for Downing, and thus no evidence
that they were interested in her success as opposed to
simply more knowledgeable about her. Indeed, VA officials
with direct knowledge of an incumbent service provider's
past performance would seem to have enhanced utility as
evaluators. It was Kirkpatrick's prior work experience at
the VA that gave him insight into Downing's performance.
The incumbent service provider then included Kirkpatrick
as a past-performance reference. This fact alone does not
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Galen Medical Associates, Inc. v. U.S., 369 F.3d 1324 (2004)
disqualify Kirkpatrick as a technical evaluator in a bid
solicitation involving that service provider, and neither reason
nor precedent so requires. Here, Galen has not shown any
active close or pecuniary relationship between Downing and
either evaluator at any time. Therefore, the mere fact that
Downing listed an evaluator as a past performance reference
does not constitute a conflict of interest.
It is also significant that no code section forbids an
agency official listed as one to validate past performance
reference from serving as an evaluator. This gap is especially
noteworthy in light of the specificity with which the
regulations restrict certain activities such as: employment
negotiations (48 C.F.R. § 3.104–3), receipt of gifts or favors
(48 C.F.R. § 3.101–2), and disclosure of proposal information
(48 C.F.R. § 603.104–4).
And even to the extent the regulations require that any
conflict of interest or even the appearance of a conflict of
interest in government-contractor relationships be avoided,
48 C.F.R. § 3.101–1 (2003), Galen has failed to show
any potential symbiotic relationship between the technical
evaluators and Downing. Indeed, Galen has not shown that
Kirkpatrick or any other evaluator had any “interest” or any
appearance of an “interest” in an award of the contract to
Downing. Galen has presented no evidence of any impact
an award of the contract to either Downing or Galen would
have on any of the evaluators. For even an appearance
of a conflict of interest to exist, a government official
must at least appear to have some stake in the outcome
of government action influenced by that individual. Galen
has shown no *1337 such connection here. As required by
the solicitation, Downing listed past performance references
to validate Downing's “past experience and any current
contracts providing services of this type.” The mere presence
of an individual's name on list of past performance references
does not indicate any “interest” on the part of that individual
in the final outcome of the evaluation.
B.
[20] Galen further alleges that the evaluations were biased
in favor of Downing. In order to prevail on an allegation of
bad faith, Galen must show “almost irrefragable” proof. Info.
Tech. & Applications, 316 F.3d at 1323 n. 2. As evidence of
bad faith, Galen argues that an examination of the technical
scores given by Kirkpatrick and Tuminello is instructive.
During the first round, Tuminello scored both Galen and
Downing a ten on past performance and CR Associates a five.
Galen's lowest score from any evaluator for past performance
was a ten, Downing's was an eight, and CR Associates' was
a five. In the overall technical score, Tuminello gave Galen
a 91, Downing a 95 and CR Associates a 94. Galen's highest
technical score received from any evaluator was a 99, and its
lowest was an 82. Downing's highest technical score was a 98
and her lowest was a 75.
During the post-corrective action evaluation, Kirkpatrick
gave Galen a six of a possible ten for past performance,
Galen's lowest score from any evaluator. However,
Kirkpatrick also gave Downing a nine in past performance
while another evaluator gave Downing a ten. Additionally,
Kirkpatrick gave Downing a technical score of 89; this score
tied for lowest among Downing's evaluators, and another
evaluator gave Downing a technical score of 99. These
numbers hardly constitute “almost irrefragable proof” as is
needed to establish bias on the part of either of Downing's
references. The technical scores Tuminello and Kirkpatrick
gave Downing were never the highest given by any member
of the panel, and instead were roughly in line with the
average of what other panel members gave. Similarly, Galen
consistently received low technical scores from the majority
of evaluators. Indeed, in the post-corrective action evaluation,
every evaluator scored Galen last in overall technical score.
The technical scores given by Kirkpatrick do not even
demonstrate unconscious bias on his part. Kirkpatrick gave
Downing an 89 and CR Associates an 88. Johnson gave
Downing a 90 and CR Associates a 91. Stokes gave Downing
a 99 and CR Associates a 100. Finally, Matory gave Downing
an 89 and CR Associates a 93. It is clear that all the postcorrective action evaluators, even ones with absolutely no
connection to Downing, scored Downing and CR Associates
approximately equally. This fact is especially striking when
one considers the large variation in overall technical scores
from evaluator to evaluator—Stokes gave both bidders a
score of approximately 100, whereas Kirkpatrick gave them
both a score of approximately 89. Despite a swing in overall
score of eleven points, Downing and CR Associates always
received nearly identical scores.
The court found the evaluators' decisions to give Galen such
low technical scores were, rather than the result of bias against
Galen, based on weaknesses in Galen's proposal. The Court
of Federal Claims stated:
Moreover, the record supports the
evaluators' concerns that plaintiff
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Galen Medical Associates, Inc. v. U.S., 369 F.3d 1324 (2004)
lacked proper references, a viable
clinic location, adequate capacity
for the veteran population, and
documentation of adequate support
staff. While these concerns *1338
may not have been treated as rendering
plaintiff's offer nonresponsive, they
were plainly serious concerns for the
evaluators. Plaintiff has not offered
any evidence that these concerns were
contrived.
Galen Med., 56 Fed.Cl. at 111. The court found that the
facility Galen listed as its primary clinic site was leased to
Downing at the time of bid proposal. We discern no clear error
in this finding. As all four post-corrective action evaluator
score sheets indicate that the evaluators were concerned that
Galen would not be able to provide an acceptable clinic
location, the evaluators' decisions to give Galen relatively
low technical scores appear to be the result of analysis of
objective evidence. Additionally, Galen admits in its brief
that, in order to operate the clinic with qualified staff, it would
have had to hire two of Downing's nurses, another fact noted
on evaluators' score sheets. In light of the above, we agree
with the Court of Federal Claims that the evaluators' decisions
to give Galen lower scores than any other bidder were not
arbitrary, capricious, an abuse of discretion or otherwise not
in accordance with the law.
Accordingly, the evaluators' scoring history does not
demonstrate even unconscious bias on Kirkpatrick's part,
particularly under the clear and convincing standard of proof
applicable here. Galen has not demonstrated that any of the
evaluators favored Downing during the technical scoring
process and certainly has not provided clear and convincing
evidence of a specific intent to injure Galen.
C.
Galen asserts that numerous other events support its theory of
a pattern of bias. First, Galen claims that the VA “awarded
Downing the right to continue a 1995 VA contract that had
been awarded to another party without using a competitive
procurement process to transfer it to Downing,” and that
after this contract expired, the VA permitted Downing to
continue to operate under the contract. The trial court made
no findings of fact on this issue, but even if Downing received
the contract as Galen says, Galen does not explain why such
action by the VA would be improper, or how it proves a biased
procurement for the contract award at issue here.
[21] Galen also argues that, during the pre-corrective action
procurement, the VA was biased in favor of Downing in that
it permitted her to submit material after the June 8, 2001
request date for BAFOs. Whether and what were unclear in
terms of any late submission. But in any event, the Court of
Federal Claims found that the request date was not a “hard
and fast cut-off.” Id. at 109. As evidence that June 8 was a
true deadline, Galen points to a VA document distributed at
a May 18, 2001, pre-proposal conference which stated that
proposals were due May 31 and that, “[n]o late offers would
be considered.” This evidence not only is unpersuasive, but
irrelevant. The VA's statement was clearly in the context of
the initial submission of proposals on May 31, not the later
BAFO request date. Galen points to no evidence that the June
8 date was more than a mere request date. Therefore, we can
discern no clear error in the court's finding that the BAFO
request date was not a “hard and fast cut-off.” Accordingly,
assuming receipt by the VA of certain unidentified material
from Downing after the BAFO request date does not support
Galen's theory of a pattern of bias.
Galen argues that the VA virtually ignored Downing's
allegedly poor past performance. The court found that the
only support for the allegation that Downing had a poor past
performance record was *1339 Galen's counsel's statements
in briefing and oral argument. Statements of counsel,
however, are not evidence. Thus, there was absolutely no
proof of poor performance, as the trial court correctly found.
Galen has not shown the court clearly erred.
On appeal, however, Galen points to a memo addressed
to Kirkpatrick, dated June 27, 2001, from an employee of
Downing who had been fired on the same day. Though
not clear from Galen's brief, we understand Galen's specific
argument to be that the Court of Federal Claims clearly erred
in not commenting on the memo and/or not relying on it
as proof of Downing's alleged poor performance. However,
although the court did not specifically mention the memo
in its opinion, the memo was in the administrative record
before it. To the extent the memo casts doubt on Downing's
past performance, we note the credibility concerns associated
with a statement made by an employee on the very day
that employee was fired. In light of the above, Galen has
failed to show the court clearly erred in not characterizing
the memo as proof of Downing's allegedly negative past
performance. Moreover, given that the technical evaluation
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
13
Galen Medical Associates, Inc. v. U.S., 369 F.3d 1324 (2004)
was an inherently judgmental process requiring deference, it
would be improper for us to determine what effect, if any, a
memo of the kind cited by Galen would have on any bidder's
score.
In a related allegation, Galen asserts that the VA improperly
discounted Galen's past performance in that it did not accept
all three of Galen's past performance references. The court
found that the record supported the evaluators' concerns
that one of Galens's past performance references was not
relevant to Galen's track record of professional performance
or professional capability to operate a clinic. Galen has not
offered evidence to the contrary, and we conclude the court's
finding of fact was not clearly erroneous. Therefore, we agree
with the court's conclusion that the VA uniformly evaluated
the bidders on their past performance through the requirement
of three past performance references.
Galen further asserts that the VA's corrective action was
done in order to minimize the impact of Downing's alleged
poor past performance. However, the court found that
the corrective action did not change the substance of the
scoring process—the allocation of points between technical
capability and past performance remained exactly the same.
Galen has not submitted evidence to the contrary, and, thus,
failed to show clear error in the court's finding.
Galen asserts that the VA conducted improper discussions
with Downing resulting in Newton's change of Downing's bid
price and technical evaluators' changed score sheets. These
allegations were addressed above and need not be rediscussed
here other than to say we agree with the court's conclusion
that these alleged discussions, even assuming they in fact
occurred, do not support Galen's theory.
Galen argues that the VA accepted Downing's incorrect claim
for preferential status as a “Disabled Veteran Owned Small
Business Concern.” However, the court found that there was
no evidence that the VA gave any preference to Dr. Downing
based on that alleged status. It noted that the proposal did
not even offer such preference. On appeal, Galen has failed
to adduce any evidence contradicting the court's finding.
Therefore, we conclude the court's finding was not clearly
erroneous.
concerning disabled veteran ownership of her *1340 clinic.
However, the court made no finding as to whether Downing's
claim was dishonest rather than merely mistaken. Nor does
Galen adduce any evidence that Downing's misstatement was
intentional. Moreover, Downing's husband was a veteran.
Therefore, we conclude that the VA did not demonstrate bias
by not penalizing Downing.
In summary, Galen's many assertions do not alone or in
combination constitute clear and convincing proof that the
VA was biased in favor of Downing. In conclusion, we agree
with the Court of Federal Claims that Galen has failed to
show by “almost irrefragable” proof a pattern of bias, and we
therefore affirm.
IV.
Finally, Galen argues that it is entitled to its post corrective
action bid preparation costs because it has demonstrated
that the VA's award of the contract to Downing was
arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with the law. We conclude, however,
that the Court of Federal Claims' grant of judgment on the
administrative record in favor of the defendants as to the
post-corrective action award was proper, and the award was
not shown by Galen to be arbitrary, capricious, an abuse
of discretion or otherwise not in accordance with the law.
Therefore, Galen is not entitled to recover its bid preparation
costs on this basis.
CONCLUSION
Accordingly, in all respects, we affirm the Court of Federal
Claims' grant of judgment on the administrative record in
favor of Downing and the government.
AFFIRMED.
COSTS
No costs.
On appeal, Galen argues that the VA should have penalized
Downing for alleged dishonesty involving her statement
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
14
Galen Medical Associates, Inc. v. U.S., 369 F.3d 1324 (2004)
Footnotes
1
2
3
Galen's primary site was occupied by Downing and Galen would not have been able to use it unless Downing gave up the lease.
Galen's secondary site was much smaller than the VA facility used at the time of the solicitation.
As part of the ADRA, Congress enacted a sunset provision, terminating federal district court jurisdiction over bid protests on January
1, 2001. Emery Worldwide Airlines, Inc. v. United States, 264 F.3d 1071, 1079 (Fed.Cir.2001).
In addition, it should be noted that no numerical changes were made afterward.
End of Document
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
15
Page 1
B- 406183.2, B- 406183.3, B- 406183.4, 2012 CPD P 134, 2012 WL 1095360 (Comp.Gen.)
COMPTROLLER GENERAL
*1 Matter of:
Gonzales–Stoller
Remediation
Services
, LLC
DOCUMENT FOR PUBLIC RELEASE The decision issued on the date below was subject to a GAO Protective Order.
This redacted version has been approved for public release.
March 2, 2012
Joseph P. Hornyak, Esq., Megan Mocho Jeschke, Esq., Alexander B. Ginsberg, Esq., and Kelly Krystyniak, Esq., Holland & Knight LLP, for the protester.
Kenneth B. Weckstein, Esq., and Shlomo D. Katz, Esq., Brown Rudnick LLP, and Brad R. Wright, Esq., Griff, Larson,
Laiche, & Wright, for Portage, Inc., the intervenor.
Young H. Cho, Esq., and Charmaine A. Howson, Esq., Department of Energy, for the agency.
Nora K. Adkins, Esq., and James A. Spangenberg, Esq., Office of the General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protester's challenges to the agency's evaluation of its proposal constitute mere disagreements with the agency's judgments and provide no bases for sustaining the protest where the agency, in accordance with the stated evaluation criteria,
reasonably and equally evaluated the proposals and concluded that the awardee's proposal offered the best value to the
government despite its higher price.
DECISION
Gonzales–Stoller Remediation Services, LLC (Gonzales), of Broomfield, Colorado, protests the Department of Energy's
(DOE) issuance of a task order to Portage, Inc., of Idaho Falls, Idaho, under request for task order proposals (RTP) No.
DE–SOL– 0001300 for environmental remediation, including excavation and transportation of residual radioactive material (RRM), at DOE's Moab project site in Utah.
We deny the protest.
BACKGROUND
On December 17, 2010, DOE issued the RTP under its multiple award, small business, environmental management nationwide indefinite-delivery/indefinite-quantity (ID/IQ) contract to all contract holders. The RTP sought offerors to conduct remediation of RRM at DOE's Moab site, which includes work related to RRM excavation, conditioning, and filling
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
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of containers at the Moab site; transporting RRM from the Moab site to a site 30 miles away in Crescent Junction, Utah;
disposal of RRM in a disposal cell at the Crescent Junction site and interim and final cover placement of the disposal
cell; and reclaiming the Moab site to appropriate standards. RTP at C–3.
As relevant here, the RTP's performance work statement provided a description of the project performance requirements
for the excavation and handling of RRM at Moab, and the transportation of RRM from the Moab site to the Crescent
Junction site. RTP at C–5–10. These sections detailed the agency's requirements that offerors provide safe, efficient, and
cost effective debris handling plans for the transfer of RRM, which contemplated the decontamination of RRM containers; a transportation plan, which included the shipment of oversized materials and/or debris to the Crescent Junction site
by truck; and an RRM excavation plan, which was to include such matters as excavation method, excavation sequence,
mixing of slimes and sands, segregation of oversized materials, and water management. Id.
*2 The RTP provided for the award of a single cost-plus-award-fee task order for the environmental remediation portion
of the work, with a fixed-price component associated with the disposal of RRM at the Crescent Junction site. Award
would be made to the offeror whose proposal represented the best value considering the evaluation of three equally rated
technical evaluation criteria-technical approach, key personnel and organization, and past performance-and cost/price
(which would be evaluated for reasonableness and realism). RTP at M–1. In determining best value, the combined weight
of the non-cost criteria was significantly more important than cost/price. Id.
The RTP instructions for the preparation of proposals under the technical approach factor required offerors to describe
their technical approach for all major performance work statement activities; identify the risks and impacts of their proposed approach; provide rationale for the identified risks and impacts; and explain their approach to eliminate, avoid, or
mitigate the identified risks. RTP at L–10. Offerors were also to provide as part of their technical approaches a detailed
integrated schedule, including a critical path schedule. RTP at L–10–11.
The evaluation of the technical approach factor was based upon the depth, quality, completeness, effectiveness, and reasonableness of the contractor's technical approach for the major performance work statement activities-transition, facility/
ground maintenance, excavation and handling at Moab, transportation, Crescent Junction operations, and project supportto meet the purposes and objectives of the RTP within the existing funding and regulatory framework. The evaluation
would consider the identification of risks and impacts of the offeror's proposed approach; the rationale for the identified
risks and impacts; and the offeror's approach to eliminate, avoid, or mitigate risks. RTP at M–2. The realism of an offeror's detailed integrated schedule, including the critical path schedule, would also be evaluated.
In response to the RTP, six small business ID/IQ contract holders submitted proposals, including Gonzales and Portage.
Gonzales is a Small Business Administration -approved Mentor–Protégé LLC consisting of S.M. Stoller Corporation as
the mentor and JG Management Systems, Inc. as the protégé. Skanska USA Civil West is an integrated subcontractor to
Gonzales. Gonzales Proposal, vol. II, Technical Approach, at 1–1.
Gonzales proposed a 28–week (6.5 months) RRM tailings excavation and movement “campaign” for each year of the
contract, which would begin in early March and end in mid-September. Id. at 1–11.For the 24 weeks (5.5 months)
Gonzales was not excavating and moving RRM, Gonzales proposed a reduction of its staff to [REDACTED] members to
focus on management, planning, maintenance, and security activities. Id. During the 5.5–month work cessation period,
Gonzales' proposal provided that it would “attempt to place the staff on other Stoller and Skanska construction jobs
where opportunities exist.”Id. at 1–30.Additionally, Gonzales' proposal offered employees an incentive to return to work,
after the 5.5–month work cessation period ended, by providing a 401k plan with a match by Gonzales [REDACTED].
While Gonzales “expect[ed] some loss of staff from year to year,” Gonzales provided that it “anticipate[d] [that] the ma-
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Page 3
jority of staff will return for the opportunity to work at Moab.”Id.
*3 Portage proposed a [REDACTED]-month excavation and movement schedule with a [REDACTED]-month curtailment during the winter. Portage Proposal, vol. II, Technical Approach, at 7. During its work cessation period, Portage
proposed retaining a staff of [REDACTED] employees to provide the year-round solicitation requirements of security,
maintenance, and site support. Id. Portage's proposal recognized the project risk associated with retention of the workforce at Moab due to the [REDACTED]-month work cessation, but stated that it was “highly confident that we can avoid
and/or mitigate what we believed would be the primary risk associated with the [REDACTED]-month option (i.e., our
ability to re-hire the craft workforce after the winter curtailment).”Id. at 4. Portage proposed to retain the workforce after
work cessation through moving the workers to its subcontractors, [FN1] which offered several options to retain staff in
their operations, and through a 401k benefit plan with a matching contribution by Portage that would allow
[REDACTED] for employees who [REDACTED].Id. at 3.
The proposals of Gonzales and Portage were evaluated by the technical evaluation team (TET), which resulted in the following technical ratings and total evaluated price for Gonzales' and Portage's proposals:
Technical Factor
Gonzales
Portage
Technical Approach
Adequate
Outstanding
Key Personnel & Organization
Outstanding
Outstanding
Past Performance
Outstanding
Good
$110,592,610
$123,826,620
Total Evaluated Price
Agency Report (AR), Tab 2, Task Order Evaluation Report, at 8. [FN2]
The TET identified three strengths, three weaknesses, and one significant weakness in its evaluation of Gonzales' technical approach. Id. at 19–21.Gonzales' significant weakness concerned its scheduling and workforce retention activities
during its 5.5–month work cessation period. Id. at 21.As relevant here, two of Gonzales' weaknesses concerned its approach to debris handling in transporting RRM by truck, and its approach to RRM excavation with regard to the double
handling of sand tailings. Id. at 21.The TET's evaluation of Portage's technical approach identified two significant
strengths, three strengths, and one weakness. Id. at 27–30.The two significant strengths in Portage's technical approach
concerned its scheduling and workforce retention activities during its [REDACTED]-month work cessation period, and
its detailed description of RRM excavation. Id. at 28.
*4 The source selection authority (SSA) concluded that Portage's proposal provided the best value to the government
based on his comparison of the proposals' strengths and weaknesses, and relative merits. [FN3] AR, Tab 3, Source Selection Statement, at 13. The SSA specifically found that Portage's proposal was superior to the other proposals, including
Gonzales, under the non-cost evaluation factors. In this regard, the SSA found that Portage's technical approach, with
two evaluated significant strengths, represented a major discriminator between the proposals. Id. at 11.The SSA also
found that Portage's exceptional approaches for its RRM tailing and debris excavation strategies, shipping campaign
(including debris handling and transportation), and workforce retention alone provide a significant advantage over all
contractors. Id. at 13.The SSA also found the offerors' “outstanding” key personnel and organization were not a discriminator. The SSA did recognize that there were qualitative differences between Gonzales' and Portage's past performance,
but found that this did not represent a significant discriminator because the differences in past performance were considered “minimal” and all offerors would be able to meet contract expectations. Id. Based on his integrated assessment of
the proposals, including the evaluated costs, the SSA determined that Portage's proposal represented the best value. Id. In
this regard, the SSA expressly determined that when Portage's proposal was compared to Gonzales' proposal, Portage's
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superior technical approach “more than outweighs” its higher evaluated cost. Id.
The award was made to Portage on November 4, 2011. After receiving a debriefing, Gonzales filed this protest with our
Office on November 25.
DISCUSSION
Gonzales contends that the agency unreasonably evaluated its proposal, applied an unstated evaluation criterion, evaluated the proposals of Gonzales and Portage unequally, and unreasonably found that Portage's higher cost proposal represented the best value.
In considering protests challenging an agency's evaluation of proposals, we will not reevaluate proposals; rather, we will
examine the record to determine whether the agency's evaluation conclusions were reasonable and consistent with the
terms of the solicitation and applicable procurement laws and regulations. James Constr., B–402429, Apr. 21, 2010,
2010 CPD ¶98 at 3. A protester's mere disagreement with a procuring agency's judgment is insufficient to establish that
the agency acted unreasonably. Id.
Here, we conclude that the evaluation of Gonzales' proposal and the source selection decision were reasonable and consistent with the solicitation. Although our decision does not specifically address all of Gonzales' arguments, we have
fully considered each of them. As illustrated by the following examples of Gonzales' primary arguments, we find that
none of these arguments provide a basis to sustain the protest.
Gonzales' Work Cessation Schedule
*5 Gonzales challenges the significant weakness assigned its technical approach asserting that the agency unreasonably
evaluated its 5.5–month work cessation schedule. The TET report described the significant weakness as follows:
Schedule Activities – Winter Shutdown – [Gonzales] proposed a seasonal, cyclical operating approach where the
craft labor (i.e., operators, drivers, laborers, etc.) will be furloughed each year during winter shutdown ... resulting in
increased safety incidents due to loss of safe operating capabilities, knowledge base, efficiency, and DOE safety culture due to increased skilled/trained workforce turnover.... The opportunities and benefits described in [Gonzales']
proposed plan to retain the existing workforce year after year (e.g., 401k plan where employees are vested
[REDACTED], accrued vacation benefits, etc.) were not reasonable or adequate incentives for workforce continuity
to retain most of the skilled/trained workers each year. [Gonzales'] incomplete, ineffective and unreasonable winter
shutdown approach described above are flaws that appreciably increase the risk of unsuccessful task order performance.
AR, Tab 2, Task Order Evaluation Report, at 21.
Gonzales disputes the agency's claim that its cyclical operating approach increased the risk of safety incidents. Gonzales
argues that the agency's underlying conclusions, with regard to its ability to retain its workforce year after year, are unreasonable because the agency failed to consider that its proposal stated that it would attempt to place workers on other
construction jobs where opportunities exist, and improperly determined that its 401k incentive plan to retain furloughed
workers after the end of the 5.5–month work cessation period did not provide reasonable or adequate incentives for
workers to return to work at Moab.
The agency's evaluation of Gonzales' proposed approach concluded that there was an increased risk of safety concerns,
which would be caused by the adverse effect on workforce retention attendant with Gonzales' cyclical operating approach, given that Gonzales' proposal failed to provide sufficient details regarding its plan for providing other opportunities for furloughed workers. AR, Tab 2, Task Order Evaluation Report, at 21. For example, the agency found that
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Gonzales' proposal failed to address where the jobs may be located or demonstrate its past success in relocating furloughed workers to other projects. AR at 16. The agency also determined that Gonzales' proposed 401k plan failed to
provide adequate incentives for the skilled workers to return after the lengthy 5.5–month furlough period. AR, Tab 2,
Task Order Evaluation Report, at 21. As explained by the agency, an inexperienced and unskilled workforce unfamiliar
with the work site, processes and procedures, and safety culture-which could result from a failure to retain the skilled
workforce-could increase safety incidents. AR at 18.
*6 In short, Gonzales failed to provide sufficient detail in its proposal to convince the agency that it could retain its
skilled/trained workers after a 5.5–month furlough. It is an offeror's responsibility to submit an adequately written proposal that establishes its capability and the merits of its proposed technical approach in accordance with the evaluation
terms of the solicitation. Carolina Satellite Networks, LLC; Nexagen Networks, Inc., B–405558, et al., Nov. 22, 2011,
2001 CPD ¶257 at 4. Based on our review of the record, we conclude that the agency's finding that Gonzales' work cessation approach increased the risk of safety concerns was reasonable. Gonzales' attempts to rebut the agency's conclusions
amount to no more than mere disagreement with the agency's judgments, and do not provide any basis to sustain the
protest.
Nevertheless, Gonzales contends that the RTP did not expressly or impliedly require an offeror to present a workforce retention plan as part of their proposal, nor did the evaluation criteria state or imply that workforce retention would be an
evaluation factor. Thus, Gonzales asserts that the agency's technical approach evaluation, which was based in part on an
offeror's ability to retain its workforce, unreasonably applied an unstated evaluation factor. We disagree.
Although agencies are required to identify in a solicitation all major evaluation factors, they are not required to identify
all areas of each factor that might be taken into account in an evaluation, provided that the unidentified areas are reasonably related to or encompassed by the stated factors. Information Ventures, Inc., B–401448.5, B–401448.6, May 13,
2010, 2010 CPD ¶180 at 7. While the RTP did not expressly provide that the agency would take into consideration the
ability of an offeror to retain its workforce, it did provide for the evaluation of the risks and impacts of the offeror's approach. Here, Gonzales proposed an approach that would furlough [REDACTED] members of its workforce for 5.5
months, which brought with it the possibility of workers not returning after the work cessation period ended. Based on
Gonzales' approach, it was appropriate for the agency to evaluate the risk of its cyclical schedule, which reasonably encompassed whether Gonzales could retain its skill/trained workers after its work cessation period ended. Indeed, the protester's proposal, by including information on its intention to attempt to place workers in other positions and its 401k benefits incentives, implicitly recognized that the RTP contemplated evaluation of these considerations as part of the technical approach evaluation. Accordingly, we find the evaluation to be consistent with the terms of the solicitation.
Gonzales also contends that the agency's assignment of a significant weakness for its proposed 5.5–month work cessation
schedule, while assigning Portage a significant strength for its proposed [REDACTED]-month work cessation schedule,
reflects unequal treatment.
*7 It is a fundamental principle of government procurement that competition must be conducted on an equal basis, that
is, offerors must be treated equally and be provided with a common basis for the preparation of their proposals. ContinentalRPVs, B–292768.2, B–292768.3, Dec. 11, 2003, 2004 CPD ¶ 56 at 8.
Our review of the record does not show unequal treatment by the agency because there were significant differences
amongst the proposals, which the agency reasonably evaluated. The duration of work cessation between the two proposals was not inconsequential-Gonzales proposed a 5.5–month shut down and Portage proposed [REDACTED]-month shut
down. Furthermore, the agency found that Portage's proposal provided a level of detail that was lacking in Gonzales' ap-
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proach. In this regard, the TET's report described Portage's significant strength as follows:
Scheduling Activities – Winter Operations – Portage proposed a detailed, seasonal; [REDACTED]-month operating
approach where work activities would cease during a winter curtailment.... Portage's proposed schedule activities and
its discussion on how to retain its skilled/trained workforce year after year is reasonable for workforce continuity.
Portage proposed to offer affected workers the ability to work at other locations and provides significant details regarding the remaining staff responsibilities and activities. Portage, along with its named major/critical subcontractors, offered to move operators/laborers to their local quarry where stone mining and crushing activities are staffed up
in the winter to develop aggregate stockpiles (currently being completed at the site by Nielson). Key equipment operators could be transitioned to coal haul operations, gas and oil field operations, and pipeline work where winter
activities are ongoing. Moab staff could also be placed on temporary assignment on existing task orders with other
DOE and commercial clients. Retaining project personnel with the current contractors will ensure a stable safety culture. Project-related winter curtailment activities include site support to DOE and the [technical assistance contractor], site inspections after significant weather events, long lead maintenance of heavy equipment, stakeholder interactions, training, updates to plans and reports, and preparations for resumption of activities in March. Portage offered a
401K plan allowing employees who [REDACTED]. Portage's proposed schedule of work activities will ensure the
retention of safe operating capabilities, knowledge base, efficiency, and DOE safety culture due to skilled/trained
workforce re-hire. Portage's in-depth, complete, and reasonable scheduling activities described above for excavation,
handling and placement are attributes that appreciably increase the probability of successful task order performance.
AR, Tab 2, Task Order Evaluation Report, at 28.
*8 Comparing the two offers with regard to retaining its skilled/trained workers who were furloughed during the shutdown period, Gonzales stated that it would attempt to place the staff on other Stoller and Skanska construction jobs
where opportunities exist and offer employees an incentive to return to work, after the 5.5–month work cessation period
ended, by providing a 401k plan with a match by Gonzales [REDACTED]. Gonzales Proposal, vol. II, Technical Approach, at 1–30. Gonzales' proposal explained that while it expected some loss of staff from year to year it anticipated
that the majority of staff will return for the opportunity to work at Moab. Id.
Portage, on the other hand, stated that it was highly confident that it could avoid and/or mitigate what it acknowledged to
be the primary risk associated with its [REDACTED]-month shutdown plan (i. e., its ability to re-hire the craft workforce
after the winter curtailment) by proposing to retain the workforce after curtailment through moving the workers to its
subcontractors. Portage Proposal, vol. II, Technical Approach, at 4. Portage's proposal detailed that its subcontractor
Nielson offered several options for retention of staff (i.e., moving craft staff to local pit development and crushing activities), and its subcontractor, DeNuke, indicated that it was highly confident it can place staff on existing contracts. Id. at
3. Portage's proposal also stated that Nielson had a history of providing similar work to retain workers from its winter
construction work cessation, which resulted in a 95–percent return rate after the winter furlough. Id. Portage also
provided a 401k incentive benefit plan with a match by Portage that would allow [REDACTED] for employees who
[REDACTED].[FN4]Id. at 3–4.
While neither Portage nor Gonzales could guarantee that they will temporarily place all furloughed workers or retain its
workforce after work cessation, the agency's evaluation determined that Portage's proposal provided far more confidence
than Gonzales' proposal that it could successfully do so. This is not unequal treatment but a reasonable evaluation of the
respective offerors' approaches.
Gonzales' Debris Handling and Transportation
The agency determined that Gonzales' approach to debris handling and transportation warranted a weakness because it
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Page 7
did not provide adequate detail and discussion, which increased the risk of unsuccessful task order performance.
Specifically, the agency found that Gonzales' proposal failed to explain its truck decontamination and surveying process
and failed to provide information regarding the size and type of dump trucks to be used or the number of round trips required. The agency also found that Gonzales' proposed schedule for RRM movement via truck could impact the local
community traffic patterns for the Moab area. AR, Tab 2, Task Order Evaluation Report, at 20.
*9 With regard to truck decontamination, Gonzales' proposal provided, “[REDACTED].” Gonzales Proposal, vol. II,
Technical Approach, at 1–18. The agency determined that this description failed to provide the necessary details to adequately explain its approach, such as the location of the decontamination facility and the process of truck decontamination. AR, Tab 2, Task Order Evaluation Report, at 20. In its protest, Gonzales asserts that the agency's determination was
unreasonable because the agency failed to recognize that it provided additional detail regarding the process for truck decontamination in its proposal. See Gonzales Proposal, vol. II, Technical Approach, at 1–17, Figure 1–9. However, based
on our review of Gonzales' proposal, we agree with the agency that the decontamination process Gonzales pointed to in
its protest focuses solely on decontamination of railcar containers and does not provide any additional details to address
truck or truck component (chassis) decontamination. [FN5]See AR at 23.
