Blue Dot Energy Company, Inc. v. United States , 179 F. App'x 40 ( 2006 )

NOTE: Pursuant to Fed. Cir. R. 47.6, this disposition
is not citable as precedent. It is a public record.
United States Court of Appeals for the Federal Circuit
05-5058
BLUE DOT ENERGY COMPANY, INC.,
Plaintiff-Appellee,
v.
UNITED STATES,
Defendant-Appellant,
and
WASTE MANAGEMENT OF WASHINGTON, INC.,
Defendant.
__________________________
DECIDED: May 2, 2006
__________________________
Before NEWMAN, GAJARSA, and PROST, Circuit Judges.
PROST, Circuit Judge.
The Air Force awarded Waste Management a contract for solid waste disposal at
Fairchild Air Force Base (“Fairchild AFB”) after determining that Waste Management
was the only responsible source for the waste disposal services. Similarly, because the
Air Force determined that it would not receive two or more bids from qualified,
responsible sources, the Air Force did not set-aside the contract at Fairchild AFB for the
Small Business Administration’s Historically Underutilized Business Zone program
(“HUBZone”).
Blue Dot Energy Co., Inc. (“Blue Dot”), a company that has previously been
awarded HUBZone contracts, brought suit in the United States Court of Federal Claims
protesting the award of the contract to Waste Management. The Court of Federal
Claims concluded that the Air Force’s decision to grant the contract to Waste
Management instead of setting the contract aside for HUBZone violated applicable
statutes and regulations and also lacked a rational basis. It therefore enjoined the
contract with Waste Management and ordered the Air Force to issue a new solicitation
for the waste disposal services as a set-aside for HUBZone. Because we find on
appeal that the Air Force did not violate applicable statutes or regulations and that its
decision evinced rational reasoning, we reverse.
I.
Under the Competition in Contracting Act (“CICA”), the general rule for
government procurement contracts is that “the head of an agency in conducting
procurement for property or services . . . shall obtain full and open competition through
the use of competitive procedures in accordance with the requirements of this chapter
and the Federal Acquisition Regulation.” 10 U.S.C. § 2304 (2000).1 The CICA,
however, provides exceptions to this general rule of full and open competition. One of
these exceptions allows “[t]he head of an agency [to] use procedures other than
competitive procedures only when—(1) the property or services needed by the agency
1
The Federal Acquisition Regulation is a set of uniform policies and
procedures for government acquisition of supplies and services. They are codified at 48
C.F.R. Part 19.
05-5058 2
are available from only one responsible source . . . and no other type of property or
services will satisfy the needs of the agency.” 10 U.S.C. § 2304(c)(1) (2000).
But this is not the only exception to full and open competition in government
contracts. Other government programs, such as those promulgated under the Small
Business Act (Chapters 14 and 14A of 15 U.S.C.), are designed to “aid, counsel, assist
and protect” small-business concerns in order to “maintain and strengthen the over-all
economy of the Nation.” 15 U.S.C. § 631(a) (2000). As described recently in Contract
Mgmt., Inc. v. Rumsfeld,
The purpose of the Act is to ensure the attainment of a “Government-wide
goal for participation by small business concerns [in Government
contracts] . . . .”
The [Small Business Administration (the “SBA”)] is charged with
carrying out the policies of the Act and issuing such rules and regulations
as it deems necessary. In order to realize this goal, federal agencies,
acting in concert with the SBA, are empowered to establish small business
set-asides for contract solicitations.
434 F.3d 1145, 1147 (9th Cir. 2006) (citations omitted) (quoting 15 U.S.C. § 644(g)).
One of the programs, HUBZone, is governed by 15 U.S.C. § 657a and is designed to
aid small businesses that are located in economically disadvantaged or distressed
areas. As required by the program, “a contract opportunity shall be awarded pursuant
to this section on the basis of competition restricted to qualified HUBZone small
business concerns if the contracting officer has a reasonable expectation that not less
than 2 qualified HUBZone concerns will submit offers and that the award can be made
at fair market price.” 15 U.S.C. § 657a (B) (2000).
