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

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 determinations. Athough 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 461, in the end my colleagues adhere to the well-established arbitrary and capricious standard of review of administrative action. See id. at 461, 462 (“[O]ur review is an especially deferential application of the arbitrary and capricious standard.”); id. at 461 (“[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 application” 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 contractors only.” See 48 C.F.R. § 9.103 (a). My review of the Contracting Officer’s decision leads me to reject his determination 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 determination mandate that a bidder provide information “clearly indicating” it has, or can obtain, adequate financial resources to perform the contract. 1 48 C.F.R. § 9.103 (b) (“In the absence of information clearly indicating that the prospective contractor is responsible, the contracting officer shall make a determination of nonresponsibility.”); see id. § 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. § 9.104-3(a). Moreover, the regulations consider affiliated entities like TLL and TLI separately for the purpose of determining financial responsibility. See id. § 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 461-62. 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 *464 both TLI and TLL. The majority, however, omits that it was addressed to Rose at TLL. Moreover, 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 relationship 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. Perhaps 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

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 462. Indeed, the letter did not detail what conditions must be satisfied before the bank in fact extended credit. But “tentative” 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 462. 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. § 9.103 (b) (“In the absence of information clearly indicating that the prospective contractor is responsible, the contracting officer shall make a determination of nonre-sponsibility.”).

Because the letter from the bank neither “clearly indicat[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 considered 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 “establishing] control,” our review focuses on 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 marine 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 462. I disagree. First, while the majority is no doubt correct that, as a general rule, “judges are ill-equipped to settle the delicate questions involved in procurement decisions,” id. at 461 , the determination of an “irrevocable right to gain control” requires a legal conclusion and, thus, a conclusion which judges are presumably 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 *465 Contracting Officer’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 necessary 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 (Second) of Contracts (1979) § 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 acceptance 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 § 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 constituted “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 reversible error in the award to TLI, would require remand to the Army for rebidding.

. The solicitation here provided:

The Government shall require a showing of financial and operational responsibility pri- or to making an award. The applicable provisions of the FAR [Federal Acquisition Regulation], Sub-part 9.1 require that prior to award, an affirmative determination be made by the Contracting Officer that the prospective offeror is responsible and meets the minimum standards specified herein. Joint Appendix (JA) 107-08.

. Section 9.104-3(c) provides that ''[affiliated concerns ... are normally considered separate entities in determining whether the concern that is to perform the contract meets the applicable standards for responsibility.”

. Although TLL provided the Contracting Officer a letter of assurance that the credit applied equally to both companies, TLL 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. § 9.104-3 (c).