Iceland Steamship Co., Ltd.-Eimskip v. United States Department of the Army

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 18, 1999 Decided January 11, 2000

No. 99-5088

The Iceland Steamship Company, Ltd.-Eimskip and

Van Ommeren Shipping (USA) LLC,

Appellees

v.

The United States Department of the Army and

Louis Caldera, Secretary of the Army,

Appellees

Transatlantic Lines-Iceland ehf. and

TransAtlantic Lines, L.L.C.,

Appellants

Appeal from the United States District Court

for the District of Columbia

(No. 98cv02631)

Michael Joseph argued the cause for appellants. With him

on the briefs was Joseph O. Click.

David L. Smith, Assistant U.S. Attorney, argued the cause

for the federal appellees. With him on the brief were Wilma

A. Lewis, U.S. Attorney, and R. Craig Lawrence, Assistant

U.S. Attorney.

Joanne W. Young argued the cause for the non-federal

appellees. With her on the brief were David M. Kirstein,

Lee T. Ellis, Jr., Richard A. Hibey, and Constantine G.

Papavizas.

George J. Mannina, Jr., was on the brief for amicus curiae

The Government of the Republic of Iceland. With him on the

brief was Gary C. Adler.

Before: Sentelle, Henderson and Garland, Circuit

Judges.

Opinion for the Court filed by Circuit Judge Sentelle.

Opinion concurring in part and dissenting in part filed by

Circuit Judge Henderson.

Sentelle, Circuit Judge: Appellants TransAtlantic Lines-

Iceland ehf. ("TLI") and TransAtlantic Lines, L.L.C. ("TLL")

are affiliated corporations and awardees of military shipping

contracts for shipping between the eastern United States and

Iceland. They appeal from an order of the district court

allowing summary judgment in favor of appellees, Iceland

Steamship Company, Ltd.-Eimskip ("Eimskip") and Van Om-

meren Shipping (USA) L.L.C. ("Van Ommeren"), and requir-

ing the U.S. Army to rebid the contracts. The district court

required rebidding on two grounds: First, it held that a 1986

treaty entered into between the United States and Iceland

prohibited the award of the contracts to appellants because of

their affiliation with each other. Second, the district court

held that the contracting officer's determinations of responsi-

bility for appellants were arbitrary and capricious in that she

failed to follow relevant solicitation procedures. Applying the

deferential standard of review of executive branch decisions

which govern in both these contexts, we reverse the district

court and uphold the Army's award.

I. Facts

A. Overview

While the interpretation of an international treaty is impli-

cated in this action, this is essentially a disappointed bidder

case. Cf. Elcon Enters., Inc. v. Washington Metro. Area

Transit Auth., 977 F.2d 1472 (D.C. Cir. 1992); CACI, Inc.-

Federal v. United States, 719 F.2d 1567 (Fed. Cir. 1983). At

stake are government contracts for shipping between the

eastern United States and Iceland. Appellants were awarded

the contracts on September 18, 1998, by the United States

Army's Joint Traffic Management Office of the Military Traf-

fic Management Command ("Army"). Appellees were losing

bidders and the incumbent carriers on these contracts. Dis-

appointed bidders may challenge a government contract

award under the Administrative Procedure Act ("APA"),

which empowers courts to set aside any agency action that is

"arbitrary, capricious, an abuse of discretion, or otherwise not

in accordance with law." 5 U.S.C. s 706(2)(A) (1994); see

Scanwell Lab., Inc. v. Shaffer, 424 F.2d 859, 874 (D.C. Cir.

1970).

B. History

This action is the latest in a series of disputes over the

military shipping contracts for trade between the United

States and Iceland. We will briefly review the history of this

trade and the earlier disputes to provide context for the

current case.

The United States has maintained formal arrangements for

the use of military facilities in Iceland since at least 1951,

when the two countries entered into a defense agreement.

See Defense Agreement Pursuant to the North Atlantic Trea-

ty ("Defense Agreement"), May 5, 1951, U.S.-Ice., 2 U.S.T.

1195. Prior to 1984, Icelandic shippers traditionally serviced

the U.S. military's Keflavik Air Base in Iceland. In that

year, Rainbow Navigation, a newly formed United States flag

carrier, took over the trade by invoking the Cargo Preference

Act of 1904, 10 U.S.C. s 2631 (1994). That statute requires

that American military supplies be carried by U.S. flagged

vessels if available. See Curran v. Laird, 420 F.2d 122, 127-

28, 133 (D.C. Cir. 1969).

The government of Iceland asked that Icelandic shippers

be given some accommodation in order to maintain Iceland's

good defense relationship with the United States. At first,

the U.S. Navy tried to disqualify Rainbow by invoking an

exception in the Cargo Preference Act for excessive rates, but

this was rejected as based on insufficient evidence. See

Rainbow Navigation, Inc. v. Department of the Navy, 783

F.2d 1072, 1073, 1080-81 (D.C. Cir. 1986). The Navy then

tried to "dispense with Rainbow's services by a diversion of

the cargo ... to military aircraft," but the District Court

rejected this tactic. Rainbow Navigation, Inc. v. Depart-

ment of the Navy, 686 F. Supp. 354, 355 (D.D.C. 1988)

(reviewing prior challenges).

