Delta Chemical Corporation v. Togo D. West, Jr., Secretary of the Army Margaret G. Zimmerman, Contracting Officer
Docket: 94-1652
Court: Court of Appeals for the Fourth Circuit; August 30, 1994; Federal Appellate Court
Delta Chemical Corporation, the appellant, contested a contract award made by the Secretary of the Army and an Army Contracting Officer to a competitor, Kemira Water Treatment, Inc. Delta's bid was rejected as nonresponsive, despite being the lowest bid, leading to a bid protest filed with the General Accounting Office (GAO). The GAO denied the protest, finding that the invitation for bids (IFB) had overstated the Army's minimum needs but concluded that this did not prejudice Delta since its nonresponsive bid was unrelated to the specification error.
Seeking relief, Delta filed in the U.S. District Court for the District of Maryland under the Administrative Procedure Act. The district court upheld the Army's decision, ruling that the rejection of Delta's bid was not arbitrary and that the Army was not obligated to cancel the IFB due to the overstatement of needs. Delta appealed only the ruling related to the cancellation requirement.
On appeal, Delta argued that the Contracting Officer must cancel a solicitation that overstates the government's needs, referencing Federal Acquisition Regulation Section 14.404-1, which addresses the cancellation of invitations after opening. The court ultimately affirmed the district court's decision, agreeing with the Army's interpretation and application of the regulations concerning the IFB.
Subsection (b) of Sec. 14.404-1 mandates the cancellation of an invitation for bids (IFB) prior to award but after opening if it is determined that the requirements of Sec. 10.008 regarding specification availability and identification have not been met. Sec. 10.008 ensures that specifications are clear and accessible to all bidders. In this case, Delta does not argue a violation of Sec. 10.008, as the specifications, although inaccurate, were sufficiently detailed and available. Therefore, the cancellation requirement does not apply.
Subsection (c) lists ten circumstances under which an IFB may be canceled before award but after opening, at the discretion of the agency head if a "compelling reason" exists. The relevant provision here is subsection (c)(2), which allows cancellation if specifications have been revised. The Army chose not to cancel the invitation, as the overstatement did not prejudice Delta, and this decision is not deemed arbitrary or capricious. The authority to cancel when specifications are changed rests with the contracting agency, and the Army exercised that discretion appropriately.
Both parties reference opinions from the Comptroller General of the United States to support their positions, but these opinions are not binding on the court or the executive branch. The inconsistency of GAO opinions undermines their judicial value. Appellant's reliance on two GAO decisions, Donco Industries and International Trade Oversees, is found unpersuasive. Neither decision addressed a refusal to cancel an invitation, and the statements regarding cancellation requirements are considered dicta. Furthermore, the opinions do not reconcile their cancellation statements with the discretionary nature of Sec. 14.404-1(c).
The document highlights inconsistencies in two legal opinions regarding the cancellation of Invitations for Bids (IFB) that overstate government needs. Both opinions affirm that the determination for cancellation lies within the discretion of the administrative agency and is only reviewable if shown to be arbitrary, capricious, or unsupported by substantial evidence. However, each opinion simultaneously concludes that overstating needs necessitates cancellation while also assessing the situation for abuse of discretion and ultimately finding the cancellation not improper.
Appellees reference a GAO decision, *Diversified Energy Sys.*, to argue that defects in the invitation do not justify cancellation post-bid opening if the award meets actual needs without prejudice to other bidders. While this GAO decision supports the Army's stance, it is also noted that it suggests cancellation may be warranted if an agency finds a solicitation overstates needs.
The appropriate standard of review under the Administrative Procedure Act is whether the agency's action was arbitrary, capricious, an abuse of discretion, or contrary to law. The Army's decision not to cancel the IFB, which inaccurately specified the composition of aluminum sulfate, was deemed adequately reasoned and not a clear error in judgment. The district court's judgment was affirmed, underlining that the Army was not obligated to cancel the IFB due to the overstatement and emphasizing that GAO opinions, while cited by both parties, are not binding and lack judicial deference due to their inconsistencies.
Neither opinion analyzed an agency's refusal to cancel an invitation but rather addressed challenges to the agency's decision to cancel. Statements regarding a requirement for cancellation are considered dicta. While both opinions reference pertinent provisions, they fail to align their assertion that cancellation is necessary with section 14.404-1c, which allows but does not mandate cancellation. Both opinions acknowledge the agency's discretion in determining whether a compelling reason exists for cancellation, yet they inconsistently conclude that overstating the government's needs necessitates cancellation. After asserting this requirement, they assess the agency's discretion and conclude that the cancellation was not improper, revealing further inconsistency.
Appellees cite Diversified Energy Systems for the argument that defects in the invitation do not justify cancellation post-bid opening if the award meets the government’s needs and does not prejudice other bidders. Although Diversified Energy supports the Army's stance, it also states that when an agency finds a solicitation overstates its needs, the best interest of the government typically requires that no award be made under that solicitation. Ultimately, no opinion from the Comptroller General applies to this case. The appropriate standard of review under the Administrative Procedure Act evaluates whether the agency's action was arbitrary, capricious, an abuse of discretion, or otherwise unlawful. The Army's decision was not subject to such challenge, as it was not obligated to cancel the Invitation for Bids (IFB) despite an overstatement of needs, and its refusal to cancel was well-reasoned and not a clear error in judgment. The judgment of the district court is affirmed.
Additionally, it is noted that the IFB incorrectly specified aluminum sulfate requirements, and while regulations allow for cancellations prior to award but after opening, the presumption against cancellation is stronger post-award, as in this case.