As to truck sizes and types, and the number of round trips between Moab and Crescent Junction, we agree with the protester that this information was contained within the basis of estimate portion of Gonzales' cost proposal. However, the
agency properly did not consider the information contained within Gonzales' cost proposal in evaluating Gonzales' technical approach, particularly given the admonition in the RTP instructions, which stated that “[n]o cost information shall
be included in the Technical and Management Proposal.”RTP at L–10.
We likewise find that the agency's determinations with regard to Gonzales' schedule to move RRM via truck during the
[REDACTED] to be reasonable. The agency reasonably found that the proposed movement of RRM over a
[REDACTED]-day period, during peak tourist season, could have an impact on the local and community traffic patterns,
which could increase the risk of unsuccessful performance. While Gonzales contends that its shipments would not have
any impact on the local or community traffic patterns, this disagreement does not show that the agency's judgment was
unreasonable.
Excavation of RRM
Gonzales' technical approach also received a weakness for its RRM excavation approach to mixing sand tailings with the
slime tailings. The agency determined that Gonzales' approach lacked efficiency and created safety problems because the
sand tailings were being handled more than what was needed to meet the performance work statement requirements. The
agency determined that the double-handling of the sand tailings increased the risk of safety incidents, wear and tear on
equipment, and unsuccessful task order performance. AR, Tab 2, Task Order Evaluation Report, at 20. While Gonzales
again disagrees, it has not shown that the agency's judgment that this approach constituted a weakness was unreasonable.
Here too, Gonzales asserts that the agency unequally evaluated Gonzales' and Portage's proposals for RRM excavation.
However, we once again find significant differences between the two proposals. Gonzales proposed to excavate the
[REDACTED]. Gonzales Proposal, vol. II, Technical Approach, at 1–11–13; Supp. AR at 24. Portage, on the other hand,
proposed that [REDACTED]. Portage Proposal, vol. II, Technical Approach, at 12–13; Supp. AR at 25. We have no basis
to find the agency unequally evaluated the offeror's RRM excavation approaches.
Best Value Decision
*10 Gonzales finally contends that the agency's best value decision, which resulted in the payment of a $13 million
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Page 8
premium, was unreasonable. As indicated above, the SSA clearly articulated the basis for his determination that Portage's
superior technical approach more than outweighed its higher total evaluated price. AR, Tab 3, Source Selection Decision
at 13. In so doing, the SSA took into account Gonzales' higher rated past performance and identified the specific advantages in Portage's approach that reasonably supported the price premium. We find the agency's award decision was reasonable and consistent with the evaluation criteria.
The protest is denied.
Lynn H. Gibson
General Counsel
FN1. For example, Portage's major subcontractor, Nielson Construction, offered several options for retention of staff (
e.g., moving craft staff to local pit development and crushing activities), and Portage's subcontractor, DeNuke Contracting Services, Inc., indicated that it was highly confident they can place staff on temporary assignments on existing contracts. Portage Proposal, vol. II, Technical Approach, at 3.
FN2. Possible adjectival ratings for the technical approach factor were outstanding, good, adequate, inadequate, and unsatisfactory. The possible adjectival ratings for the past performance factor were outstanding, good, satisfactory, marginal, and unacceptable. AR, Tab 2, Task Order Evaluation Report, at 14.
FN3. In making the best value decision, the SSA reviewed the offerors' proposals and the TET's evaluation report, received a briefing from the TET chairperson and contracting officer, and conferred with TET members. AR, Tab 3,
Source Selection Statement, at 6.
FN4. The agency found that Portage's [REDACTED] 401k plan, when combined with a longer annual period of employment, provided a better workforce retention incentive than Gonzales' 401k plan with a shorter annual period of employment. Supp. AR at 12. While Gonzales disagrees, it has not shown the agency's judgment was unreasonable.
FN5. Gonzales argues that the evaluation of its debris handling approach as compared to how the agency's evaluated
Portage's debris handling approach was unequal and unreasonable. Gonzales' contentions here lack merit, inasmuch as
they are based upon a faulty description and/or understanding of Portage's approach. For example, Gonzales claims that
Portage received a significant strength, even though it failed to provide the necessary details to adequately explain its approach to truck decontamination prior to over the road travel, when in fact, Portage's approach did not require an explanation of truck decontamination since its over-the-road trucks did not cross into the contamination area, as Gonzales'
trucks did. See Portage Proposal, vol. II, Technical Approach, at 5, 14–15.
B- 406183.2, B- 406183.3, B- 406183.4, 2012 CPD P 134, 2012 WL 1095360 (Comp.Gen.)
END OF DOCUMENT
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
to “extra work” and, hence, covered contractor's
claim for additional costs due to unforeseeable
and uncontrollable damage caused by flooding
and weather was a claim which was waived by
contractor when not raised in courts below.
144 Ariz. 95
Supreme Court of Arizona, In Banc.
NEW PUEBLO CONSTRUCTORS,
INC., Plaintiff/Appellee,
v.
STATE of Arizona, Defendant/Appellant.
2 Cases that cite this headnote
[2]
No. 17581–PR.
|
Feb. 27, 1985.
Contractor instituted action against the State through
the Department of Transportation to obtain damages for
the additional costs in completing work on a highway
construction contract due to a catastrophic storm and
unusually heavy rainfall. The Superior Court, Santa Cruz
County, Roberto C. Montiel, J., entered judgment on verdict
for contractor, and the State appealed. The Court of Appeals,
696 P.2d 203, reversed, and contractor's petition for review
was accepted. The Supreme Court, Hays, J., held that: (1)
question whether letters which the contractor sent to the
State were sufficient notice under provision of the contract
governing claims for adjustment and disputes was a question
for the jury; (2) the state engineer could not act capriciously
in refusing to remit liquidated damages because the delay
was caused by an act of God beyond the contractor's control
and not merely because of the apparent lack of time owing
to the delay; (3) damages for extra work were appropriately
measured by the modified total cost method and by the jury
verdict method; (4) statutory prohibition against an award of
costs did not bar an award of attorney's fees or taxable costs
against the State; (5) contractor could not recover attorney's
fees against the State as in a de novo review of a contract
dispute; and (6) contractor could, however, recover attorney's
fees as in a contract action against the State.
Highways
Performance of contract and payment of
compensation
Public Contracts
Preserving right to claim for extras;
estoppel
Issue as to whether letter in which contractor
informed the Department of Transportation that
it intended to make a claim for additional costs
incurred by reason of flooding and weather
was sufficient to give notice to the Department
of the contractor's intent to make a claim
under the provision in the construction contract
governing claims for adjustment and disputes
was a question for the jury assuming that the
particular provision in the contract applied to
claims for “rework” as well as to claims for
“extra work.”
4 Cases that cite this headnote
[3]
Public Contracts
What law governs
In the absence of controlling state authority, state
courts will look for guidance in public contract
law to the federal court of claims and the federal
boards of contract appeals.
Affirmed in part, reversed in part, and remanded.
4 Cases that cite this headnote
West Headnotes (23)
[1]
[4]
Highways
Performance of contract and payment of
compensation
Appeal and Error
Nature or Subject-Matter of Issues or
Questions
Public Contracts
Preserving right to claim for extras;
estoppel
Claim by contractor that clause in highway
construction contract governing claims against
Department of Transportation for adjustment and
disputes was applicable to “rework” as well as
Claims for compensation by a strict application
of notice requirements should not be barred
when government entity is aware of changed
conditions and of the claim being made by
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
1
New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
contractor and no prejudice is shown by lack of
formal notice.
administrator acted capriciously because no
actual harm resulted from delay on part of the
contractor.
1 Cases that cite this headnote
[5]
Damages
Questions for jury
Provision in contract to effect that the
Department of Transportation “may” waive
liquidated damages was not a basis for
concluding that the state engineer, by virtue
of his authority as head of the project, was
vested with absolute discretion to refuse to
waive liquidated damages without resorting to
arbitration or to dispute resolution clause in
contract and, hence, did not preclude trial
court's submission to jury inquiring whether state
engineer acted capriciously in refusing to remit
liquidated damages because the delay in highway
construction was caused by an act of God beyond
the contractor's control and not merely because
of the apparent lack of harm owing to the delay.
[9]
Damages
Operation and Effect of Stipulations
A court need not defer to expertise of an
administrator in refusing to waive liquidated
damages under a public contract unless court
is convinced that administrator is reasonably
exercising that expertise.
[10]
Damages
Operation and Effect of Stipulations
Refusal to waive liquidated damages under a
highway construction contract is not capricious
merely because no actual harm results after
contractor inexcusably delays constructing
highway safety features.
1 Cases that cite this headnote
[11]
[6]
Damages
Operation and Effect of Stipulations
Relief may be granted from imposition of
liquidated damages under a public contract due
to inexcusable delay approximately caused by
unforeseeable and uncontrollable acts of God
including severe weather.
[7]
Damages
Questions for jury
Contentions of excusable delay warranting
remission of liquidated damages under a public
contract by reason of an act of God beyond
contractor's control present a question of fact.
1 Cases that cite this headnote
[8]
Damages
Operation and Effect of Stipulations
A refusal by an administrator to waive liquidated
damages under the public contract is reviewable,
but only to extent of determining whether
Highways
Performance of contract and payment of
compensation
Public Contracts
Damages and Amount of Recovery
Damages which contractor was entitled to
recover from the Department of Transportation
as a result of the additional costs incurred by it
when a catastrophic storm and unusually heavy
rainfall caused extensive damage to both project
areas was properly measured by utilizing the
modified total cost and the jury verdict method,
rather than by utilizing the actual cost or total
cost method, where segregating and precisely
recording rework costs and original work costs
was impracticable, since most of the additional
expenses were caused by an invisible, rising
subterranean water table, and additional work
was best performed concurrently with principal
contract work, requiring that specific estimates
be appropriately adjusted to avoid recovery of
unrelated costs by contractor.
6 Cases that cite this headnote
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2
New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
[12]
Highways
Performance of contract and payment of
compensation
[15]
A contractor may not use the modified total
cost method for determining damages when
additional work is performed on a public
construction project if there is sufficient
evidence to use the jury verdict method of
determining damages.
Public Contracts
Preserving right to claim for extras;
estoppel
Question whether the State waived any
requirement of actual costs for additional work
on highway project if the contractor provided the
State with an opportunity to keep track of costs
and the State refused the offer was irrelevant to
issue of contractor's recovery of damages under
a modified total cost or cost variance method
where it was not feasible to keep track of actual
costs and there was yet another method for
accurately measuring damages.
3 Cases that cite this headnote
[16]
Public Contracts
Extra costs or expenses in general
States
Rights and remedies of contractor and
sureties
[17]
1 Cases that cite this headnote
Public Contracts
Extra costs or expenses in general
The use of the jury verdict method and the
modified total cost method of determining
damages when additional work is performed on
a public construction project is not precluded
when the appropriateness is established by the
contractor, although the use of both methods is
subject to close judicial scrutiny to insure that the
contractor does not receive a windfall.
Use of the jury verdict method for calculating
damages due to additional work on public
construction projects is appropriate when the
State is liable for a changed condition that
increases the contractor's expenses, contractor
cannot, due to circumstances beyond his control,
feasibly prove specific damages by a more
reliable method, and there is sufficient evidence
in record to provide a reasonable basis for
approximating damages.
[14]
Public Contracts
Extra costs or expenses in general
A contractor cannot use the jury verdict method
of determining damages when additional work
is performed on a public construction project
if he can prove only that the state caused part
of the damages and cannot make a reasonable
approximation of those damages.
3 Cases that cite this headnote
[13]
Public Contracts
Extra costs or expenses in general
2 Cases that cite this headnote
[18]
States
Costs
Neither the jury verdict method nor the modified
total cost method for determining damages
when additional work is performed on public
construction projects can be utilized when there
is no excuse for the failure to keep track of actual
costs.
The statutory prohibition of an award of “costs”
against the state cannot be extended beyond
the obvious meaning of the term to included
“attorney fees” and, hence, cannot be read as
precluding a contractor from recovering attorney
fees against the state when awarded damages
for additional work performed on a public
construction project. A.R.S. §§ 12–820, subd. 6,
12–825.
3 Cases that cite this headnote
3 Cases that cite this headnote
Public Contracts
Extra costs or expenses in general
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New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
[19]
Statutory prohibition against an award of “costs”
against the state does not include “taxable costs”
and, hence, does not preclude an award of taxable
costs against the state in an action wherein the
contractor seeks liquidated damages by reason of
having to perform additional works on a public
construction project. A.R.S. §§ 12–345, 12–825.
2 Cases that cite this headnote
[20]
Administrative Law and Procedure
Costs
Mere fact that an agency decision precedes
an action does not automatically transmute the
lawsuit into “judicial review of agency action”
so as to authorize an award of attorney fees and
other expenses. A.R.S. § 12–348, subd. A, par. 3.
4 Cases that cite this headnote
[21]
trial court's refusal to award those fees. A.R.S. §
12–341.01, subds. A, C.
States
Costs
States
Costs
Cause of action wherein contractor sought to
recover against State for additional costs in
completing highway construction project when a
catastrophic storm and unusually heavy rainfall
did extensive damages to both work areas was
not created by statute, but by the common law
of contracts and, hence, was not one in which
attorney fees were recoverable. A.R.S. § 12–348,
subd. A, par. 3.
1 Cases that cite this headnote
2 Cases that cite this headnote
[23]
States
Costs
An award of attorney's fees to successful party is
authorized in “any contested action” against any
civil defendant and, hence, is authorized in an
action by contractor to recover against the State
for additional costs in completing highway work
because of a catastrophic storm and unusually
heavy rainfall. A.R.S. § 12–341.01, subds. A, C.
Attorneys and Law Firms
*98 **188 Lewis & Roca by John P. Frank, Joseph
E. McGarry and Sarah H. Jenkins, Phoenix, for petitioner/
appellee.
Robert K. Corbin, Atty. Gen. by James L. Hohnbaum, Joe
Acosta, Jr. and Albert Morgan, Asst. Attys. Gen., Phoenix,
for respondent/appellant.
Shimmel, Hill, Bishop & Gruender by Daniel F. Gruender
and Kenneth C. Sundlof, Jr., Phoenix, for amicus curiae
Associated General Contractors.
Fennemore, Craig, von Ammon, Udall & Powers by Calvin
H. Udall and Rolf R. von Oppenfeld, Phoenix, for amici
curiae W.R. Skousen Contractor, Inc.; C.S. McCrossan, Inc.;
D.C. Speer Const. Co., Inc.; Clinton Campbell Contractor,
Inc.
Opinion
[22]
Appeal and Error
To modify judgment or decree or secure
affirmative relief
Failure of contractor to cross appeal trial court's
refusal to award counsel fees against the State
under particular statute in action for additional
damages caused by flooding and weather may
have operated as a waiver of contractor's right to
trial court's refusal to hear evidence necessary to
support an award of attorney's fees, but did not
operate as a waiver of contractor's right to appeal
HAYS, Justice.
Plaintiff-petitioner, New Pueblo Constructors (NPC), entered
into two contracts with defendant-respondent, the Arizona
Department of Transportation (ADOT), to construct two
adjoining segments of the interstate highway between
Nogales and Tucson, known as the “Carmen” and “Tubac”
projects. In the fall of 1977 and the spring of 1978,
a catastrophic storm and unusually heavy rainfall caused
extensive damage to both project areas and to work previously
performed by NPC. NPC requested compensation for the
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New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
additional costs in completing the work under a clause in
both contracts that relieved the contractor of added expense
caused by acts of God and other unforeseeable events beyond
its control. NPC also sought to recover $31,500 assessed
against it as liquidated damages for late completion of the
Tubac project. After exhausting administrative remedies,
NPC sued ADOT. On January 20, 1983, the jury returned a
verdict of $256,891.23 in NPC's favor. This amount included
both compensation for NPC's losses and a complete refund
of money paid as liquidated damages. The trial court also
awarded NPC $42,192 in attorney's fees and $17,792.94
in expert witness fees under A.R.S. § 12–348(A)(3). The
Court of Appeals reversed the trial court with respect to
all relief granted below and remanded the case for further
proceedings. New Pueblo Constructors, Inc. v. Arizona
Department of Transportation, 144 Ariz. 113, 696 P.2d 203
[1984]. We have jurisdiction. Ariz. Const. art. 6, § 5(3);
Ariz.R.Civ.App.P., Rule 23; A.R.S. § 12–120.24. Amicus
curiae, Associated General Contractors of Arizona and W.R.
Skousen, contractors, were granted leave to file briefs in
support of the petition for review. We accepted NPC's petition
for review to address six questions:
1. Did the contractor fail as a matter of law to provide
adequate notice of a claim for additional compensation
in completing the contract?
2. Did ADOT's engineer have absolute discretion to
refuse to waive liquidated damages, thereby barring
submission of this issue to the jury?
3. Did the measurement of the contractor's damages for
extra work by the modified total cost method and the jury
verdict method rather than by isolating actual costs bar
relief?
4. Does A.R.S. § 12–825 bar an award of attorney's fees or
taxable costs against the state?
5. May a contractor recover attorney's fees under A.R.S. §
12–348(A)(3) for de novo review of a contract dispute?
6. May a contractor recover attorney's fees in a contract
action against the state under A.R.S. § 12–341.01?
We vacate the court of appeals opinion. We dismiss ADOT's
cross-petition to review the Court of Appeals determination
that the statute of limitations has not run on NPC's claim. The
relevant facts are discussed in our presentation of the issues.
I. DID THE CONTRACTOR PROVIDE NOTICE OF
HIS CLAIM FOR COMPENSATION?
The work performed by NPC on the Carmen and Tubac
projects involved, first of all, grading and draining the
roadbed to form the “subgrade” (or graded roadbed). The
“base” and “paving materials” would then be placed on the
subgrade to form the *99 **189 highway. The “base”
materials consist of rock of various sizes which is compacted
into the subgrade. “Paving” or surface materials are a
combination of asphalt and “mineral aggregate” (a mixture
of various sizes of rock and sand) which is spread over the
base layer of the roadway. Special backfill material was used
in providing support for bridges and other construction. The
contractor's original sources for the base, paving and special
backfill materials were the Anamax and the Agua Linda
aggregate mining pits near the Santa Cruz River.
On October 9 and 10, 1977, an extraordinary storm, part of
Hurricane Heather, struck southern Arizona. This “hundred
years” storm caused the biggest flood and runoff experienced
in the area for 43 years. The governor declared a state of
emergency for Pinal, Pima and Santa Cruz Counties, which
included the area of these projects. This storm was followed
by unusually heavy rainfall during the first few months of
1978.
The weather caused extensive damage to the highway project
area. The soil in the project area became unstable; the ground
below became so soft that heavy construction equipment
sank in mudholes fed by groundwater. The subgrade was
softened and had to be stabilized and the roadway refilled.
Base material previously placed on the roadway became
oversaturated and had to be removed and replaced. Stockpiled
base and special backfill material in the Anamax pit eroded
and washed away. The groundwater table in the Agua Linda
pit ultimately rose from a level of 30 feet to 12 feet below
the surface. As a result, a new section of the Agua Linda pit
had to be developed for mineral aggregate and additional base
material had to be excavated, crushed and hauled.
ADOT had actual knowledge of the adverse and continuing
effects of the weather on the project. On November 4,
1977, ADOT sought and obtained a declaration by the
federal government that the Santa Cruz River Basin, which
included the project site, was a major disaster area. In
late December, 1977, Karl Ronstadt, the president of NPC,
met with the ADOT supervisor for the Carmen project and
informed him of the increased costs of constructing the
east frontage road. On December 23, 1977, the president
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New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
of NPC phoned the state engineer, Oscar Lyons. The two
men discussed the gravity of the flooding in the project
area, the length and severity of the continuous rains, and
the increased costs and delays caused by the weather. In
late March or early April of 1978, the management of
NPC met with the state engineer to discuss the situation.
The state engineer suggested NPC make a claim under
subsection 107.17 of the ADOT Standard Specifications
for road and bridge construction, which was incorporated
as part of both contracts. See Arizona Department of
Transportation Standard Specifications (1969), and the
1977 Supplement, (hereinafter referred to as “Standard
Specifications”). Subsection 107.17 provides in relevant part
that:
Until final written acceptance of the
project by the engineer, the contractor
shall have the charge and care thereof
and shall take every precaution against
injury or damage to any part thereof by
the action of the elements or from any
other cause, whether arising from the
execution or from the nonexecution of
the work. The contractor shall rebuild,
repair, restore and make good all
injuries or damages to any portion of
the work occasioned by any of the
above causes before final acceptance
and shall bear the expense thereof
except damage to the work due to
unforseeable [sic] causes beyond the
control of and without the fault or
negligence of the contractor, including
but not restricted to acts of God,
of the public enemy or governmental
authorities. (Emphasis added.)
On March 16, 1978, NPC wrote a letter to the ADOT
supervisors for the Carmen and Tubac projects. In that letter,
NPC advised ADOT that the flooding, unseasonable rains,
and rising water table were hampering their operations in
the select, mineral aggregate and special backfill pits. *100
**190 The letter closed by warning that there would be
a delay in completing the project. On March 23, 1978,
DeWayne Tripp, ADOT project engineer, conceded in his
study of the problem that the unusual weather that struck
the project area during the six-month period after Hurricane
Heather had adversely affected the work. On April 20,
1978, NPC wrote ADOT informing them that it intended to
make a claim for compensation under subsection 107.17 for
the unforeseeable and uncontrollable damage caused by the
flooding and the weather. NPC also informed ADOT that
they were compiling costs for this damage and information
on the financial impact of the delays. On April 28, 1978,
ADOT replied that they did not consider the information
presented in NPC's letter to be a sufficient basis for a claim
for additional compensation under subsection 105.17 of the
Standard Specifications, supra. Subsection 105.17 provides
in pertinent part that:
105.17 Claims for Adjustment and Disputes:
If for any reason, the contractor deems that additional
compensation is due him for work or material not clearly
covered in the contract or not ordered by the engineer
as extra work, the contractor shall notify the engineer in
writing of his intention to make claim for such additional
compensation before he begins the work on which he
bases the claim. If such notification is not given and the
engineer is not afforded proper facilities by the contractor
for keeping strict account of actual cost as required, the
contractor hereby agrees to waive any claim for such
additional compensation....
ADOT closed the letter by stating that until detailed
information was presented concerning NPC's losses, there
was no point in further discussing their claims for relief.
On May 4, 1978, NPC wrote a letter warning ADOT that
it intended to press its claims for compensation. NPC also
requested ADOT to keep track of costs on the remaining
fencing and excavation work (neither of which is a matter of
dispute in this lawsuit). On June 27, 1978, NPC submitted an
estimate of its claims to ADOT.
At trial, the judge held that NPC could not recover any costs
incurred before its first written notice to ADOT of its claims.
The issue of the sufficiency of NPC's written notice to ADOT
was submitted to the jury. The jury found that NPC's March
16th and April 20th letters would have informed a reasonable
person that NPC was performing additional work for which
compensation was expected. The Court of Appeals reversed,
holding that the notice provided by NPC in these two letters
was insufficient as a matter of law to comply with subsection
105.17 governing claims for additional compensation.
[1]
[2] We disagree for the reasons that follow. NPC
asserts that the notice requirements of subsection 105.17
do not apply to this case. NPC reasons that subsection
105.17 was intended to apply only to claims for additional
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New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
compensation for “extra work” (work compensable because
it is outside the contract and not required in its performance)
and not “rework” (work required in the performance of
the contract but compensable due to changed conditions or
government breach). Section 105.17 is virtually identical
to section 105.17 of the Guide Specifications for Highway
Construction (1968) established by the American Association
of State and Highway Transportation Officials. There are
no regulations interpreting these provisions, nor any cases
directly on point. The court of appeals did not address NPC's
contention because NPC did not raise this issue there. We
need not reach this contention either. Because NPC did not
urge this contention in that court, we deem it waived. See
Iman v. Southern Pacific Co., 7 Ariz.App. 16, 19, 435 P.2d
851, 854 (1968). Assuming, without deciding that the notice
requirements of section 105.17 apply to rework of the kind
involved in this case, we conclude that there was at least a jury
question as to whether NPC gave sufficient notice to ADOT
of its demand for compensation.
The notice requirement of subsection 105.17 protects
important state concerns. It permits early investigation of
the validity *101 **191 of a claim when the evidence is
still available and the memories of witnesses have not faded.
It allows the agency to compile records of the contractor's
costs. Finally, the notice requirement allows the agency to
consider alternate methods of construction that may cut costs.
See Appeal of Leavell & Co., ASBCA 16099, 72–2 BCA
9694 (1972). ADOT maintains that strict enforcement of the
notice requirement is essential to further these legitimate state
interests. Because we find no harm to these state interests on
the facts of this case, we disagree.
[3] In the absence of controlling state authority, state
courts naturally look for guidance in public contract law
to the federal court of claims and the federal boards of
contract appeals. See, e.g., Dewey Jordan, Inc. v. MarylandNational Capital Park & Planning Commission, 258 Md.
490, 265 A.2d 892, 897 (1970) (where there is a dearth
of cases regarding “changes” and “suspension of work” in
construction contracts, court notes a vast body of federal
cases on point); Siefford v. Housing Authority of the City
of Humbolt, 192 Neb. 643, 647–48, 223 N.W.2d 816, 819
(1974) (in the absence of Nebraska cases discussing the
doctrine of “acceleration,” court looks to federal decisions);
Morrison-Knudsen Co. v. State, 519 P.2d 834, 839–40
(Alaska 1974) (on issue of duty of state to disclose to
contractor information in its possession, the state court “takes
considerable guidance” from a line of cases developed in the
Court of Claims.) Morrison v. State Highway Commission,
225 Or. 178, 357 P.2d 389, 392–93 (1960) (in defining what
constitutes “changed conditions,” the court looks to federal
cases.) These specialty courts almost exclusively handle
federal procurement and construction cases. See 28 U.S.C. §
1346(a) (1976), 28 U.S.C. § 1491 (1972) (court of claims and
district courts have concurrent jurisdiction for claims under
$10,000; court of claims has exclusive jurisdiction for claims
over $10,000). Because of the differences in the size, funding
and number of personnel between state and federal agencies,
we would not automatically impose the same requirements on
both kinds of agencies. We believe, however, that the federal
cases provide a persuasive answer to the problem posed in the
instant case.
[4] Barring claims for compensation by a strict application
of notice requirements is disapproved by these federal
tribunals where the government is aware of the changed
conditions and of the claim for compensation and where no
prejudice is shown by the lack of formal notice. See HoelSteffen Construction Co. v. United States, 197 Ct.Cl. 561, 456
F.2d 760 (1972); C.H. Leavell & Co., supra. The decision will
go the other way when prejudice is shown. Eggers & Higgins
v. United States, 185 Ct.Cl. 765, 403 F.2d 225 (1968); Appeal
of Linebaugh, Inc. ASBCA 11384, 67–2 BCA 6640 (1967).
In this case there was abundant evidence from which a
jury could reasonably infer that ADOT had actual notice of
the changed conditions and NPC's claims for compensation.
Before NPC's March 16th and April 20th letters, ADOT
project supervisor, Wayne Tripp, completed a study of the
adverse affects of the weather on the project area. He
conceded that the weather harmed and delayed the project.
In the four months before these letters were sent, there
were continuing discussions between NPC executives and
high ranking ADOT officials about harm to the project and
compensation for it. Nor did the state suffer demonstrable
prejudice owing to the lack of more formal notice. It would
have been impractical for the contractor to keep track of
actual costs in this situation and there was a reasonable
approximation of damages. (See our discussion of damages,
post.)
II. THE REMISSION OF LIQUIDATED DAMAGES
NPC was assessed liquidated damages pursuant to subsection
108.08 of the Standard Specifications, supra, which provides
for such an assessment for every day of inexcusable delay
beyond the contract deadline. The Tubac project was finished
*102 **192 97 days after the contract time, on September
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New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
13, 1979. NPC contended that this time period was excusable
delay caused by the severe weather and requested a 97day extension of the contract deadline. Subsection 108.07
empowers the state engineer to postpone the contract period
to the extent that the contractor's work is delayed without
his fault by circumstances that are beyond his control. NPC
also requested a waiver of any stipulated damages found
by ADOT. Subsection 108.07 of the Standard Specification,
supra, provides that: “the Department may waive such
portions of the liquidated damages as may accrue after the
work is in condition for safe and convenient use by the
traveling public.” NPC submitted their claims for excuse or
waiver of liquidated damages to administrative claims review
by ADOT. At the highest level of administrative review, the
state engineer affirmed a lower administrative decision to
extend the contract for 22 days. NPC was assessed damages
of $420 per day for the remaining 75 days, which totaled
$31,500. The state engineer refused to waive these liquidated
damages.
The trial court instructed the jury to determine whether the
state engineer abused his discretion by refusing to excuse
the delay or waive damages. The evidence revealed that on
May 23, 1979, the contractually extended deadline for the
project, the contractor was notified that several items of the
work remained unfinished. The unfinished work included: 1)
the installation of five flood gates; 2) the placement of guard
rails; 3) the construction of chain link and line fences; 4)
the erection of right of way markers; and 5) miscellaneous
minor repairs. The estimated total value of the remaining
items was $83,355.00. At trial, NPC argued that refusal to
waive damages was capricious because sixteen days before
the extended completion date, traffic was diverted onto the
highways, without any detours or hindered traffic flow. NPC
also asserted that because the delay was caused by an act
of God beyond its control, it was an abuse of discretion
for ADOT to refuse to waive damages in the absence of
any serious harm caused by the delay. The jury found an
abuse of discretion and refunded all the liquidated damages.
The Court of Appeals reversed, holding that jury review of
this decision was foreclosed in view of the state engineer's
absolute discretion to refuse to waive liquidated damages.
[5] We disagree. ADOT does not contend here that the
state engineer decided this question pursuant to an arbitration
or dispute resolution clause in the contract, but simply by
virtue of his authority as head of the project. It is therefore
a weak inference which vests absolute discretion in the state
engineer merely because the contract provides that ADOT
“may” waive liquidated damages.
A contracting officer with a federal agency does not enjoy
this unreviewable discretion to waive liquidated damages
in federal government contracts. By statute, the comptroller
general or a contracting officer delegated this power may
waive liquidated damages in federal government contracts
involving federal or armed services agencies upon the
recommendation of the head of the agency. 41 U.S.C. §
256a; 10 U.S.C. § 2312. Such decisions by the agency
head or an authorized contracting officer are deemed final
and conclusive. 41 U.S.C. § 257; 10 U.S.C. §§ 2310–11.
This does not bar judicial review. A contracting officer's
refusal to waive liquidated damages due to asserted excusable
delay is judicially reviewable in the federal courts and in
the various contract appeals boards if arbitrary, capricious,
fraudulent, or unsupported by substantial evidence. Marley
v. United States, 191 Ct.Cl. 205, 423 F.2d 324 (Ct.Cl.1970);
Appeal of Zisken Construction Co., ASBCA 8613, 63 BCA
3829 (1963); 15 Fed. Procedure, L.Ed. § 39–348. See
generally McBride & Wachtel, supra, § 34.150 (remission
of liquidated damages); Calif. Government Handbook No.
22, Government Contracts Practice § 14.120 (remission
of liquidated damages). The scope of judicial review is
essentially the same for administrative decisions generally
under the Administrative Review Act, 41 U.S.C. § 321 et seq.
and The Contract Disputes *103 **193 Act of 1978, 41
U.S.C. §§ 601–613. See McBride & Wachtel, supra, § 5.60
(scope of review under the Administrative Review Act); 2
A.L.R.Fed. 691 (scope of review under the Wunderlich Act)
(1969); 15 Fed.Pro.L.Ed. § 39:507ff (scope of judicial review
under the Contract Disputes Act of 1978). This review for
lack of substantial evidence is actually broader than the abuse
of discretion review involved in the present case. Id.
[6] On the federal level, relief has been frequently granted
from imposition of liquidated damages due to excusable delay
proximately caused by unforeseeable and uncontrollable acts
of God, including severe weather. McBride & Wachtel,
supra, at § 39.50; 35.20ff; United States v. Brooks Callaway
Co., 318 U.S. 120, 63 S.Ct. 474, 87 L.Ed.2d 653 (1942);
Livingston v. United States, 101 Ct.C. 625 (1944).
[7] It is clear that contentions of excusable delay warranting
remission of liquidated damages present a question of fact.
McBride & Wachtel, supra, at § 35.20(1).
We conclude that this decision was reviewable.