In this case, the Air Force decided that it would not set aside the Fairchild AFB
contract for HUBZone and instead issued a sole-source solicitation because the Air
Force determined that there was only one responsible source. Under the exception
05-5058 3
defined in 10 U.S.C. § 2304(c)(1), the Air Force awarded the contract directly to Waste
Management, the only responsible source. All other sources, according to the Air
Force, were not responsible sources because they could not be “otherwise qualified and
eligible to receive an award under applicable laws and regulation” as required by 48
C.F.R. § 9-104-1(g).
With regard to this determination, the Air Force concluded that currently all
companies other than Waste Management could not comply with the requirements of
the Resource Conservation and Recovery Act of 1976 (the “RCRA”) for solid waste
disposal at Fairchild AFB. The RCRA states in relevant part that
[e]ach department, agency . . . of the Federal Government . . . engaged in
. . . the disposal . . . of solid waste . . . shall be subject to, and comply with,
all Federal, State, interstate, and local requirements, both substantive and
procedural . . . respecting control and abatement of solid waste . . . .
42 U.S.C. § 6961(a) (2000). Because Fairchild AFB is located in the state of
Washington, solid waste disposal at Fairchild AFB must comply with all of that state’s
solid waste disposal laws including a requirement that:
[n]o solid waste collection company shall hereafter operate for the hauling
of solid waste for compensation without first having obtained from the
commission a certificate declaring that public convenience and necessity
require such operation . . . .
Wash. Rev. Code § 81.77.040. In other words, absent a certificate from the
Washington State Utilities and Transportation Commission (“WUTC”), a company
cannot “operate for the hauling of solid waste” and certainly cannot perform the contract
at Fairchild AFB. Accordingly, the Air Force determined that companies without a
WUTC certificate were not responsible sources and concluded that Waste
Management, the only company that currently held a WUTC certificate for the Fairchild
05-5058 4
AFB area, was therefore the only responsible source. Based on its responsibility
determination, the Air Force did not set aside the contract for HUBZone. It issued a
sole-source solicitation for the solid waste disposal at Fairchild AFB and awarded that
contract to Waste Management.
II.
On April 12, 2004, Blue Dot filed a complaint in the Court of Federal Claims
alleging that the Air Force’s sole-source solicitation and its subsequent award to Waste
Management violated applicable statutes and regulations and that the sole-source
solicitation and award were arbitrary and capricious. Blue Dot sought preliminary and
permanent injunctions barring the Air Force from awarding a sole-source contract to
Waste Management. It also sought an order that either awarded the contract to Blue
Dot or re-opened the solicitation and set-aside the procurement for HUBZone small
business concerns only.
The Court of Federal Claims recognized that its review in a bid protest was quite
limited. The court stated that
[b]id protest actions are reviewed under the Administrative Procedure Act,
5 U.S.C. § 701 et seq. (“APA”), which provides that:
[t]he reviewing court shall—. . . hold unlawful and set aside agency action,
findings, and conclusions found to be—. . . arbitrary, capricious, an abuse
of discretion, or otherwise not in accordance with law . . . .
Blue Dot Energy Co., Inc. v. United States, No. 04-644C, slip op. at 11 (Ct. Cl. Dec. 13,
2004) (quoting 5 U.S.C. § 706(2)(A)); see also NFT Techs., Inc. v. United States, 370
F.3d 1153, 1159 (Fed. Cir. 2004).
After stating this standard of review, the Court of Federal Claims determined that
the Air Force’s interpretation of the RCRA (42 U.S.C. § 6961(a)) and 10 U.S.C.
05-5058 5
§ 2304(c)(1) was contrary to law as was, therefore, its decision to issue the sole-source
solicitation and to award the contract to Waste Management based on that erroneous
interpretation. It held that the Washington law
imposes no legal duty on the Air Force but requires only that a solid waste
collection company have a WUTC Certificate at the time performance of
the contract commences operation. Therefore, the Air Force is not
constrained either by 42 U.S.C. § 6961 (a) or Wash. Rev. Code
§ 81.77.040 from soliciting the lowest bids for such services . . . .
