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NATIONAL GATEWAY TELECOM, INC. v. ALDRIDGE

December 9, 1988

NATIONAL GATEWAY TELECOM, INC., Plaintiff,
v.
EDWARD C. ALDRIDGE, JR., Secretary of the United States Air Force, Defendant, AND INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant-Intervenor



The opinion of the court was delivered by: DEBEVOISE

 Count One of the complaint charges that the Air Force violated the Competition in Contracting Act, 10 U.S.C. Section 2304(a), by failing to obtain full and open competition through the use of competitive procedures in accordance with the requirements of applicable laws and regulations, and by failing to use the competitive procedures best suited under the circumstances of the procurement.

 Count Two charges that the Air Force violated restrictions against unjustified sole source contracts by awarding to a sole source under another contract without making the written findings set forth in 10 U.S.C. Section 2304 (f)(1).

 Originally Count Three charged a violation of 48 C.F.R. Section 17.207 governing the exercise of options under a contract. In subsequently filed papers plaintiff notes that since the record failed to establish an option contract, Count Three should be dismissed. Plaintiff seeks to amend the complaint to add a new Count Three charging that the contract pursuant to which the computer equipment was ultimately purchased was entered into without full and open competition required by 10 U.S.C. Section 2304(c) and without a finding that one of the statutory exceptions was applicable.

 A. The Facts :

 The Electronics Security Command of the United States Air Force (ESC) belongs to the Department of Defense Intelligence Information Systems Community, a grouping of defense agencies sharing expertise and supplies. At the times pertinent to these proceedings Linda Smith was an ESC contracting officer responsible for procurement of automated data processing equipment. She worked at Kelly Air Force Base under the direction of Juanita Condra.

 The subject of this action is automatic data processing equipment for use in an electronic warfare and cryptological program called the Constant Web. Lieutenant Colonel John Lilly was the program manager for the equipment being purchased.

 ESC's original purchase requirement formulated in May or June 1987, was for IBM 4381 series equipment obtainable through the DIA/Virginia Contracting Activity which is also a member of the Department of Defense Intelligence Information Community. The need changed to a configuration built around the IBM 3090.

 In November 1987, ESC was informed by the Virginia Contracting Activity that an acquisition of that nature would require a sole source justification. ESC concluded that the acquisition could be competitive and decided to do its own acquisition. Planning for the issuance of an RFP began in February or March 1988.

 On June 1, 1988, ESC publicly noticed a request for proposals RFP F41621-88 - R-0033 (the RFP) seeking to acquire the equipment. Under the RFP offerors were to put together a configuration or assemblages of various equipment which was centered around either IBM equipment or other equivalent equipment.

 In response to the June 1 notice, ESC received numerous inquiries. IBM, Pacificorp Capital, which was an affiliate of National Gateway, Federal Data, Amdahl Corporation and Storage Tech participated in the prepoposal process. Questions from contractors were analyzed and answered, and all answers were distributed to each contractor along with four amendments to the solicitation. A number of bids were received on the RFP on July 18, 1988. IBM did not bid.

 Personnel of Pacificorp Capital, the affiliate of National Gateway, had handled the bid originally, but since Pacificorp lacked proper security clearance, the bid was assumed by National Gateway.

 Federal Systems, a Washington, D.C. area corporation, complained to the Air Force procurement personnel that it had not been notified of the closing date for its submission of proposals, and that, therefore, the solicitation was defective. Ms. Smith on behalf of ESC rejected the complaint and declined to reopen the bidding process.

 Shortly afterwards Ms. Smith learned that Federal Systems had advised the Air Force that it believed that the RFP was also defective because it did not comply with the provisions of the Nunn-Warner Amendment, 10 U.S.C. Section 2315. A brief explanation of the situation which faced Ms. Smith is required.

 The Competition in Contracting Act, 10 U.S.C. Sections 2301, et seq. enunciates a policy that the Department of Defense obtain contracts in a timely, economic and efficient manner. Procurements, when practicable, should be obtained at times and in quantities that will result in reduced costs to provide incentives to contractors to improve productivity. The Department of the Air Force is covered by the Competition in Contracting Act.

 The Act also requires that, in the ordinary case, contracts for property be made by formal advertising and mandates that awards be made on a competitive bid basis to the lowest bidder. Government purchases of automated data processing computer equipment receives specialized treatment in that it must be acquired through procedures established and supervised by the General Services Administration. 40 U.S.C. Section 759 (the "Brooks Act").