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New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
[8] We emphasize, however, that such questions are subject
to only limited review. In federal practice, the equities must
be strongly in the contractor's favor before remission of
liquidated damages is appropriate. See Gantt & Breslauer,
Liquidated Damages in Federal Government Contracts, 47
Boston U.L.Rev. 71, 82 (1967). Courts frequently uphold
contractual provisions for per diem payments for delay in
performance in construction contracts as liquidated damages
and not penalties because they serve a worthy purpose. See 12
A.L.R.4th 891 (1982). Agency officials have greater expertise
than courts in determining the safety impact of unfinished
highway construction. Guard rails and line fences arguably
promote highway safety.
[9] We concede that courts need not defer to administrative
expertise unless they are convinced that the administrator
is reasonably exercising this expertise. There is also a
special potential for abuse of discretion when the state is
both a party to a contract and its officials determine the
private contractor's rights under the contract. Cf. Brasel &
Sims Const. Co. v. State Highway Comm'n, 655 P.2d 265
(Wyo.1983) (highway department has no authority under the
Wyoming Administrative Procedure Act to conduct hearings
because party cannot act as judge in his own cause). We
recognize, however, that this liquidated damages provision
protects a vital interest of the state of Arizona in insuring
that roads will be safe and convenient for the traveling public
when they are opened for use.
[10] Refusal to waive liquidated damages is not capricious
merely because no actual harm results after a contractor
inexcusably delays constructing highway safety features.
Viewing the evidence favorably to uphold the jury's verdict,
however, we find no error. The jury could have reasonably
found that the administrator acted capriciously in refusing to
remit liquidated damages because the delay was caused by
an act of God beyond the contractor's control and not merely
because of the apparent lack of harm owing to the delay.
III. THE MEASURE OF DAMAGES
The jury awarded damages of approximately $201,000 in
actual damages (without overhead) including the following
amounts:
1. Cleaning and refurbishing
medians and ditches
$ 3,500
2. Replacing eroded material in
the Anamax pit lost in the flood,
including costs of hauling
substitute material from the
Duval pit to the Anamax pit
28,500
3. Restoring eroded and lost special
backfill material
8,000
4. Restoring mineral aggregate
from new area after flooding of
the Agua Linda pit
102,000
5. Additional stripping of the Duval
Mineral aggregate pit
19,000
6. Dewatering of the Duval and
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New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
Agua Linda mineral aggregate
pit
40,000
$201,000
*104 **194 The contractor kept records of the actual costs
of the entire project but did not keep separate records of
the actual costs of the rebuilding and rework caused by the
weather, except for item # 6. The Court of Appeals reversed
By simply subtracting the bid estimate from the cost of the
overall project, the total cost method:
the award of the first five items 1 of damages due to the
contractor's failure to separately document the actual costs
of the additional work. This was error. We believe that the
contractor made a reasonable approximation of damages in
this case.
(b) can pass along costs to the state which might have
been incurred despite the act of God or the other party's
breach;
When additional work is performed on construction projects,
there are traditionally at least three ways of proving costs.
Specifically:
1. Actual cost. Keeping separate records of the actual
costs of additional work is the most reliable method of
qualifying costs. Bruce Construction Corp. v. United
States, 324 F.2d 516, 163 Ct.Cl. 97 (1963).
2. Jury verdict. Where the contractor cannot prove actual
costs, the contractor may present evidence of the cost
of additional work to the finder of fact including any
actual cost data, accounting records, estimates by law
and expert witnesses, and calculations from similar
projects. LL. Hall Construction Co. v. United States,
379 F.2d 559, 566, 117 Ct.Cl. 870 (1966); Metropolitan
Sewerage Comm'n v. R.W. Construction, 78 Wis.2d 451,
255 N.W.2d 293 (1977).
3. Total cost. Under certain circumstances, the contractor
may subtract the estimated cost or bid of the entire
project from the final actual cost of the entire project.
The resulting figure is the amount claimed as damages.
Moorhead Construction Co. v. City of Grand Forks,
508 F.2d 1008, 1016 (8th Cir.1975); Layne-Minnesota
v. Singer Co., 574 F.2d 429 (8th Cir.1978).
Courts have resorted to the total cost method only under
exceptional circumstances and then only as a last resort
method. See Huber, Hunt & Nichols v. Moore, 67 Cal.App.3d
278, 136 Cal.Rptr. 603 (1977); the authorities cited in
Rubin, The Total Cost Method of Computing an Equitable
Adjustment—An Analysis, 26 Fed.Bar J 303, 304 n. 8 (1966).
This method of measuring costs suffers from many defects.
(a) presumes that the bid estimate was realistic;
(c) can reward the contractor's inefficiency, managerial
ineptitude financial difficulties and other failings by
passing these costs along to the state. McBride &
Wachtel, § 23.70, 23.131–32.
To avoid these defects of the total cost method, NPC proposes
a fourth method of measuring costs in construction contract
cases.
4. Modified total cost (or cost
variance). The original bid for a
particular item of work is subtracted
from the actual costs for this item
of work, though both the bid and
actual costs are limited and adjusted
in the following manner. Damages
are limited to only certain time
intervals wherein the work was
adversely affected by the weather.
The actual costs are totaled only
for these work activities affected
by the weather and to only those
cost accounts recording such work.
The employee and machinery time
used for a particular item of work
is determined by reference to the
superintendent's reports describing
the weekly work performed,
engineer's diaries, labor distribution
reports, and equipment distribution
reports. Actual costs *105 **195
which were otherwise compensated
or unrelated to such work activity
are eliminated. The original bid
estimate is redetermined in the light
of the actual unit costs for the
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10
New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
month before and after the months
adversely affected. The unit cost
overrun for a particular work item
during the rainy months would be
multiplied by the total actual work
performed to arrive at the cost of
rework. The adjusted estimate of
the particular items of work in
dispute is subtracted from the actual
adjusted cost of this work only
if: (1) the nature of the particular
losses makes it impossible or
highly impracticable to determine
them with a reasonable degree of
accuracy; (2) the contractor's bid
was realistic; (3) his actual costs
were reasonable; (4) the added
expense was not caused by the
contractor or by some cause for
which he assumed the risk, but
was proximately caused by the
unforeseen circumstance or the
other party's breach.
It is misleading to refer to this as a separate “method”
for determining damages. Most courts refuse to apply the
total cost method in the absence of the aforementioned
circumstances. See WRB Corp. v. United States, 183 Ct.Cl.
409, 426 (1968); State Highway Comm'n v. Brasel & Sims
Const., supra. Additionally, the acceptability of such a
determination of damages involves a factual question as to
how carefully the total cost method was modified to restrict
its deficiencies. The trial judge must play an active role in
this fact-bound inquiry in determining that the measure of
damages is appropriate to the nature of the harm involved and
that the specific estimates have been appropriately adjusted
to avoid recovery of unrelated costs by the contractor.
[11] The two cases cited by NPC and amici for the
proposition that this constitutes a separate method for
determining damages, E.C. Ernst, Inc. v. Koppers Co.,
626 F.2d 324 (3d Cir.1980), on remand, 520 F.Supp. 830
(W.D.Penn.1981), clearly state that the total cost method was
being used. See id. 626 F.2d at 327, 520 F.Supp. at 835.
Nothing vital depends, however, on the use of terminology.
We are satisfied that the modified total cost method was
appropriate on the facts of the instant case.
First, a sufficient foundation for the use of the cost
variance method has been established in this case. Most
of the additional expenses were caused by an invisible,
rising subterranean water table, so that segregating and
precisely recording rework costs and original work costs
was impracticable. Other cases have applied a similarly
modified total method as a last resort method on similar
facts. See J.D. Hedin Construction Co. v. United States,
171 Ct.Cl. 70, 85–88, 347 F.2d 235, 246–47 (1965)
(contractor suffered weather-related damage during extended
period of work caused by faulty and changed government
specifications); State Highway Comm'n v. Brasel & Sims
Const., supra, 688 P.2d at 878–79 (contractor suffered
increased expenses and delay due to failure of state to
supply adequate water and inferior quality of state supplied
gravel); Moorhead Construction Co. v. City of Grand Forks,
supra (excess moisture and lack of soil compaction caused
additional expense and are different than represented); Thorn
Construction Co. v. Utah Dept. of Transp., 598 P.2d 365
(Utah 1979) (additional expense is caused contractor by
inferior quality of road material and it is necessary to excavate
other materials at another pit).
Because the additional work was best performed concurrently
with the principal contract work, it was not feasible in this
situation to quantify the actual costs of rework. See Hensel
Phelps Constr. Corp. v. United States, 413 F.2d 701 (10th
Cir.1969).
Nor has ADOT shown that NPC's adjusted estimates of the
costs of rework were unrealistic. NPC submitted the low
bids on both the Tubac and Carmen projects and increased
these estimates to reflect the costs actually experienced on
the project. The jury obviously concluded that the weather
was the cause of the contractor's *106 **196 cost overruns
during the months in question. NPC did keep some actual cost
records where it was feasible to do so, namely, for item # 6 of
the damages, the dewatering of the mineral aggregate pits.
[12] NPC also contends that section 105.17 of the Standard
Specifications, supra, imposes the burden of recordkeeping
on ADOT. NPC reasons that the state waives any requirement
of actual costs for additional work if the contractor provides
the state with an opportunity to keep track of costs and the
state refuses this offer. The court of appeals did not find it
necessary to reach this contention. We can find no persuasive
authority directly on point. We need not, however, reach this
contention either. It was not feasible to keep track of actual
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New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
costs and there was an accurate measure of damages. We find
no error with these items of damages.
[13] NPC used the jury verdict method to determine
damages for item # 5 of the damages, additional stripping of
the Duval aggregate pit. The use of the jury verdict method
is appropriate when (1) the state is liable for a changed
condition that increases the contractor's expenses, (2) due
to circumstances beyond his control, the claimant cannot
feasibly prove specific damages by a more reliable method,
and (3) when there is sufficient evidence in the record to
provide a reasonable basis for approximating the damages.
See WRB Corp. v. United States, supra; McBride & Wachtel,
§ 23.60(6).
[14] We also believe that there is sufficient foundation for
the use of the jury verdict method. Courts have approved
this method of damages on similar facts. Metro Sewerage
Comm'n v. R.W. Constr., supra, 78 Wis. at 466, 255
N.W.2d at 302 (contractor suffered increased costs due to
dewatering of tunnel caused by artesian water not shown on
specifications); Foster Constr. v. United States, 193 Ct.Cl.
587, 435 F.2d 873 (1970) (contractor caused additional
expense of uncertain amount by misrepresented subsurface
conditions in constructing pier). We believe that the use of the
jury verdict was appropriate in this case for much the same
reasons that the use of the modified total cost method was
warranted. We are far from unqualifiedly endorsing either the
jury verdict or the modified total cost measure of damages.
The availability of both measures of damages must be proven
by the contractor. Neither measure of damages can be used
where there is no excuse for the failure to keep track of actual
costs. Pickard's Sons Co. v. United States, 209 Ct.Cl. 643, 532
F.2d 739 (1976); Appeal of Soledad Enterprises, Inc. ASBCA
20376, 77–2 BCA 12757 (1977).
[15] We do not believe that this is a case wherein the
contractor inexcusably failed to keep track of costs because
this was not feasible due to circumstances beyond his control.
The case at bar is quite different from the cases cited in this
respect. Id.
a reasonable approximation of those damages. See Electronic
& Missile Facilities, Inc. v. United States, 189 Ct.Cl. 237,
256–57, 416 F.2d 1345, 1357–58 (1969) (contractor was
caused additional expense to remove contaminated gravel,
but cannot reasonably approximate government causation of
damages). Even on facts where the use of both these measures
of damages is appropriate, they are subject to close judicial
scrutiny to insure that the contractor does not receive a
windfall. We find no error, however, on the facts of this case.
IV. A.R.S. § 12–825 DOES NOT BAR ATTORNEY'S
FEES OR TAXABLE COSTS AGAINST THE STATE.
Pursuant to A.R.S. § 12–348(A)(3), the trial court awarded
attorney's fees, expert *107 **197 witness fees and costs
to appellee. The Court of Appeals reversed the trial court
because it found that the award of attorney's fees fell within
the prohibition against an award of “costs” against the state
declared by A.R.S. § 12–825:
If the judgment is rendered for
plaintiff, it shall be for the amount
actually due from the state to the
plaintiff, with legal interest thereon
from the time the obligation accrued
and without costs.
We do not believe that A.R.S. § 12–825 bars an award of
attorney's fees against the state. A.R.S. § 12–825 was first
enacted by the legislature in 1912. It apparently has been
interpreted by Arizona courts only twice in its long history.
Fleming v. Pima County, 141 Ariz. 149, 685 P.2d 1301,
1308 (1984) (A.R.S. § 12–825 does not bar recovery of
prejudgment interest against the state); State v. Juengel, 15
Ariz.App. 495, 489 P.2d 869 (1971) (taxable costs can be
recovered against the state in a tort action because A.R.S.
§ 12–825 only bars recovery of costs against the state in
contract actions involving liquidated damages).
The legislature did not intend to include attorney's fees within
the “costs” prohibited by A.R.S. § 12–825. In 1912, when
this statute was enacted, it would have been unthinkable
[16]
[17] Nor can the contractor use the modified total to hold the state liable for attorney's fees in a civil case.
“Costs” is also usually construed to exclude attorney's fees.
cost method when there is sufficient evidence to use the jury
20 Am.Jur.2d Costs § 72 (1965) (“The term ‘costs' or
verdict method. See Specialty Assembly & Packing Co. v.
‘expenses' used in a statute is not understood ordinarily to
United States, 174 Ct.Cl. 153, 355 F.2d 554 (1966); Appeal
include attorney's fees”); Stuart Speiser, Attorney's Fees, §
of Drexel Dynamics Corp., 67–2 BCA 6410 (1967). The
12:5 (“The term ‘costs' does not embrace ‘counsel fees' and
contractor cannot use the jury verdict method if he can prove
there is, particularly in the United States, a well-known and
only that the state caused part of the damages and cannot make
long recognized distinction between costs and allowances of
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New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
attorney's fees.... The term ‘costs' in a statute is not ordinarily
understood to include attorney's fees”). DVM Co. v. Stag, 137
Ariz. 466, 671 P.2d 907 (1983) ( “Costs” in A.R.S. § 12–1178
does not include attorney's fees awarded pursuant to A.R.S.
§ 12–341.01); Sweis v. Chatwin, 120 Ariz. 249, 585 P.2d
269 (App.1978) (attorney's fees awarded pursuant to A.R.S.
§ 12–341.01 are not “costs” within the meaning of civil rule
67(d) requiring security for costs); Coury Bros. Ranches v.
Ellsworth, 103 Ariz. 515, 446 P.2d 458, 466 (1968) (“The
words ‘legal costs' in a contract mean such costs as are usually
recovered in civil actions and does not include attorney's
fees.”).
[18] Additionally, although A.R.S. § 12–825 applies to this
case, this statute has recently been repealed, renumbered as
A.R.S. § 12–823, and amended to read as follows:
§ 12–823 Judgment for plaintiff; amount; interest and
costs
If judgment is rendered for the plaintiff, it shall be for
the amount actually due from the public entity [formerly
“state”] to the plaintiff, with legal interest thereon from the
time the obligation accrued and with [formerly “without”]
court costs (emphasis added).
The legislature amended the statute to authorize recovery
for court costs against a “public entity,” which is defined as
“this state or any political subdivision of this state.” A.R.S. §
12–820(6). 2 Assuming, arguendo, that “attorney's fees” falls
within the meaning of “costs” as used in A.R.S. § 12–825,
it follows that the legislature has not currently prohibited the
recovery of attorney's fees from the state. The least that can
be concluded is that there is no persuasive reason to extend
the prohibition of A.R.S. § 12–825 against “costs” beyond the
obvious meaning of this term to include attorney's fees.
We must finally determine whether A.R.S. § 12–825 bars
an award of taxable costs against the state. 3 See A.R.S. §§
12–331 and 12–332 (definitions of “taxable *108 **198
costs”). A.R.S. § 12–345, a similar statute passed by the
legislature in 1912, provides in pertinent part that:
§ 12–345 Exemption of state, county or political
subdivisions
No court costs shall be charged:
1. The state....
In Hammons v. Waite, 30 Ariz. 392, 395–96, 247 P.
799, 800 (1926), the court interpreted the prohibition
against “costs” against the state in A.R.S. § 12–345
to exclude taxable costs. The court reasoned that it
would be anomalous to believe the legislature would
allow judgments against the state by waiving sovereign
immunity and yet refuse to allow taxable costs:
In all ordinary cases against other
private citizens, they, as a matter
of right, if successful in the
action, recover the amount not
only of the judgment, but of the
taxable costs and expenses which
they have incurred. It seems to us
rather absurd that the Legislature
swallowed the camel of allowing
a judgment against a public body
or official while it strained at
the gnat of costs, and, if there is
any other reasonable construction
which can be given the statute, we
should not hesitate to adopt it.
Id. at 394–95, 247 P. at 800.
In State v. Juengel, supra, the court adopted this same
rationale as a justification for strictly construing A.R.S. § 12–
825 to apply to only contract actions involving liquidated
damages. The Juengel court arrived at this strict construction
in the following manner:
Section 12–825, A.R.S., is located
in Article 2, Chapter 7 of our
Code, which relates specifically to
contract and negligence claims against
the state. The section specifies the
judgment shall be for the amount due
with legal interest from the time the
obligation accrued. Interest is only
allowable as part of an award where
the claim sued is liquidated. Rossi v.
Hammons, 34 Ariz. 95, 268 P. 181
(1928). Therefore, we hold that this
section applies only to contract cases
involving liquidated damages.
Although we sympathize with the rationale of the Juengel
decision, we disagree with the conclusion. It is a non sequitur
to infer that because the prohibition against “interest” in
A.R.S. § 12–825 only effectively bars claims in contract
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New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
actions involving liquidated damages that therefore the
bar against “costs” as used in this statute is similarly
circumscribed. Even a strict construction of a statute must
bear some rational relation to the purposes reasonably
attributable to the legislature in enacting the law. There
is no obvious reason why the legislature would want
to arbitrarily disallow costs in contract actions involving
liquidated damages while allowing the recovery of costs by a
similarly situated class of litigants.
[19] We believe that the problem faced by Juengel can be
resolved differently. As a matter of statutory construction,
there is no reason to believe that “costs” should have a
significantly different meaning when used in A.R.S. § 12–
825 than when used in A.R.S. § 12–345. At least, “costs” as
used in A.R.S. § 12–285 could not have a broader meaning
than this same term as used in A.R.S. § 12–345 because
the latter statute is contained in the only chapter of Title 12
devoted to “Fees and Costs.” We believe that on the authority
of Hammons, “costs” as used in A.R.S. § 12–825 should
be interpreted as excluding taxable costs. Hammons, even
if incorrectly decided in its own time, had received almost
half a century of legislative acquiescence before Juengel
was decided. Juengel, by contrast, is a relatively short-lived
decision. It is also a lower court decision which the legislature
might reasonably have believed would be corrected on appeal.
The principle of the Hammons decision has been repeatedly
reaffirmed by later courts. See Barry v. Arizona Dept. of
Economic Security, 25 Ariz.App. 258, 542 P.2d 1138 (1975);
Navajo County v. Four Corners Pipe Line Co., 12 Ariz.App.
348, 470 P.2d 496 (1970), vacated on other grounds, 106
Ariz. 511, 479 P.2d 174 (1970); Atty. Gen. opinion, No.
180–134. Until Juengel was decided, apparently no Arizona
appellate court had indicated that an award of taxable *109
**199 costs against the state might be barred by either
A.R.S. § 12–345 or § 12–825.
Even if we ignore the legislature's longstanding acquiescence
in Hammons' construction of A.R.S. § 12–825, we believe the
same conclusion follows.
As we mentioned earlier, A.R.S. § 12–825 has been amended
to authorize the recovery of costs against the state. See A.R.S.
§ 12–823. Not only did the legislature fail to replace this
statute with another prohibition against costs, but it amended
the statute to authorize the recovery of costs against the
state. 4 Even if we were to assume that taxable costs are
barred by A.R.S. § 12–825, it would follow that the legislature
is not currently opposed to the recovery of costs against the
state. We conclude that § 12–825 does not bar an award of
taxable costs against the state.
V. THE AWARD OF ATTORNEY'S FEES UNDER
A.R.S. § 12–348(A)(3).
A.R.S. § 12–348(A)(3) provides in relevant part that:
[A] court shall award fees and other
expenses to any party other than this
state or a city, town or country that
prevails by an adjudication on the
merits in ... (3) A court proceeding
to review a state agency decision,
pursuant to Chapter 7, article 6 of this
title, or any other statute authorizing
judicial review of agency decisions.
The trial court awarded attorney's fees to appellee on the
theory that his contract action against a state agency pursuant
to A.R.S. § 12–821 was “any other statute authorizing judicial
review of agency decisions.” A.R.S. § 12–821 provides:
Persons having claims on contract or
for negligence against the state, which
have been disallowed, may on the
terms and conditions set forth in this
article, bring action thereon against the
state and prosecute the action to final
judgment.
The Court of Appeals concluded that A.R.S. § 12–348(A)(3)
did not apply to the case at bar and reversed the trial court. We
agree that the award of attorney's fees was improper, albeit
for different reasons than are stated in the Court of Appeals
opinion.
A review of the legislative history of A.R.S. § 12–348
shows that the award of attorney's fees was improper. It
is frequently mentioned therein that this statute is modeled
after federal legislation, The Equal Access to Justice Act, 28
U.S.C. § 2412; 5 U.S.C. § 504. It is clear that the federal
statute would not provide relief on these facts, because it
is limited to judicial review of formal agency adjudication
as defined by 5 U.S.C. § 554, of the federal Administrative
Procedure Act. This section expressly excludes agency
decisions subject to de novo trial of the law and the
facts, 5 U.S.C. § 554(a)(1). It also may be that ADOT
claims review does not constitute formal adjudication for
purposes of this law. Cf. Brasel & Sims Constr. Co. v.
State Highway Comm'n, 655 P.2d 265 (Wyo.1983) (State
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14
New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
Highway claims review does not constitute a “hearing” within
the meaning of Wyoming Administrative Procedure Act);
cf. Note, Government Contract Disputes: An Institutional
Approach, 73 Yale L.J. 1408, 1419–20 (1964) (the federal
Boards of Contract Appeals are not subject to the standards
of the Administrative Procedure Act).
administrative agency prior to suit. If the legislature had
intended to extend the scope of A.R.S. § 12–348 to every
contract and negligence lawsuit against a state agency, or to
every lawsuit against a state agency, they could have said
so by plain language. We find their failure to do so telling
evidence of their intent.
The narrow scope of agency proceedings whose judicial
review is covered by the federal statute is explained in part
by a legislative concern to keep the costs of the program at
an acceptable level. See H.R.Rep. No. 1418, 96th Cong. 2d
Sess., reprinted in U.S.Code Cong. & Ad.News 1980, 4953,
4993.
There is also evidence in the legislative history of the statute
that indicates legislative concern with the broad sweep of
A.R.S. § 12–348. As the bill passed the Arizona House
of Representatives, there was to be recovery for fees and
expenses to:
The Arizona statute, by contrast, is broader than its federal
counterpart in this respect, because it provides awards of
attorney's fees for judicial review of agency proceedings
brought under the Administrative Review Act, A.R.S. § 12–
901, et seq., as well as for “any other statute authorizing
judicial review of agency decisions.” We do not believe,
however, that the above- *110 **200 quoted phrase is
intended to refer to A.R.S. § 12–821 or to the facts of this case.
Any party other than this state which
substantially prevails in a civil action
in which this state is a party, including
any court proceeding to review an
agency action or decision. (Emphasis
added.)
H.B. 2229, 35th Leg., 1st Reg. Sess., 1981 Arizona Laws.
The above-quoted language is considerably broader than the
language added in the Arizona Senate, A.R.S. § 12–348(A)
[20]
[21] This case did not involve “judicial review
(1)–(6), which replaced it in the final legislation. The Senate
of agency action” according to the conventional meaning
also added all the exclusions found in A.R.S. § 12–348(G)
of those terms. The court did not review the agency's
(1)–(9). It may be that NPC would have been entitled to
decision under some limited standard of review. Rather, the
recover in this case if the underlined phrase in the above
court engaged in a de novo determination of the facts to
quote had become the law. But A.R.S. § 12–348(A)(3), which
decide if there was a breach of contract. It is true that the
replaced this clause in the final legislation, is considerably
Administrative Review Act authorizes de novo review under
narrower and less vague.
certain circumstances, see A.R.S. § 12–910(B), and that de
novo review of agency decisions is expressly authorized by
We are aware that NPC suffered increased delay and
some statutes. See, e.g., A.R.S. § 37–134. But the instant case
expense in submitting its claim to a three-tiered ladder of
is simply not such a case. We do not believe that the mere
administrative proceedings. We are also aware, however, that
fact that an agency decision precedes an action automatically
the Arizona Legislature believed that parties should bear their
transmutes the lawsuit into “judicial review of agency action”
own expenses in administrative proceedings. A provision
for purposes of A.R.S. § 12–348. The cause of action in this
in H.B. 2229 for compensation of expenses incurred in
case was not created by statute, but by the common law of
administrative proceedings, comparable to a provision in the
contracts.
Equal Access to Justice Act, 5 U.S.C. § 504, was eliminated
in the Arizona Senate before the bill was enacted into law.
The function of A.R.S. § 12–821 is strikingly similar to
It is also not clear that NPC's expenses were unusual in this
the federal Tort Claims Act, 28 U.S.C. § 2671, et seq.
regard. The first two rungs in this ladder of administrative
and the various state contract and tort claims acts. See the
proceedings involved only the relatively informal submission
comprehensive statutes cited in the Appendix to Hanley
of their claims to the project and district engineer. Only
& Wasinger, Governmental Immunity: Despotic Mantle or
the final step in this review process involved a full-fledged
Creature of Necessity?, 16 Washburn L.J. 12, 33ff. (1976).
hearing.
The aim of A.R.S. § 12–821 is to abrogate sovereign
immunity for all contract and negligence lawsuits against
the state and to require that the claim be disallowed by the
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15
New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
At any rate, in the absence of a principled stopping point, we
are persuaded that we could not provide relief to NPC short
of rewriting the law. We find no error.
VI. ATTORNEY'S FEES MAY BE AWARDED
AGAINST THE STATE UNDER A.R.S. § 12–341.01.
NPC requested attorney's fees under both A.R.S. §§ 12–
348(A)(3) and 12–341.01. *111 **201 The trial court only
allowed attorney's fees under the former statute. The court
refused to hear evidence of appellee's entitlement to attorney's
fees under A.R.S. § 12–341.01. The one question NPC asked
regarding their right to attorney's fees under this statute was
received only as an offer of proof.
We disagree with the state's contention that the trial court
necessarily decided that NPC was not entitled to attorney's
fees when the court refused to award fees under this statute.
Because there was no evidence in the record to support an
award of fees under this statute, it arguably would have
been improper for the court to reach this question. It is also
natural for the trial court to want to avoid the discretionary
determination required by A.R.S. § 12–341.01, see Autenreith
v. Norville, 127 Ariz. 442, 622 P.2d 1 (1980); A.R.S. § 12–
341.01(B), (C), rather than simply award fees by right under
A.R.S. § 12–348(A)(3) to a qualified party. This case is
distinguishable from Title Insurance Co. v. Acumen Trading
Co., 121 Ariz. 525, 591 P.2d 1302 (1979), cited by appellant.
Unlike Title Insurance, in the present case there was no
evidence to support an award of attorney's fees under A.R.S.
§ 12–341.01 and NPC received attorney's fees under another
statute from the court.
[22] ADOT also argues that NPC waived the award of
attorney's fees under A.R.S. § 12–341.01 because they failed
to cross-appeal the trial court's refusal to award counsel's fees
under this statute. The general rule is that, in the absence
of a timely cross-appeal, the appealing party cannot attack
the lower court decree with a view toward enlarging his own
rights under it. Walters v. First Federal Savings & Loan, 131
Ariz. 32, 641 P.2d 235, 239 (1982); Maricopa County v. Corp.
Comm'n of Arizona, 79 Ariz. 307, 289 P.2d 183 (1955). We
recognize that federal decisions have extended this rule of
waiver to failure to cross-appeal denial of attorney's fees. 7
J. Moore, Moore's Federal Practice & Procedure, 204.11[3]
at 934 (1973). Even if we concede that this rule applies,
however, the only issue waived on appeal is whether an award
of attorney's fees is improper given the trial court's refusal to
hear evidence necessary to support such an award. This is not
the issue here. It would also serve only to “generate pro forma
paperwork by winning litigants” to require a cross-appeal in
this situation. Note, Cross-Appeals in Maine: Pitfalls for the
Winning Litigant, 25 Maine L.Rev. 105, 112 (1973).
[23] Finally, we conclude that the legislature intended to
allow recovery of attorney's fees against the state under
A.R.S. § 12–341.01. A.R.S. § 12–341.01(A) and (C) provides
in pertinent part:
A. In any contested action arising out of a contract, express
or implied, the court may award the successful party
reasonable attorney's fees
....
C. Reasonable attorney's fees shall be awarded by the
court in any contested action upon clear and convincing
evidence that the claim or defense constitutes harassment,
is groundless and not made in good faith. (Emphasis
added.)
An award of attorney's fees to the successful party is
authorized in “any contested action” arising under section
(A) or (C). This broad statutory language indicates an intent
to allow recovery against all civil defendants. Allowing
recovery by the state under A.R.S. § 12–341.01 would
further its twin aims of mitigating the burden of the expense
of litigation to establish a just claim or just defense, and
discouraging frivolous lawsuits. See A.R.S. § 12–341.01(B),
(C); 11 Ariz.B.J. 19, 20 (1976).
The Arizona Legislature has enacted more than sixty
statutes authorizing recovery of attorney's fees. See Rambow,
Statutory Attorney's Fees in Arizona: An Analysis of A.R.S.
Section 12–341.01, 24 Arizona L.Rev. 659, 660 n. 9 (1982).
A.R.S. § 12–341.01, and to a lesser extent, § 12–348,
constitute very broad exceptions to the American rule barring
attorney's fees. Ofthe attorney's fees statutes passed by the
legislature, our research discloses none *112 **202 that
expressly disallow recovery of attorney's fees from the state.
By contrast, there are a number of statutes which expressly
forbid the state to recover attorney's fees. See, e.g., A.R.S.
§§ 15–542 (prevailing teacher may receive attorney's fees but
state may not); 41–1481(J) (prevailing party in employment
discrimination case other than state may recover attorney's
fees); 12–348 (prevailing party other than state may recover
attorney's fees when sued by state). This is in accord with
the express legislative findings and purpose of A.R.S. §
12–348 to encourage individuals and smaller businesses
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
16
New Pueblo Constructors, Inc. v. State, 144 Ariz. 95 (1985)
696 P.2d 185
aggrieved by governmental action to assert their rights.
See A.R.S. § 12–348. This legislative declaration warrants
special consideration because express legislative findings are
quite rare in Arizona. See the subheading “findings” under
“Legislature” in the Index to the Arizona Revised Statutes.
We note that it would further this policy to allow recovery
here. Nor does A.R.S. § 12–348 purport to be the exclusive
statute under which the state may be liable for attorney's fees
because it expressly allows recovery, “[i]n addition to any
costs which are awarded as prescribed by statute” A.R.S. §
12–348(A).
Furthermore, Division One of the Court of Appeals has
recently held that the state is entitled to recover attorney's
fees under A.R.S. § 12–341.01. See Lacer v. Navajo County,
141 Ariz. 392, 687 P.2d 400 (App.1984). Assuming without
deciding that this is true, we believe there is no principled
way to interpret this statute to allow the state to recover, yet
create, an exception against liability in their favor. The cause
should therefore be remanded to determine NPC's entitlement
to attorney's fees under A.R.S. § 12–341.01.
Affirmed in part, reversed in part, and remanded for further
proceedings consistent with this opinion.
HOLOHAN, C.J., GORDON, V.C.J., and CAMERON and
FELDMAN, JJ., concur.
Parallel Citations
696 P.2d 185
Footnotes
1
2
3
4
The Court of Appeals also reversed the award for the sixth item of damages, apparently due to lack of timely notice of a claim for
compensation and not due to the measurement of damages. Because we found their reasoning erroneous on this score (see discussion
of notice, ante ), we reinstate this item of damages.
Such later amendments of a statute are not dispositive, though they do have persuasive authority. See State v. Weible, 142 Ariz. 113,
118–119, 688 P.2d 1005, 1010–1011.
For reasons that follow, we reverse the award of costs awarded under A.R.S. § 12–348(A)(3). However, because NPC is entitled to
costs under A.R.S. § 12–341, as a prevailing party, we must reach this issue.