Realizing that the Cargo Preference Act was a formidable

barrier, the United States (through the State Department)

and Iceland negotiated a treaty and memorandum of under-

standing in 1986. These documents are intended to ensure

that the Iceland trade will be shared by United States flag

carriers and Icelandic shippers. Article I of the treaty

provides:

Transportation services for cargo transported by sea

between Iceland and the United States for purposes of

the Defense Agreement shall be provided by vessels of

the United States and vessels operated by Icelandic

shipping companies on the basis of competition between

United States flag carriers and Icelandic shipping compa-

nies pursuant to this Article. Any such competition shall

result in contract awards that ensure that both United

States flag carriers and Icelandic shipping companies are

able to maintain a viable presence in the trade. To

ensure achievement of these objectives, the percentage of

cargo transported ... by Icelandic shipping companies

and vessels of the United States on the basis of such

competition shall be determined by agreement between

the United States and Iceland.

Treaty to Facilitate Defense Relationship ("Treaty"), Sept.

24, 1986, U.S.-Ice., T.I.A.S. No. 11,098, at 3. The memoran-

dum of understanding fleshes out how this competition should

proceed:

Transportation services for cargo transported by sea

between Iceland and the United States for purposes of

the Defense Agreement shall be provided by vessels of

the United States and vessels operated by Icelandic

shipping companies on the basis of periodic competitions

between United States flag carriers and Icelandic ship-

ping companies. Each competition shall result in con-

tract awards to both an Icelandic shipping company and

a United States flag carrier such that not to exceed 65

percent of the cargo shall be carried by the lowest bidder

and the remainder shall be carried by the next lowest

bidder of the other country....

Memorandum of Understanding in Implementation of the

Treaty to Facilitate Defense Relationship ("MOU"), Sept. 24,

1986, U.S.-Ice., T.I.A.S. No. 11,098, at 2. The MOU is to be

reviewed yearly and may be amended upon mutual agree-

ment of the parties at any time. See id. at 3.

Upon ratification of the Treaty, Icelandic shippers were

able to claim back some of Iceland trade. In fact, the

Icelandic shippers got back 65 percent of the trade. Al-

though the MOU does not guarantee this allocation, Icelandic

shipping companies have much lower costs than U.S. flag

carriers, cf. Aeron Marine Shipping Co. v. United States, 695

F.2d 567, 569 (D.C. Cir. 1982), and generally will be able to

submit lower bids than their American competitors. There-

fore, in light of this economic reality, the lowest bidder among

Icelandic shipping companies will generally be awarded 65

percent of the trade, and the lowest bid from a U.S. flag

carrier will be awarded the remainder.

We interpreted the Treaty and MOU in Rainbow Naviga-

tion, Inc. v. Department of the Navy, 911 F.2d 797 (D.C. Cir.

1990). Rainbow Navigation claimed that the Treaty and

MOU, supplemented by legislative testimony on the ratifica-

tion of the Treaty, required a bidding process protecting

Rainbow by including restrictive specifications to disqualify

small domestic supply boats. It also contended that the

solicitation must include a provision ensuring it could recover

the fixed costs of operating a vessel which could carry 65

percent of the trade even if awarded only 35 percent. See id.

at 801. We rejected the theory that Rainbow should be

accorded any greater protection than other U.S. flag carriers,

seeing nothing in the language of the Treaty or MOU requir-

ing such a result. We summarized the requirements of the

Treaty and MOU:

By its terms, the Treaty and the MOU require only (1)

that the [government] award contracts by means of a

competition; (2) in a manner that "ensure[s] that both

United States flag carriers and Icelandic shipping compa-

nies are able to maintain a viable presence in the trade";

and (3) that the lowest U.S. bidder receive at least 35

percent of the cargo.

Id.

C. Present Controversy

This brings us to the present controversy. On January 30,

1998, the Army1 issued a solicitation for the Iceland trade,

specifically stating that awards would be allocated "[p]ursuant

to the Treaty and its implementing Memorandum of Under-

standing." Of course, the solicitation stated numerous other

requirements for bidders to meet. Those we mention here

are relevant to appellees' non-treaty related challenges. The

solicitation required the Contracting Officer to make an "af-

firmative determination" of offeror responsibility. It cited to

Federal Acquisition Regulation ("FAR"), Subpart 9.1 on Re-

__________

1 Although the Navy handled the administration of the bidding

process in the past, see, e.g., Rainbow, 911 F.2d at 799, this

responsibility was transferred at some point to the Army, who

administered this solicitation through the Joint Traffic Management

Office of the Military Traffic Management Command.

sponsible Prospective Contractors, which mandates that an

awardee "[h]ave adequate financial resources to perform the

contract, or the ability to obtain them." 48 C.F.R. s 9.104-

1(a) (1998). The solicitation also stated that each offer should

"include sufficient evidence to establish control or irrevocable

right to gain control of the necessary vessels in sufficient time

to commence service on [the contract start date]."

The solicitation stated that offers were due on March 5,

1998, and the contracts had a proposed starting date of May

1, 1998 because the prior contracts were set to expire on April

30, 1998. Due to delays in the bidding process, the proposed

start date was moved back to November 1 and the incumbent

carriers given a six month extension.

TLI and TLL each submitted bids.2 TLI and TLL have

substantially similar ownership and are principally managed

by Gudmundur Kjaernested, who is a citizen of Iceland and

United States resident. At the time the original bids were

submitted, Kjaernested and Brandon C. Rose, a United

States citizen, were the primary owners of both companies.