 Under the Nunn-Warner Amendment, however, the Defense Department is exempt from the Brooks Act when it purchases automated data equipment for, inter alia, intelligence and cryptologic activities. The ESC processed the RFP under the Nunn-Warner Amendment exception.

 When Ms. Smith completed the ESC solicitation pursuant to the exception to the Brooks Act, she did not provide a Mission Critical Computer Resource document pursuant to Air Force Regulation 700-4, Volume II, paragraph 3-4c(2). It was the failure to provide this document which was the basis of Federal System's contention that ESC had failed to comply with the provisions of the Nunn-Warner Amendment.

 On or about August 11 Ms. Smith received a telephone call from Frank Burke of the Pentagon inquiring about whether the procurement was covered by the Nunn-Warner Amendment. His called had been prompted by Federal System's complaints. Ms. Smith discussed the situation with Mr. Burke and with a Major Mather, both of whom were experienced persons in the fields of automated data processing requirements and acquisitions. Both of them were of the opinion that the absence of the Mission Critical Computer Resource document could subject the solicitation to a successful protest. Ms. Smith consulted with three other Kelly Air Force Base senior persons specializing in automated data processing requirements. She attempted unsuccessfully to secure a timely opinion from the Base legal staff.

 Based on these discussions on August 12, 1988, she canceled the solicitation rather than proceeding with a solicitation which ran the risk of being successfully challenged.

 Ms. Smith decided that the RFP should be resynopsized for the Commerce Business Daily. Under the Competition in Contracting Act, RFPs must be synopsized in the Commerce Business Daily, unless they are exempted from the publication requirement. This is a mechanism for potential bidders to find out about an available RFP and to contact the soliciting agency for a copy.

 The RFP was resynopsized in the Commerce Business Daily on August 12, 1988. Ms. Smith called the bidders on the aborted RFP and informed them of its withdrawal and impending reissuance. She gave them a choice of leaving their bids or taking them back. National Gateway was among those called, and was later informed in writing that the RFP would be reissued September 6, 1988.

 In mid-August after the RFP had been resynopsized and after the bidders had been given the information described above, William Breedlove, a San Antonio IBM salesman, having learned of the cancellation of the RFP, called Lieutenant Colonel John Lilly, the program manager of Kelly Air Force Base and told him that IBM had recently signed a requirements contract with the Virginia Contracting Activity for the same equipment. Colonel Lilly on the same day advised Ms. Smith of this telephone call and conveyed to her the information which Breedlove had given him.

 At this point it is necessary to digress and to trace the history of the requirements contract which Breedlove brought to the attention of Colonel Lilly, and through him to Ms. Smith.

 On October 16, 1987, the Virginia Contracting Activity/DIA issued a solicitation for IBM 3090 or equivalent equipment. A contracting officer of the Virginia Contracting Activity had determined that public advertising of the requirement was inappropriate and that limited competition was authorized under the Competition in Contracting Act.

 Accordingly, the solicitation was not synopsized in the Commerce Business Daily and it was sent to major manufacturers of the equipment and opened to all offerors as a competitive requirements contract. The solicitation was sent to Amdahl Corporation, IBM, National Advance Systems, Inc., CMI Corporation and UNISYS Corporation. Storage Technology Corporation and Federal Data Corporation also considered submitting proposals on the solicitation.

 National Gateway's affiliate PacifiCorp Capital sought out Amdahl Corporation in an attempt to pair with Amdahl on the solicitation. Amdahl rejected the PacifiCorp overture and paired with another company. PacifiCorp did not submit a proposal.

 On July 27, 1988, Virginia Contracting Authority awarded the contract to IBM and the award was assigned on August 11, 1988. The contract will be referred to herein as the "DIA contract." It will be recalled that on the very same day but totally independently of the Virginia Contracting Authority solicitation, Ms. Smith received a telephone call from Mr. Burke raising the question whether there had been a failure to comply with requirements of the Nunn-Warner Amendment.

 It will also be recalled that prior to Breedlove's telephone call to Colonel Lilly advising him of the award and assignment of the Virginia Contracting Authority solicitation to IBM, Ms. Smith had canceled the ESC solicitation, had caused the RFP to be resynopsized in the Commerce Business Daily and had called the bidders on the RFP, informing them of their options in light of the decision to cancel.