See n. 2, ante at 197.
End of Document
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
17
Police Pension Bd. of City of Phoenix v. Warren, 97 Ariz. 180 (1965)
398 P.2d 892
and punishment of crimes; the word applies
particularly to those who are appointed for
purpose of maintenance of public tranquility
among citizens.
97 Ariz. 180
Supreme Court of Arizona, In Banc.
POLICE PENSION BOARD OF the CITY OF
PHOENIX, Robert Knox, Chairman of the Police
Pension Board, and Stanton S. von Grabill,
Ex Officio Secretary of the Board, Appellants,
v.
Lillian WARREN, Appellee.
2 Cases that cite this headnote
[3]
Statutes
Intent
No. 7984. | Feb. 3, 1965. |
Rehearing Denied March 9, 1965.
Proceeding for mandamus to compel police pension board to
grant pension. The Superior Court, Maricopa County, Henry
S. Stevens, J., granted the writ, and defendants appealed.
The Supreme Court, Struckmeyer, V. C. J., held that city
employee who had never contributed to police pension fund,
but contributed instead toward social security and general
employees' retirement fund benefits, was not a ‘member’ of
the police department entitled to police pension benefits, even
though she had been assigned to work in police department
and had served as secretary to chief of police and had been
paid from police department budget.
Statutes
Language and intent, will, purpose, or
policy
In determining legislative intent, that which is
necessarily implied in statute is as much a part
of it as that which is expressed, and purpose to
be accomplished is fundamental when there is
otherwise doubt from express language used.
3 Cases that cite this headnote
[4]
Municipal Corporations
Pensions and Benefit Funds
Purpose of police pension acts is to attract and
hold in public service superior personnel by
adequately compensating them for arduous and
hazardous duties.
Reversed with directions.
Lockwood, C. J., and BERNSTEIN, J., dissented.
[5]
Contemporaneous construction of statutes by
those officials charged with its administration
is entitled to great weight in arriving at proper
interpretation.
West Headnotes (8)
[1]
Statutes
Titles, headings, and captions
11 Cases that cite this headnote
In determining extent and operation of act, court
must consider not only law itself but also its title.
[6]
[2]
Administrative Law and Procedure
Deference to agency in general
2 Cases that cite this headnote
Statutes
Clarifying statutes
Municipal Corporations
Police
Subsequent legislation clarifying statute is not
necessarily controlling on court, but is strongly
indicative of legislature's original intent.
“Police” is function of that branch of
administrative machinery of government which
is charged with preservation of public order
and tranquility, promotion of public health,
safety, and morals, and prevention, detection,
10 Cases that cite this headnote
[7]
Municipal Corporations
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
1
Police Pension Bd. of City of Phoenix v. Warren, 97 Ariz. 180 (1965)
398 P.2d 892
Eligibility for, and right to pension or
benefits in general
Public employee's rights to benefits under
police pension fund vested no later than date
of termination of her employment, and she
could not thereafter acquire right by tendering
contributions to fund. A.R.S.Const. art. 4, pt. 2,
§ 17.
[8]
Municipal Corporations
Eligibility for, and right to pension or
benefits in general
City employee who had never contributed to
police pension fund, but contributed instead
toward social security and general employees
retirement fund benefits, was not a “member” of
the police department entitled to police pension
benefits, even though she had been assigned to
work in police department and had served as
secretary to chief of police and had been paid
from police department budget. A.R.S. §§ 9–911
et seq., 9–911, subd. 6, 9–923, 9–925, subd. A,
38–752 et seq.
Attorneys and Law Firms
*182 **893 Merle L. Hanson, City Atty., and James D.
Lester, Asst. City Atty., Phoenix, for appellants.
Gibbons, Kinney & Tipton, Phoenix, for appellee.
John C. Hughes and Coit I. Hughes, Phoenix, and Kenneth
Sperry, Long Beach, Cal., of counsel, for Phoenix Lodge of
the Fraternal Order of Police, amici curiae.
Healy, Laubscher & Dickerson, Tucson, for Police Pension
Bd. for the City of Tucson, amici curiae.
J. LaMar Shelley, Mesa, for The League of Arizona Cities
and Towns and Its Member Municipalities, amici curiae.
Opinion
of Phoenix to grant her a pension. The lower court ordered
that the writ issue and the Police Pension Board of the City of
Phoenix and its members appealed.
Appellee had, prior to May 14, 1942, been employed by the
City of Phoenix in its Water Department. On that day, at her
request, she was transferred from the Water Department to the
Police Department and continued as an employee in the Police
Department until she left the service of the City on November
15, 1962. Her duties were clerical and secretarial in that she
served as secretary to the Chief of Police and was responsible
for the preparation and computation of the department payroll
and annual budget. She was not sworn as a police officer nor
did she perform police duties in the commonly accepted sense
of police work; that is, the protection of life and property,
the investigation of crimes, or the apprehension of criminals.
She did not contribute five per cent of her salary to the police
pension fund as is required by A.R.S. § 9–923, but she did
contribute a percentage of her salary for Social Security and to
the General Employees' Retirement Fund provided for all city
employees by A.R.S. § 38–752 et seq. After her employment
terminated, she applied to the Police Pension Board of the
City of Phoenix for a pension, which application was denied.
Appellee then brought this action *183 in mandamus in the
Superior Court of Maricopa County.
The Arizona statute, A.R.S. § 9–925, subs. A, as re-enacted
in 1952 is in substantially the same language as originally
enacted in 1937:
‘Any member of the police department whose membership
began prior to July 1, 1952 and who serves such department
twenty (20) years in the aggregate may, upon application
be retired, and shall be paid, during his lifetime, a monthly
pension equal to fifty (50) per cent of the average monthly
compensation received by him during the period of five
(5) years immediately prior to the date of application for
retirement. * * *’ Ch. 93, Second Regular Session, § 16–
1808(b), Laws of 1952.
A.R.S. § 9–911, in its pertinent part, provides:
‘* * * unless the context otherwise requires:
‘6. ‘Member’ or ‘member of the department’ means a member
of the police department, and includes all ranks and both
sexes.'
STRUCKMEYER, Vice Chief Justice.
This is an application by Lillian M. Warren for writ of
mandamus to compel the Police Pension Board of the City
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2
Police Pension Bd. of City of Phoenix v. Warren, 97 Ariz. 180 (1965)
398 P.2d 892
Appellants urge, in effect, that the phrase ‘member of the
police department’ as used in § 9–925 means those who were
sworn as police officers and whose responsibilities embrace
the duties common to peace officers everywhere. Appellee
seeks to give to the phrase ‘member of the police department’
a literal significance so as to include those employees who
work in the proximity of or assist the police force of the City
of Phoenix in the Police Department.
The definition of ‘member of the department’ set forth
supra in A.R.S. § 9–911, subs. 6, is plainly tautological. It
does, however, provide one guide which we feel has some
considerable significance in discerning **894 legislative
intent. It includes all ranks of both sexes as members
of the department. Webster defines rank as ‘[g]rade or
official standing, as in the army, navy, or nobility; * *
*.’ Webster's Second New International Dictionary. As
applicable to a police force, rank is commonly understood
to mean patrolman, sergeant, detective, captain, etc. as a
clerk or secretary appellee did not hold rank in the Police
Department of the City of Phoenix. Nor does appellee contend
that she held any rank. There is thus a strong supposition
that appellee's interpretation does not coincide with the
legislative intended meaning of the phrase ‘member of the
police department.’
Appellee states, as a predicate for her argument, that ‘plaintiff
has been employed by the Phoenix Police Department for
twenty (20) years, and has been paid from the Police
Department Budget.’ The misconceptions *184 implicit
in these statements are fundamental and require some
comment. Appellee was not employed by the Phoenix Police
Department. She was employed by the City and assigned to
work in the Police Department as a classified city employee
subject to transfer to another department pursuant to the rules
promulgated by the Civil Service Board of Phoenix, see e.
g. Rule IV, § 11(a), Rules of the Civil Service Board, City
of Phoenix, 1938, and Rule 12, a and b, Personnel Rules,
City of Phoenix, 1955. Doubt of the soundness of appellee's
position is prompted if we consider that should appellee have
been transferred prior to working twenty years in the Police
Department she could not have thereafter established any
valid claim for retirement under the Police Pension Act.
Moreover, that appellee was paid from the Police Department
budget affords no clue as to the intention of the legislature
in enacting the police pension statutes. Whom the City
of Phoenix includes in the department's budget pursuant
to administrative policy can shed no possible light as to
whom the legislature intended to include in the phrase
‘member of the police department.’ Legislative intent cannot
be determined from the varying adminstrative policies of the
different city governments in Arizona or by the inclusion
or exclusion of various employees in different cities in the
respective police departments. Conceivably, for example,
Phoenix might carry police vehicle maintenance employees
on the Police Department payroll or in its department
budget whereas another city might establish a Maintenance
Department for all city vehicles and the employees who
serviced police vehicles carried there, or a city might change
its administrative policy and at different times carry the same
employee in different departments.
Much of the problem arising in this case may be attributed to
the use of the word ‘department’ in § 9–925, subs. A, supra.
Department is defined by Webster as ‘[a] division or branch
of governmental administration, national or municipal; as,
the health, water, or street department of a city; * * *.’
Webster's Second New International Dictionary. Obviously,
a department may be as inclusive or exclusive of personnel
as the establishing municipal authority chooses to decree.
Insofar as a police department is concerned, it might or
might not include those indirectly or incidentally concerned
in police affairs; as for example, those employed to wash
police vehicles. If appellee's position is correct, potentially
many other city employees may seriously claim to have
acquired rights under the Police Pension Act. Such a result
is patently absurd. Courts will not place upon a statute a
construction which will result in an absurd consequence. State
Board of Dispensing Opticians v. Schwab, 93 Ariz. 328,
380 P.2d 784; *185 Local 266, International Brotherhood
of Electrical Workers, A. F. of L. v. Salt River Project
Agricultural Improvement and Power District, 78 Ariz. 30,
275 P.2d 393. We do not believe the legislature has used the
word ‘department’ in the same broad sense that appellee seeks
to give to it.
[1] Since we conclude that it is unlikely the legislature
intended to pension all employees **895 who might
be included for administrative purposes by a city as a
department, the question then becomes who were intended to
be pensioned. The act is entitled ‘Police Pension Act of 1937’.
In determining the extent and operation of an act, a court must
consider not only the law itself but also its title. In re TwentyOne Slot Machines, 72 Ariz. 408, 236 P.2d 733; Maricopa
County v. Douglas, 69 Ariz. 35, 208 P.2d 646; Garrison v.
Luke, 52 Ariz. 50, 78 P.2d 1120. The fair inference here from
the title is that the act concerns itself with the pensioning of
those who are commonly understood to be police.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
3
Police Pension Bd. of City of Phoenix v. Warren, 97 Ariz. 180 (1965)
398 P.2d 892
[2] Black's Law Dictionary, Third Edition, defines police as
‘the function of that branch of the administrative machinery
of government which is charged with the preservation of
public order and tranquility, the promotion of the public
health, safety, and morals, and the prevention, detection,
and punishment of crimes.’ The word police is particularly
applied to those who are appointed for the purpose of the
maintenance of public tranquility among the citizens, State
ex rel. Walsh v. Hine, 59 Conn. 50, 21 A. 1024, 10 L.R.A.
83. Indeed, it has been said, ‘The term ‘police’ as commonly
understood, ‘is so plain and unambiguous that there is no
occasion for resorting to rules of statutory interpretation, *
* *’.' Wyndham v. United States, D.C., 197 F.Supp. 856.
The meaning of the word ‘police’, as would normally be
understood from the title of the act, implies a like meaning in
the use by the legislature in the phrase ‘member of the police
department.’ ‘Police’ is an adjective modifying ‘department’
and restricts ‘department’ to that category or division of
individuals charged with the preservation of public order and
tranquility and the prevention, detection and punishment of
crimes.
entered the department, prior to the adoption of the General
Retirement Act for city employees, in which no deductions of
any kind were taken from her pay.
The following testimony summarizes the interpretation
administratively applied in the City of Phoenix and appellee's
understanding of it:
‘Q Isn't that true that there has been considerable difference
between the amount deducted for general employees pension
and for the Police Pension Fund?
‘A That is right.
‘Q Over a period of years?
‘A Yes.
**896 ‘Q You never at any time in compiling or in figuring
the budget have figured anything for yourself or any other
clerical person under the figure given for the Police Pension
Fund, and it has been figured under the figure given for the
[3]
[4] In determining legislative intent that which is general employees retirement fund?
necessarily implied in a statute is am much a part of it as that
‘A That is correct.
expressed and the purpose to be accomplished is fundamental
when there is otherwise doubt from the express language
‘Q All police officers have been figured at the higher figure
used. Coggins v. Ely, 23 Ariz. 155, 202 P. 391. The purpose
under the Police Pension Fund, is that right?
of police pension acts is to attract and hold in police service
superior personnel by adequately compensating them for
‘A That is right.
arduous and hazardous duties. Clearly appellee's employment
is neither arduous nor hazardous as police employment is
‘Q Wasn't there a period of time when you first came in the
known and therefore not within the manifest purpose of the
Police Department, Mrs. Warren, and for several years when
act.
there was no deduction made at all from your check for any
*186 [5] There are other well-recognized recourses type of pension?
to statutory interpretation which weigh heavily against
appellee. The rule is well settled in this jurisdiction that the
contemporaneous construction of a statute by those officials
charged with its administration is entitled to great weight in
arriving at its proper interpretation, Long v. Dick, 87 Ariz. 25,
347 P.2d 581, 80 A.L.R.2d 949. In the instant case the record
shows that the appellee, in addition to her duties as secretary
to the Chief of Police for nearly ten years, prepared the payroll
records for the employees of the Police Department. She
was advised of the administrative construction of the Police
Pension Act by the officials of the City of Phoenix—that she
was not considered to be under the act—and she did not at
any time compute deductions for hereself as contributions to
the police pension fund. There was a time shortly after she
‘A That is right.
‘Q Wasn't there a Police Pension Act in at that time?
‘A There was.
‘Q But no deductions were made?
‘A No.
‘Q You knew this? You were aware that no deductions were
made?
‘A That is right.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
4
Police Pension Bd. of City of Phoenix v. Warren, 97 Ariz. 180 (1965)
398 P.2d 892
*187 ‘Q You also were aware that that was because you
were not considered to be under the Police Pension?
‘A That is right.
‘Q When did they start deducting from your check for any
type of pension?
‘A I don't remember the year of the enactment of the General
Employees Retirement. * * *’
Appellee's testimony at the hearing before the Police Pension
Board established that she was aware of the construction
being given the Police Pension Act by those charged with
its administration. Other testimony established that she was
also aware that deductions from her pay from 1952 forward
were for Social Security for which she acknowledged she is
qualified and may be entitled upon reaching the appropriate
age. We do not pass judgment on appellee's right to share in
Social Security under the Federal Government's regulations,
but we cannot but observe that should she share in the Police
Pension Fund, she will be in a better relative position than the
persons the act was designed to benefit.
[6]
Finally, the state legislature, in 1964, after this
controversy arose, amended the definition of ‘member of the
police department’ to provide:
“Member' or ‘member of the department’ means a member
of the police department, duly commissioned and sworn as
a peace officer with all the powers and duties thereof, and
includes all ranks and both sexes. Any person employed in
the police department who has actually contributed to the
police pension fund prior to the first day of January, 1964, and
who is not included within this definition, shall be allowed
to continue to contribute to the police pension fund and to
receive the benefits conferred by this article but all other
persons are excluded.' A.R.S. § 9–911, subs. 6, as amended
Laws 1964, Ch. 59, § 1. (Emphasis supplied.)
compelled to observe that this legislative clarification would
alone be sufficient upon which to rest the decision.
[7] The legislature further showed its original intent to
exclude appellee by permitting those who had actually
contributed to the police pension fund prior to January 1,
1964, to receive the benefits conferred by the act. Specifically
all others are excluded. *188 Appellee is in the category of
all other persons excluded, having never contributed **897
to the pension fund. That appellee, after she terminated her
services with the city, tendered a check to the pension Board
in an effort to bring herself within the act is of no avail. Her
rights to a pension, being contractual in nature, vested at least
not later than the date of the termination of her employment.
See Police Pension Board v. Denney, 84 Ariz. 394, 330 P.2d
1. No act subsequent thereto could breathe life into that which
never existed. Having acquired no rights during her term of
service, none could thereafter be acquired. Art. 4, Part 2, § 17,
Constitution of Arizona, A.R.S.
[8] Appellee argues that there is authority for her position
in a line of cases construing the term ‘member of the police
department’ in the State of California. See McKeag v. Board
of Pension Com'rs. of City of Los Angeles, 21 Cal.2d 386, 132
P.2d 198; Haas v. City of Los Angeles, 21 Cal.2d 393, 132
P.2d 201; Knoll v. City of Los Angeles, 21 Cal.2d 396, 132
P.2d 203; Hurley v. Sykes, 69 Cal.App. 310, 231 P. 748. We
think those cases are distinguishable but feel it is unnecessary
to enlarge this decision for that purpose. Even were they not,
we think the Arizona statute requires the construction we have
here given it and are satisfied to rest this decision upon the
bases herein set forth.
The judgment of the court below is reversed and it is ordered
that judgment be entered in favor of appellants.
UDALL and McFARLAND, JJ., concur.
LOCKWOOD, Chief Justice (dissenting).
While subsequent legislation clarifying a statute is not
necessarily controlling on a court, it is strongly indicative
of the legislature's original intent. We said in City of Mesa
v. Killingsworth, 96 Ariz. 290, 394 P.2d 410, 414, ‘an
amendment which, in effect, construes and clarifies a prior
statute will be accepted as the legislative declaration of the
original act.’ Since the record does not establish that appellee
was ever commissioned or sworn as a peace officer, we feel
I cannot agree with the reasoning or conclusion reached by
the majority of the court.
The factual situation set out in their opinion is essentially
correct, but fails to include the fact that appellee did at
some time offer to ‘contribute a sum of money equal to the
difference between the retirement deduction to which her
salary had been subjected and the regular police pension
deduction.’ Likewise during her employment she did question
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5
Police Pension Bd. of City of Phoenix v. Warren, 97 Ariz. 180 (1965)
398 P.2d 892
the fact that her deductions were not the same as those for
other members of the police department, but was advised ‘not
to bring it up’.
Appellant's claim for a pension from the Police Pension Board
of the City of Phoenix is based upon the statute enacted by
the Legislature. She claims that she was a ‘member of the
police department’ within the meaning of A.R.S. § 9–911
(6), as a matter of law, regardless of the interpretation given
that section by the Police Pension Board or the administrative
policies of the Phoenix Police Department. In determining
this controversy, this court's duty is to interpret the meaning
of the legislative enactment, not to pass upon the wisdom
thereof.
*189 The interpretation of the majority of the legislative
definition of a ‘member of the police department’ includes
only those persons subjected to the consequences of extra
hazardous risks of bodily harm, disability, or death, and thus
excludes the appellee. It is reasonable to suppose that the
historical basis for police pension statutes was recognition
of the extra hazardous nature of a policeman's duties in
apprehension of dangerous criminals. However, we are
concerned only with the meaning of the statute enacted by the
Arizona Legislature. As this court said in Ernst v. Collins, 81
Ariz. 178, at 182, 302 P.2d 941 at 944:
‘Where the language of a statute is
plain or unambiguous, and the meaning
does not lead to an impossibility nor
an absurdity, the courts must observe
the obvious and natural import of the
language used therein; nor are they free
to extend the meaning, though the result
may be harsh, unjust, or mistaken policy.
Garrison v. Luke, 52 Ariz. 50, 55, 78 P.2d
1120; Perkins v. Huges, 53 Ariz. 523,
529, 91 P.2d 261.’
We therefore should not extend the meaning of the legislative
definition beyond its plain and unambiguous phraseology.
The majority opinion recognizes that the word ‘department’
may be ‘as broad or as narrow as the establishing municipal
authority **898 choose to decree.’ With this particular
administrative structure we are not here concerned. If the
Legislature establishes a policy of pension payments to a
‘member of the policy department’, we are concerned only
with whether the claimant falls within that definition—not
whether we would have included such person as a matter of
policy.
In the majority opinion is a discussion of the meaning
of the word ‘police’. The meaning of this word is not
really the problem. The cases cited, Wyndham v. United
States, and State ex rel Walsh v. Hine, cast no light upon
the specific problem involved. Wyndham concerned the
question of whether a ‘game warden’ was a ‘police official’;
in State ex rel. Walsh v. Hine, the court dealt with the
question of whether the wording ‘officers of local police’
could be applied to the term ‘school commissioners.’ We
are concerned only with the meaning of the phrase ‘police
department’ as defined by the Legislature.
Certainly one might at first blush consider that the word ‘rank’
would be of significance in distinguishing between persons
performing duties as peace officers and those performing
merely clerical duties. However, among the numerous
definitions found in Webster's Third New International
Dictionary (1961), are the following: ‘a: a position or order
in relation to others in a group * * *. 8: a grade of official
standing: as a: a grade in the armed forces. b: a title of
nobility, c: a diplomatic or high governmental position * *
*.’ (Emphasis added). In defining the word ‘rank’ the same
authority states: ‘3: to determine *190 the relative position
or merit of: CLASSIFY, IDENTIFY, RATE * * *.’ Hence
it would be quite possible and logical to find included in a
police department the ‘rank’ of ‘clerk, typist, secretary, radio
operator’ etc. That these terms are frequently spoken of as
‘classifications' brings no comfort, since so are the ‘ranks' of
‘patrolman, sergeant, detective, captain, etc.’
To say that appellee was not employed by the Phoenix Police
Department, but by the City of Phoenix, but was assigned
to the Police Department, is merely a matter of semantic
terminology. Certainly, the Police Department is a part of
the City of Phoenix, and all who work for the department
are working for the City, and are therefore ‘employed’ by
the City, regardless of assignment to the Police Department.
No doubt someone in the Police Department ‘assigns' the
duties of a secretary such as appellee, even though those
duties appear listed in a City ‘classification plan’. The fact
that appellee, if transferred from the Police Department prior
to working there twenty years, would not have established
a valid claim for retirement under the act, applies likewise
to any other member of the department who might transfer
within that period.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
6
Police Pension Bd. of City of Phoenix v. Warren, 97 Ariz. 180 (1965)
398 P.2d 892
As recently as 1964 the Legislature changed the wording of
its definition of a ‘member of the [police] department’ by
amending § 9–911. The new definition reads:
“Member' or ‘member of the department’
means a member of the police
department, duly commissioned and
sworn as a peace officer with all the
powers and duties thereof, and includes
all ranks and both sexes.
That the Legislature was aware that the change in definition
might have the effect of excluding from pension rights
persons who were included prior to the 1964 revision is
obvious from the language immediately following the new
definition:
‘Any person employed in the police
department who has actually contributed
to the police pension fund prior to the
first day of January 1964, and who is not
included within this definition, shall be
allowed to continue to contribute to the
police pension fund and to receive the
benefits conferred by this article but all
other persons are excluded.’
From this language it is apparent that the Legislature
contemplated a change in definition, but indicated the change
was to apply **899 to future conditions only. Thus it
is obvious the Legislature itself regarded as plain and
unambiguous the all-inclusive meaning of the words used in
the original section.
The Police Pension Board, by regulation, excluded the
secretaries from police pension plans immediately after the
adoption of the 1937 legislation, and has continued this policy
to the present day. This is beyond their power. Where the
Legislature has *191 extended a benefit to a class of persons,
an administrative body cannot be regulatory fiat, deprive
End of Document
these persons of the benefits given by the Legislature. After
the Legislature determined that Arizona should have the all
inclusive type of police pension plan, a local administrative
body could not decide that a restricted type would be better,
because less burdensome on the taxpayers or for any other
reason. Cf. Luhrs v. City of Phoenix, 52 Ariz. 438, 83 P.2d
283 (1938).
Appellee testified at the Pension Board Hearing that she knew
deductions were not being made for her on the same basis
as the police officers. She further testified that she felt this
was an error, but ‘was advised not to bring it up’ when she
discovered it. Obviously, is she had ‘brought it up’ in the face
of the regulation as adopted by the Police Department, and the
‘advice’ not to do so, her job could well have been in jeopardy.
Appellant did not make contributions to the plan during her
employment. She has, however, tendered these payments.
Because of the administrative interpretation that she was not
covered, no payments were ever demanded of her. In this
respect the case is similar to Gerendasy v. Police and Fire
Department Pension Commission, 130 N.J.L. 226, 32 A.2d
447 (1943); See also Dempsey v. Alber, 212 Iowa 1134, 236
N.W. 86 (1931). The tender was sufficient to comply with the
requirement of contributions.
It is not for us to determine whether appellee would be entitled
to share in social security under the Federal Government's
regulations. Quite possibly she would be barred from doing so
if she came under the police pension fund, the same as police
officers. We cannot say that she would be in a better position
than they under such circumstances.
The judgment of the trial court should be affirmed.
BERNSTEIN, Justice.
I concur in the above dissent.
Parallel Citations
398 P.2d 892
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
7
Roberts v. City of Phoenix, 225 Ariz. 112 (2010)
235 P.3d 265, 585 Ariz. Adv. Rep. 33
225 Ariz. 112
Court of Appeals of Arizona,
Division 1, Department C.
Randy E. ROBERTS, a single man,
Plaintiff/Appellee/Cross–Appellant,
v.
CITY OF PHOENIX, a municipal entity; Michael
and Shirl Rogers, husband and wife; William E.
Niles, Jr., Defendants/Appellants/Cross–Appellees.
No. 1 CA–CV 09–0283.
|
[6] trial court acted within its discretion in awarding $268,450
in attorney fees, rather than awarding arrestee's full requested
attorney fee award of $329,948.50.
Affirmed.
West Headnotes (21)
[1]
July 1, 2010.
Synopsis
Background: Arrestee brought civil rights action against
city and police officer, alleging selective enforcement of the
law, assault, failure to supervise, and malicious prosecution.
Following settlement of claims, arrestee filed motion for
relief from judgment based on newly discovered documents
that had not been disclosed by city. The Superior Court
granted motion. City appealed. The Court of Appeals
affirmed. On remand, following a determination that city had
repeatedly and intentionally failed to produce documents that
were required to be disclosed, the Superior Court, Maricopa
County, No. CV2002–004180, Janet E. Barton, J., struck
city's answer as a sanction and entered default judgment in
favor of arrestee. City appealed and arrestee cross-appealed.
Appeal and Error
Depositions, affidavits, or discovery
Appellate court will affirm a trial court's
imposition of sanctions for discovery violations,
including entry of default judgment, unless the
record reflects a clear abuse of discretion.
1 Cases that cite this headnote
[2]
Appeal and Error
Proceedings preliminary to trial
In reviewing trial court's imposition of sanctions
for discovery violations, appellate court defers
to the trial court's explicit or implicit factual
findings and will affirm as long as such findings
are supported by reasonable evidence.
1 Cases that cite this headnote
Holdings: The Court of Appeals, Brown, J., held that:
[3]
[1] striking of city's answer, resulting in imposition of default
judgment against city, was warranted as a sanction for
repeated and intentional discovery violations;
Pretrial Procedure
Failure to Disclose; Sanctions
Although striking pleadings and entering default
for discovery violations is within the trial court's
discretion, when a court enters such an order its
discretion is more limited than when it employs
lesser sanctions. 16 A.R.S. Rules Civ.Proc.,
Rules 37(b), 37(c)(1).
[2] trial court acted within its discretion in relying on the
“lodestar” method to calculate reasonable attorney fees to be
awarded as a sanction;
4 Cases that cite this headnote
[3] attorney fee award was warranted;
[4] damages award of $10,000, rather than arrestee's
requested award of $50,000, was warranted;
[5] trial court acted within its discretion in denying arrestee's
requests for Rule 11 sanctions against defense counsel; and
[4]
Pretrial Procedure
Failure to Disclose; Sanctions
Pretrial Procedure
Dismissal or default judgment
A willful disregard of discovery obligations,
bad faith, or other fault by a party may form
a valid basis for striking pleadings or entering
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
1
Roberts v. City of Phoenix, 225 Ariz. 112 (2010)
235 P.3d 265, 585 Ariz. Adv. Rep. 33
default judgment as a sanction. 16 A.R.S. Rules
Civ.Proc., Rules 37(b), 37(c)(1).
2 Cases that cite this headnote
[5]
[8]
When considering the imposition of default
judgment as a sanction for discovery violations,
a court must find the party itself is at fault and it
must consider and reject lesser sanctions.
Pretrial Procedure
Failure to Comply; Sanctions
Intentional destruction of evidence may provide
an appropriate basis for striking pleadings or
entering default judgment as a sanction. 16
A.R.S. Rules Civ.Proc., Rules 37(b), 37(c)(1).
1 Cases that cite this headnote
[6]
5 Cases that cite this headnote
[9]
Pretrial Procedure
Failure to Disclose; Sanctions
[10]
Costs
Items and amount; hours; rate
The decision to award attorney fees, as well as
the method of calculation, is left to the sound
discretion of the trial court and appellate court
will not disturb that decision absent a clear abuse
of discretion.
Pretrial Procedure
Dismissal or default judgment
Striking of city's answer, resulting in imposition
of default judgment against city, was warranted
as a sanction for city's intentional and repeated
discovery violations in arrestee's civil rights
action against city and police officer; city
withheld citizen complaints against officer
from the outset of litigation, city continued
its practice of selectively limiting disclosure
of documents even after prior nondisclosure
was found to be misconduct, city continued
to withhold information after being warned
that severe sanctions would be considered
for further discovery infractions, records from
officer's personnel file were purged on multiple
occasions throughout the pending litigation,
and on numerous occasions, documents were
produced only after arrestee provided irrefutable
proof of their existence. 42 U.S.C.A. § 1983.
Appeal and Error
Attorney fees
Costs
Discretion of court
2 Cases that cite this headnote
[7]
Pretrial Procedure
Failure to Disclose; Sanctions
Trial court acted within its discretion in relying
on the “lodestar” method to calculate reasonable
attorney fees to be awarded as a sanction for
discovery violations. 16 A.R.S. Rules Civ.Proc.,
Rule 37(c).
Constitutional Law
Sanctions
When abuses of discovery or disclosure
obligations are found to warrant the imposition
of sanctions, those sanctions must be appropriate
to the circumstances and must be preceded by
due process. U.S.C.A. Const.Amend. 14; 16
A.R.S. Rules Civ.Proc., Rules 37(b), 37(c)(1).
Pretrial Procedure
Dismissal or default judgment
1 Cases that cite this headnote
[11]
Civil Rights
Results of litigation; prevailing parties
Entry of default judgment against city, resulting
from trial court's decision to strike city's answer
as a sanction for discovery violations in civil
rights action, was a decision “on the merits”
supporting award of attorney fees, where city
contested the amount of damages and a hearing
was held, leading to a final judgment on those
damages. 42 U.S.C.A. § 1988.
[12]
Civil Rights
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
2
Roberts v. City of Phoenix, 225 Ariz. 112 (2010)
235 P.3d 265, 585 Ariz. Adv. Rep. 33
Amount and computation
Attorney fee award of $268,450 was not
improperly disproportional to damages award
of $10,000 awarded to arrestee following the
striking of city's answer and imposition of default
judgment as a discovery sanction against city
in arrestee's civil rights action; damages award
was not nominal damages, but compensated
arrestee for his loss of liberty, and the pain,
suffering, humiliation and mental anguish he
experienced as a result of his malicious and
unlawful detention, and amount of fees incurred
by arrestee's attorneys was necessitated by city's
unreasonable conduct in the matter. 42 U.S.C.A.
§ 1988; 16 A.R.S. Rules Civ.Proc., Rule 37(c).
[13]
Damages
Nature and theory of award
and that he declined to agree to defuse
the situation, and arrestee admitted that his
encounter with officer lasted no longer than
twelve minutes. 42 U.S.C.A. § 1983.
[15]
Damages
Mental suffering and emotional distress
The appropriate amount of damages in a case of
intangible harm lies within the discretion of the
trial court.
[16]
“Nominal damages” denotes a damages award
that does not compensate for loss or harm
but rather is awarded to vindicate rights,
the infringement of which has not caused
actual, provable injury; nominal damages are
customarily awarded as a mere token or
“trifling,” and although they are not always
limited to an award of one dollar, a similarly
miniscule amount is compelled by definition.
[17]
1 Cases that cite this headnote
[18]
Attorney and Client
Liability for costs; sanctions
Trial court acted within its discretion in
denying arrestee's requests for Rule 11 sanctions
against defense counsel for misconduct during
arrestee's civil rights action against city; although
discovery violations were found to warrant the
striking of city's answer and imposition of default
judgment against city, trial court placed the
responsibility for discovery infractions and other
misconduct on the city, not on defense counsel.
