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Princeton Combustion Research Laboratories Inc. v. Director

decided: March 29, 1982.

PRINCETON COMBUSTION RESEARCH LABORATORIES, INC., APPELLEE
v.
DIRECTOR, JOHN MCCARTHY, JR., UNITED STATES NATIONAL AERONAUTICS AND SPACE ADMINISTRATION, LEWIS RESEARCH CENTER AT CLEVELAND, OHIO AND SHAKER RESEARCH CORPORATION, APPELLANTS



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY (Civil Action No. 81-3214)

Before Adams, Van Dusen and Garth, Circuit Judges.

Author: Garth

Opinion OF THE COURT

This appeal arises out of a decision by Appellant, the National Aeronautics and Space Administration ("NASA"), to award a procurement contract to the other Appellant in this case, the Shaker Research Corporation ("Shaker") rather than to the Appellee, Princeton Combustion Research Laboratories, Inc. ("Princeton Combustion"). In an order dated December 4, 1981, the district court granted Princeton Combustion's motion for a preliminary injunction, declaring the award of the contract to Shaker to be clearly illegal and enjoining NASA from re-awarding the contract until it followed the proper procedures.*fn1 Because we find that the district court's grant of the motion for a preliminary injunction was improper, we will vacate the district court's order of December 4, 1981.

I.

On April 3, 1981, the Lewis Research Center at Cleveland, Ohio, issued a Request for Proposal for a NASA contract for research into combustion technology. The information gained thereby would be used in the development of the Spacelab project, and though the contract itself was to be of a duration only of six months, further research and development, and so additional contracts, were also contemplated.

By the closing date of May 21, 1981, six companies had submitted bids in response to the Request for Proposal. The proposals were then forwarded to a Technical Evaluation Committee ("TEC"), which evaluated the strengths and weaknesses of the proposals and gave them ratings. The proposal submitted by Shaker was given the highest rating*fn2 and carried a proposed cost of $37,647, only $1,000 more than the lowest bid and some $40,000 lower than the highest bid. The proposal submitted by Princeton Combustion was given the second-highest rating, and carried a proposed cost of approximately $10,000 more than the Shaker bid. In addition to rating them, the TEC also presented a detailed analysis of the bids. Shaker's proposal, the TEC found, showed "major strengths" in three of the four areas in which the evaluation was made*fn3 whereas Princeton Combustion's proposal showed only "minor strengths" in those areas.*fn4 Accordingly, on July 13, 1981, Shaker was selected as an offeror within the competitive range.

On July 21, 1981, Shaker submitted a revised proposal, naming a new Project Manager to replace the one who had just resigned, and proposing a slightly higher project cost. The TEC reconvened and determined that the point score assigned to Shaker's proposal should remain unchanged. Moreover, the increase in costs was considered to be only minor and still left Shaker's bid among the lowest submitted. Thus when the final selection was made on July 31, 1981, Shaker was given the contract. In accordance with NASA regulations, see 41 C.F.R. Ch. 18, § 3.106-3, the unsuccessful bidders were notified by letter on August 4, 1981, that they had not been selected. The unsuccessful bidders were also given an opportunity to meet with NASA officials concerning their rejection, and on September 18, 1981, Princeton Combustion took advantage of that opportunity. After the meeting, Princeton Combustion protested the selection of Shaker, informing NASA of its objections by telephone on September 24, 1981, and by two telegrams that NASA received sometime on September 25, 1981. In the meantime, NASA and Shaker had commenced negotiations over the final form of a contract, and having reached agreement, signed one on September 25, 1981.

On October 14, 1981, Princeton Combustion filed a complaint against NASA and Shaker in federal district court, seeking damages and injunctive relief. Specifically, the complaint requested that the district court set aside the award of the contract to Shaker and award it instead to Princeton Combustion. In essence, Princeton Combustion alleged that Shaker had little expertise in combustion technology, that Princeton Combustion's own proposal was superior, and that NASA had wrongfully refused to divulge to Princeton Combustion certain information regarding Shaker and the selection process. Princeton Combustion also charged that "after awarding the contract to Shaker, Defendant NASA permitted Shaker to increase its bid price," and, asserting that "(changes after bid closing are rarely permitted," Princeton Combustion noted that Shaker had, on July 21, 1981, changed the Project Manager in its proposal. Complaint, PP 30, 31.