Despite this close relationship, TLI and TLL are separate

corporate entities. TLL is a limited liability company regis-

tered in Delaware, and TLI is an Icelandic company regis-

tered in Iceland.

The Army announced the awards on September 18, 1998.

TLI, the Icelandic company, was the lowest overall bidder

and the Army awarded it a contract covering 65 percent of

the trade. The Army awarded TLL a contract for the

remaining 35 percent because it was the lowest bid among

U.S. flag carriers.

The Contracting Officer also made the required determina-

tion that each company was a responsible contractor. As to

TLI, the Contracting Officer cited a bank letter tentatively

approving a $1 million credit line to TLL. This letter noted

the bank's prior history with TLI and TLL stockholder

__________

2 We are referring to separate bids that TLI and TLL submitted.

TLI and TLL also submitted two other bids which were rejected

because they were in the nature of joint venture proposals.

Brandon Rose as being important in setting up the line of

credit. The Contracting Officer also had a letter from Kjaer-

nested stating that the credit line was available to both TLI

and TLL. As to TLL, the Contracting Officer's responsibili-

ty determination concluded that TLL had "the necessary

equipment and facilities to perform this contract." Before

the officer were four letters from marine companies pledging

vessels, with varying levels of specificity.

Eimskip and Van Ommeren filed protests with the U.S.

Government Accounting Office ("GAO"). Under the Compe-

tition in Contracting Act, this action automatically stayed the

awards. See 31 U.S.C. s 3553(b)-(d) (1994). On October 23,

1998, approval to override the stay was granted by the

Assistant Secretary of the Army. Eimskip then filed this suit

in the district court causing the GAO to dismiss the bid

protest. See 4 C.F.R. s 21.11 (1997). TLL, TLI, and Van

Ommeren timely intervened.

During this same period, the government of Iceland sent a

diplomatic note to the U.S. Department of State protesting

the awards. Citing the Treaty and MOU, Iceland stated two

problems it had with the awards to TLI and TLL: (1) that as

commonly owned companies, TLI and TLL could not be

awardees, and (2) that TLI was not a true Icelandic shipping

company. Specifically, the note stated:

The Government of Iceland has concluded, based on

available information, that [TLI and TLL] are affiliated

companies under common direction, ownership and/or

control of Icelandic citizens, and that [TLI] lacks the

necessary experience, technical capability, financial re-

sponsibility, and material connection with Iceland.

....

... [T]he Government of Iceland interprets the Treaty

and [MOU] to preclude awards by the [Army] of both the

Icelandic and United States portions of the trade subject

to the Treaty and [MOU] to affiliated companies under

common direction, ownership and/or control.

... [T]he Government of Iceland interprets the Treaty

and [MOU] to preclude any award of the Icelandic

portion of that trade to any company that lacks the

experience, technical capability, financial responsibility,

and material connection with Iceland that are necessary

to ensure ... maintenance of a viable presence of Icelan-

dic shipping companies in that trade providing for the

security of Iceland and the equitable participation of

Iceland in the benefits of the Defense Agreement....

Iceland Ministry of Foreign Affairs, Diplomatic Note to the

Department of State of the United States of America (Sept.

28, 1998), Joint Appendix ("J.A.") 124, 126 ("Iceland Diplo-

matic Note").

The U.S. State Department issued a diplomatic note on

December 30, 1998 in response to Iceland's position:

The Government of the United States considers its ac-

tions in the recent competition and award of the Icelan-

dic military cargo contract are fully consistent with the

Treaty and MOU.

....

... Until the recent contract competition, the Govern-

ment of Iceland has not expressed any views regarding

the qualifications of particular Icelandic companies nor

informed the Government of the United States that it

held views that appear to the United States to go beyond

the plain meaning of the words themselves.

....

... The Government of the United States notes that

none of [the] four criteria cited by the Government of

Iceland to render [TLI] a non-Icelandic shipping compa-

ny appears in the text of the Treaty or MOU.

....

It is the position of the Government of the United

States that none of the terms in the Treaty or MOU

require recourse to supplementary means of interpreta-

tion when the terms of the treaty are plain and unambig-

uous.... Iceland, consistent with its obligations under

international law, is of course free to enact specific

statutory or regulatory criteria for "Icelandic shipping

companies" should it wish to do so (just as the internal

law of the United States provides specific criteria for

"U.S. flag vessels").

....

... [T]he Government of Iceland [has] expressed its

concern that there had been no effective competition

because of the relationship between two of the bidders.

The Government of the United States, however, followed

its own contracting processes in this procurement and

believes that the goal of competition was indeed met....

... [T]here is no evidence of an attempt to eliminate

competition from other bidders.... [T]he two compa-

nies ... were not competing to fill the same contract

requirement. Rather, the Iceland company submitted a

proposal for the 65% share while the U.S.-flag company

submitted one for the 35% share....

Since the portion of the cargo trade which would be

reserved for Icelandic interests was determined on the

basis of competition between offers submitted by entities

from each country, it is the view of the United States

that any relationship between Icelandic companies and

companies operating U.S.-flag vessels was and is irrele-

vant to the fact that there was full, vigorous, and open

competition in full compliance with the Treaty and MOU.

U.S. Department of State, Diplomatic Note to the Embassy of

the Republic of Iceland (Dec. 30, 1998), J.A. 128, 128-35

("U.S. Diplomatic Note").

Meanwhile, appellees' district court action was proceeding.