Civil Rights
Measure and amount
Trial court acted within its discretion in awarding
arrestee $10,000 for pain, suffering, humiliation,
mental anguish, and loss of liberty, rather
than arrestee's requested award of $50,000,
in arrestee's civil rights action against city,
even though city offered no evidence to refute
arrestee's claim; arrestee testified regarding his
emotional state and the concern he had for
his safety, arrestee acknowledged that had not
experienced any physical injury, that he had
initially refused to follow officer's commands,
Appeal and Error
Costs and Allowances
Appellate court reviews for an abuse of
discretion all aspects of orders imposing Rule 11
sanctions for misconduct during proceedings. 16
A.R.S. Rules Civ.Proc., Rule 11(a) et seq.
1 Cases that cite this headnote
[14]
Appeal and Error
Amount of Recovery
If damages verdict is supported by adequate
evidence, it will not be disturbed.
Damages
Award irrespective of actual damage
Damages
Amount of nominal damages
Damages
Physical suffering and inconvenience in
general
[19]
Appeal and Error
Attorney fees
Costs
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
3
Roberts v. City of Phoenix, 225 Ariz. 112 (2010)
235 P.3d 265, 585 Ariz. Adv. Rep. 33
Items and amount; hours; rate
The determination of whether the amount of
attorney fees is reasonable is a matter peculiarly
within the discretion of a trial court, and will not
be disturbed absent a showing of abuse of that
discretion.
[20]
Civil Rights
Amount and computation
Civil Rights
Time expended; hourly rates
Trial court acted within its discretion in awarding
arrestee $268,450 in attorney fees, rather than
awarding arrestee's full requested attorney fee
award of $329,948.50 for 938.5 hours of attorney
time and 42.1 hours of staff time, following the
striking of city's answer and imposition of default
judgment as a discovery sanction against city in
arrestee's civil rights action; court concluded that
arrestee was entitled to $268,450 based on 797
billed hours of attorney time, and declined to
award any amount for staff hours because there
was no explanation as to who the “staff” persons
were, leaving the court no way to determine a
reasonable hourly rate.
[21]
Civil Rights
Costs and fees on appeal
Arrestee granted default judgment following the
striking of city's answer for discovery violations
in arrestee's civil rights action was not entitled
to award of attorney fees upon his prevailing on
appeal, where arrestee failed to specify the legal
basis for such an award of fees on appeal.
Attorneys and Law Firms
**267 Kent & Ryan, P.L.C. By Michael S. Ryan and
Candace H. Kent, Phoenix, Attorneys for Plaintiff/Appellee/
Cross–Appellant.
Sanders & Parks, P.C. By J. Arthur Eaves, Phoenix, Attorneys
for Defendants/Appellants/Cross–Appellees.
Opinion
*114 OPINION
BROWN, Judge.
¶ 1 The City of Phoenix (“City”) appeals the trial court's order
striking its answer and *115 **268 the resulting default
judgment entered against the City as a sanction for discovery
violations. The City also challenges the amounts awarded for
damages and attorneys' fees. Randy E. Roberts cross-appeals
from the judgment, asserting the court erred in failing to
award the full amounts of the damages and attorneys' fees he
requested. Roberts also challenges the denial of his request to
hold the City's legal counsel jointly liable for attorneys' fees.
For the following reasons, we affirm.
BACKGROUND
¶ 2 In March 2001, Phoenix police officer Michael Rogers
stopped Roberts, who was allegedly exceeding the speed
limit, moments after Roberts left “Charlie's,” a well-known
gay bar in Phoenix. Rogers later claimed that during the
stop Roberts disobeyed police orders and was uncooperative.
Roberts contended he was not speeding and that Rogers
refused to tell him why he had been pulled over. He also
claimed Rogers was aggressive, pounded on the car windows
with a flashlight, and threatened to pull him out of the car
window. Additional officers arrived on the scene in response
to Rogers' request for backup and Roberts was arrested for
failure to comply with the lawful order of a police officer.
¶ 3 All charges against Roberts were eventually dismissed.
Roberts then sued Rogers and the City in March 2002 for
violations of his civil rights pursuant to 42 U.S.C. § 1983
(2006), alleging selective enforcement of the law, assault,
failure to supervise, and malicious prosecution. Roberts
claimed in part that the City knew or should have known that
Rogers and other Phoenix police officers were engaged in the
practice of targeting persons leaving gay bars under the ruse
of conducting routine traffic stops.
¶ 4 In preparation for trial, Roberts requested production
of Rogers' personnel records, including disciplinary records,
and asserted such information would reveal a pattern of
discrimination against gay persons. The City refused to turn
over the records, claiming they were irrelevant to Roberts'
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
4
Roberts v. City of Phoenix, 225 Ariz. 112 (2010)
235 P.3d 265, 585 Ariz. Adv. Rep. 33
claims. He disagreed and filed a motion to compel. The City
sought in camera review of Rogers' personnel records, after
which the trial court determined the records were irrelevant.
¶ 5 Trial before a jury commenced in February 2004. At
the close of Roberts' evidence, the City moved for judgment
as a matter of law regarding Roberts' § 1983 claims. The
court granted the motion, finding no general policy relating
to “deliberate indifference on the part of the City” or denying
the “citizens their constitutional rights.” Roberts then agreed
to dismiss the remaining claims, with each party to pay their
own expenses except that Roberts agreed to pay jury fees.
¶ 6 In August 2004, Roberts filed a motion for relief from
the judgment pursuant to Arizona Rule of Civil Procedure
60(c) based on newly discovered documents which predated
Roberts' trial but had not been disclosed by the City. In
the motion, Roberts explained that through his counsel's
efforts he had obtained specific information relating to
Rogers' personnel file. The documents included two citizen
complaints of anti-gay bias filed against Rogers asserting he
targeted individuals leaving gay bars for traffic stops; one
was filed in 2001 and the other in 2003. The City opposed
Roberts' motion, arguing he was attempting to circumvent
the trial court's determination that the documents produced
for in camera inspection were not discoverable. The City
also moved to enforce the parties' settlement agreement. After
review of the previously undisclosed documents, the court
granted Roberts' motion for relief from the judgment and
denied the City's motion to enforce.
¶ 7 The City appealed to this court, and we affirmed the trial
court's order granting Rule 60(c) relief. Roberts v. City of
Phoenix, 1 CA–CV 04–0765 (Ariz.App. Jan. 19, 2006) (mem.
decision). We found that the documents the City provided
for in camera inspection, together with the undisclosed 2001
and 2003 complaints, could be relevant to establish selective
enforcement and to show the City had a “policy” of failing
to appropriately discipline officers. We further held that the
City's failure to produce the 2001 and 2003 complaints for in
camera inspection *116 **269 was clear and convincing
evidence of misconduct on the part of the City.
¶ 8 In May 2006, in preparation for a pretrial scheduling
conference, Roberts submitted a memorandum alerting
the court that production of Rogers' entire personnel
file was necessary to allow him to conduct meaningful
depositions. The City countered it was not required to produce
documents the trial court had previously determined were not
discoverable. In addition, the City asserted Roberts' request
was premature prior to the trial court determining what
issues were pending for litigation. In response, at the next
scheduling conference, the trial court ordered the City to
produce, within three days, “all files maintained by the City
of Phoenix regarding Mr. Rogers.” The court further ordered
the City to create a list of all such files not in the possession
of City's counsel at that time and the date the information
would be produced. Additionally, the court ordered that no
redactions be made to the files and that the parties submit a
confidentiality agreement.
¶ 9 Three days later, the City filed a notice of production
with the court stating that, “pursuant to the court's order at
the status conference on May 16, 2006,” it had produced the
Personnel and Professional Standards Bureau files pertaining
to Rogers in redacted form. The City indicated it had
requested “unredacted” copies of the files from the police
department and “if so ordered by the court, [would] produce
those files when they are received.” In July 2006, following
a court order reaffirming the prior requirement that the City
produce unredacted versions of all files on Rogers, the City
augmented its disclosure by providing an updated Personnel
File (Fiscal Management Bureau File) and Professional
Standards Bureau File, as well as records from Rogers'
Division File, City of Phoenix File, and Training File. The
City again stated that such documents were “pursuant to the
court's order” requiring production of “all” of Rogers' file
information.
¶ 10 By June 2007, Roberts' counsel had learned a number of
documents and reports had not been provided by the City in its
previous disclosures despite the requirement that everything
be produced. He also learned that documents from Rogers'
file had been purged during the pendency of the litigation
notwithstanding the court's order to disclose all records to
Roberts. 1 Roberts sought sanctions against the City and its
counsel for these discovery violations. During the August
2007 oral argument on Roberts' motion for sanctions, the trial
judge expressed her displeasure with the manner in which
discovery had proceeded. Addressing the City's counsel, she
stated, “I'm very troubled by the fact that documents are
not being produced. I'm very troubled by the fact that the
only time documents are being produced is when [Roberts'
counsel] seems to find out about them and brings them to [the
City's] attention.” Following oral argument, the judge further
admonished the City for its failure to disclose all of Rogers'
information, particularly in light of her prior order requiring
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
5
Roberts v. City of Phoenix, 225 Ariz. 112 (2010)
235 P.3d 265, 585 Ariz. Adv. Rep. 33
such disclosure, stating “we've gone around and around about
producing documents[,]” “I'm not playing games[.]”
¶ 11 The trial judge then ordered the City to “identify
any and all documentation regarding Officer Rogers that
ha[d] been purged from his file, from the inception of this
lawsuit.” (Emphasis in original.) It also ordered the City to
produce “any documents regarding Officer Rogers that are
currently being generated, without regard to the significance
of the subject matter, ... forthwith.” The court specifically
commented that “[s]hould [it] be apprised that specific
documents were not produced that [predate the] hearing, the
Court will strongly consider imposing serious sanctions and
striking [City's] Answer as a [s]anction.” 2 *117 **270
In response, counsel for the City again represented that the
“Phoenix Police Department, according to what's been told to
me, has conducted a diligent inspection of their records and
we have disclosed everything.”
¶ 12 Four days later, the City filed a notice of compliance
accompanied by an affidavit of Lieutenant Johnston, head
of the Law Specialist Bureau, the department that responds
to records requests, avowing that “the City of Phoenix
had located and produced the complete records ... of
Officer Michael T. Rogers.” Johnston further avowed that
any documentation that “may have been purged since the
implementation of this civil action had been previously
provided” to the City's counsel prior to the purge occurring,
with the exception of interview tapes or photographs as they
were not asked for or produced. Despite this affirmation,
and less than one week after the City's notice of compliance,
the City produced four audiotapes and a CD/cassette tape
from investigations conducted on Rogers in 2003 and 2006
that had not previously been produced. In a subsequent
notice of correction, the City asserted that notwithstanding
its prior avowal that all information regarding Rogers had
been turned over, its “counsel ha[d] subsequently learned that
the Phoenix Police Department had maintained audiotapes
of investigations which involved Officer Rogers, which had
not been located or produced as of [the hearing regarding
sanctions].”
¶ 13 Shortly thereafter, Roberts filed a motion to reconsider
sanctions based on continued nondisclosure. In addition to
the tapes identified in the City's notice of correction, Roberts
asserted the City had also failed to abide by the court's order to
identify the documents that had been purged from Rogers' file
and had failed to produce the internal memoranda regarding
those purges. In response, the City explained that these
additional omissions stemmed from an “inadequate internal
system for responding to the rigors of the discovery process”
and departmental “confusion relating to document requests
from Legal Affairs to the Professional Standards Bureau.”
The City further asserted the nondisclosure was not the result
of any willful or bad faith attempt to conceal discoverable
materials. Thus, the City asked the court to refrain from
imposing the ultimate sanction of striking the City's answer.
¶ 14 In November 2007, before the court ruled on Roberts'
motion to reconsider sanctions, the City notified the court and
Roberts that Rogers had been severely injured in a motorcycle
accident on October 9, 2007, rendering him unable to
participate in his defense or in preparations for the upcoming
trial. Roberts contested the characterization of Rogers'
accident, noting that through independent investigation
Roberts' counsel had learned that Rogers' accident was the
result of Rogers operating a motorcycle while intoxicated
and colliding with a properly parked vehicle, causing serious
injuries to himself and his passenger. According to an incident
report prepared by the Glendale Police Department, the
investigating officer informed the county attorney's office that
he was investigating the matter as an aggravated assault.
¶ 15 Also in November 2007, Roberts filed a supplement
to his motion for reconsideration of sanctions asserting
additional nondisclosures. He first claimed the City had
failed to disclose required information regarding Rogers'
supervisor, Sergeant William Niles. Specifically, he alleged
the City failed to produce relevant reports regarding Sergeant
Niles' alleged failure to supervise, improper bookings,
unprofessional conduct, improper comments, and use of
excessive force. He further contended the City failed
to disclose any information regarding Rogers' motorcycle
accident from the previous month.
¶ 16 In December 2007, the City responded to Roberts'
supplement, arguing it had complied with its obligations
because it produced Sergeant Niles' “personnel file.” The City
also claimed no other information regarding *118 **271
Niles should be disclosed because “Phoenix Police Officers
are entitled to confidentiality regarding the documents
contained in the files of the Professional Standards Bureau.”
The City further asserted it had not produced information
regarding Rogers' accident because that incident remained
under criminal investigation.
¶ 17 Roberts countered that the request for production
regarding Sergeant Niles' records was not limited to his
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
6
Roberts v. City of Phoenix, 225 Ariz. 112 (2010)
235 P.3d 265, 585 Ariz. Adv. Rep. 33
“personnel file”; rather, it sought “all documents regarding
the disciplinary record of City of Phoenix Police Department
employee [Sergeant] William Niles, especially any formal
disciplinary actions taken for ‘failure to supervise.’ ” He
also claimed that although Rogers' accident investigation had
been completed and referred for felony prosecution more
than two months prior, the City had not provided Roberts
with any documentation even though the court's previous
order required the City to disclose every document relating to
Rogers within thirty days of its creation.
¶ 18 Following oral argument on the motion for
reconsideration of sanctions, the trial court noted multiple
“instances where documents that predated have now been
produced that were not previously produced ... instances
where documents [ ] exist that have not been produced ...
and [Roberts' counsel] ... told you these documents existed
and they still hadn't been produced.” The court reiterated
its prior warnings to the City regarding the need for timely
disclosure of information and reminded the City that its
representatives were present at the August 2007 hearing and
avowed to the court that everything had been produced.
Ultimately the court concluded that there were “clear grounds
to impose the sanction” of striking the answer, noting that
“the gamesmanship in this case from the City of Phoenix's
standpoint has been deplorable[.]” The court then struck the
City's answer, informing counsel for the City that he could
request an evidentiary hearing “on this issue” if he wished
to present additional matters not previously addressed in the
pleadings. After requesting the opportunity to confer with his
client, counsel for the City requested an evidentiary hearing.
¶ 19 The day before the hearing, Roberts filed an additional
memorandum informing the court that he had learned
that day of yet more documents regarding Rogers that
had not been produced by the City. Specifically, Roberts'
counsel became aware of a series of interdepartmental
emails regarding Rogers, a recent employee evaluation, and
an additional internal investigation of Rogers relating to
assaultive behavior toward a citizen.
¶ 20 At the evidentiary hearing, the City defended its claims
of compliance and offered the testimony of two police
department employees who testified regarding the City's
document production process. Lieutenant Johnston testified
that the City keeps six different files for police officers
as well as a file maintained by the officer's supervisor.
When records are needed from any of these files, the City
merely “send[s] out the request to the particular custodian of
records and trust[s] that they [will] send [ ] everything that
[was] requested.” Johnston also testified that after learning
materials were missing from the City's document production,
he “believe[d] somebody was tasked with ... try[ing] to get
them” and that the omission likely occurred because the
request was “not communicated appropriately” resulting in
an employee “oversight.” He further stated that although he
was aware of the order requiring production of a list of all
purged documents relating to Rogers, he did not produce one
because as far as he was aware “the City of Phoenix [does
not] maintain [such] a list.”
¶ 21 Sergeant Kortes, who oversees the police department's
incident review unit, testified repeatedly that if a document
had been requested in discovery it had been produced. But
when asked by the court if she was aware that during a
civil suit the City has an obligation to produce documents
regardless of whether they are requested, she answered “I
am now.” She further testified that although she was aware
of the lawsuit and participated in collecting documents for
discovery since 2005, she did not become aware of the
requirement to affirmatively turn over documents until 2007.
¶ 22 At the conclusion of the hearing, the court left the
sanction in place, noting that *119 **272 “the City
of Phoenix has repeatedly and continuously violated its
discovery obligations in this case by failing to produce
documents that were responsive to outstanding discovery
requests and/or should have been produced pursuant to Rule
26.1, [of the Arizona Rules of Civil Procedure].” The court
further found that “the City's failure to timely produce these
documents was intentional, in bad faith, and an obstruction
of discovery” and therefore it “[could] not think of a more
appropriate case than this one for this sanction.”
¶ 23 Subsequent to the court's order to strike the City's
answer, the parties agreed to brief whether Roberts was
entitled to attorneys' fees. Following an evidentiary hearing
on damages and subsequent pleadings by the parties, the court
awarded Roberts $10,000 for pain, suffering, humiliation, and
mental anguish; $2,500 for attorneys' fees Roberts had paid
to former counsel in defense of the 2001 criminal charge,
plus prejudgment interest; $268,450 as reasonable attorneys'
fees paid to counsel for this litigation; $12,729.17 in nontaxable costs; and $4,832.05 in taxable costs. The City timely
appealed and Roberts cross-appealed.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
7
Roberts v. City of Phoenix, 225 Ariz. 112 (2010)
235 P.3d 265, 585 Ariz. Adv. Rep. 33
[3]
[4]
[5]
[6] ¶ 27 Although striking pleadings and
entering default for discovery violations is within the trial
[1]
[2] ¶ 24 We will affirm a trial court's imposition court's discretion, when a court enters such an order its
discretion “is more limited than when it employs lesser
of sanctions for discovery violations, including entry of
sanctions.” Rivers, 217 Ariz. at 530, ¶ 11, 177 P.3d at 272
default judgment, unless the record reflects a clear abuse of
(internal quotation marks and citation omitted). Nonetheless,
discretion. See Rivers v. Solley, 217 Ariz. 528, 530, ¶ 11,
a willful disregard of discovery obligations, bad faith, or other
177 P.3d 270, 272 (App.2008) (citing Wayne Cook Enters.,
fault by a party may form a valid basis for striking pleadings
Inc. v. Fain Prop. Ltd. P'ship, 196 Ariz. 146, 147, ¶ 5, 993
or entering default judgment. See Poleo v. Grandview
P.2d 1110, 1111 (App.1999)). We defer to the court's explicit
Equities, Ltd., 143 Ariz. 130, 133, 692 P.2d 309, 312
or implicit factual findings and will affirm as long as such
(App.1984) (finding a willful and bad faith failure to produce
findings are supported by reasonable evidence. See Stoddard
sufficient to impose a default judgment pursuant to Rule
v. Donahoe, 224 Ariz. 152, 154–55, ¶ 9, 228 P.3d 144, 146–
37(b)(2)(C)); cf. Birds Int'l Corp. v. Ariz. Maint. Co., Inc.,
47 (App.2010).
135 Ariz. 545, 547–48, 662 P.2d 1052, 1054–55 (App.1983).
Intentional destruction of evidence may likewise provide an
I. Striking the City's Answer/Entry of Default Judgment
appropriate **273 basis for such sanctions in some cases.
¶ 25 The City first argues that the entry of default judgment
See Souza v. Fred Carries Contracts, Inc., 191 Ariz. 247, 251,
was an abuse of the trial court's discretion because Roberts
955 P.2d 3, 7 (App.1997) (citing GNLV Corp. v. Serv. Control
was not prejudiced by the discovery violations the court
Corp., 111 Nev. 866, 900 P.2d 323, 325 (1995) (recognizing
found the City had committed. The City asserts that entering
that dismissal of a case for discovery violations such as
default judgment as a sanction for discovery violations can
destruction of evidence may be used in extreme situations)).
only be justified if there was prejudice to the opposing
When abuses of discovery or disclosure obligations are found
party. See Zimmerman v. Shakman, 204 Ariz. 231, 235,
to warrant the imposition of sanctions, those sanctions must
¶ 14, 62 P.3d 976, 980 (App.2003). Because discovery
be appropriate *120 to the circumstances and must be
and disclosures were ongoing and because a trial date had
preceded by due process. See Zimmerman, 204 Ariz. at 235,
been set only three days prior, the City argues that Roberts
¶ 13, 62 P.3d at 980.
suffered no prejudice. It also contends that Roberts had a fair
opportunity to incorporate the disclosed information into his
[7] ¶ 28 The record before us supports the trial court's
trial presentation and thus any possible prejudice could have
conclusion that the discovery violations committed by the
been avoided. We disagree.
City were made in bad faith and for the purpose of obstructing
discovery. At the outset of this litigation, the City withheld the
¶ 26 Pursuant to Rule 37(b) of the Arizona Rules of Civil
2001 and 2003 citizen complaints against Rogers. Even after
Procedure,
this court found such nondisclosure constituted misconduct,
the City continued its practice of selectively limiting its
If a party ... fails to obey an order to provide or permit
disclosure of documents in violation of its obligations under
discovery ... the court in which the action is pending may
the rules of civil procedure and specific court orders. In
make such orders in regard to the failure as are just, and
response to the court's order to produce “all files maintained
among others the following:
by the City of Phoenix regarding Mr. Rogers” with “no
redactions,” the City produced only Rogers' “personnel
...
records,” in redacted form. Only after the court again
confirmed its previous ruling that all records be produced did
(C) An order striking out pleadings ... or rendering a
the City then augment its disclosure with additional records
judgment by default against the disobedient party[.]
from Rogers' Professional Standards Bureau File, Division
Ariz. R. Civ. P. 37(b)(2)(C). Further, a party who fails to
File, City of Phoenix File, and Training File; again claiming
timely disclose information required by Rule 26.1, unless
to have provided “all” of Rogers' file information.
such failure is harmless, is subject to sanctions, including
striking the pleadings and entry of a default judgment. Ariz.
¶ 29 The pattern continued when Roberts' counsel learned
R. Civ. P. 37(c)(1).
multiple records were missing from the City's production
DISCUSSION
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
8
Roberts v. City of Phoenix, 225 Ariz. 112 (2010)
235 P.3d 265, 585 Ariz. Adv. Rep. 33
and other records had been destroyed during the pendency
of the litigation. As a result, the trial court ordered the
City to disclose any and all documents generated pertaining
to Rogers regardless of their significance and to identify
all documents that had been purged regarding Rogers.
After the City's representatives avowed again that all
documents had been located and produced, it was revealed
that additional documents that predated the order had not
been produced. Further, the City never identified what
documents had been purged and no internal communications
regarding those purges were provided. Even after stern
admonitions from the trial judge and a warning that
severe sanctions would be considered for further discovery
infractions, including striking the answer, the City continued
to withhold information. On appeal, Roberts identifies at least
eighteen documents that were never produced throughout the
pendency of the litigation despite repeated requests, including
records regarding Rogers' supervisor, Sergeant Niles, which
were produced only in part; reports regarding Rogers'
employee evaluations; internal email communications about
Rogers following his motorcycle accident; and investigative
reports relating to the accident. The City does not controvert
Roberts' assertion that these documents were not produced.
¶ 30 Moreover, records from Rogers' file were purged on
multiple occasions throughout the pending litigation, both
by the Phoenix Police Department and by Rogers himself.
The court found it “troubling ... that documents pertinent to
Officer Rogers have been and are presently being purged
while this matter is currently in litigation” and that documents
were also “being purged by the City of Phoenix between
August of 2004 and apparently January or February of 2007,
even though this case [was] up on appeal during that time
period.” The court further noted:
We've had multiple-multiple-motions to compel.
Document production has been an issue in this case since
the inception of this case. The City was chastised by the
Court of Appeals. They found misconduct in the City not
producing documents previously that clearly should have
been produced even [without] a request for production
because they could lead to discovery of admissible
evidence by the Court of Appeals' own conclusion.
We come back here and I find out documents are being
purged by the City of Phoenix between August of 2004 and
apparently January or February of 2007, even though this
case is up on appeal *121 **274 during that time period,
or at least a substantial portion of that time period.
...
[The court has] people coming in here ... and avowing
to me that documents have been produced, everything's
been produced. A week later ... I get [ ] pleadings saying
that was erroneous. All these documents are being found,
but there's never any explanation as—to the Court—as to
why these weren't produced originally. No suggestion that
they were misfiled. No suggestion that they fell behind the
filing cabinet[.] No suggestion that would lead this court
to conclude that the failure to produce them was anything
other than intentional.
[8] ¶ 31 When considering the imposition of default
judgment as a sanction for discovery violations, a court must
find the party itself is at fault and it must consider and reject
lesser sanctions. Wayne Cook, 196 Ariz. at 149, ¶ 12, 993 P.2d
at 1113. The trial court here specifically found the City to be at
fault for these discovery violations, stating “[the misconduct]
is attributable to [the City]” and “[it] has purposefully
stonewalled this case by refusing to produce documents
and by not producing documents until [opposing counsel]
finds that ... these documents exist.” It also considered
lesser sanctions as evidenced by its initial refusal to strike
the City's answer when it instead ordered all documents
regarding Rogers be produced regardless of significance,
within thirty days of creation. Only after repeatedly ordering
compliance with discovery obligations and finding that
“[t]he City ignored [the] Court's Order to produce any
documents regarding Officer Rogers, contemporaneous with
their creation” and “on numerous occasions, documents were
only produced by the City after [Roberts] provided irrefutable
proof that such documents existed” did the court find that
extreme sanctions were appropriate. See Souza, 191 Ariz. at
250, 955 P.2d at 6 (noting that sanctions for destruction of
evidence are best decided on a case by case basis by a trial
court, considering all relevant factors).
¶ 32 In sum, the trial court considered the history of the case
and the specific instances of discovery violations, as well
as possible lesser sanctions, in determining that striking the
City's Answer was the appropriate sanction. Based on our
review of the record, we find reasonable grounds supporting
the court's decision.
II. Attorneys' Fees and Costs
[9] ¶ 33 The City argues the trial court committed reversible
error in awarding attorneys' fees to Roberts pursuant to 42
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
9
Roberts v. City of Phoenix, 225 Ariz. 112 (2010)
235 P.3d 265, 585 Ariz. Adv. Rep. 33
U.S.C. § 1988 (2006) 3 because Roberts did not succeed on
the merits or obtain a sufficient degree of success on his
claims to justify a fee award. The City further contends that
even when a party technically prevails on a § 1983 claim no
attorneys' fees should be awarded when the party seeking fees
received nothing more than minimal damages.
[10] ¶ 34 As an initial matter, we note that the court found
Roberts “entitled to an award of attorneys' fees [ ] pursuant
to 42 U.S.C. § 1988 and/or Rule 37(c)[,]” and thus did not
make the award of fees solely under § 1988. 4 The City
makes much of the fact that the trial court later quoted from
a federal civil rights case in explaining its decision to use
the “lodestar” method to calculate reasonable fees, as would
be customary in making an attorneys' fee award under §
1988. See Agster v. Maricopa County, 486 F.Supp.2d 1005,
1010 (D.Ariz.2007). However, the City has cited no authority,
and our research has revealed none, limiting the use of this
method of fee calculation to § 1988 awards. Whether the court
awards attorneys' fees under § 1988 or as a sanction under
Rule 37, the decision to make such an award, as well as the
method of calculation, is left to the sound discretion of the
trial court and we will not disturb that decision absent a *122
**275 clear abuse of discretion. See Cummings v. Connell,
402 F.3d 936, 946 (9th Cir.2005) (recognizing that a trial
court has the authority to award reasonable attorneys' fees to
the party who prevails in a § 1983 claim); Sec. Title Agency,
Inc. v. Pope, 219 Ariz. 480, 505, ¶ 111, 200 P.3d 977, 1002
(App.2008) (stating that an appellate court will not disturb
a trial court's decision to award sanctions resulting from
disclosure violations absent an abuse of discretion). Here,
the trial court expressly stated that Roberts was “entitled to
attorneys' fees [ ] pursuant to 42 U.S.C. § 1988 and/or Rule
37(c) [.]” The fact that it used the lodestar method to calculate
those fees has no bearing on the underlying basis for the
award. Further, nothing in the final judgment indicated any
intent on the part of the trial court to modify its previous ruling
and award fees only on 42 U.S.C. § 1988 grounds.
A. Attorneys' Fees Pursuant to 42 U.S.C. § 1988
¶ 35 The City argues that a default judgment is not a
decision “on the merits” of the case and therefore an award of
attorneys' fees is inappropriate under § 1988. It cites Chaney
Bldg. Co. v. City of Tucson to support its contention that “a
judgment entered by confession, consent or default [is not]
actually litigated” and thus not a decision on the merits. 148
Ariz. 571, 573, 716 P.2d 28, 30 (1986). We find the City's
reliance on Chaney misplaced.
¶ 36 Chaney involved the stipulated dismissal of a party in a
contract dispute and whether such a dismissal could be given
collateral estoppel effect to bar future litigation. Id. at 573,
716 P.2d at 30. The Chaney court held that future litigation
could not be barred because judgments entered by stipulation,
i.e., consent judgments, involve issues that have never been
litigated and thus were not decided on the merits. Id. But
the case before us does not involve a stipulated dismissal
or consent judgment. Instead, the default judgment here
was entered as a sanction for discovery violations that were
repeatedly before the trial court and addressed throughout the
proceedings. Thus, Chaney does not control here.
[11] ¶ 37 “A final judgment or decree decides and disposes
of the cause on its merits leaving no question open for
judicial determination.” Decker v. City of Tucson, 4 Ariz.App.
270, 272, 419 P.2d 400, 402 (1966) (citation omitted). Here,
striking the answer led to the default judgment. The City
contested the amount of damages and a hearing was held,
leading to a final judgment on those damages. We therefore
find that the judgment was a decision on the merits.
[12]
[13] ¶ 38 The City further asserts that regardless
of whether the judgment constitutes a determination on the
merits, Roberts did not “prevail” in the sense necessary to
justify an award of attorneys' fees because he received only
minimal damages. Relying on cases that discuss “nominal” 5
damage awards, the City argues that the amount of fees cannot
be justified as reasonable because they are disproportional
to the amount of the damages. See Cummings, 402 F.3d at
946–47; McGinnis v. Kentucky Fried Chicken, 51 F.3d 805,
809–10 (9th Cir.1994) (citing Farrar v. Hobby, 506 U.S. at
115–16, 113 S.Ct. 566, 121 L.Ed.2d 494 (1992); Hensley v.
Eckerhart, 461 U.S. 424, 434, 103 S.Ct. 1933, 76 L.Ed.2d 40
(1983)). We disagree.
¶ 39 Roberts was arrested and spent approximately six hours
in jail, but otherwise was not physically harmed. Nonetheless,
he *123 **276 was awarded “$10,000 as and for his loss
of liberty, and the pain, suffering, humiliation and mental
anguish he experienced as a result of the malicious and
unlawful detention” by the City. He then spent the next
eight years pursuing this claim against the City, all the while
encountering discovery violations that stymied his litigation
efforts, incurring substantial amounts of unnecessary legal
fees along the way. We concur with the trial court's reasoning
on this point:
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
10
Roberts v. City of Phoenix, 225 Ariz. 112 (2010)
235 P.3d 265, 585 Ariz. Adv. Rep. 33
[I]t [is] ironic that the City contests the
reasonableness of the hours [Roberts']
attorneys spent on this matter. In
essence, the City is contesting the
reasonableness of hours that the City
forced [Roberts'] attorneys to incur due
to the unreasonableness of the City's
conduct in this matter.
Moreover, because we have already found that attorneys'
fees were awarded under both § 1988 and Rule 37(c),
any arguments by the City that rely solely on reasonable
proportionality for awards made under § 1988 are not
controlling. Accordingly, we find no abuse of discretion in
the trial court's decision to award fees or in its method of fee
calculation.
III. Damages Award
[14] ¶ 40 On cross-appeal, Roberts argues he is entitled to
the full amount of damages he requested because the City
offered no evidence to refute his claim. We disagree.
[15]
[16] ¶ 41 The appropriate amount of damages in
a case of intangible harm lies within the discretion of the
trial court. See Daou v. Harris, 139 Ariz. 353, 361, 678
P.2d 934, 942 (1984) (recognizing that the trial court shall
determine special damages as it deems just and reasonable
before entering default judgment). “If the verdict is supported
by adequate evidence, it will not be disturbed, and the greatest
possible discretion is in the hands of the trial judge.” Creamer
v. Troiano, 108 Ariz. 573, 577, 503 P.2d 794, 798 (1972).