 During the week of August 22, 1988, Ms. Smith made inquiries of Paul Kittle, the assistant deputy chief of the Virginia Contracting Activity, and the contracting officer administering the IBM requirements contract at the Virginia Contracting Activity, concerning the nature of the IBM contract and whether the equipment being obtained pursuant to that contract would satisfy the Air Force's needs for the equipment sought pursuant to the canceled RFP.

 Mr. Kittle suggested that Ms. Smith send her configuration to him so that he could advise whether the Virginia Contracting Activity could satisfy it. Mr. Kittle responded affirmatively that his agency could support the Air Force's needs. On September 2nd, 1988, Ms. Smith sought a final commitment which would set forth the terms of the DIA contract and the dollar amounts of the items to be purchased.

 On September 7, formal confirmation was sent to Ms. Smith and ESC. On September 9, Ms. Smith prepared a Determination for Interagency Acquisition under the Economy Act which summarized her decision to acquire the equipment under the DIA contract. She also prepared a Determination setting forth her decision not to renew the canceled RFP. Each Determination is a detailed statement of reasons for the action taken.

 Ms. Smith promptly notified the bidders on the RFP not to resolicit. On September 20, 1988, a purchase order pursuant to the DIA contract was executed in order to allow for the procurement of the equipment in question.

 In the present action National Gateway seeks to enjoin preliminarily implementation of the purchase order.

 B. National Gateway's Contentions :

 National Gateway's position has evolved and discovery has disclosed more of the underlying facts. In its original papers National Gateway contended that ESC violated federal laws mandating open, competitive bidding when it canceled the solicitation upon which National Gateway bid and decided instead to procure the automated data processing equipment by exercising options on a noncompetitive basis on an older, existing contract. More specifically, National Gateway charged that ESC had engaged in maneuvers designed to ensure that IBM received the contract. These maneuvers included, first, withdrawal of the RFP for the pretextual reason that proper procedures had not been followed and, second, the exercise of the option under the existing contract with IBM for an improper reason, namely, that the RFP would not be completed in fiscal year 1988, ending September 30, and ESC needed to spend 1988 funds to avoid jeopardizing its 1989 budget.

 When discovery disclosed that ESC had not exercised an option under an existing contract, National Gateway revised its contentions and asserted that ESC's method of acquiring the equipment constituted procurement in less than full and open competition under the Competition in Contracting Act.

 More specifically, it still contends that the entire procedure adopted by ESC was a maneuver designed to ensure that IBM receive the contract and that the maneuver included withdrawal of the RFP for a pretextual reason. However, National Gateway now contends that the Virginia Contracting Authority RFP was conducted under unlawful, noncompetitive conditions designed to benefit IBM.

 National Gateway claimed that the Virginia Contracting Authority RFP was conducted under "other than full and open competition," based on a finding that, in the interest of national defense, it could not be synopsized in Commerce Business Daily because that would reveal to the world at large what was being purchased for intelligence organizations. As a result of that finding, as noted above, the RFP was mailed to only five potential bidders. National Gateway asserts that with respect to Amdahl Corporation and National Advance Systems, Inc. the RFP was mailed to addresses least likely to gain the attention of persons likely to bid.

 National Gateway also asserts that there were a number of things about the Virginia Contracting Authority RFP which limited competition. It provided a $ 1 million assessment against any bidder which did not manufacture all the items on the list, which would be everybody except IBM. It required an integrated vector processor facility, thus eliminating Amdahl which did not manufacture one. It required IBM proprietary software and provided for evaluation of bids to be based 60 percent on technical factors and 40 percent on price, thus giving an inordinate weight to subjective views of the contracting officers who, it is alleged, had a strong preference for IBM equipment.

 A number of concerns made inquiries and/or attempted to obtain provisions in the RFP so that they could bid, but, according to National Gateway, no revisions were made and in the end, IBM was the only bidder.

 As we have seen IBM was awarded the contract.

 I note parenthetically that at the preliminary injunction hearing it was learned that the $ 1 million assessment had been eliminated by a late amendment to the solicitation.

 Thus, National Gateway urges that ESC improperly terminated the solicitation for the purpose of obtaining from IBM the equipment in question under a requirements contract which was invalid, having ...


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