Blue Dot Energy, slip op. at 17 (citations omitted). In addition, the Court of Federal
Claims determined that by making a responsibility determination about Blue Dot, the
actions of the Air Force unlawfully precluded the SBA from exercising authority to make
a responsibility determinations.
Along similar lines, the Court of Federal Claims determined that the Air Force’s
decision to issue the sole-source solicitation and to award the contract to Waste
Management lacked a rational basis. First, the Court of Federal Claims determined that
the Air Force had no rational basis upon which to require an awardee to have a WUTC
solid waste disposal certificate before bidding for the contract. Second, the Court of
Federal Claims determined that there was no rational basis upon which the Air Force
could reasonably expect to receive less than two responsible offers from qualified
HUBZone small businesses, and thus the Air Force’s decision to not set aside the
contract for HUBZone similarly lacked a rational basis.
In light of those determinations, the Court of Federal Claims granted Blue Dot’s
motion for injunctive relief. The court also ordered the Air Force to issue a new
solicitation to procure solid waste collection and disposal services for Fairchild AFB in
compliance with the CICA and HUBZone. Lastly, the Court of Federal Claims also
05-5058 6
granted Blue Dot’s request for bid and proposal expenses including costs and attorney’s
fees associated with this bid protest.
The Air Force appealed. We have jurisdiction pursuant to 28 U.S.C § 1295(a)(3).
III.
This court reviews de novo the trial court’s decision, reviewing the agency record
anew, pursuant to the “arbitrary and capricious” standard prescribed by 28 U.S.C.
§ 1491 and 5 U.S.C. § 706(2). Impresa Construzioni Geom. Domenico Garufi v. United
States, 238 F.3d 1324, 1330-33 (Fed. Cir. 2001); Advanced Data Concepts, Inc. v.
United States, 216 F.3d 1054, 1057 (Fed. Cir. 2000). “The arbitrary and capricious
standard applicable here is highly deferential [to the agency].” Advanced Data, 216
F.3d at 1058. This court will sustain a procurement decision “evincing rational
reasoning and consideration of relevant factors.” Id. (citing Bowman Transp., Inc. v.
Ark.-Best Freiqht Sys., 419 U.S. 281, 285 (1974)).
The Court of Federal Claims, in its decision, found fault with two key Air Force
decisions. First, it concluded that the Air Force’s decision to grant and award the
contract via a sole source solicitation was contrary to law and lacked a rational basis.
Second, the Court of Federal Claims concluded that the Air Force’s decision to not set-
aside the contract for HUBZone was contrary to law and lacked a rational basis. We
address these conclusions in that order.
A.
As to the propriety of a sole source solicitation, a contracting officer may properly
issue a sole source solicitation under the exception provided by 10 U.S.C. § 2304(c)(1)
where “the property or services needed by the agency are available from only one
05-5058 7
responsible source . . . and no other type of property or services will satisfy the needs of
the agency.” 10 U.S.C. § 2304(c)(1) (2000). As stated in Black Hills Power & Light v.
Weinberger,
[t]he term “responsible source” is defined at 41 U.S.C. § 403 (Supp. III
1985). It includes a number of relevant factors to be considered by the
procuring agency, one of which is whether the prospective contractor “is
otherwise qualified and eligible to receive an award under applicable laws
and regulation.”
808 F.2d 665, 672 (8th Cir. 1987) (quoting 41 U.S.C. § 403); see also 10 U.S.C. § 403(2000); 48 C.F.R. § 9-104-1(g) (2004).
As discussed above, the Court of Federal Claims held that applicable
Washington law does not require the Air Force to only allow existing WUTC certificate
holders to bid on its contracts. In our view, however, the question is not whether the law
forces the Air Force to require a certificate, but rather whether the Air Force may
properly use the possession of the certificate in making its responsibility determination.