¶ 42 The trial court conducted an evidentiary hearing on the
issue of damages. Roberts offered testimony regarding his
encounter with Rogers the night of the incident; he described
his emotional state and the concern he had for his safety. On
cross-examination, the City elicited testimony from Roberts
indicating that he had not experienced any physical injury,
he had initially refused to follow Rogers' commands, and he
declined to agree to defuse the situation when Rogers offered
to “start over.” Roberts also admitted that his encounter with
Rogers lasted no longer than twelve minutes.
¶ 43 In addition to attorneys' fees, Roberts requested $50,000
in compensation for pain and suffering over the course of
the litigation. The City argued damages should be limited to
attorneys' fees for the criminal portion of the case prior to the
initial dismissal and the value of one night spent in jail—a
figure it estimated to be “something below $10,000.”
¶ 44 Following the presentation of evidence, the court
commented that it understood what Roberts claimed caused
his emotional distress and had to “decide whether there was
emotional distress and trauma; and if so, what [it] should
[ ] award him for that emotional distress and trauma.” The
court ultimately awarded Roberts $10,000 for pain, suffering,
humiliation, mental anguish, and loss of liberty. On these
facts, we find no abuse of discretion, as reasonable evidence
supports the damages award.
IV. Joint and Several Liability/Rule 11 Sanctions
[17] [18] ¶ 45 Roberts argues that attorneys' fees should
have been awarded against defense counsel jointly and
severally under Rule 11 for misconduct during proceedings.
We review all aspects of orders imposing Rule 11 sanctions
for an abuse of discretion. James, Cooke & Hobson, Inc. v.
Lake Havasu Plumbing & Fire Prot., 177 Ariz. 316, 318–19,
868 P.2d 329, 331–32 (App.1993).
¶ 46 Roberts requested Rule 11 sanctions on multiple
occasions during the proceedings, including in his original
motion for attorneys' fees, his reply to the City on the
same matter, and in a separate motion to strike the
City's objection to Roberts' fee application. Notwithstanding
Roberts' repeated requests to the trial court to impose such
sanctions, the court declined to do so. Although Roberts
*124 **277 points to a host of acts on the part of defense
counsel which he contends merit the imposition of such
sanctions, we cannot say that the court abused its discretion in
declining Roberts' request. The court placed the responsibility
for the discovery infractions and other misconduct on the
City, not on defense counsel. During oral argument on the
matter of sanctions the court stated that it was “not necessarily
of the opinion that any of this conduct [was] attributable
to [defense counsel]” but instead found it “attributable to
[the City].” Thus, the trial court acted within its discretion
in declining to impose Rule 11 sanctions against the City's
counsel.
V. Amount of Attorneys' Fees Award
[19] ¶ 47 Roberts challenges the trial court's decision to
award him less than the full amount of attorneys' fees he
requested. “The determination of whether the amount of
attorney[s'] fees is reasonable is a matter peculiarly within the
discretion of a trial court, and will not be disturbed absent a
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
11
Roberts v. City of Phoenix, 225 Ariz. 112 (2010)
235 P.3d 265, 585 Ariz. Adv. Rep. 33
showing of abuse of that discretion.” Harris v. Reserve Life
Ins. Co., 158 Ariz. 380, 384, 762 P.2d 1334, 1338 (App.1988)
(internal citation omitted).
[20] ¶ 48 Roberts requested $329,948.50 in fees for 938.5
hours of attorney time and 42.1 hours of staff time. The City
countered that no fees should be awarded; and alternatively,
such fees should be limited to approximately 200 hours of
attorney time at a rate of $125–$155 per hour. The court
concluded that Roberts was entitled to $268,450 based on 797
billed hours of attorney time. The court expressly considered
the hours expended in pursuing and prevailing on the claims
in determining the number of hours reasonably incurred
and a reasonable hourly rate. The court further reviewed
other relevant factors in making such a determination and
concluded that no adjustment in its final determination was
appropriate. The court also reviewed Roberts' submission of
staff time and declined to award any amount for those hours
because there was “no explanation as to who these ‘staff’
persons [were], e.g., secretaries, paralegals, documents clerks
etc.” leaving the court no way to determine “a reasonable
hourly rate for such persons.” On this record, we cannot say
the trial court abused its discretion in declining to award
Roberts all of his requested attorneys' fees.
VI. Attorneys' Fees on Appeal
[21] ¶ 49 Roberts has requested an award of attorneys' fees
on appeal. He failed, however, to specify the legal basis
for such an award, which compels us to deny his request,
particularly in a case such as this involving multiple grounds
upon which an award could be granted and different legal
standards for evaluating the award. Thus, we deny Roberts'
request for attorneys' fees. See Odom v. Farmers Ins. Co. of
Ariz., 216 Ariz. 530, 537, ¶ 28, 169 P.3d 120, 127 (App.2007)
(denying request for fees on appeal for failure to provide
supporting authority); Kelly v. NationsBanc Mortgage Corp.,
199 Ariz. 284, 289, ¶ 26, 17 P.3d 790, 795 (App.2000) (same);
In re Wilcox Revocable Trust, 192 Ariz. 337, 341, ¶ 21, 965
P.2d 71, 75 (App.1998) (same). Roberts, however, is entitled
to his costs incurred on appeal upon his compliance with
Arizona Rule of Civil Appellate Procedure 21(a).
CONCLUSION
¶ 50 For the foregoing reasons, we affirm the trial court's
decision to strike the City's answer and the resulting default
judgment. We also affirm the court's calculation of damages
and amount of attorneys' fees, and decline to increase either
award. We further decline to impose the attorneys' fee award
jointly and severally upon defense counsel as a Rule 11
sanction.
CONCURRING: PATRICK IRVINE, Presiding Judge and
DONN KESSLER, Judge.
Parallel Citations
235 P.3d 265, 585 Ariz. Adv. Rep. 33
Footnotes
1
2
3
4
5
Roberts alleged that nine disclosures by the City did not include the relevant underlying reports, interviews, and tapes that should
have been attached. He also alleged fifteen additional incidents of missing or misstated information as well as multiple instances of
purging documents by both the City and Rogers from Rogers' files during the litigation.
The judge further cautioned the City as follows:
I'm also going to [ ] keep you under a continuing obligation to produce. And ... I don't care what it pertains to—if it's he didn't
put the kickstand down on his motorcycle—I don't care what it is, you better produce it to the other side. And ... in the future if
it ends up only getting produced because [counsel for Roberts] finds out about it and asks for it, there will be serious sanctions.
So you better just red flag this file and make sure any document that's created by the City of Phoenix or City of Phoenix Police
Department that pertains to this officer gets copied and sent over to [counsel for Roberts] within hours of being generated.
42 U.S.C. § 1988(b) permits attorneys' fees to be awarded to the “prevailing party” in a § 1983 claim at the discretion of the court.
Roberts sought attorneys' fees pursuant to 42 U.S.C. § 1988, Rule 37(c), and Rule 11. In response, the City denied the applicability
of Rule 37(c) and addressed only § 1988 attorneys' fees.
The City conflates “minimal” damages with “nominal” damages. The term “minimal,” in relation to legal damages, is not a term of
art; rather, minimal means only “of a minimum amount, quantity, or degree[. ]” The New Oxford American Dictionary 1079 (2d ed.
2005). “Nominal” damages, on the other hand, is a term of art and is used to denote a damage award that does not compensate for
loss or harm but rather is “awarded to vindicate rights, the infringement of which has not caused actual, provable injury.” Cummings
v. Connell, 402 F.3d 936, 942 (9th Cir.2005). Nominal damages are customarily awarded as a mere token or “trifling.” Id. at 943.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
12
Roberts v. City of Phoenix, 225 Ariz. 112 (2010)
235 P.3d 265, 585 Ariz. Adv. Rep. 33
Although they are not always limited to an award of one dollar, a similarly miniscule amount is compelled by definition. See id. The
City concedes the damage award to Roberts was not nominal. Even if the award was nominal, however, the United States Supreme
Court has recognized that “a plaintiff who wins nominal damages is a prevailing party under § 1988.” Farrar v. Hobby, 506 U.S.
103, 112, 113 S.Ct. 566, 121 L.Ed.2d 494 (1992).
End of Document
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
13
Page 1
102 F.3d 1577, 41 Cont.Cas.Fed. (CCH) P 77,026
(Cite as: 102 F.3d 1577)
United States Court of Appeals,
Federal Circuit.
STATISTICA, INC., Appellant,
v.
Warren G. CHRISTOPHER, Secretary of State,
Appellee,
and
The Orkand Corporation, Intervenor.
No. 96–1148.
Dec. 19, 1996.
Unsuccessful bidder on government services
contract sought judicial review of decision of General Services Administration Board of Contract Appeals (GSBCA) denying its protest. The Court of
Appeals, Mayer, Circuit Judge, held that: (1) unsuccessful bidder on government services contract had
obligation to seek clarification from government, to
the extent that there was any patent ambiguity in
agency's solicitation, and (2) even assuming error,
unsuccessful bidder failed to demonstrate that such
error was prejudicial.
Affirmed.
West Headnotes
[1] Administrative Law and Procedure 15A
763
15A Administrative Law and Procedure
15AV Judicial Review of Administrative Decisions
15AV(D) Scope of Review in General
15Ak763 k. Arbitrary, unreasonable or capricious action; illegality. Most Cited Cases
Administrative Law and Procedure 15A
791
15A Administrative Law and Procedure
15AV Judicial Review of Administrative Decisions
15AV(E) Particular Questions, Review of
15Ak784 Fact Questions
15Ak791 k. Substantial evidence. Most
Cited Cases
Public Contracts 316H
164
316H Public Contracts
316HII Bidding and Bid Protests
316Hk160 Judicial Remedies and Review
316Hk164 k. Scope of review. Most Cited
Cases
(Formerly 393k64.60(4), 393k64.60(3.1))
United States 393
63.70(4)
393 United States
393III Contracts
393k63.1 Bidding and Bid Protests
393k63.70 Judicial Remedies and Review
393k63.70(4) k. Scope of review. Most
Cited Cases
(Formerly 393k64.60(4), 393k64.60(3.1))
On appeal from protest decision of the General
Services Administration Board of Contract Appeals
(GSBCA), Court of Appeals reviews GSBCA's factual findings to determine whether they are fraudulent, arbitrary, or capricious, so grossly erroneous
as to necessarily imply bad faith, or not supported
by substantial evidence. Contract Disputes Act of
1978, § 10(b), 41 U.S.C.A. § 609(b).
[2] Administrative Law and Procedure 15A
791
15A Administrative Law and Procedure
15AV Judicial Review of Administrative Decisions
15AV(E) Particular Questions, Review of
15Ak784 Fact Questions
15Ak791 k. Substantial evidence. Most
Cited Cases
Public Contracts 316H
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
166
Page 2
102 F.3d 1577, 41 Cont.Cas.Fed. (CCH) P 77,026
(Cite as: 102 F.3d 1577)
316H Public Contracts
316HII Bidding and Bid Protests
316Hk160 Judicial Remedies and Review
316Hk166 k. Evidence. Most Cited Cases
(Formerly 393k64.60(3.1))
United States 393
63.70(6)
393 United States
393III Contracts
393k63.1 Bidding and Bid Protests
393k63.70 Judicial Remedies and Review
393k63.70(6) k. Evidence. Most Cited
Cases
(Formerly 393k64.60(3.1))
“Substantial evidence,” of kind required to support factual findings of the General Services Administration Board of Contract Appeals (GSBCA)
in connection with protest decision, means such relevant evidence as reasonable mind might accept as
adequate to support conclusion. Contract Disputes
Act of 1978, § 10(b), 41 U.S.C.A. § 609(b).
393k63.70 Judicial Remedies and Review
393k63.70(4) k. Scope of review. Most
Cited Cases
(Formerly 393k64.60(3.1))
On appeal from protest decision of the General
Services Administration Board of Contract Appeals
(GSBCA), Court of Appeals reviews GSBCA's legal conclusions de novo. Contract Disputes Act of
1978, § 10(b), 41 U.S.C.A. § 609(b).
[4] Public Contracts 316H
158
316H Public Contracts
316HII Bidding and Bid Protests
316Hk157 Rights and Remedies of Disappointed Bidders; Bid Protests
316Hk158 k. In general. Most Cited Cases
(Formerly 393k64.55(1))
United States 393
63.60(1)
15A Administrative Law and Procedure
15AV Judicial Review of Administrative Decisions
15AV(E) Particular Questions, Review of
15Ak796 k. Law questions in general.
Most Cited Cases
393 United States
393III Contracts
393k63.1 Bidding and Bid Protests
393k63.60 Rights and Remedies of Disappointed Bidders; Bid Protests
393k63.60(1) k. In general. Most Cited
Cases
(Formerly 393k64.55(1))
Bid protester must show not simply a significant error in procurement process, but that error was
prejudicial, if it is to prevail in bid protest.
Public Contracts 316H
[5] Public Contracts 316H
[3] Administrative Law and Procedure 15A
796
164
158
316H Public Contracts
316HII Bidding and Bid Protests
316Hk160 Judicial Remedies and Review
316Hk164 k. Scope of review. Most Cited
Cases
(Formerly 393k64.60(3.1))
316H Public Contracts
316HII Bidding and Bid Protests
316Hk157 Rights and Remedies of Disappointed Bidders; Bid Protests
316Hk158 k. In general. Most Cited Cases
(Formerly 393k64.55(1))
United States 393
United States 393
63.70(4)
393 United States
393III Contracts
393k63.1 Bidding and Bid Protests
63.60(1)
393 United States
393III Contracts
393k63.1 Bidding and Bid Protests
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393k63.60 Rights and Remedies of Disappointed Bidders; Bid Protests
393k63.60(1) k. In general. Most Cited
Cases
(Formerly 393k64.55(1))
To establish competitive prejudice, of kind required for it to prevail on bid protest, protester must
demonstrate that, but for alleged error, there was
substantial chance that it would receive an award,
i.e., that it was within zone of active consideration.
[6] Public Contracts 316H
258
316H Public Contracts
316HV Construction and Operation
316Hk258 k. Patent ambiguity doctrine; duty
to inquire before bidding. Most Cited Cases
(Formerly 393k64.55(1))
United States 393
70(30)
393 United States
393III Contracts
393k70 Construction and Operation of Contracts
393k70(30) k. Representations and specifications misleading contractor. Most Cited Cases
(Formerly 393k64.55(1))
Unsuccessful bidder on government services
contract had obligation to seek clarification from
government, to the extent that there was any patent
ambiguity in agency's solicitation, even after
agency had requested its best and final offer
(BAFO), up until time that BAFOs were received.
[7] Public Contracts 316H
158
316H Public Contracts
316HII Bidding and Bid Protests
316Hk157 Rights and Remedies of Disappointed Bidders; Bid Protests
316Hk158 k. In general. Most Cited Cases
(Formerly 393k64.55(1))
United States 393
393 United States
63.60(1)
393III Contracts
393k63.1 Bidding and Bid Protests
393k63.60 Rights and Remedies of Disappointed Bidders; Bid Protests
393k63.60(1) k. In general. Most Cited
Cases
(Formerly 393k64.55(1))
Even assuming that General Services Administration Board of Contract Appeals (GSBCA) erred
in holding that soliciting agency's cost evaluation
was proper, and that contracting officer did not abuse his discretion by not including “professional
employee compensation clause” in solicitation, unsuccessful bidder on government services contract
failed to demonstrate that such errors were prejudicial, where alleged errors only affected degree of
price differential between its bid and less expensive
bid of successful bidder, and there was no evidence
that result would have been different if price differential was not as great.
[8] Administrative Law and Procedure 15A
787
15A Administrative Law and Procedure
15AV Judicial Review of Administrative Decisions
15AV(E) Particular Questions, Review of
15Ak784 Fact Questions
15Ak787 k. Credibility. Most Cited
Cases
Public Contracts 316H
164
316H Public Contracts
316HII Bidding and Bid Protests
316Hk160 Judicial Remedies and Review
316Hk164 k. Scope of review. Most Cited
Cases
(Formerly 393k64.60(3.1))
United States 393
63.70(4)
393 United States
393III Contracts
393k63.1 Bidding and Bid Protests
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102 F.3d 1577, 41 Cont.Cas.Fed. (CCH) P 77,026
(Cite as: 102 F.3d 1577)
393k63.70 Judicial Remedies and Review
393k63.70(4) k. Scope of review. Most
Cited Cases
(Formerly 393k64.60(3.1))
Credibility determinations of General Services
Administration Board of Contract Appeals
(GSBCA) in support of its protest decisions are virtually unreviewable on appeal.
*1578 Timothy Sullivan, Adduci, Mastriani &
Schaumberg, L.L.P., of Washington, D.C., argued
for appellant. With him on the brief were Katherine
S. Nucci and Martin R. Fischer.
Franklin E. White, Jr., Attorney, Commercial Litigation Branch, Civil Division, Department of Justice,
of Washington, D.C., argued for appellee. With him
on the brief were Frank W. Hunger, Assistant Attorney General, David M. Cohen, Director, and
Joseph A. Kijewski, Assistant Director.
Devon E. Hewitt, Shaw Pittman Potts & Trowbridge, of McLean, Virginia, argued for intervenor.
With her on the brief was Alex D. Tomaszczuk.
Before MAYER, PLAGER, and LOURIE, Circuit
Judges.
MAYER, Circuit Judge.
Statistica, Inc. appeals the decision of the General Services Administration Board of Contract Appeals in Statistica, Inc. v. Department of State, GSBCA No. 13426–P, 96–1 BCA ¶ 28,141, 1996 WL
38727 (1995), denying its protest challenging the
Department of State's award to The Orkand Corporation of a contract for technical services to support
the modernization of automated consular services
systems. Because Statistica has not established any
error in the board's decision, we affirm.
Background
On January 20, 1995, the Department of State
(“State Department” or “agency”) issued Request
for Proposals S–OPRAQ–95– *1579 R–0501
(“RFP” or “solicitation”) for technical services to
support the modernization of key automated consular services systems operated by the Bureau of Consular Affairs. The procurement focused primarily
on installation and maintenance of, and training for,
the consular automated systems at embassies and
consulates abroad. The RFP contemplated the
award of an indefinite delivery/indefinite quantity,
time-and-materials contract for a base year and four
option years. The technical merit of proposals was
more important than price, and the award was to go
to the “responsible Offeror whose offer, conforming to the requirements of the solicitation, is evaluated as being the most advantageous to the Government.” However, to the extent the agency considered offers to be technically equal, price was to
become the “determining factor” for awarding the
contract.
The solicitation set forth ten contract line item
numbers (CLINs) for ten personnel positions or categories. It contained an estimated number of hours
for each CLIN and required offerors to propose an
hourly rate for each. The RFP contained four additional CLINs not here relevant. Among the many
Federal Acquisition Regulation (FAR) clauses incorporated by reference in the solicitation was the
provision entitled “Service Contract Act of 1965, as
Amended,” 48 C.F.R. § 52.222–41. However, the
RFP did not contain or reference the FAR provision
found at 48 C.F.R. § 52.222–46, entitled
“Evaluation of Compensation for Professional Employees.” That clause is required to be inserted in
RFPs for contracts expected to exceed $500,000
when the service to be provided “will require meaningful numbers of professional employees.” 48
C.F.R. § 22.1103. Because the contracting officer
had decided that the contract would not involve
meaningful numbers of professional employees, he
did not include the clause. Finally, Section J of the
RFP contained the Wage Determination issued by
the Department of Labor, which established minimum hourly wage rates and fringe benefits for this
service contract.
Four firms submitted offers in response to the
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102 F.3d 1577, 41 Cont.Cas.Fed. (CCH) P 77,026
(Cite as: 102 F.3d 1577)
RFP. The agency evaluated the four initial proposals but included only Statistica and Orkand in the
competitive range, thereby eliminating the other
two firms from further negotiations. In reviewing
their respective cost proposals, the contracting officer became concerned with the base labor rates
offered by each firm. Some of the rates were less
than the wages specified in the Wage Determination for the personnel category the contracting officer thought corresponded to the pertinent CLIN.
He was concerned further with the disparate markup of these rates for overhead.
In an effort to allay these concerns, the contracting officer issued Amendment Three to the solicitation, which added clause “H.14 Correlation of
Contract Positions,” listing the ten contract labor
categories and the Wage Determination classification he thought corresponded to each category. That
provision also reflected the contracting officer's
opinion that two of the positions were exempt.
Amendment Three also replaced the original Wage
Determination with a new one, which contained a
footnote stating that the classifications do “not apply to employees employed in a bona fide executive, administrative, or professional category as
defined and delineated in 29 CFR 541 (See 29 CFR
4.156).” The contracting officer also sent Orkand
and Statistica substantively identical deficiency reports explaining that the Service Contract Act requires that employees in nonexempt labor categories (categories that are not bona fide executive, administrative, or professional) be reimbursed at or
above the rate contained in the Wage Determination. Because significant percentages of Statistica's
and Orkand's proposed labor rates were below the
rates in the Wage Determination, each firm was directed to confirm its compliance with the Service
Contract Act and to identify any categories it had
determined were exempt from the Act.
Both firms confirmed their compliance with the
Service Contract Act and the Wage Determination.
Statistica believed that some of the eight positions
not identified as exempt were, in fact, exempt, in-
cluding the “Documentation Specialist” position.
Orkand also thought that some of these positions
were exempt, but not “Documentation Specialist.”
The contracting officer deemed *1580 these responses to be reasonable, so he requested best and
final offers (BAFOs) from the two firms. The request was attached to Amendment Four, which revised clause H.14 to substitute “Technical Writer”
for “Document Preparation Clerk” as the Wage Determination position that corresponded to
“Documentation Specialist.” The request also asked
Statistica and Orkand each to “provide [its] best
and final pricing proposal based on this revised
Section H.”
Statistica interpreted this instruction and
Amendment Four as a rejection of its position on
the exemption of the CLIN positions from the requirements of the Service Contract Act. The cost
proposal manager testified that Statistica “did not
understand what the Government was doing” but
felt that the agency had directed it to use at least the
Wage Determination figures in pricing its offer.
Orkand, in contrast, did not interpret Amendment
Four as mandating that offerors price their proposals using the figures in H.14. Rather, it based its
BAFO prices not on H.14 but on its position that a
specified number of the ten CLIN positions were
exempt.
Neither the contracting officer nor any other
agency personnel informed Statistica or Orkand
whether the agency accepted their exemption arguments or deemed them reasonable. Nor did either
firm ask whether its exemption arguments had been
accepted by the agency. Indeed, the contracting officer testified that he never intended to reach agreement with the offerors as to which categories were
properly exempt, for it was not his decision to
make.
Statisticahadthehigher-priced,technically-superior proposal. More specifically, its price was
$7,256,689, or 37%, higher than Orkand's, while its
technical score was just 15% higher. The contract
specialist drafted a source selection memorandum,
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102 F.3d 1577, 41 Cont.Cas.Fed. (CCH) P 77,026
(Cite as: 102 F.3d 1577)
in which he concluded that Orkand's offer met the
government's needs and that the additional technical merit of Statistica's proposal did not warrant paying the significantly higher price. Thus, he recommended that the agency award the contract to Orkand. The Source Selection Advisory Council
(SSAC) members concurred with his conclusion
and recommended to the Source Selection Authority (SSA) that the award be made to Orkand. The
SSA accepted the SSAC's recommendation and
Orkand was awarded the contract on September 22,
1995.
On September 29, 1995, Statistica protested the
award to the General Services Administration
Board of Contract Appeals (GSBCA). As amended,
Statistica's protest contained three counts pertinent
to this appeal: (1) Orkand's proposal was technically unacceptable for failing to comply with the
mandatory requirement that offerors bid using the
correlation matrix in clause H.14 (Count III); (2)
the agency conducted misleading discussions with
it regarding the mandatory nature of clause H.14
(Count IV); and (3) the agency conducted an unreasonable price analysis of the proposals and erred
by failing to include FAR § 52.222–46 in the RFP
(Count II). The board denied the protest, holding
that the State Department had committed no error.
The board also stated that even had Statistica prevailed on Count II, any error would have been
harmless based on the SSA's “thoughtful,”
“well-reasoned,” and “convincing testimony” that
Statistica's technical superiority would not have
justified awarding it the contract even if the price
difference had been as small as $4 million. That is
the difference Statistica's expert testified would
have existed had Statistica priced its offer using
base wage rates below those in the Wage Determination and contractor-site overhead instead of homesite overhead. Statistica appeals.
Discussion
This case, one of the last vestiges of the nowrepealed Brooks Automatic Data Processing Act,
40 U.S.C. § 759, see Grumman Data Sys. Corp. v.
Dalton, 88 F.3d 990, 995 n. 2 (Fed.Cir.1996),
presents us with an opportunity to restate the law
on the competitive prejudice required to be proven
in bid protests. This is a matter of continuing vitality in other forums, beyond the particularity of the
Brooks Act. So it is worthy of more than passing
consideration notwithstanding the loss of the
board's protest authority.
*1581 [1][2][3] We review protest decisions of
the GSBCA under the standard set forth in the Contract Disputes Act of 1978. 40 U.S.C. §
759(f)(6)(A) (1994). That standard mandates that
we affirm the board's decision on any fact question
unless its findings are “fraudulent, or arbitrary, or
capricious, or so grossly erroneous as to necessarily
imply bad faith, or ... not supported by substantial
evidence.” 41 U.S.C. § 609(b) (1994); Grumman
Data, 88 F.3d at 995. Substantial evidence means “
‘such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion.’ ”
Grumman Data, 88 F.3d at 995 (quoting Frank v.
Department of Transp., 35 F.3d 1554, 1556
(Fed.Cir.1994)). However, we review questions of
law de novo. 41 U.S.C. § 609(b); Grumman Data,
88 F.3d at 995.
Statistica argues that the board erred in concluding (1) that Orkand's proposal complied with
the requirements of the RFP, namely the H.14
clause (Count III); (2) that the State Department's
discussions of the offeror's base labor rates were
proper (Count IV); (3) that the contracting officer
did not abuse his discretion by failing to include the
FAR's Professional Employee Compensation
Clause in the RFP (Count II); and (4) that the State
Department's cost evaluation was proper (also
Count II). The government and Orkand urge us to
affirm the board's decision on the sole basis that
even assuming the existence of the alleged procurement errors, Statistica did not establish that it was
harmed or prejudiced by the errors.
[4][5] A protester must show not simply a significant error in the procurement process, but also
that the error was prejudicial, if it is to prevail in a
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102 F.3d 1577, 41 Cont.Cas.Fed. (CCH) P 77,026
(Cite as: 102 F.3d 1577)
bid protest. See Data Gen. Corp. v. Johnson, 78
F.3d 1556, 1562 (Fed.Cir.1996) (citing cases). To
establish competitive prejudice, a protester must
demonstrate that but for the alleged error, there was
a “ ‘ substantial chance that [it] would receive an
award—that it was within the zone of active consideration.’ ” CACI, Inc.-Fed. v. United States, 719
F.2d 1567, 1574–75 (Fed.Cir.1983) (quoting Morgan Bus. Assocs., Inc. v. United States, 223 Ct.Cl.
325, 619 F.2d 892, 896 (1980)) (emphasis added).
In Data General, this court said that “the appropriate standard is that, to establish prejudice, a
protester must show that, had it not been for the alleged error in the procurement process, there was a
reasonable likelihood that the protester would have
been awarded the contract.” 78 F.3d at 1562
(emphasis added). The court reexamined the appropriate prejudice standard in an effort to unify what
it perceived to be “variations in the verbal formulation of what is necessary to show prejudice.” Id.
The “variations” it cited were from the Claims
Court and the GSBCA. However, those tribunals
are required to follow the “substantial chance”
standard, as indeed, they have. See, e.g., TRW, Inc.
v. United States, 28 Fed. Cl. 155, 161 (1993); Compliance Corp. v. United States, 22 Cl.Ct. 193, 199
(1990); cf. Computer Mktg. Corp., GSBCA No.
8276–C, 87–1 BCA ¶ 19,405 at 98,118, 1986 WL
20765 (1986). The court also thought that the General Accounting Office's (GAO) prejudice formulation was at odds with the “substantial chance”
standard. But less than one month before Data General, the GAO explained that it “will not sustain a
protest unless the protester demonstrates a reasonable possibility that it was prejudiced by the
agency's actions, that is, unless the protester
demonstrates that, but for the agency's actions, it
would have had a substantial chance of receiving
the award.” McDonald–Bradley, B–270126, 96–1
CPD ¶ 54 (citing Marwais Steel Co., B–254242.2;
B–254242.3, 94–1 CPD ¶ 291). Thus, GAO's standard is in harmony with the “substantial chance”
standard set out in Morgan Business and CACI. See
also Unified Indus. Inc., B–212996.2, 84–2 CPD ¶
139 (citing Morgan Business ); University Research
Corp., B–186311.2, 81–2 CPD ¶ 428 (same). Even
if it were not, however, GAO decisions do not bind
us, nor ours them. Cf. Honeywell, Inc. v. United
States, 870 F.2d 644, 649 (Fed.Cir.1989).
The Data General court stated that the
“reasonable likelihood” standard was simply a
“refinement and clarification” of the Morgan
Business and CACI decisions. 78 F.3d at 1563. We
are confident that that is all that was intended, because it, as we, would *1582 be powerless to overrule those cases absent en banc consideration. See
McAbee Constr., Inc. v. United States, 97 F.3d
1431, 1434 (Fed.Cir.1996); Newell Cos. v. Kenney
Mfg. Co., 864 F.2d 757, 765 (Fed.Cir.1988). Notwithstanding, counsel, as well as some commentators, have interpreted Data General as imposing a
“reasonable likelihood” standard on protesters that
is more burdensome and stringent than the
“substantial chance” test of Morgan Business and
CACI. In fact, the government stated at argument
that it believes a “reasonable likelihood” is more
onerous to prove than a “substantial chance.” See
also 38 The Government Contractor ¶ 147 (Mar.
27, 1996) (Data General “appears to substantially
increase the protester's burden”); cf. Global Assocs.
Ltd., B–271693.2, 96–2 CPD ¶ 100 at 6 (GAO rejected an agency's invitation to apply Data General
). While it is true that a “likelihood” connotes a
higher probability than a “chance,” the adjectives
“reasonable” and “substantial” modifying those respective nouns appear to us to bring the two standards close to synonymity. Rather than engage in
verbal gymnastics, however, suffice it to say that
Data General did not, as it could not, replace the
“substantial chance” standard with a more demanding one. Morgan Business and CACI remain controlling. Thus, for Statistica to prevail it must establish not only some significant error in the procurement process, but also that there was a substantial
chance it would have received the contract award
but for that error.
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
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102 F.3d 1577, 41 Cont.Cas.Fed. (CCH) P 77,026
(Cite as: 102 F.3d 1577)
[6] Statistica first argues that Orkand failed to
comply with the allegedly mandatory requirement
of the RFP that offerors price their proposals in accordance with the H.14 correlation matrix, thereby
rendering its proposal unacceptable. But for the
State Department's improper waiver of this requirement it would have received the contract as the only
other offeror in the competitive range. We disagree.
The government did not intend that H.14 be
mandatory, nor did Orkand interpret it that way.
Statistica points to no provision in the RFP that expressly mandates the use of the pricing matrix or
explicitly rejects the parties' respective exemption
arguments. But even assuming the reasonableness
of Statistica's interpretation that it was mandatory,
Orkand's contrary interpretation was at least equally
reasonable. Statistica's own cost proposal manager
testified that it is the contractor's responsibility, not
the agency's, to determine whether particular employees are covered by the Service Contract Act.
96–1 BCA at 140,483. Consequently, the solicitation was at most ambiguous. Grumman Data, 88
F.3d at 997 (“If more than one meaning is reasonably consistent with the contract language, then the
contract term is ambiguous.”). And any ambiguity
was patent: after the issuance of Amendment Four,
Statistica's cost proposal manager “didn't understand what the Government was doing.” Moreover,
its interpretation that the State Department had rejected its position about the exemption of the additional personnel categories from the Service Contract Act conflicted with its understanding that the
contractor, not the agency, determines whether an
exemption applies. Thus, Statistica had a duty to
seek clarification from the government, and its failure to do so precludes acceptance of its interpretation.
For the same reason, we reject Statistica's argument that the government engaged in improper and
misleading discussions about whether clause H.14
was mandatory. Even if we were to assume that the
State Department's discussions were misleading,
Statistica had a duty to seek clarification. It argues
that it could not because discussions had closed,
and that any further communications with the State
Department would have necessitated the issuance of
an RFP amendment, which would have delayed the
procurement. This concern is misplaced.