Appellees challenged the award on two primary grounds

which are before us on appeal. First, they claim that the

Treaty and MOU prohibited awards to TLI and TLL for the

same reasons cited by the Iceland Diplomatic Note: (1)

because the common ownership of TLI and TLL made the

bidding process something other than a competition and (2)

because TLI is not a true "Icelandic shipping company."

Appellees also make two challenges to the Contracting Offi-

cer's responsibility findings: (1) that TLI was a financially

responsible contractor, and (2) that TLL was responsible in

that it had a vessel ready to perform.

After initially denying a motion for a preliminary injunc-

tion, the district court granted appellees' motions for sum-

mary judgment on February 3, 1999, and ordered the Army

to cancel the contracts and rebid. The court first ruled that

the ownership status of TLL and TLI defeated the MOU's

requirement of a single competition for the Icelandic trade.

The court also found that the Army's decisions under the

solicitation procedures were arbitrary and capricious on both

counts. The district court was not yet aware of the recently-

issued U.S. Diplomatic Note addressing the treaty issues.

TLL, TLI, and the Army appealed the judgment of the

district court. We granted a stay pending appeal. The

Government of Iceland submitted an amicus brief on behalf of

the losing bidders. The Army originally dismissed its appeal,

but has asked leave to file a brief which addresses only the

treaty issues.3

Addressing the treaty issues first, we conclude that the

Army's contract awards to TLL and TLI do not violate the

plain language of the Treaty and MOU. As to the responsi-

bility determinations of the Contracting Officer, the context

of which requires an especially deferential version of arbi-

trary and capricious review, we determine that the Army's

actions were permissible.

II. Treaty Issues

A. Standard of Review

When interpreting a treaty or memorandum of understand-

ing, we are guided by principles similar to those governing

statutory interpretation. We "must, of course, begin with the

language of the Treaty itself." Sumitomo Shoji Am., Inc. v.

Avagliano, 457 U.S. 176, 180 (1982). At this level, "[t]he

__________

3 The Army's brief does not address the responsibility determina-

tions of the Contracting Officer. At oral argument the Army

clarified that it has not changed its position on these issues but has

simply chosen not to appeal the district court's decision.

clear import of treaty language controls unless 'application of

the words of the treaty according to their obvious meaning

effects a result inconsistent with the intent or expectations of

its signatories.' " Id. (quoting Maximov v. United States, 373

U.S. 49, 54 (1963)).

To the extent that the meaning of treaty terms are not

plain, we give "great weight" to "the meaning attributed to

treaty provisions by the Government agencies charged with

their negotiation and enforcement." Sumitomo, 457 U.S. at

184-85; see also In re Papandreou, 139 F.3d 247, 252 n.2

(D.C. Cir. 1998). Although "we give somewhat less defer-

ence" where an agency and another country disagree on the

meaning of a treaty or MOU, where an agency has "wide

latitude in interpreting the MOU, ... we will defer to its

reasonable interpretation." Air Canada v. U.S. Dep't of

Transp., 843 F.2d 1483, 1487 (D.C. Cir. 1988).

In this case, we deem it proper to refer to the U.S.

Diplomatic Note for guidance as to the meaning of the terms

"competition" and "Icelandic shipping companies" under the

Treaty and MOU, although the Note was not in the record

before the district court. Although the Army may have

considered the Note confidential, TLL and TLI apparently

had access to it since they presented it to this court at the

time of the initial application for temporary restraint. We

would not, of course, consider evidence offered to support a

factual proposition which had not been before the district

court. However, the Diplomatic Note is not offered as evi-

dence to support a factual proposition, but rather as an

interpretive guide for our use in making a legal interpreta-

tion. And although all parties refer to the Note in their

briefs, appellees do not object to those references, or our

consideration of the Note, on the ground that it was not in the

record below. Because it is important for this court to have

the guidance of the agency responsible for negotiating this

treaty, we consider the Note along with the Army's argu-

ments adopting the same views. A diplomatic note is an

official position of the type which is unlikely to be taken for

litigation purposes, and is entitled to deference. Cf. Smiley v.

Citibank (South Dakota), N.A., 517 U.S. 735, 741 (1996).

B. Competition

Having reviewed the applicable principles guiding our rea-

soning, we proceed to the issue of whether the affiliated

status of TLI and TLL transformed the bidding process into

something other than a "competition." We hold that there

was still a "competition" under the Treaty and MOU. The

plain meaning of the Treaty and MOU comport with this

view, but to the extent the meaning of the word "competition"

is in any doubt, it does not prevent bids of separate corporate

entities that have common ownership. Therefore, we agree

with the U.S. Diplomatic Note that the bidding process was a

competition.4

On a surface level, a "competition" certainly occurred be-

tween U.S. flag carriers and Icelandic shippers. TLI and

TLL were competing against other U.S. flag carriers and

Icelandic shippers. Regardless of whether TLI and TLL

competed against each other, nothing in the Treaty and MOU

suggests, as appellees contend, that each and every bidder

must compete against each and every other bidder.

In fact, that has never been the nature of the competition.

Because bidders may bid for between 35 percent and 65

percent of the trade each has never competed against all.

Because TLI was effectively vying for the 65 percent portion

and TLL for the remainder, perhaps it can be said they were

not in head to head competition. But the same can be said

for Eimskip and Van Ommeren and all the other bidders.