While, we find no binding precedent directly on this issue, the Court of Federal Claims
has previously held that where an applicable law or regulation bars performance of a
contract, the procuring agency may use that fact in weighing whether a prospective
contractor is responsible. See Norwalk Dredging Co. v. United States, 58 Fed. Cl. 741(Ct. Cl. 2003) rev’d on other grounds Norwalk Dredging Co., 375 F.3d 1106, 1113 (Fed.
Cir. 2004) (finding that, in a bid protest, if the successful bidder was barred from
performing the contract by a statute, then the bidder could not be a responsible bidder
because it was not otherwise qualified and eligible to receive an award under applicable
laws and regulation). We conclude that under the circumstances in this case, the Air
Force was within its discretion to decide that a responsible source needed to have a
05-5058 8
WUTC certificate. As a result, the Air Force’s determination that only those companies
holding a valid WUTC certificate could be responsible bidders was not “a clear violation
of law,” and therefore its determination cannot be grounds for enjoining the procurement
decision. See Emery Worldwide Airlines, Inc. v United States, 264 F.3d 1071, 1085-86
(Fed. Cir. 2001).
The Court of Federal Claims also determined that the Air Force’s decision to
proceed via a sole-source solicitation lacked a rational basis. The Air Force stated that
it “reasonably desires that its awardee possess a [WUTC] certificate before
performance of this contract begins because of the critical need for on-going, daily
service of this contract.” Blue Dot Energy, slip op. at 21. In challenging this rationale,
the Court of Federal Claims noted that Washington state has existing provisions that
“authorize the WUTC to grant temporary and expedited Certificates, without a hearing,
while a permanent application is pending.” Id. Although the Court of Federal Claims
certainly is correct that the WUTC can grant temporary certificates, nothing suggests
that these certificates will in fact be granted. The relevant statute provides that a
temporary certificate may issue “only after [the commission] finds that the issuance of
such temporary certificate is consistent with public interest.” Wash. Rev. Code
§ 81.77.110. Further, where the area at issue, in this case Fairchild AFB, is covered by
the certificate of another solid waste collection company, the “temporary certificate may
be issued for a period not to exceed one hundred twenty days.” Id. Thus, it is uncertain
whether a temporary certificate would issue at all and even then that temporary
certificate would last, at most, only one hundred twenty days. Lastly, and most
importantly, nothing in the record suggests that Blue Dot was prohibited at any time
05-5058 9
from applying for such a certificate. Accordingly, we cannot agree with the Court of
Federal Claims that the Air Force’s determination lacked a rational basis. Rather, the
Air Force’s decision evinces rational reasoning and a consideration of relevant factors.
In other words, the contracting officer’s determination that possession of a WUTC
certificate is a responsibility requirement was rational and lawful.
B.
The Court of Federal Claims also determined that the Air Force’s decision not to
set aside the contract for HUBZone was both contrary to law and lacked a rational
basis. The Court of Federal Claims determined that “[t]he Air Force, by attempting to a
make a WUTC Certificate a ‘responsiveness’ criteria, rather than a ‘responsibility’
criteria, unlawfully precluded the SBA from exercising authority to make the
responsibility determination as Congress intended.” Blue Dot Energy, slip op. at 20.
According to the Court of Federal Claims, “under the HUBZone Small Business
Program, it is the SBA, not the Air Force, that has the authority ‘[t]o certify to
Government procurement officers . . . with respect to all elements of responsibility . . . .’”
Id. at 19 (citing 15 U.S.C. § 637(b)(7)). For example, 48 C.F.R. 19.602-1, provides that,
Upon determining and documenting that an apparent successful small
business offeror lacks certain elements of responsibility . . . , the
contracting officer shall—
(1) Withhold contract award . . . and
(2) Refer the matter to the cognizant SBA Government Contracting Area
Office . . . .
(Emphases added.)