While the FAR prohibits agencies from reopening discussions after the receipt of BAFOs unless it
is clearly in the government's interest to do so, 48
C.F.R. § 15.611(c), Statistica points to no provision
precluding an offeror from seeking clarification of
a patently ambiguous solicitation after an agency
has requested BAFOs but prior to their receipt. Indeed, the GSBCA's bid protest rules mandate that in
a negotiated procurement, alleged solicitation improprieties, including ambiguities, absent from the
initial *1583 RFP but subsequently incorporated in
it, must be protested no later than the next closing
time for receipt of proposals following the incorporation. Id. § 6101.5(b)(3)(i); Grumman Data, 88
F.3d at 998. Otherwise, the right to contest the
agency's reasonable interpretation is lost. 88 F.3d at
998. Statistica also has not established that any
delay resulting from a clarification request would
have prejudiced it or would have been impractical.
[7][8] Finally, again assuming the board erred
in holding that the State Department's cost evaluation was proper and that the contracting officer did
not abuse his discretion by failing to include the
FAR's Professional Employee Compensation
Clause in the RFP, Statistica has not demonstrated
that the errors were prejudicial. Its expert testified
that the difference between the two BAFO prices
would have been only $4 million had Statistica
priced its offer using base wage rates below those
in the Wage Determination and contractor-site
overhead instead of home-site overhead. The SSA
testified, however, that that price difference would
not have changed his award decision because Statistica's technical advantage was slight. The board
found the SSA's testimony credible, calling it
“thoughtful,” “well-reasoned,” and “convincing.”
96–1 BCA at 140,493. Of course, credibility determinations are “virtually unreviewable.” See
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102 F.3d 1577, 41 Cont.Cas.Fed. (CCH) P 77,026
(Cite as: 102 F.3d 1577)
Hambsch v. Department of Treasury, 796 F.2d 430,
436 (Fed.Cir.1986).
In support of its argument that it was prejudiced by these assumed errors, Statistica points to
testimony from one of the four SSAC members that
he would have “argued much stronger for Statistica” had the price difference been just 25% instead
of 37%. It also points out that the SSA agreed that
the SSAC recommendation, and consequently his
decision, might have been different had the price
gap been smaller than it was. While this testimony
raises the chance that Statistica might have received
the award, the chance was not substantial. Statistica
has cited no record evidence that the contract specialist, who drafted the source selection award recommendation memorandum, would have changed
his recommendation, nor that the other three members of the SSAC were inclined to change their recommendation to the SSA. As seen, even that small
price differential would not have changed the
award.
Conclusion
Accordingly, the decision of the General Services Administration Board of Contract Appeals is
affirmed.
AFFIRMED.
C.A.Fed.,1996.
Statistica, Inc. v. Christopher
102 F.3d 1577, 41 Cont.Cas.Fed. (CCH) P 77,026
END OF DOCUMENT
© 2013 Thomson Reuters. No Claim to Orig. US Gov. Works.
Torncello v. U. S., 231 Ct.Cl. 20 (1982)
681 F.2d 756, 30 Cont.Cas.Fed. (CCH) P 70,005
681 F.2d 756
United States Court of Claims.
[3]
Sales
Want or failure of consideration
Ronald A. TORNCELLO and
Soledad Enterprises, Inc.
v.
The UNITED STATES.
No. 486-80C.
|
With contracts for definite quantity, promises
and obligations flowing from each party to
the other define both minimum and maximum
performances of each and furnish consideration
from each party that courts require for
enforceability; with indefinite quantity contracts,
buyer's promise specifically is uncertain, and
such a contract would fail for lack of
consideration if it did not contain a minimum
quantity term.
June 16, 1982.
Contractor made claim against Navy for breach of pest
control requirements contract. The Armed Services Board
of Contract Appeals held for Government, and contractor
appealed. The Court of Claims, Bennett, J., held that a
standard “termination for the convenience of the government”
clause does not justify Government's diversion of business
away from party with whom it had executed requirements
contract to competing bidder on original solicitation.
Sales
Consideration
24 Cases that cite this headnote
[4]
Judgment for contractor.
Public Contracts
Validity and Sufficiency of Contract
United States
Express contracts in general
Friedman, Chief Judge, concurred with opinion.
Contract whereunder Navy agreed to authorize
pest control work and contractor agreed to
perform it and which contained acknowledged
estimate that one call would be made per month
was a contract for Navy's requirements.
Davis and Nichols, JJ., concurred in result with opinions.
West Headnotes (11)
5 Cases that cite this headnote
[1]
Contracts
Mutuality of Obligation
[5]
A party may not reserve to itself a method
of unlimited exculpation without rendering its
promises illusory and contract void.
United States
Express contracts in general
The Government contracts as does a private
person, under broad dictates of common law.
17 Cases that cite this headnote
[2]
Contracts
Construction to give validity and effect to
contract
Any choice of alternative interpretations, with
one interpretation saving contract and other
voiding it, should be resolved in favor of
interpretation that saves contract.
3 Cases that cite this headnote
Public Contracts
Public Contracts
6 Cases that cite this headnote
[6]
Public Contracts
Constitutional and statutory provisions
United States
Express contracts in general
In field of contracts, it is only by specific
legislation that Government may trespass bounds
of general contract doctrines.
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1
Torncello v. U. S., 231 Ct.Cl. 20 (1982)
681 F.2d 756, 30 Cont.Cas.Fed. (CCH) P 70,005
2 Cases that cite this headnote
[7]
Contracts
Sufficiency in General
Route of complete escape vitiates any other
consideration furnished and is incompatible with
existence of contract.
5 Cases that cite this headnote
[8]
Public Contracts
Good faith and fair dealing
United States
Express contracts in general
Government, unlike private parties, is assumed
always to act in good faith, subject only
to extremely difficult showing by plaintiff to
contrary.
51 Cases that cite this headnote
[9]
Public Contracts
Termination or modification of original
contract
United States
Termination or modification of original
contract
Standard “termination for convenience of the
government” clause in requirements contracts
awarded to competing bidder would be construed
to be available only whether circumstances of
bargain or expectations of parties have changed
sufficiently that clause served only to allocate
risk.
51 Cases that cite this headnote
[10]
Public Contracts
Termination or modification of original
contract
United States
Termination or modification of original
contract
Government may not use standard “termination
for convenience” clause to dishonor, with
impunity, its contractual obligations.
46 Cases that cite this headnote
[11]
Public Contracts
Termination or modification of original
contract
United States
Termination or modification of original
contract
A standard “termination for the convenience
of the government” clause does not justify
Government's diversion of business away from
party with whom it had executed requirements
contract to competing bidder on original
solicitation.
42 Cases that cite this headnote
Attorneys and Law Firms
**757 *21 Robert L. Purvin, Jr., San Diego, Cal., for
plaintiffs. Lawrence W. Campbell, San Diego, Cal., atty. of
record.
Richard W. Oehler, with whom was Asst. Atty. Gen. J. Paul
McGrath, Washington, D. C., for defendant.
Before FRIEDMAN, Chief Judge, and DAVIS, NICHOLS,
KASHIWA, BENNETT and SMITH, Judges, en banc. *
Opinion
BENNETT, Judge:
This is a government contract case, before us on motions for
summary judgment. At issue is the government's diversion
of business away from a party, with whom it had executed a
requirements contract, to a competing bidder on the original
solicitation. The government defends that this diversion
was justified by the constructive application to its actions
of the standard “termination for the convenience of the
government” clause in federal procurement. For several
simple and compelling reasons, involving basic tenets of
contract law, we hold that the termination for convenience
clause does not apply in the situation here and find the
government in breach.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
2
Torncello v. U. S., 231 Ct.Cl. 20 (1982)
681 F.2d 756, 30 Cont.Cas.Fed. (CCH) P 70,005
**758 Plaintiff was the president of Soledad Enterprises,
Inc. (Soledad), a California corporation that is now bankrupt.
*22 Plaintiff has succeeded to all of the rights and
entitlements of Soledad with respect to the claim in this suit.
On May 31, 1973, Soledad bid for a grounds maintenance and
refuse removal contract to service six Navy family housing
projects in the San Diego, California area. The bid solicitation
listed 12 types of work to be done under the contract, some
of which were to be performed routinely and others only on
a “call” basis, and the solicitation specifically provided that
“Bids are solicited and award will be made on an all or none
basis.”
Soledad was awarded this 12-item contract, N62474-73C-3195, on June 6, 1973. The contract term was one year,
running from July 1, and it was extended in June of the next
year for another year.
The present dispute concerns item 8 of the original bid,
paragraph 4A.17 of the contract. This was a call item:
PLANT DISEASE, INSECT AND
RODENT CONTROL. The work shall
include the control of agricultural
pests, including rodents, weed control,
and plant diseases which attack
shrubbery, trees and turf grasses. Work
authorizations for rodent and pest
control will be issued by the Housing
Project Managers in accordance with
Paragraph 3A.7. The Contractor shall
comply with the current code and
rules and regulations of the San Diego
County Agricultural Department.
Soledad's bid itemization, accepted by the government,
specified a per call charge of $500 for any call under the
pest control item. This was a high price for common pest
control work but was warranted in Soledad's view by the
open-ended phrasing of the item, that Soledad could be called
in for potentially expensive tasks.
It turned out, however, that the Navy only needed gopher
control at the housing projects, work that was customarily
much cheaper than $500 per call. For this reason, the Navy
did not call Soledad under item 8. Soledad realized by August
1973 that it was receiving no item 8 requests and, when it
discovered the Navy's reason therefor, Soledad offered in
writing to do special gopher control calls for only $35 per
call. The Navy still did not request such work from Soledad,
however, but called the Department of Navy Public Works, a
competing bidder on the original solicitation *23 which had
submitted an item 8 figure that was less than Soledad's.
By letter of April 9, 1975, plaintiff took back its offer of $35
per call:
Please be advised that the offer * * * is hereby rescinded.
This action is being taken as there was no “Amendment
of Solicitation/Modification of Contract” prepared and
signed by the government or Soledad Enterprises, Inc.
Furthermore, we have reason to believe that the services
contracted for in item 8 has (sic ) been given to the public
works department.
Soledad's bankruptcy followed soon thereafter.
It is stipulated that Soledad never received pest control work
under item 8, either under the original contract or under its
renewal, at $500 per call or at $35 per call, and it is further
stipulated that the Navy did have such work which it gave to
Public Works. Soledad's claim is that its agreement with the
Navy was for all of the Navy's requirements under the contract
and that the Navy breached the contract when it diverted the
work under item 8. Soledad claims that it was entitled to
service all of the Navy's pest control needs and protests the
fact that it got none.
I
Soledad lost its claim before the contracting officer and lost
its appeal to the Armed Services Board of Contract Appeals
(ASBCA). Although the ASBCA cursorily accepted that the
government may have committed a breach, it viewed that
issue as unimportant because of the overriding availability to
the government of constructive termination for convenience.
In full, the ASBCA's argument reads:
**759 It is the appellant's position that this contract was
a requirements contract under which the Government was
obligated to procure all of the services it required of the
type covered by the contract, from the contractor. The
appellant claims that the Government failed to order all of
those services and that as a result the appellant suffered
substantial financial difficulty which led to the eventual
default of this and other contracts.
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Torncello v. U. S., 231 Ct.Cl. 20 (1982)
681 F.2d 756, 30 Cont.Cas.Fed. (CCH) P 70,005
*24 In a similar situation the Court of Claims found it
unnecessary to resolve the question of whether or not the
contract was a requirements contract. Charles R. Nesbitt
v. United States, 170 Ct.Cl. 666 (345 F.2d 583) (1965),
cert. denied, 383 U.S. 926 (86 S.Ct. 931, 15 L.Ed.2d 846)
(1966). In order to reach our decision, we assume, without
finding, that the representations made by the appellant with
regard to its interpretation of the bidding provisions and the
subsequent contract were correct.
When the Government fails to comply with its contractual
obligations under the type of circumstance present here, the
contractor is entitled to recover as if the contract had been
terminated pursuant to the termination for the convenience
provisions of the contract. Charles R. Nesbitt v. United
States, supra; G. C. Casebolt Company v. United States,
190 Ct.Cl. 783 (421 F.2d 710, 783) (1970). This contract
included what is commonly referred to as a short form
termination for the convenience clause which provided that
to the extent the contract was for services, the Government
was liable only for payment of those services rendered
prior to the effective date of termination. In this instance
the appellant has established that the Government ordered
no services in connection with pest control. Since no
pest control services were ordered, under the contract's
termination for convenience of the Government provisions,
the appellant is not entitled to any additional compensation.
Appeal of Soledad Enterprises, Inc., ASBCA Nos. 20376,
20423 to 20426, 77-2 BCA P 12,552 at No. 20425 (April 29,
1977).
We must digress for a moment to explain termination
for convenience and its constructive application. Direct
convenience termination is provided for in the clause in
plaintiff's contract referred to by the ASBCA, and it is a
standard term in federal procurement:
TERMINATION FOR
GOVERNMENT
CONVENIENCE
OF
THE
The Contracting Officer, by written notice, may terminate
this contract, in whole or in part, when it is in the best
interest of the Government. If this contract is for supplies
and is so terminated, the Contractor shall be compensated
in accordance with ASPR Section VIII, in effect on this
contract's date. To the extent that this contract is for
services and is so terminated, the Government shall be
liable only for payment in accordance with the payment
provisions of this contract for services rendered prior to the
effective date of termination.
*25 The clause is intended to enable the contracting officer
to stop or curtail a contractor's performance without involving
the government in a breach that would render it liable for
the contractor's anticipatory profits. Constructive resort to the
clause, as was had by the ASBCA in this case, occurs in
situations in which the government has stopped or curtailed
a contractor's performance for reasons that turn out to be
questionable or invalid. Constructively, the clause can justify
the government's actions, avoid breach and limit liability.
This springs from a decision of the Supreme Court that actions
by a contracting party may be supported at a later date by
any reason that could have been advanced at the time of
the actions, even though the party was not then aware of it.
College Point Boat Corp. v. United States, 267 U.S. 12, 45
S.Ct. 199, 69 L.Ed. 490 (1925).
Returning to the case before us, the ASBCA's implicit
conclusion that the Navy could, by invoking the clause,
have had a convenience termination of plaintiff's pest control
services at the time that it diverted that work to Public
Works, allowed the ASBCA to justify the Navy's diversion
constructively, **760 at the time of litigation. And since the
Navy had never turned to Soledad for such services, there
were no incurred charges to pay off.
On appeal to this court, plaintiff's basic complaint is that the
practical effect of this decision of the ASBCA is to exculpate
the government completely. The government was allowed to
walk away from plaintiff's contract with impunity. Plaintiff
contends: (1) that the requirements aspect of its contract
required that it receive 100 percent of defendant's pest control
business, not 0 percent as it happened, and (2) that the doctrine
of constructive termination for convenience should not be
allowed to render this requirement meaningless. Defendant
responds: (1) that the contract actually was of the indefinite
quantities type, allowing the Navy to order a null amount, and
(2) even if the contract was for requirements, that constructive
termination is available as a valid excuse for non-performance
nevertheless.
[1] The primary issue in this appeal, raised squarely by
the facts before us, is the coverage of the government's
termination for convenience clause. The ASBCA did not
question *26 but that it was available to the government
but we note that Nesbitt v. United States, 170 Ct.Cl. 666,
345 F.2d 583 (1965), cert. denied, 383 U.S. 926, 86 S.Ct.
931, 15 L.Ed.2d 846 (1966), on which the ASBCA placed
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681 F.2d 756, 30 Cont.Cas.Fed. (CCH) P 70,005
its principal reliance, was a very different case. Nesbitt
involved the government's dilemma with a contractor who
had agreed to service the government's needs but then,
after the contract award, refused to meet them. Id. at 670
n.3, 345 F.2d at 586 n.3. It is far from clear that this
court's recognition that the government may terminate for
convenience in such a circumstance should be extended to
the present facts, where termination was invoked to take
advantage of a price that the government had known about at
the award date and where the contractor, Soledad, remained
at all times ready and willing to perform as per its agreement.
Further, plaintiff's complaint is serious that the effect of the
ASBCA's constructive use of termination for convenience
has been to allow the government to walk away from all
of its contractual obligations. We note as one of the most
elementary propositions of contract law that a party may not
reserve to itself a method of unlimited exculpation without
rendering its promises illusory and the contract void, and
we question if the government's termination for convenience
clause should be construed that broadly. Since these issues
are of great importance in the field of government contracts,
they will receive close attention.
Before reaching these questions, however, it is necessary to
address several preliminary issues.
II
A contention of the government that would forestall any
further argument is its assertion that its contract with Soledad
was not of the requirements type but was only for an indefinite
quantity of pest control. Thus, defendant alleges, the Navy's
diversion of work to Public Works was allowed by the
contract. This would mean that there was no breach, and it
would render unnecessary any consideration of the ASBCA's
resort to constructive termination for convenience to justify
the diversion.
*27 [2] The ASBCA made no ruling on the type of
contract that it had before it, and so this court must make the
determination as an original matter. In so doing, however, we
bear several important principles in mind. First, we recognize
that we sit, for Wunderlich Act cases, as a court of limited
review and are bound by the standards set out in the Act. 41
U.S.C. ss 321 and 322. Thus we feel constrained to make
no determination as an original matter that we could not
make as a court of review in a case that properly presented
the issue. Therefore, in determining whether the contract
between Soledad and the Navy was for requirements or for
an indefinite quantity, we will restrict our attention only to
(1) the text of the contract itself, for contract construction is
a matter of law that is always within our power, and (2) facts
that are so well supported by the record that **761 contrary
findings would not be supportable. As we have said:
(W)here the evidence is disputed but
it is of such a nature that * * *
the Board could have made only
one finding of fact, it would seem
that this court can make that finding
without sending the matter back to the
Board for determination of the factual
issues; otherwise, litigation would be
protracted and unnecessary delay and
expense would result simply in order
to have the Board formally decide a
fact which legally can be decided in
only one way.
Maxwell Dynamometer Co. v. United States, 181 Ct.Cl. 607,
631, 386 F.2d 855, 870 (1967); Koppers Co. v. United States,
186 Ct.Cl. 142, 405 F.2d 554 (1968); Dittmore-Freimuth
Corp. v. United States, 182 Ct.Cl. 507, 390 F.2d 664 (1968).
The second major principle is that we assume that the parties
intended that a binding contract be formed. Thus, any choice
of alternative interpretations, with one interpretation saving
the contract and the other voiding it, should be resolved in
favor of the interpretation that saves the contract. Arizona v.
United States, 216 Ct.Cl. 221, 575 F.2d 855 (1978), and cases
cited therein; Hol-Gar Mfg. Corp. v. United States, 169 Ct.Cl.
384, 351 F.2d 972 (1965), and cases cited therein.
*28 The only pertinent terms 1 are the item from the bid
solicitation, which specified “Item 8-Unit price per work
authorization for rodent and pest control in accordance
with the specifications, based on an estimated one work
authorization per month,” and the entry on plaintiff's bid
response, filed on the appropriate standard form, which
acknowledged the estimate, the call basis of each order and
which fixed the price per call at $500. Our question is
whether it is implicit in these terms, or in the circumstances
surrounding the formation of the contract, that the Navy
promised to give all of its work authorizations to Soledad or
whether the Navy could use other contractors, too.
[3] Looking just at the contract terms, we note that they must
fit into one of the three possible types of supply contracts:
those for a definite quantity, those for an indefinite quantity
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Torncello v. U. S., 231 Ct.Cl. 20 (1982)
681 F.2d 756, 30 Cont.Cas.Fed. (CCH) P 70,005
and those for requirements. Mason v. United States, 222
Ct.Cl. 436, 444, 615 F.2d 1343, 1347 (1980). With contracts
for a definite quantity, the promises and obligations flowing
from each party to the other define both the minimum and
maximum performances of each and furnish the consideration
from each party that courts require for enforceability. With
indefinite quantities contracts, however, the buyer's promise
specifically is uncertain, and such a contract would fail
for lack of consideration if it did not contain a minimum
quantity term. Willard, Sutherland & Co. v. United States,
262 U.S. 489, 43 S.Ct. 592, 67 L.Ed. 1086 (1923); Mason,
222 Ct.Cl. at 443 n.5, 615 F.2d at 1346 n.5; Gavin,
Government Requirements Contracts, 5 Pub.Cont.L.J. 234,
240-44 (1972) (hereinafter Gavin ). Without an obligatory
minimum quantity, the buyer would be allowed to order
nothing, rendering its obligations illusory and, therefore,
unenforceable. Requirements contracts also lack a promise
from the buyer to order a specific amount, but consideration
*29 is furnished, nevertheless, by the buyer's promise to turn
to the seller for all such requirements as do develop. Such
contracts clearly are enforceable on that basis. Brawley v.
United States, 96 U.S. 168, 172, 24 L.Ed. 622 (1878); Shader
Contractors, Inc. v. United States, 149 Ct.Cl. 535, 540-43,
276 F.2d 1, 4-6 (1960); Gavin at 244-48. The entitlement of
the seller to all of the buyer's requirements is the key, for if
the buyer were able to turn elsewhere for some of its needs,
then the **762 contract would not be distinguishable from
an indefinite quantities contract with no stated minimum,
unenforceable as we have stated.
[4] Under these principles, the contract before us is easily
interpreted. We note that the Navy agreed to authorize pest
control work, that plaintiff agreed to perform it and that there
was an acknowledged estimate that one call would be made
per month. A definite quantity certainly is not contemplated
here, so the contract is not of that type. Just as certainly, the
estimate is not stated in such terms as could be construed as
an obligatory minimum, and so we could not hold that this
contract is for an indefinite quantity without destroying it as
lacking consideration. Thus, we must and do conclude that
plaintiff's contract is for the Navy's requirements.
The facts, as they plainly appear from the record before us,
support this conclusion completely. From the circumstances
surrounding the bid solicitation and the contract, and from the
testimony and the exhibits introduced at the ASBCA trial, it
is clear that the Navy wanted someone, a single contractor,
to take on the comprehensive task of providing grounds
maintenance and refuse removal at the six housing projects
covered by the contract. 2 The Navy wanted to have to deal
with only one contractor and executed a contract that was
intended to obligate that one contractor for all of the tasks
needed. 3
*30 III
[5] Also at the outset of the discussion of this case, we
must say that it is not a case merely for construing a
federal regulation to see if a plaintiff has a monetary claim.
Most of the cases in this court turn on specific statutes or
regulations that do or do not afford plaintiffs the monetary
relief they seek, and this court is cautious in such cases
to examine the statutes and regulations carefully to make
sure that the plaintiffs are entitled to the recovery they
claim. Congress creates rights and entitlements, or waives its
sovereign immunity, as it sees fit, and this court will award
judgment only where the statute or regulation relied upon
so provides, directly or by express implication. Eastport S.S.
Corp. v. United States, 178 Ct.Cl. 599, 372 F.2d 1002 (1967).
See United States v. Testan, 424 U.S. 392, 96 S.Ct. 948, 47
L.Ed.2d 114 (1976).
[6]
It is a different situation in the field of contracts,
however. 4 The government contracts as does a private
person, under the broad dictates of the common law.
“When the United States enters into contract relations, its
rights and duties therein are governed generally by the law
applicable to contracts between private individuals.” Lynch
v. United States, 292 U.S. 571, 579, 54 S.Ct. 840, 843,
78 L.Ed. 1434 (1934); Perry v. United States, 294 U.S.
330, 55 S.Ct. 432, 79 L.Ed. 912 (1935). While it is true
that the government has the power to abrogate commonlaw contract doctrines by specific legislation, see, e.g., the
First War Powers Act, 1941, Pub.L.No.77-354, 55 Stat. 838
(power to the President to authorize agencies to enter into
contracts “without regard to the provisions of law relating
to the making, performance, amendment, or modification of
contracts,” 55 Stat. 839); U.C.C. s 2-209(1), “Modification,
Rescission and Waiver” (contractual modifications within
Article 2 do not need consideration), the general rule must be
that common-law contract doctrines limit the government's
power to contract just as they limit the power of any
private person. Thus, the government's entry into the field
of contracts **763 is not like its selective creation of
rights and entitlements in other fields. As we have explained,
statutes *31 and regulations in other fields circumscribe
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Torncello v. U. S., 231 Ct.Cl. 20 (1982)
681 F.2d 756, 30 Cont.Cas.Fed. (CCH) P 70,005
a prospective plaintiff's recovery strictly. If, however, a
plaintiff's action or recovery purportedly is limited by a
contractual term, that limitation will stand only if allowable
under the doctrines of contract. Indeed, the Supreme Court
has held as early as 1923 that the government may not,
by simple contract, reserve to itself a power that exceeds
that which a private person may have. Willard, Sutherland
& Co. v. United States, 262 U.S. 489, 43 S.Ct. 592, 67
L.Ed. 1086 (government may not reserve to itself a right
of non-performance without destroying the contract). And it
does not matter that a contract term is mandated by federal
procurement regulation. In the field of contracts, it is only
by specific legislation that the government may trespass
the bounds of general contract doctrines. Therefore, this
court will read the termination for convenience clause in the
contract in this case as it would read any contract term and
give effect to it or deny effect to it as dictated by the general
law.
IV
The coverage of the government's termination for
convenience clause is now squarely at issue. Since we have
concluded that the Navy indeed was obligated to give all
of its pest control requirements to Soledad, and since it
is stipulated that the Navy gave Soledad none, we are
confronted directly with the ASBCA's use of constructive
termination for convenience to allow the Navy not to continue
with that obligation. 5 And since the constructive use of
convenience termination is directly dependent, under College
Point Boat Corp., upon the availability of that ground at
the time of the disputed actions, the ultimate question that
must be asked is whether, at the time that the Navy first
gave pest control work to Public Works, it could have had
a convenience termination of that item under the clause in
Soledad's contract. If the clause could have been invoked at
that time, then the ASBCA was correct and the Navy's failure
to use Soledad is excused. If not, however, *32 then plaintiff
must prevail because a breach was committed.
The full background and ramifications of the ASBCA's use
of convenience termination as an exculpatory clause require
a discussion over several parts. As we shall explain in Part
A, below, the convenience termination clause developed as
a wartime concept, and it was a way for the government to
avoid the continuance of contracts that the rapid changes of
war, or the war's end, had made useless or senseless. See
Nash & Cibinic, Federal Procurement Law 1104-07 (3d ed.
1980) (hereinafter Nash & Cibinic ). The government could
halt a contractor's performance and settle with the contractor
for the progress made. As such, termination for convenience
functioned to allocate to the contractor the risk of losing the
benefit of its full performance if full performance became
unneeded. Even when termination for convenience was
imported into peacetime military and civilian procurement,
only 20 or 30 years ago, and receiving its almost universal
application only from 1967, Nash & Cibinic at 1107, the basic
idea remained constant that convenience termination was an
allocation of the risk of changed conditions. A long line of
cases in this court bears this out. Part B of this section will
examine convenience termination in the absence of changed
conditions, for purely exculpatory purposes. This is the latest
development, dating only from 1974, 6 and it is this use of the
clause that the government presses in the case before us. As
we shall explain fully, such a use is not supported by the legal
theory underlying the clause nor by the clause's history, and it
has caused great concern among commentators and members
of the bar. While **764 it is plain that parties to a contract
may freely agree to various forms of risk allocation, as with
the basic use of the termination for convenience clause, it
is just as clear that parties may not agree that one or both
may walk away from all obligations without rendering the
contract unenforceable. Part C explores this last point, that the
availability of convenience termination for free exculpation
cuts straight to whether the government's promises can be
made to bind it. The *33 question is whether a broad
construction of the termination for convenience clause would
make the government's promises only illusory.
For the purposes of this entire section, we will apply part of
what we said at the beginning of the last section, that we will
not construe the termination for convenience clause in such a
way that any contract that contains it is overpowered if there is
an alternative reading of the clause that allows such contracts
to be upheld.
A. The History of the Termination
for Convenience Clause
The concept that the government may, under certain
circumstances, terminate a contract and settle with the
contractor for the part performed dates from the winding
down of military procurement after the Civil War. It
originated in the reasonable recognition that continuing with
wartime contracts after the war was over clearly was against
the public interest. Where the circumstances of the contract
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681 F.2d 756, 30 Cont.Cas.Fed. (CCH) P 70,005
had changed so dramatically, the government had to have the
power to halt the contractor's performance and settle.
The case that first articulated this idea, and which generally
is credited as providing the basic legal theory to support the
modern termination for convenience clause, is United States
v. Corliss Steam-Engine Co., 91 U.S. 321, 23 L.Ed. 397
(1876). See Nash & Cibinic at 1104; Moss & Gantt, A Steam
Engine and Contract Termination Settlement Procedures,
8 Pub.Cont.L.J. 188 (1976). In Corliss, the government
appealed a judgment of this court 7 upholding a settlement
agreement between the Navy and Corliss concerning two
contracts that remained uncompleted when the Civil War
ended. It was the government's position on appeal, as it had
been in this court, that the Navy did not have the power to
bind the United States to a settlement. Indeed, Congress had
passed legislation that money was not to be appropriated to
pay Corliss until there was an investigation into the agreement
to see if the amount could be reduced. The *34 Supreme
Court affirmed, however, holding that the Secretary of the
Navy necessarily had the power to settle with contractors
when the exigencies of war, or its termination, demanded. It
said:
Contracts for the armament and equipment of vessels
of war may, and generally do, require numerous
modifications in the progress of the work, where that work
requires years for its completion. With the improvements
constantly made in ship-building and steam-machinery
and in arms, some parts originally contracted for may
have to be abandoned, and other parts substituted; and
it would be of serious detriment to the public service if
the power of the head of the Navy Department did not
extend to providing for all such possible contingencies by
modification or suspension of the contracts, and settlement
with the contractors.
91 U.S. at 323, 23 L.Ed. 397. Clearly, Corliss establishes as
basic law and policy that procuring agencies must have the
power to settle contracts that have been subjected to great
changes in expectations.
During World War I, the Corliss doctrine expanded into a
very important part of military procurement. Included here
are two examples of this expansion, a statute and a contract
clause, each plainly reflecting the idea expressed by the
Supreme Court in Corliss that the government must be able
to settle with contractors when the circumstances of war
require. In 1917, Congress passed the Urgent Deficiency
Appropriation Act, Pub.L.No.65-23, 40 Stat. 182, responding
to a two-pronged concern that the government not have to
remain **765 committed for obsolete items during the war
or for stockpiles of items at the war's end. vom Baur, Fifty
Years of Government Contract Law, 29 Fed.B.J. 305, 313
(1970). The Act authorized the President, until 6 months
after a final treaty of peace, 40 Stat. 183, “(t)o modify,
suspend, cancel, or requisition any existing or future contract
for the building, production, or purchase of ships or material.”
40 Stat. 182. In such case, the government was to make
“just compensation therefor.” 40 Stat. 183. The example of
a specially drafted contract clause is from Davis Sewing
Machine Co. v. United States, 60 Ct.Cl. 201 (1925), aff'd, 273
U.S. 324, 47 S.Ct. 352, 71 L.Ed. 662 (1927). Davis Sewing
Machine involved a *35 contract for the procurement of
Very pistols, which provided:
Termination -This contract being
necessitated by a state of war now
existing, it is desirable and expedient
that provision be made for its
cancellation upon fair and equitable
terms in the event of the termination
or limitation of the war, or if in
anticipation thereof or because of
changes in methods of warfare the
Chief of Ordnance should be of the
opinion that the completion of this
contract has become unnecessary. It is
therefore provided that any time, and
from time to time, during the currency
of this contract, the Chief of Ordnance
may for any of the causes above stated
notify the contractor that any part or
parts of the articles then remaining
undelivered shall not be manufactured
or delivered.
Id. at 203. As with the Urgent Deficiency Appropriation
Act, this contract provided that the government would
settle with the contractor, specifically for accrued costs and
just compensation. Id. It is important that both of these
examples make clear that convenience termination, as it was
developing, was intended just to handle changed conditions,
relieving the government of the risk of receiving obsolete or
useless goods. The risk was shifted to the contractor that it
could lose the full benefit of its expectations if circumstances
changed too radically.
For World War II, the Corliss concept was embodied
in a mandatory termination clause for fixed-price supply
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contracts, the direct predecessor of the modern termination
for convenience clause:
Termination for the convenience of
the Government. (a) The Government
may, at any time, terminate this
contract, in whole or in part by a notice
in writing from the Contracting Officer
to the Contractor that the contract is
terminated under this Article.
10 C.F.R. s 81.324 (Cum.Supp.1938-43). Also provided for
is payment to the contractor of accrued costs and a reasonable
portion of anticipated profit. Id. It will be noted immediately
that this clause seems to be worded for very broad availability.