Eimskip, being an Icelandic shipper, and Van Ommeren, a

U.S. flag carrier, were not in direct head to head competition

either. The bottom line is that this conception of a "full

competition" has nothing to do with the affiliation of bidders.

Under the appellees' theory, a competition could not occur

unless each and every bidder requested 100 percent of the

trade. The Treaty and MOU do not require such 100 percent

bids.

__________

4 We have no occasion to consider whether appellants' behavior

would or would not constitute "competition" within the meaning of

the antitrust laws.

On a deeper level, a form of head to head competition does

occur between all bidders. Every bidder is submitting bids in

a single competition to award the shipping trade. All the

bids must be compared in the first instance to determine who

is the overall lowest bidder. Even though TLL and Van

Ommeren (or other U.S. flag carriers) have little chance of

being the lowest overall bidder, they still compete against

everyone else. In this portion of the competition, even TLI

and TLL's bids are stacked against each other.

While appellees object to the substantially common owner-

ship of TLI and TLL, it is worth noting that the Comptroller

General allows affiliated companies to submit multiple bids

for the same procurement. In Pioneer Recovery Sys., Inc.,

B-214878, 1984 WL 46915, at *2 (Comp. Gen. Nov. 13, 1984),

the Comptroller General stated that "[t]he general rule is

that multiple bids may be accepted unless such multiple

bidding is prejudicial to the interests of the government or

other bidders in which case it is clear that the reason for

multiple bidding was not legitimate." See also David I. Abse,

51 Comp. Gen. 403, 404-06 (1972) (upholding award where

high and low bids were signed by same person of affiliated

companies). While the Comptroller General's opinion is not

binding precedent, we agree that the existence of affiliation

does not negate the presence of "competition" in the usual

sense of that word.

The language of the Treaty and MOU does not define

"competition" in any peculiar way requiring a different result.

There is "nothing in the Treaty ... clearly prohibit[ing] a

relationship between the two awardees." Iceland Steamship

Co. v. United States Dep't of the Army, slip op. at 4, No.

98-2631 (D.D.C. Nov. 10, 1998) (order denying preliminary

injunction). The Treaty contemplates awards "on the basis of

competition between United States flag carriers and Icelandic

shipping companies," and the MOU uses similar language.

Neither document addresses a situation in which a U.S. flag

carrier and Icelandic shipping company have similar owner-

ship.

Appellees argue that the dictionary definition of competi-

tion precludes affiliates from bidding. Black's Law Dictio-

nary, for example, describes "competition" as "[t]he effort of

two or more parties, acting independently, to secure the

business of a third party by the offer of the most favorable

terms." Black's Law Dictionary 257 (5th ed. 1979). But this

is exactly what all the bidders, including TLI and TLL, did.

Even if TLI and TLL colluded and were not acting indepen-

dent of each other, the participation of other bidders would

meet the definition's requirements. Appellees' "plain mean-

ing" argument therefore fails.

We note that the suggestion of collusion (as opposed to

mere affiliation) could be cause for concern. It might be

called "unfair competition," but even that term admits that a

"competition" occurs. And there is a mechanism for protect-

ing against collusive bidding. A Certificate for Independent

Price Determination ("CIPD") certifies the independent de-

velopment of a bid. Appellees raised a CIPD issue before the

district court, but have not pressed it on appeal.

In Maximov v. United States, 373 U.S. 49 (1963), a peti-

tioner similarly sought to impose a meaning on a term that it

could not bear. Under the Income Tax Convention between

the United States of America and the United Kingdom, Apr.

16, 1945, 60 Stat. 1377, 1384, capital gains of a "resident of the

United Kingdom" were exempt from taxation by the United

States. See id. at 49. The petitioner was trustee of a trust

created under Connecticut law by a grantor who was a

resident of the United Kingdom. A trust was considered a

person under the law of both countries and thus a "resident"

of the United States, not the United Kingdom, under the

treaty. Petitioner urged that the purpose of the treaty

required the opposite result. The Supreme Court disagreed.

Reviewing the plain language, the Court could not construe

the treaty to effect "so significant a deviation from normal

word use or domestic tax concepts." Id. at 52.

This case is not unlike Maximov. We cannot, in the name

of effectuating the purposes of the Treaty and MOU, read

into those documents a meaning of "competition" which would

prohibit the bids of separate corporate entities with common

ownership. To do so would distort the meaning of the term

"competition." If TLI and TLL were one corporation, then

the entire shipping trade could not be split between them

because the Treaty and MOU contemplate two separate

awards to one entity of each country. But TLI and TLL are

separate entities, and are entitled to be treated as such.

Therefore, we conclude that the Treaty and MOU require-

ment of a "competition" does not foreclose bids from affiliated

companies. To the extent that the term admits of any

ambiguity, we will defer to the position of the U.S. Diplomatic

Note that the bids did not create some unnamed creature that

was not a "competition."

C. Icelandic Shipping Companies

Our disposition of the meaning of "competition" does not

end our discussion of the Treaty. We must also consider

whether TLI is an "Icelandic shipping company." As a

preliminary point, we make clear that this dispute is not

whether TLI is a properly registered Icelandic company,

although it appears to be one. Instead, we are asked to

decide whether it is an "Icelandic shipping company" as that

term in used in the Treaty and MOU. While it could be said

these two inquiries, absent other direction, should be identi-

cal, we need not decide that issue. We can conclude that

whatever the Treaty and MOU require, the interpretation of

the U.S. Diplomatic Note is reasonable and is entitled to

deference.