This regulation, however, applies to an award that is already set-aside for an
SBA program. In contrast, the initial determination to set-aside a contract for an SBA
program is made by the Air Force. As described by SBA’s own regulation on HUBZone,
05-5058 10
the contracting officer “decides if a contract opportunity for HUBZone set-aside
competition exists.” 13 C.F.R. 126.604 (2004). And these regulations also outline the
criteria for entering the contract into HUBZone:
If the contracting officer decides to set aside the requirement for
competition restricted to qualified HUBZone SBCs, the contracting officer
must:
(1) Have a reasonable expectation after reviewing SBA’s list of qualified
HUBZone SBCs that at least two responsible qualified HUBZone SBCs
will submit offers; and (2) Determine that award can be made at fair
market price.
13 C.F.R. 126.607 (2004); see also 15 U.S.C. § 657a; Contract Mgmt., 434 F.3d at
1147-48. Thus, in making its initial decision whether to set-aside the contract for
HUBZone, the Air Force must make the initial responsibility determinations about the
HUBZone small business concerns. Where the Air Force determines that two or more
responsible qualified HUBZone concerns will submit offers, then the award is set-aside.
Where the Air Force determines, however, that fewer than two will submit offers, the Air
Force is not required to set the award aside. Thus, this initial responsibility
determination is not one which requires a referral or conferral with the SBA. As the
Comptroller General has stated,
we long ago recognized that the decision a contracting officer must make
about potential offerors’ responsibility in deciding whether to set aside a
procurement is not a responsibility determination under subpart 9.1 of the
FAR and therefore, when the decision is not to set aside, no referral to the
SBA is required.
JT Constr. Co., Inc., No. B-254,257, 1993 WL 505803, at *4 (Comp. Gen. Dec. 6, 1993).
Further, these initial responsibility determinations are within the discretion of the
Air Force. As was stated by the United States District Court for the District of Columbia,
“[t]he decision whether or not to create a set-aside under this regulation is within the
05-5058 11
discretion of the agency and will not be second-guessed by the courts ‘unless an abuse
of discretion is clearly shown.’” Petchem, Inc. v. United States, 99 F. Supp. 2d 50, 58
(D.D.C. 2000) (quoting Nordic Sensor Tech., Inc., No. B-282,942, 1999 WL 533611, at
*1 (Comp. Gen. July 23, 1999)). Therefore, for the reasons stated, we cannot agree
with the Court of Federal Claims that the Air Force unlawfully precluded the SBA from
exercising authority to make the responsibility determination as Congress intended.
The Air Force itself properly made the initial responsibility determinations that were
necessary to determine whether the contract at Fairchild AFB needed to be set-aside
for HUBZone.
Lastly, the Court of Federal Claims determined that the Air Force lacked a
rational basis in deciding not to set-aside the contract for HUBZone. Specifically, it held
that the Air Force lacked a rational basis in determining that it would not receive two or
more responsible offers from HUBZone small business concerns. But as described
above, the Air Force did rationally require a WUTC certificate when it made its decision
that there existed only one responsible source. As Waste Management was the only
responsible source, the Air Force had a rational basis for determining that there would
be fewer than two responsible HUBZone sources. As a result, the Air Force’s decision
to not set-aside the contract at Fairchild AFB evinced rational reasoning and considered
relevant factors.
IV.
In sum, we conclude the Air Force properly awarded Waste Management a
contract for solid waste disposal at Fairchild AFB because the Air Force was within its
discretion to determine that Waste Management was the only responsible source for the
05-5058 12
waste disposal services. No other company held a WUTC certificate for Fairchild AFB
even though nothing prevented Blue Dot from applying for such a certificate before or
after learning about the Air Force’s solicitation of the disposal contract. Similarly, the Air
Force itself properly made responsibility determinations about the HUBZone small
business concerns, and it properly decided not to set-aside the contract at Fairchild AFB
for HUBZone. Accordingly, we find on appeal that the Air Force did not violate statutes
or regulations and its decision evinced rational reasoning, and we therefore reverse.
The issue of bid preparation costs is rendered moot by our decision.
No costs.
05-5058 13