After a hearing on November 16, 1981, the district court announced on November 20, 1981, that it intended to issue an order declaring the contract illegal and enjoining its further performance. In an opinion delivered from the bench, the district court correctly stated the principles governing the grant of preliminary injunctive relief. The district court held that in general, the plaintiff must show that he has a reasonable probability of success on the merits, that he will suffer irreparable harm in the absence of preliminary injunctive relief, and that the interests of other affected persons and the general public weigh in favor of the grant of injunctive relief, or at least do not militate against it. In the area of government procurement contracts, however, the district court correctly noted that a more stringent standard governs a determination of the first factor, the likelihood of plaintiff's prevailing on the merits. Though the bidder has a legitimate interest in fair treatment in accordance with applicable statutes and regulations, the strong public interest in efficient procurement and cost minimization mandates that a procurement contract not be set aside at the behest of a "disappointed bidder" unless the awarding agency's decision was irrational or clearly illegal.

Applying those principles to the case before it, the district court found that the initial decision to award the contract to Shaker was rational, notwithstanding plaintiff's contentions to the contrary. App. 278-82. The district court also found that the decision to choose Shaker even after it had submitted its modification on July 21, 1981, was rational. App. 284. The district court, however, found that NASA had violated a regulation governing the acceptance of late modifications. That regulation, 41 C.F.R. Ch. 18, § 2.303-2(d), provides that "a late modification of an otherwise successful bid which makes its terms more favorable to the Government will be considered at any time it is received and may be accepted." The district court held that because the change of Project Manager and the increase in cost had been made after May 21, 1981, the closing date for the bids, Shaker had submitted a "late modification" within the meaning of the regulation. Inasmuch as the Project Manager under the modified proposal had qualifications that were merely "equivalent" to the previously-named Project Manager, the district court found that the modification was not on "more favorable (terms) to the Government." NASA's acceptance of the late modification, the district court concluded, "violated the regulation and therefore was illegal." App. 284.

Having found the agency's action to be clearly illegal (though rational), the district court went on to consider whether a preliminary injunction should be granted. The district court held that the delay occasioned by an injunction would cause no significant harm to the public interest in the agency's efficient functioning, because the Spacelab was only in the development stage and its launching was still a number of years away. Nor did the public interest in avoiding excessive costs weigh against the grant of a preliminary injunction, because after the modifications submitted on July 21, 1981, Shaker's bid was only about $5,000 less than Princeton Combustion's; at any rate, the contract was a cost-plus contract, so that the difference between the two bids might prove illusory once the contract was actually performed. Finally, the district court held that because NASA had so clearly violated its own procedures, Princeton Combustion's interest in fair treatment was very strong. This interest, the district court held, outweighed Shaker's interest in not having its contract set aside two months after it had begun performing it. Thus the district court declared the contract signed by Shaker and NASA on September 25, 1981, to be null and void, and ordered NASA to reconsider the Shaker modifications of July 21, 1981, in accordance with the governing procedures, and to resolve the written protests that Princeton Combustion had submitted on September 25, 1981.

Upon NASA's motion for reconsideration, however, the district court issued an order dated December 4, 1981. In an accompanying opinion delivered from the bench on December 3, 1981, the district court acknowledged that it had erred in finding that NASA had illegally failed to comply with 41 C.F.R. Ch. 18, § 2.303-2(d); that regulation applies only to procurements by formal advertising, and not to procurements by negotiated contract such as the one between NASA and Shaker. See 41 C.F.R. Ch. 18, § 2.000. Nevertheless, the district court reaffirmed its finding of "clearly illegal" conduct on the part of NASA and issued an order setting the Shaker contract aside and enjoining NASA to reconsider the modifications and to resolve Princeton Combustion's written protests. The basis for this decision was a holding that NASA had violated the regulations governing modifications to proposals for negotiated contracts, 41 C.F.R. Ch. 18, § 3.802-4(b). That section provides that all written requests for proposals shall contain a provision stating in part that

(t)he Government reserves the right to consider proposals or modifications thereof received after the date indicated for such purpose, but before award is made, should such ...


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