The Iceland Diplomatic Note suggests that all Icelandic

shipping companies must fulfill four requirements: "experi-

ence, technical capability, financial responsibility, and materi-

al connection with Iceland." How much of any of these

factors is required? The Note says sufficient "to ensure a

viable presence of Icelandic shipping companies" in the trade.

Unfortunately that is not helpful given that the term "Icelan-

dic shipping company" is used in the "definition" itself.

Whichever Icelandic shipping company is awarded the con-

tract will have a viable presence. As the district court feared,

this is not a meaningful way for a court to analyze what

constitutes an Icelandic shipping company within the meaning

of the Treaty. See Iceland Steamship Co. v. United States

Dep't of the Army, slip op. at 6 n.2, No. 98-2631 (D.D.C. Feb.

3, 1999).

We do recognize the concerns of the government of Ice-

land. Apparently, when the Treaty was drafted, it was not

contemplated that newly formed Icelandic-owned shipping

companies would be able to capture the trade. Thus a

specific definition of the term was not included. Just as

Rainbow Navigation was formed as a U.S. flag carrier in 1984

to capture to the entire trade under the Cargo Preference

Act, TLI was founded by an Icelandic citizen in an attempt to

capture the Icelandic portion under the regime established in

1986. However, if Iceland wished the limitation it now seeks,

it could have insisted that a more specific definition be

included. For example, the U.S. portion of the trade is

reserved for "U.S. flag carriers" instead of "U.S. shipping

companies."

The parties to the international agreements included no

explicit definition. We have no authority for engrafting

terms onto the MOU that they did not include. The plain

meaning of the words "Icelandic shipping company" does not

compel us to find as a matter of law that TLI does or does

not qualify for such status. Insofar as there is any ambigui-

ty, we will defer to the reasonable interpretation offered in

the U.S. Diplomatic Note. We therefore hold that it was

reasonable for the Army to find that TLI is an Icelandic

shipping company under the Treaty and MOU.

Because we need only decide the case before us, we do not

identify a line between actions that are permitted and those

which are prohibited by the Treaty and MOU. We recognize

that a reasonable range of choices might exist. There is no

call for us to go further.

III. Solicitation Issues

A. Standard of Review

Finally, we consider the challenges to the Contracting

Officer's responsibility determinations. Because of the spe-

cial nature of contracting determinations, our review is an

especially deferential application of the arbitrary and capri-

cious standard. We clarified the application of the standard

to contracting determinations in Old Dominion Dairy Prods.,

Inc. v. Secretary of Defense, 631 F.2d 953 (D.C. Cir. 1980):

As stated in Keco Industries, Inc. v. United States, 492

F.2d 1200, 1203 (Ct. Cl. 1974), the ultimate standard is

"whether the Government's conduct was arbitrary and

capricious toward the bidder-claimant." Concerning a

determination of nonresponsibility, the court in Keco

Industries specifically stated that contracting officers

"have very wide discretion," and that a complaining

bidder "would normally have to demonstrate bad faith or

lack of any reasonable basis in order to prevail." Id. at

1205. In describing the reasonable basis test, the court

elsewhere noted that, "although based on external facts

and circumstances rather than a showing of animosity

toward plaintiff or favoritism for a competitor, this prin-

ciple is not far removed from the bad faith test; courts

often equate wholly unreasonable action with conduct

motivated by subjective bad faith." Id. at 1204.

Old Dominion, 631 F.3d at 960; see also YRT Servs. Corp. v.

United States, 28 Fed. Cl. 366, 387-88 (1993).

As in other agency review contexts, "a procurement deci-

sion is not 'irrational' simply because we might have reached

a different decision in the first instance." Elcon Enters., 977

F.2d at 1478. But we look for no more than "substantial

compliance with applicable law and baseline substantive ra-

tionality [because] '[j]udges are "ill-equipped to settle the

delicate questions involved in procurement decisions." ' " Id.

at 1479 (quoting Delta Data Sys. Corp. v. Webster, 744 F.2d

197, 203 (D.C. Cir. 1984) (quoting Kinnett Dairies, Inc. v.

Farrow, 580 F.2d 1260, 1271 (5th Cir. 1978))).

Applying this deferential standard, we conclude that a

rational basis existed for the responsibility determinations of

the Contracting Officer.

B. TLI

Although various challenges were advanced below, appel-

lees' primary argument is that the Contracting Officer should

not have relied on a tentative letter of credit to one compa-

ny--TLL--in finding another--TLI--to be financially re-

sponsible. While the basic proposition is appealing, on the

specific facts before us we cannot hold that the officer acted

improperly. The line of credit letter relied on was addressed

to Mr. Rose at TLL, a stockholder of both companies, and

stated that the line of credit was based on the bank's relation-

ship with Mr. Rose's family. TLI also provided written

assurance to the Army that the letter of credit applied to both

companies. And while the letter was "tentative," it does not

state what "tentative" means.

Viewing the totality of the evidence, we hold that the Army

had a rational basis for finding TLI to be responsible. In

fact, before the district court, the Army even suggested that

the Contracting Officer could have found that no line of credit

was needed at all. See Iceland Steamship Co. v. United

States Dep't of the Army, slip op. at 13 n.9, No. 98-2631

(D.D.C. Feb. 3, 1999). This suggestion highlights the diffi-

culty of second-guessing the Contracting Officer's determina-

tion. We have no basis for requiring that a letter of credit be

more than "tentative." And while the fact that the letter of

credit was addressed to TLL might be troubling, the ultimate

weight given to this piece of information is based on a

discretionary weighing of financial risks and rewards by the

Contracting Officer.