The power to terminate “at any time * * * in whole or
in part” is much broader, for example, than the conditions
recited in the World War I clause quoted above. *36 It
must be understood, however, that its use was restricted
to the war period, Nash & Cibinic at 1106, and clearly
was a response to wartime emergency conditions. Despite
the broad wording, the World War II clause still was to
allocate the risk of changed circumstances. As Congress
said, when it enacted the Contract Settlement Act of 1944,
Pub.L.No.78-395, 58 Stat. 649, to provide an administrative
structure for winding down World War II procurement, the
main objectives of settlement procedures were “to facilitate
maximum war production during the war, and to expedite
reconversion from war production to civilian production as
war conditions permit (and) to assure to prime contractors and
subcontractors, small and large, speedy and equitable final
settlement of claims under terminated war contracts * * *.”
Id. Contractors risked losing the benefits of full performance
but only for the exigencies of war.
The next major steps in the development of termination for
convenience occurred in 1950, when the concept first was
applied to peacetime military procurement, and in 1967,
when it first was given the general applicability to peacetime
military and civilian procurement that it has today. Nash &
Cibinic at 1107. It can readily be understood that these were
very significant **766 shifts, entailing a great potential for
difficulty in adapting the concept to new settings. The modern
formulation of the clause uses the same broad language that
was used in World War II (see section I of this opinion
for the clause that is in dispute in this case) but there was,
and is, not the same kind of emergency situation. From the
Corliss decision in 1876 to the last use of the World War II
convenience termination clause in early 1944, the legal basis
of the government's power had always been that the great and
unpredictable circumstances of war necessitated some ability
to halt useless contracts and settle with the contractors. War
was now absent.
The response in this court was to rely on the risk
allocation nature of the concept and to allow termination
for convenience only when the expectations of the parties
had been subjected to a substantial change. The contractor
risked losing the full benefit of his performance if something
occurred, apart from the bargain and the expectations *37
of the parties, that made continuance of the contract clearly
inadvisable. The history of cases in this court demonstrates
this. John Reiner & Co. v. United States, 163 Ct.Cl. 381,
325 F.2d 438 (1963), cert. denied, 377 U.S. 931, 84 S.Ct.
1332, 12 L.Ed.2d 295 (1964) (irregularity in the bid award);
Brown & Son Elec. Co. v. United States, 163 Ct.Cl. 465, 325
F.2d 446 (1963) (irregularity in bid award); Nesbitt v. United
States, 170 Ct.Cl. 666, 345 F.2d 583 (1965), cert. denied,
383 U.S. 926, 86 S.Ct. 931, 15 L.Ed.2d 846 (1966) (refusal
of contractor to meet requirements); Warren Bros. Roads
Co. v. United States, 173 Ct.Cl. 714, 355 F.2d 612 (1965)
(irregularity in the bid award); Coastal Cargo Co. v. United
States, 173 Ct.Cl. 259, 351 F.2d 1004 (1965) (irregularity in
bid award); Schlesinger v. United States, 182 Ct.Cl. 571, 390
F.2d 702 (1968) (plaintiff under investigation by Senate for
procurement irregularities, and in technical default); Nolan
Bros. v. United States, 186 Ct.Cl. 602, 405 F.2d 1250 (1969)
(physical changes at site made performance impossible); G.
C. Casebolt Co. v. United States, 190 Ct.Cl. 783, 421 F.2d
710 (1970) (irregularity in the bid award).
These cases recognized that the termination for convenience
clause was only to be applied where there was some change
from the parties' original bargain and was not to be applied as
broadly as an untutored reading of the words might suggest.
Especially, we point to Nesbitt, which quoted the “from time
to time” wording of the clause but specified in a footnote that
the plaintiff's failure to perform in that case undoubtedly was
a proper circumstance for the clause's use, 170 Ct.Cl. at 670
and 670 n.3, 345 F.2d at 585-86 and 586 n.3; to Nolan, which
said that it was “entirely reasonable * * * (to invoke the clause
for) a post-contract recognition that the job is impossible or
too difficult to perform or too costly for the Government if
pushed through to its conclusion,” 186 Ct.Cl. at 606, 405 F.2d
at 1253; to Casebolt, where the court specifically recognized
its obligation to see if the government's directive to terminate
the contract in that case “could lawfully come under that
clause,” 190 Ct.Cl. at 786, 421 F.2d at 712; and to Reiner,
in which the court spoke in its broadest terms about the
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availability of the clause, that it could be used in a “host of
variable and unspecified situations” and at the will of the
*38 government, and still inquired into the propriety of its
use on the facts before it. 163 Ct.Cl. at 390-91, 325 F.2d at
442-43. The message in those cases is clear that termination
for convenience was to allocate the risk of a change in the
circumstances of the bargain or in the expectations of the
parties.
B. Termination for Convenience for Exculpation
In 1974, this court first allowed termination for convenience
for a different reason than risk allocation. The case,
Colonial Metals v. United States, 204 Ct.Cl. 320, 494 F.2d
1355 (1974), involved no changed conditions, only the
government's decision to terminate the contractor and remake
the contract with someone else, for a reason that was known
or should have been known to the government before the
contract was awarded.
**767 Colonial Metals dealt with a supply contract
for a definite quantity of copper, with a termination for
convenience clause much like the one now in issue. 8
Plaintiff's bid had been higher than what would have been
charged by a primary source supplier, quotations for which
regularly appear in the Wall Street Journal and trade papers,
id. at 329, 494 F.2d at 1360, because plaintiff was a
secondary source. The government contracted with plaintiff,
nevertheless, but then decided soon after to remake the
contract with primary sources. Plaintiff was terminated for
convenience before any performance. Although many aspects
of the government's decision-making were unclear, the court
found that it was certain, “as the Board found, (that) the
Government terminated to get a better price from another
source, a price which the Government throughout knew or
ought to have known was readily available.” Id. at 329-30,
494 F.2d at 1360.
*39 In the Colonial Metals opinion, by sustaining the
government's termination for convenience, this court made
a clear break with all of the prior law on the subject. The
requirement of changed conditions specifically was rejected:
Termination to buy elsewhere at a cheaper price is
essentially such a termination as has repeatedly been
approved. The added element that the contracting officer
knew of the better price elsewhere when he awarded the
contract to plaintiff * * * means only that the contract was
awarded improvidently and does not narrow the right to
terminate. The clause is not designed to perpetuate error,
but to permit its rectification.
Termination for convenience is as available for contracts
improvident in their origin as for contracts which
supervening events show to be onerous or unprofitable for
the Government.
Id. at 331, 494 F.2d at 1361. Termination for convenience
was allowed to be used as an exculpatory clause, available
at the unlimited discretion of the contracting officer. The
broad wording of the convenience termination clause was
applied without regard to the history of emergency, wartime
situations in which the words were formulated or to the legal
theory of risk allocation as it has dated from Corliss.
The commentary on Colonial Metals has not been favorable.
Professors Nash and Cibinic, on the part of the opinion
that says that “(t)ermination to buy elsewhere at a cheaper
price is essentially such a termination as has repeatedly
been approved,” note that there are no authorities cited and
assert that there simply are none to cite, except for an
unpublished Comptroller General opinion. Nash & Cibinic
at 1112. Other commentators note that the effect of Colonial
Metals is to put contractors “in the untenable position of
being subject to termination and loss of the benefit of the
sale when the market falls but being saddled with a loss
when the reverse occurs.” Perlman & Goodrich, Termination
for Convenience Settlements-The Government's Limited
Payment for Cancellation of Contracts, 10 Pub.Cont.L.J. 1,
6 (1978). They assert that this result is unfair, id., but find
it inescapable after Colonial Metals, because “(i)t can only
be concluded that there are virtually *40 no limitations on
the Government's right to terminate for convenience.” Id. at
7. Another writer has gone so far as to draft a hypothetical
telegram for convenience termination that begins: “Your
contract with me * * * is hereby terminated because you are in
default, I think; in any event you are tardy in making progress,
probably. Even if neither conclusion is true, said contract
is still terminated because it suits me to do so.” Newman,
The Beginning of the End-The Encroachment of Federal
Contract Termination Practices, **768 33 Bus.Law. 2143,
2143 (1978). It is the consensus that Colonial Metals is a
far-reaching decision of major concern, imposing an onerous
burden on anyone who would deal with the government. Nash
& Cibinic at 1105; Note, Tying Together Termination for
Convenience in Government Contracts, 7 Pepperdine L.Rev.
711, 721-22 (1980) (hereinafter Pepperdine ).
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Colonial Metals appears to be an aberration in the precedents
of the court. The case came before the court on defendant's
uncontested motion to adopt the trial judge's report as the
basis for its judgment. Plaintiff had lost before the trial judge
but did not request review, and the motion was granted,
without oral argument. The attention of the court was in
no way directed, as it is now, to the fundamental issues so
important in the pending case, and plaintiff's failure to raise
a contest dilutes the decision of much weight as precedent
9
that we otherwise would accord it. It is clear, however,
that Colonial Metals marked a dramatic departure from the
development of convenience termination as a method of
risk allocation. It established a new reading of the clause,
convenience termination for exculpation, and it is this reading
that the government contends for in the case now before us.
It is the only decision of this court in which a plaintiff was
denied recovery after convenience termination that was based
on knowledge acquired before the contract was awarded.
*41 Were we to have only the historical argument before
us, however, a decision on the breadth of the termination
for convenience clause would be very difficult. Colonial
Metals may have broken with historical development but
it is, of course, within the power of contracting parties to
evolve new types of agreements as long as the basic tenets
of contract law are followed. As Colonial Metals itself put it,
“(i)t may well be * * * that the Government does not promote
confidence in its procurement process when it terminates
a contract and deprives the contractor of the profits of the
bargain, for reasons which were known at the time of the
award.” 204 Ct.Cl. at 330, 494 F.2d at 1360. But this alone
is not enough to say that such a power of termination cannot
be had by the government. The answer to this, however,
is that the historical argument is not the only one against
convenience termination for exculpation. When a party seeks
to restrict to itself an unlimited right to escape its promises,
as termination on knowledge acquired before the contract
award surely is, it risks violating one of contract law's most
fundamental principles, that all contracts must be supported
by consideration. Nash & Cibinic at 1115.
C. The Requirement of Consideration
It is beyond dispute that the government must furnish
consideration for its contractual promises as must any private
party. The Supreme Court so held in Willard, Sutherland
& Co. v. United States, 262 U.S. 489, 43 S.Ct. 592, 67
L.Ed. 1086 (1923), when it invalidated a contract because
it lacked consideration from the government, and this court
has spelled out with particularity the forms of consideration
generally required from the government in using its various
types of supply contracts. Mason v. United States, 222 Ct.Cl.
436, 615 F.2d 1343 (1980). See also Kelly, The Concept of
Consideration in Government Contracts, 10 JAG L.Rev. 20
(Jan.-Feb.1968).
As we explained in section II of this opinion, it is the very
essence of a requirements contract, such as plaintiff had
with the government in this case, that the buyer agree to
turn to the supplier for all of its needs. If there is not a
*42 commitment for all needs, then the relation is not
different from an indefinite quantities contract with **769
no required minimum, the very type of relation that the
Supreme Court held in Willard, Sutherland & Co., could not
be a contract. See section II of this opinion.
[7] The effect of the ASBCA's decision in the case before
us, however, was to allow the government not to give Soledad
any of its needs, to walk away from its cardinal contractual
obligation. It is hornbook law, as the government concedes in
its supplemental brief, that a route of complete escape vitiates
any other consideration furnished and is incompatible with
the existence of a contract.
A promise to buy such a quantity
of goods as the buyer may thereafter
order, or to take goods in such
quantities “as may be desired,” or
as the buyer “may want” is no
consideration since the buyer may
refrain from buying at his option and
do so without incurring legal detriment
himself or benefiting the other party.
1 S. Williston, A Treatise on the Law of Contracts s 104 (3d
ed. 1957). According to Corbin:
If what appears to be a promise is an
illusion, there is no promise; like the
mirage of the desert with its vision
of flowing water which yet lets the
traveller die of thirst, there is nothing
there. By the phrase “illusory promise”
is meant words in promissory form that
promise nothing; they do not purport
to put any limitation on the freedom
of the alleged promisor, but leave his
future action subject to his own future
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will, just as it would have been had he
said no words at all.
1 Corbin on Contracts s 145 (1963). It must be concluded,
then, that the government's promise to turn to Soledad for
all of its pest control work, if it was also implicit in the
termination for convenience clause that the government could
give Soledad none, was no promise at all. The contract would
thus fail.
The approach of the Restatement (Second) of Contracts is to
consider all of the possible performances under a contract's
terms as alternative performances, and to require that each
alternative be itself a sufficient obligation to support the
contract. In this way, it is ensured that each party necessarily
will end up performing in a way *43 that reflects some
binding obligation. “A promise or apparent promise is not
consideration if by its terms the promisor or purported
promisor reserves a choice of alternative performances unless
* * * each of the alternative performances would have been
consideration if it alone had been bargained for * * *.”
Restatement (Second) of Contracts s 77 (1979). Illustrations
1 and 4 to this section resemble the instant case:
1. A offers to deliver to B at $2 a bushel as many bushels
of wheat * * * as B may choose to order within the next
30 days. B accepts, agreeing to buy at that price as much
as he shall order from A within that time. B's acceptance
involves no promise by him, and is not consideration.
4. A agrees to sell and B to buy between 400 and 600
tons of fertilizer in installments as ordered by B, A
reserving the right to terminate the agreement at any time
without notice. B's promise is without consideration. (Note
that this illustration was taken from an old case which
regarded consideration as flowing from the promisee to
the promisor. B's promise is without consideration because
none flowed from A due to A's right to terminate.)
that the government's alternative performance of exculpatory
convenience termination still involves promises that would
be sufficient if they **770 alone had been bargained
for. This would mean that each of the government's
two alternatives, performance according to the contract or
termination under certain sufficient procedures, would be
enough to bind the government, and the contract would
not be jeopardized. Specifically, the asserted alternative
measures of consideration contained in the *44 procedures
for terminating a services contract, as in this case, are: (1) an
obligation to give notice of convenience termination and (2)
an obligation to pay for services rendered.
On the facts of our case, however, if the ASBCA's
free use of exculpatory convenience termination were
allowed, these asserted obligations still could not provide an
obligation sufficient to support the alternative performance
of exculpatory termination. (1) On the point of notice, we
need only note that convenience termination in this case
was constructive, because the procedures for invoking the
clause were not originally followed. There is never notice in
a constructive case, and so it plainly cannot be the binding
obligation that would supply consideration. 10 (2) On the
point of paying for services rendered, it seems that requiring
only that the government pay for how far it has gone gives
the government the possibility of transforming virtually any
contract into one for an indefinite quantity, with no required
minimum term. We have said repeatedly in this opinion that
such an arrangement fails. Willard, Sutherland & Co. v.
United States, 262 U.S. 489, 43 S.Ct. 592, 67 L.Ed. 1086
(1923).
The possible alternative of non-performance is unacceptable.
Thus the ASBCA's view of the government's power to
terminate for convenience, allowing unlimited exculpation, is
too broad.
Thus we must conclude that none of the termination
procedures entails an alternative performance that would
bind the government to anything that would be sufficient for
consideration if it alone had been bargained for. Termination
for convenience for exculpation, then, as the ASBCA allowed
in this case, if there were no restrictions on its use other than
the termination procedures, would vitiate the consideration
normally furnished by the government for a requirements
contract without substituting any other sufficient obligation.
Such a reading of the clause would destroy the contract.
It has been argued, however, that the procedures that the
government must follow when it terminates for convenience
do not allow it to walk flatly away, and that the government
does give consideration to the extent that it is not completely
free of obligations. Pepperdine at 727. To use the language
of the Restatement section quoted above, this is an assertion
[8] The government argues further, however, that it
is a sufficient fetter on convenience termination that
the contracting officer must determine in good faith
that termination would be “in the best interest of the
Government.” Thus, the government cannot invoke the clause
where it *45 would not be in its interest to do so or
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where the contracting officer lacks good faith in making
the determination of interest. On the first point, it seems
hardly sufficient for the government to promise not to do
anything that would be against its own interest. This merely is
promising only to do whatever suits it. On the second, we note
that the government, unlike private parties, is assumed always
to act in good faith, subject only to an extremely difficult
showing by the plaintiff to the contrary. Librach v. United
States, 147 Ct.Cl. 605 (1959). As this court has phrased it, in
a case specifically involving convenience termination:
it requires “well-nigh irrefragable proof” to induce the
court to abandon the presumption of good faith dealing.
Knotts v. United States, 121 F.Supp. 630, 631, 128 Ct.Cl.
489, 492 (1954).
In the cases where the court has considered allegations
of bad faith, the necessary “irrefragable proof” has been
equated with evidence of some specific intent to injure
the plaintiff. Thus, in Gadsden v. United States, 78
F.Supp. 126, 127, 111 Ct.Cl. 487, 489-90 (1948), the court
compared bad faith to actions which are “motivated alone
by malice.” In Knotts, supra, at 128 Ct.Cl. 500, 121 F.Supp.
636, the court found bad faith in a civilian pay suit only in
view of a proven “conspiracy * * * to get rid of plaintiff.”
**771 Similarly, the court in Struck Constr. Co. v. United
States, 96 Ct.Cl. 186, 222 (1942) found bad faith when
confronted by a course of Governmental conduct which
was “designedly oppressive.” But in Librach, supra, at
147 Ct.Cl. 614, the court found no bad faith because the
officials involved were not “actuated by animus toward the
plaintiff.”
Kalvar Corp. v. United States, 211 Ct.Cl. 192, 198-99, 543
F.2d 1298, 1301-02 (1976), cert. denied, 434 U.S. 830, 98
S.Ct. 112, 54 L.Ed.2d 89 (1977). Thus, the government's
obligation to act in good faith hardly functions as the
meaningful obligation that it may be for private persons.
Since good faith is presumed unless bad faith is shown,
the government is prevented only from engaging in actions
motivated by a specific intent to harm the plaintiff. It does not
seem enough to support the government's claim for otherwise
unlimited convenience termination for the government only
to promise not to use it specifically to damage the contractor.
*46 The government also argues, as its final assertion, that
its power to terminate for convenience is subject to sufficient
limitation in that it recognizes that it cannot invoke the clause
when it would be a clear abuse of discretion to do so. National
Factors, Inc. v. United States, 204 Ct.Cl. 98, 492 F.2d 1383
(1974). This is an argument that the reservation of a power
to “terminate within my discretion” involves an obligation
sufficient to uphold a contract because discretion is limited.
As soon as one wonders what those limits are, however, one
realizes that this argument of the government puts the cart
before the horse. Discretion, and its abuses, are concepts that
depend for their very meanings on the existence of other
limits. Discretionary matters are those about which the party
having discretion may be flexible, within an otherwise legal
agreement, and abuse occurs in the rare situations when
something arises that seems to make that normal action unfair.
As concepts that only exist within limits, they cannot be
the limits, as the argument of the government suggests. If
the government is correct that its power to terminate for
convenience is unlimited except that its exercise cannot be
an abuse of discretion, how could such an abuse ever take
place? What limits are there to abuse? Abuse of discretion
is a valuable doctrine to enable otherwise legal actions to
be overturned if there seems some clear wrong nevertheless,
but it is not applicable to actions that simply are not legal at
all. It is bootstrapping to say that the government's claimed
power of unlimited exculpation is saved by the limits on its
discretion. Those limits must be derived from something else,
but under the government's view there is nothing else.
In the last analysis, then, if the ASBCA's free use of
convenience termination is adopted, the asserted restrictions
on the government's termination power still would not
provide an obligation that would satisfy the government's
requirement of furnishing consideration. There are no
sufficient termination procedures: (1) notice is not given in a
constructive case and (2) paying for services rendered would
result only in converting all contracts that contained the clause
to ones for an indefinite quantity with no stated minimum.
Also, the requirement of good faith is not sufficient because
the government's presumption of good *47 faith dealing
is rebuttable only in the most extreme circumstances, when
there is a specific intent to harm the contractor. And the
government's obligation to avoid clear abuses of discretion
is only an illusion. Without any other limits, the concept
of discretion is meaningless. We must conclude that free
termination for convenience is not supportable.
[9] We have said in this opinion that we will not construe
a contract clause in such a way that the contract is destroyed
if there is an alternate reading that will uphold the contract.
Accordingly we will not read the clause as freely as did
the ASBCA and we restrict the availability of the clause
to situations where the circumstances of the bargain or the
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expectations of the parties have changed sufficiently that the
clause serves only to allocate risk. This avoids the mistake
of Colonial Metals and restores the **772 meaning of the
clause to what it had been from 1876 until it was changed by
Colonial Metals in 1974. Of course, if the government were to
change its convenience termination procedures in such a way
that valid consideration was still furnished in an exculpation
situation, by limiting its power to terminate in some way that
would be consideration for the contract if it alone had been
bargained for, then convenience termination for exculpatory
purposes would also be proper.
V
[10] It remains only to summarize what this opinion does
and what it does not do. We are not holding here that the
government cannot settle with contractors on those contracts
that the government needs to settle. The termination for
convenience clause is a valuable and important aspect of
federal procurement. It has a long history and is founded
solidly on Corliss of 1876. Nor are we holding that
the government cannot draft for itself some method of
exculpation so long as it also binds itself to something that
will support the contract. We hold in this opinion only that
the government may not use the standard termination for
convenience clause to dishonor, with impunity, its contractual
obligations.
*48 In the case before us, the Navy had accepted Soledad's
bid and had executed a contract knowing that another bid was
lower. This contract bound the Navy to give to Soledad all
of its pest control needs at the six housing projects covered.
The Navy could not just walk away from this promise without
making a mockery of the contract. It is nothing more than
basic contract law that a power to terminate must be limited
in some meaningful way, as measured by the requirement of
consideration. The government has argued that there are no
limits on its power to invoke termination for convenience.
However, since the government's convenience termination
procedures (giving notice and paying for services rendered),
at least as applied to this case, also put no sufficient limits
on the government, its unrestricted use of the clause cannot
be correct. Any contract containing the clause, in the absence
of something else to furnish consideration, would fail for the
lack of any binding obligation. Therefore, we must read the
termination for convenience clause in Soledad's contract to
require some kind of change from the circumstances of the
bargain or in the expectations of the parties. These are just
the historical limits on the use of the clause as they have
developed from Corliss.
[11] On the facts as found by the ASBCA, at the time
that the Navy first called Public Works to do the work
that it had contracted with Soledad to have done, there
were no changes from the circumstances of the bargain
between the Navy and Soledad, or in their expectations.
The Navy had known from the competitor's bids, before it
made the contract with Soledad, that Soledad's price was high
and that it could get pest control more cheaply elsewhere.
The Navy contracted with Soledad anyway. The ASBCA
erred in allowing constructive termination for convenience
to excuse the Navy's diversion of business. Termination for
convenience was not available to the Navy, and so the Navy's
breach of Soledad's contract is unexcused.
Defendant's motion for summary judgment is denied.
Plaintiff's motion for summary judgment is granted to the
extent that we find that the contract was breached by
defendant. This case is referred to the trial division, for
further proceedings on the issue of damages, in accordance
*49 with this opinion and Rule 131(c)(2). Defendant filed a
motion on March 19, 1981, to strike an affidavit by plaintiff.
In view of our conclusion that the contract as a matter of
law is a requirements contract, plaintiff's affidavit that he so
considered it is immaterial and mooted. Colonial Metals Co.
v. United States, 204 Ct.Cl. 320, 494 F.2d 1355 (1974), to the
extent that it is inconsistent with this opinion, is overruled. We
cannot condone termination based on knowledge of a lower
cost when that knowledge preceded award of the contract.
**773 FRIEDMAN, Chief Judge, concurring:
As I understand the court's opinion, the court holds only that
when the government enters into a requirements contract,
knowing that it can obtain an item the contract covers for less
than the contract price and intending to do so, there cannot be
a constructive termination for convenience of the government
when the government follows that course. On that basis, I join
in the opinion.
DAVIS, Judge, concurring in the result:
Although I fully concur with the end-result of Judge Bennett's
opinion-that a convenience termination clause could not be
properly used to end this requirements contract where the
Government knew, at the time it entered into the agreement,
that it could obtain a better price from another person 1 I cannot join in much of the opinion which seems to me
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Torncello v. U. S., 231 Ct.Cl. 20 (1982)
681 F.2d 756, 30 Cont.Cas.Fed. (CCH) P 70,005
unnecessarily broad (reaching out toward different cases not
now before us) and, on some points, incorrect. I do agree that
(a) the contract was of the requirements type, (b) there is, for
this case, no statute or regulation absolving this contract from
the normal requirement of being supported by consideration,
(c) if the convenience-termination clause is used, in this
instance of pre-existing knowledge, as the defendant would
do, then this *50 requirements contract would be without
proper consideration, (d) accordingly, the contract should be
construed otherwise in order to sustain it as valid, and (e)
Colonial Metals Co. v. United States, 204 Ct.Cl. 320, 494
F.2d 1355 (1974), should be overruled. That is sufficient to
reach the correct result, and nothing else need be said in this
case.
There is, however, much else in Judge Bennett's opinionunnecessary discussion which I cannot accept. For one thing,
I do not agree at all with the suggestion that the scope of
the convenience-termination clause is narrower today than
during World War II. In my view, the type of emergency
procurement conditions experienced in World War II can
be, and not infrequently are, present in the post-war periodand the convenience-termination clause was deliberately
continued into the present era for that precise reason.
Second, I do not agree that “abuse of discretion” is an
inadequate or unsatisfactory general standard for gauging the
contracting officer's use of the termination clause. The clause
in the contract before us calls for use of the termination device
only “when it is in the best interest of the Government.”
That is comparable to the “public interest” standard often
used to control administrative rulings in the regulatory field,
and is likewise parallel to the criterion by which several
other procurement decisions are measured. 2 In the present
instance, I would have no difficulty in holding that it was
an abuse of discretion to use the clause to end the contract
because lower prices could be obtained elsewhere when the
contracting officer already knew that very fact before he
consummated the contract with plaintiff.
Third, I do not agree that “bad faith” is as narrow as Judge
Bennett says it is. In Kalvar, supra -the case he cites-this
court said, without in any way seeking to modify our prior
holdings: “ * * * many of our prior decisions seem implicitly
to accept the equivalence of bad faith, abuse of discretion,
and gross error.” *51 211 Ct.Cl. at 198, note 1, 543 F.2d
at 1301, note 1. Kalvar expressly held that that contractor
had failed to show either bad faith or abuse of discretion (see
footnote 2, supra ) and the limited definition of bad faith
quoted in the opinion gave merely one aspect of the concept
of “bad faith.” Here, too, I would be ready to hold that a
contracting officer acted in bad faith when he terminated a
**774 contract for convenience to get a better price of which
he had full knowledge (and which was available) at the time
when he deliberately entered into the contract with plaintiff.
Finally, I consider it wrong and a mistake to intimate,
even provisionally or gratuitously, that the convenience
termination clause cannot be utilized when a better price
appears after the contract is made. As Judge Bennett
recognizes, the prime purpose of the clause is to take
account of changed conditions occurring after the agreement
is consummated, and a better price appearing at that time
appears to be such a change in significant conditions. Yet his
opinion cites, with apparent acquiescence or approval, extrajudicial commentary suggesting that a post-contract change
in the price situation should not be enough to trigger the
convenience termination clause.
As I have already pointed out, all the portions of the opinion
to which I object are unnecessary to the result. At very best
they will prove troublesome in future cases which are not now
before us.
NICHOLS, Judge, concurring in the result:
I concur in the result, but I think the court takes a needlessly
circuitous route to a destination we all agree on. In getting
there, it tosses off needlessly sweeping dicta.
As regards the doctrine of consideration, the court puts aside
the other 11 items and regards the “requirements” clause for
pest control if needed, as if it stood alone. I am not sure a
provision for use of pest control services at the government's
sole election is unsupported by consideration if other contract
undertakings are not similarly avoidable on the government
side. Moreover, a termination of a contract for convenience
is valid only in the absence of bad *52 faith or a clear
abuse of discretion. National Factors, Inc. v. United States,
204 Ct.Cl. 98, 492 F.2d 1383 (1974). Here we have a putative
or “constructive” termination only, and the court will not
suppose such a termination as exonerating defendant from all
its commitments, if the act would be an abuse of discretion.
If consideration is furnished, the court will not inquire into
its adequacy. Mills v. United States, 187 Ct.Cl. 696, 410 F.2d
767 (1969).
As the termination cannot be postulated if it would be an
abuse of discretion, I turn to what would constitute the
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Torncello v. U. S., 231 Ct.Cl. 20 (1982)
681 F.2d 756, 30 Cont.Cas.Fed. (CCH) P 70,005
abuse. We need not consider cases not before the court.
Here the government stated it would evaluate bids on all
the items as an entirety and make the award only to one
who had bid on all items. Having promised this, it would
be estopped to eliminate from the award by termination
any items just because, separately considered, they were at
unfavorable prices, while retaining all those bid at favorable
prices. The administration of the contract must be consistent
with the rules used in evaluating the bids, to which the bidders
conformed in bidding.
Parallel Citations
681 F.2d 756, 30 Cont.Cas.Fed. (CCH) P 70,005
Footnotes
*
1
2
3
4
5
6
7
8
9
10
1
2
This case came originally before a panel consisting of Chief Judge Friedman and Judges Kunzig and Bennett. Judge Kunzig died
on February 21, 1982. Since that time and because of the exceptional importance of the legal issues involved, the court has ordered,
pursuant to Rule 7(b), that the case be considered en banc upon the original briefs and upon supplemental briefs, but without further
oral argument.
These are the specific references to the one item of the 12-item contract that is under dispute. Separate evaluation of the parties'
relationships for various of the items is warranted by the very discrete natures of the tasks and by the different bases on which those
tasks were to be performed. “Two performances promised by (one party) may be paired separately with two considerations promised in
return, each performance being the full agreed equivalent of one of the stated considerations; and they may be so separate in character
that we have two separate sets of reciprocal rights and duties, created by a single contract.” 3A Corbin on Contracts s 696 (1963).
Note that the 12 items of the contract were to be awarded on an “all or none basis,” see paragraph 3 of this opinion, evidently meaning
that only one contractor was desired.
We also note that the standard form that replaced the one on which plaintiff was required to submit its bid specifically states that
it is for requirements.
Eastport's discussion of the two general types of monetary claims in this court specifically is limited to non-contractual claims. 178
Ct.Cl. 599, 605, 372 F.2d 1002, 1007 (1967). Eastport dealt only with claims that were statutory- or regulatory-based.
As this is a question of law, the ASBCA's determination of course is not binding on this court. 41 U.S.C. s 322 (1976). Cf. 41 U.S.C.
s 609(b) (Supp.1981) (analogous provision for the Contract Disputes Act of 1978).
Colonial Metals Co. v. United States, 204 Ct.Cl. 320, 494 F.2d 1355 (1974).
Reported in 10 Ct.Cl. 494 (1874).
The clause in the Colonial Metals contract was incorporated by reference to ASPR 7-103.21(c) (April 1966), 32 CFR ss 7.103-21(c),
8.701(a) (1970) (Termination for Convenience of the Government, April 1966). It provides in part as follows: “(a) The performance
of work under this contract may be terminated by the Government in accordance with this clause in whole, or from time to time in
part, whenever the Contracting Officer shall determine that such termination is in the best interest of the Government.”
Colonial Metals has only been cited once by this court and then not for any proposition made an issue in the case we must now
decide. Kalvar Corp. v. United States, 211 Ct.Cl. 192, 543 F.2d 1298 (1976), cert. denied, 434 U.S. 830, 98 S.Ct. 112, 54 L.Ed.2d
89 (1977) (award to another contractor after termination of plaintiff's contract is insufficient to show bad faith absent proof of malice
or conspiracy against plaintiff). The decision has played an important part in ASBCA decisions, however. See Note, Tying Together
Termination for Convenience in Government Contracts, 7 Pepperdine L.Rev. 711, 721 n.56 (1980).
Even if given, however, as in direct convenience termination cases, we would question whether it is sufficient to support a contract
merely that one party promise to the other to tell him that he is walking away before he does so. But cf. Sylvan Crest Sand & Gravel
Co. v. United States, 150 F.2d 642 (2d Cir. 1945) (finding consideration in an implicit requirement to notify of cancellation within
a “reasonable time”).
This lower price is the only reason given for defendant's refusing to order pest-control services from plaintiff.
In Kalvar Corp. v. United States, 211 Ct.Cl. 192, 197, 543 F.2d 1298, 1301 (1976), cert. denied, 434 U.S. 830, 98 S.Ct. 112, 54
L.Ed.2d 89 (1977), this court expressly asked the parties, in a convenience-termination case, to discuss “bad faith or a clear abuse
of discretion,” and then found that that plaintiff had “failed to make a sufficient showing of bad faith or abuse of discretion by the
Government.”
End of Document
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