Furthermore, it is in an agency's self-interest to make

proper responsibility determinations. Otherwise, the agency

runs the risk of contractor default which could cause "sub-

stantial delay and inconvenience." Keco Indus., 492 F.2d at

1206. But in any event, considering the deferential standard

of review applied to this type of decision, and the fact that

judges are not financial advisors to the United States govern-

ment, we conclude that there is no basis for overturning the

Contracting Officer's finding that TLI was responsible.

C. TLL

Appellees challenge the Contracting Officer's responsibility

determination regarding TLL on the ground that TLL pre-

sented insufficient evidence to show a right to control a

vessel. The solicitation required "sufficient evidence to es-

tablish control or irrevocable right to gain control of the

necessary vessels in sufficient time to commence service on

[the contract starting date]." TLL submitted four letters

from marine companies pledging the availability of vessels.

For example, the letter from Tidewater Marine stated:

This is to confirm that [TLL] has the option to charter

the supply boat Native Dancer.... The maximum char-

ter shall not exceed 180 days. Additional unspecified

options shall be mutually negotiated.

The purpose of the charter is to fulfill a part of [TLL's]

obligation to the Joint Traffic Management Office, in the

event that the company is awarded the contract.

J.A. at 216. Based on these submissions, the Contracting

Officer concluded that TLL would obtain the ships necessary

to be a responsible contractor.

Deferring to the expertise of the Contracting Officer in

these matters, we find this decision to be rational. We have

no occasion to weigh the quantum of evidence needed to

establish the legal requirements of an irrevocable option.

Considering these letters, we cannot say it was arbitrary for

the Contracting Officer to decide that TLL would be able to

obtain vessels. Moreover, we note that we have held in a

contract action that an irrevocable option can be created

despite a paucity of stated terms. See Ammerman v. City

Stores Co., 394 F.2d 950, 954-55 (D.C. Cir. 1968). Although

the letters apparently did not state price terms, we have no

information on the typical evidence required by contracting

officers, or furnished by prospective charterers. Therefore,

we must conclude that the appellees have not established that

the Contracting Officer's decision was arbitrary or capricious.

IV. Conclusion

For the reasons set forth above, we conclude that the

Army's decision to award the shipping contracts to TLI and

TLL does not require rebidding. Because there are no issues

of material fact to be decided, we reverse the judgment of the

district court and remand for the entry of summary judgment

in favor of appellants.

So ordered.

Karen LeCraft Henderson, Circuit Judge, concurring in part

and dissenting in part:

The majority rightly focuses on our narrow standard of

review of the Contracting Officer's two responsibility determi-

nations. Although its focus is blurred by the quotation from

Old Dominion Dairy Products, Inc. v. Secretary of Defense,

631 F.2d 953, 960 (D.C. Cir. 1980), discussing an ill-defined

"reasonable basis test," Maj. Op. at 18, in the end my

colleagues adhere to the well-established arbitrary and capri-

cious standard of review of administrative action. See id. at

18, 20 ("[O]ur review is an especially deferential application of

the arbitrary and capricious standard."); id. at 18 ("[T]he

ultimate standard is 'whether the Government's conduct was

arbitrary and capricious.' ") (quoting Old Dominion Dairy

Prods., Inc. v. Secretary of Defense, 631 F.2d 953 (D.C. Cir.

1980)).

In any event, even with "an especially deferential applica-

tion" of an already deferential standard of review, id., we are

nevertheless obligated to review the administrative decisions

with some scrutiny. The Army regulations mandate that

contracts "be awarded to[ ] responsible prospective contrac-

tors only." See 48 C.F.R. s 9.103(a). My review of the

Contracting Officer's decision leads me to reject his determi-

nation of TLI's financial responsibility. In addition, although

I concur in the majority holding regarding the Contracting

Officer's determination of TLL's operational responsibility, I

cannot agree that our standard of review intends nothing

more than rubber-stamping the same.

I.

The regulations governing the financial responsibility de-

termination mandate that a bidder provide information "clear-

ly indicating" it has, or can obtain, adequate financial re-

sources to perform the contract.1 48 C.F.R. s 9.103(b) ("In

__________

1 The solicitation here provided:

The Government shall require a showing of financial and

operational responsibility prior to making an award. The

applicable provisions of the FAR [Federal Acquisition Regula-

tion], Sub-part 9.1 require that prior to award, an affirmative

determination be made by the Contracting Officer that the

the absence of information clearly indicating that the prospec-

tive contractor is responsible, the contracting officer shall

make a determination of nonresponsibility."); see id. s 9.104-

1 ("To be determined responsible, a prospective contractor

must ... [h]ave adequate financial resources to perform the

contract, or the ability to obtain them."). Evidence of a

prospective contractor's ability to obtain required resources

"normally consists of a commitment or explicit arrangement."

Id. s 9.104-3(a). Moreover, the regulations consider affiliat-

ed entities like TLL and TLI separately for the purpose of

determining financial responsibility. See id. s 9.104-3(c).2

The majority concludes that there is no basis to overturn

the Contracting Officer's finding that TLI was financially

responsible. See Maj. Op. at 19. His determination was

based on a letter from the State Bank of Long Island

purporting to extend a tentative line of credit. As the

majority notes, see id., the letter was addressed to Brandon

Rose, a stockholder in both TLI and TLL. The majority,

however, omits that it was addressed to Rose at TLL. More-

over, the letter extended nothing to Rose and nothing to TLI;

it merely "tentatively approved" a line of credit to TLL. JA

313. One of the bases for the bank's decision was its relation-

ship with Rose's family. The bank also cited TLL's business

plan and made no reference to TLI. Perhaps the State Bank

of Long Island would not extend credit equally to an entity

like TLI, organized under the laws of another country. Per-

haps TLI's financial status or business plan was not as sound

as TLL's. I also wonder if the letter "clearly indicat[ed]" the

prospect of a line of credit for other companies Rose owned

stock in.3

__________

prospective offeror is responsible and meets the minimum

standards specified herein.

Joint Appendix (JA) 107-08.

2 Section 9.104-3(c) provides that "[a]ffiliated concerns ... are

normally considered separate entities in determining whether the

concern that is to perform the contract meets the applicable stan-

dards for responsibility."

3 Although TLL provided the Contracting Officer a letter of

assurance that the credit applied equally to both companies, TLL

Even assuming the letter bears on the determination of

TLI's financial responsibility, the letter approved the line of

credit only "tentatively." JA 313. The majority discounts

the conditional nature of the approval because the letter

"does not state what 'tentative' means." Maj. Op. at 19.

Indeed, the letter did not detail what conditions must be

satisfied before the bank in fact extended credit. But "tenta-

tive" means "subject to change or withdrawal" or otherwise

"not final." Webster's Third New International Dictionary

2357 (1981). The majority also claims: "We have no basis for

requiring that a letter of credit be more than 'tentative.' "

Maj. Op. at 19. On the contrary, the standards that govern

award of a procurement contract (the FAR, Sub-part 9.1,

discussed above) plainly envision that a bidder provide more

than a tentatively approved line of credit to an affiliated

entity. See 48 C.F.R. s 9.103(b) ("In the absence of informa-

tion clearly indicating that the prospective contractor is re-

sponsible, the contracting officer shall make a determination

of nonresponsibility.").

Because the letter from the bank neither "clearly indi-

cat[ed]" applicability to TLI nor extended credit to anyone, I

would conclude that the Contracting Officer's determination

of TLI's financial responsibility was especially arbitrary and

capricious and that he was bound to "make a determination of

nonresponsibility." Id.

II.

The majority omits review of the Contracting Officer's

operational responsibility determination regarding TLL. The

Army's solicitation mandates that "[n]o offer will be consid-

ered for award which does not include sufficient evidence to

establish control or irrevocable right to gain control of the

necessary vessels in sufficient time to commence service on

[contract starting date]." JA 102. Because TLL proffered

no evidence "establish[ing] control," our review focuses on

__________

did not purport to be speaking for the bank. See JA 187. In any

event, the regulations provide that affiliated entities are to be

considered separately. See 48 C.F.R. s 9.104-3(c).

whether TLL proffered sufficient evidence establishing "an

irrevocable right to gain control." Id. The majority notes

that the Contracting Officer relied on four letters from ma-

rine companies pledging the availability of vessels to TLL. It

concludes that "[w]e have no occasion to weigh the quantum

of evidence needed to establish the legal requirements of [an]

irrevocable option." Maj. Op. at 20. I disagree. First, while

the majority is no doubt correct that, as a general rule,

"judges are ill-equipped to settle the delicate questions in-

volved in procurement decisions," id. at 18, the determination

of an "irrevocable right to gain control" requires a legal

conclusion and, thus, a conclusion which judges are presum-

ably adept at making. Moreover, the solicitation provides

that an "irrevocable right" is a prerequisite to the operational

responsibility determination, JA 102; therefore, finding a

bidder to be responsible without an irrevocable right is

arbitrary and capricious. In reviewing the Contracting Offi-

cer's responsibility determination under any formulation of

the arbitrary and capricious standard, then, we must consider

whether the four letters TLL submitted were sufficient to

establish an "irrevocable right to gain control of the neces-

sary vessels." JA 102.

Because I believe the four letters could constitute an

irrevocable option, see Ammerman v. City Stores Co., 394

F.2d 950 (D.C. Cir. 1968); see generally Restatement (Sec-

ond) of Contracts (1979) s 87(2) ("An offer which the offeror

should reasonably expect to induce action or forbearance of a

substantial character on the part of the offeree before accep-

tance and which does induce such action or forbearance is

binding as an option contract to the extent necessary to avoid

injustice."); 3 Eric Mills Holmes, Corbin on Contracts s 11.7

(rev. ed. 1996) ("[A]n option contract can be made binding and

irrevocable ... by subsequent action ... by the option holder

in reliance on the option."), I join the majority in deferring to

the Contracting Officer's determination that the letters con-

stituted "sufficient evidence" to establish an "irrevocable

right to gain control of the necessary vessels in sufficient time

to commence service," JA 102, and that TLL was therefore

operationally responsible.

Accordingly, I concur in toto in Parts I and II and in Parts

III.A and III.C as explained above. I respectfully dissent

from Part III.B. My resolution of Part III.B, finding revers-

ible error in the award to TLI, would require remand to the

Army for rebidding.