Petition — J. H. Rutter Rex Manufacturing Co. v. United States

Supreme Court brief1983

Ask Donna

What actually matters in this document.

Text

8 3 a 4 0 0 MET CED ™

NO. SEP @ 1983

SEER. STEVAS,

CLERK

In the

Supreme Court of the United States

OCTOBER TERM, 1983

J. H. RUTTER REX MANUFACTURING CO., INC.

Petitioner

VERSUS

UNITED STATES OF AMERICA, HAROLD BROWN

SECRETARY OF DEFENSE, LT. GENERAL GERALD

J. POST, DIRECTOR, DEFENSE LOGISTICS AGENCY,

GENERAL EMMETT BOWERS, COMMANDER,

DEFENSE PERSONNEL SUPPORT CENTER,

AND FRANK L. COCCIA, DIRECTOR,

CLOTHING AND TEXTILES DIRECTORATE,

DEFENSE PERSONNEL SUPPORT CENTER,

Respondents

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

HENRY J. READ

DANIEL LUND

1800 First National Bank of Commerce

Building

New Orleans, Louisiana 70112

Phone: (504) 561-8989

Attorneys for Petitioner,

J. H. Rutter Rex Manufacturing Co., Inc.

Of Counsel:

MONTGOMERY, BARNETT, BROWN & READ

AB Letter Service, Inc., 327 Chartres St., New Orleans, La. (504) 581-5555

QUESTION PRESENTED FOK REVIEW

Whether one having a long-standing relationship

with the Government as a supplier of its procurement re-

quirements has a constitutionally protected property right

to equal opportunity of access to government procurement

contracts.

PARTIES

The parties to this proceeding are those named in the

caption of the case or the successors in office to the in-

dividually named defendants. Not named in the caption is

the intervenor-defendant, DeRossi & Son Company.

iii

TABLE OF CONTENTS

Page

QUESTION PRESENTED FOR REVIEW ........... i

I eh tee ion ae Say 56. d'un bo. Kalaed wate eee ii

EE GO CPU DUNDOEED 6c clec et'ccceccs sus var eeals iii

ye ae yy 0 dy): Sr eee iv

IE Soa .3.d)s.2 arc 's'0 0.0 clo bd CLR eRe 2

a see so «in w- &:n" ga ee aopch tk AO 2

CONSTITUTIONAL, STATUTORY AND

REGULATORY PROVISIONS INVOLVED...... 2

STATEMENT OF THE CASE..................... 2

LEE RE OES Ne ee 2 eR 7

THERE IS A CONSTITUTIONALLY

PROTECTED PROPERTY RIGHT TO

AN EQUAL OPPORTUNITY OF ACCESS

TO GOVERNMENT CONTRACTS.............. 7

LS S's "5.5 60's 0S ae.c.c:w-bs Sioa » eae eane 18

Es o's voce o'r ub te a cenee Cob aren A-l

Sy ci. 4 o's oa w 4 als 4°40 1. bw kaa A-24

IIE. (a. Go obo a'e + 0:6 b'n'g.0.6 6 aeRO Oman A-45

I Ts 2's avon 044 6 nwo p's kms ee A-47

TABLE OF AUTHORITIES

Cases: Page

Alaska Movers Ass'n v. Brown,

445 F.Supp. 363 (D.D.C. 1978)............ 5A

B. K. Instrument, Inc. v. U.S.,

- 63 L.W. 2128 (2nd Cir. G/4/8S)... 1... cee ne 17

Board of Regents of State Colleges v. Roth,

408 U.S. 564, 92, S.Ct. 2701, 33 L.Ed.2d

REESE Oi gear eee yt He? 7, 8, 9, 10, 11

Copper Plumbing & Heating Co. v. Campbell,

200 F.2d 368 (D.C. Cir.1061)... 0... eee eee 14

Geneva Towers Tenants Organization v.

Federated Mortgage Investors, 504 F.2d

NEM, cs oto pli bulky veces ces 12, 16

Goldberg v. Kelly,

397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d

Te et Id oy pha gain hohcibh ae 9

Gonzales v. Freeman,

Dee yee ea, Cle. 1688) ... vena dee ee eus 13

Goss v. Lopez,

419 U.S. 565, 95 S.Ct. 729, 42 L.Ed.2a

NR ne ous 6 ou cls ug oS bw a eo Rad 9

Haynes International Corp. v. McLucas,

609 F.2d 245 (6th Cir. 1975)................6.-. 17

Hermes v. Hein,

511 F.Supp. 123 (N.D.II. 1980)............. 15, 16

King v. Smith,

392 U.S. 309, 88 S.Ct. 2128, 20 L.Ed.2d

Ls oo a's oie wg ie « b0ds Jane ap eb pwen aa 16

Leis v. Flynt,

439 U.S. 438, 99 S.Ct. 698, 58 L.Ed.2d

id os bask dig e oa wilh bs Phe oh Ca 15

Mathews v. Eldridge,

424 U.S. 319, 96 S.Ct. 898, <7 L.Ed.2d

A i aos is En a llinon aiden ft telibed 9,17

Perkins v. Lukens Steel Co.,

$10 U.S. 113, 60 S.Ct. 869, 84 L.Ed.2d

I ao ian ost-0 on 9 04 8en-h ete ied 10, 16, 17

a ihe

Perry v. Sindermann,

408 U.S. 593, 92 S.Ct. 2694, 33 L.Ed.2d

ES hi Ul os Sn sash em al ken ee oes Romo 9, 11, 15

San Antonio Ind. School District v. Rodriguez,

411 U.S. 1, 93 S.Ct. 1278, 36 L.Ed.2d

RE KLM oo weno bleli ee eee Fu Ci ald NC eeM 9

Scanwell Laboratories, Inc. v. Schaffer,

Ges es GN SOOO cok. cee cee aoa ae

Speiser v. Randall,

357 U.S. 513, 78 S.Ct. 1332, 2 L.Ed.2d

Nae 8 mor re 8 im ee et 9

Trumbull Division, Owens-Corning Fiberglass

Corp. v. City of Minneapolis, 445 F.Supp.

I I Siku 0 gael b Wie ee ap R8 Gch 12

Wheeler v. Montgomery,

397 U.S. 280, 90 S.Ct. 1026, 25 L.Ed.2d

I ey hk oss 6 ere ale'y 4-8 'eei ee eee 9

Statutes:

Armed Forces Procurement Act, 10 U.S.C.

iad, iat 6s'n 6.2 Sees ue e's cine kate ee 2,4

ey. cai pos ad 6 he tn 2, 4

Federal Property and Administrative Services Act,

IE IL, oo. g'nc esle's s.v-e'ey nes 6 a absm meme 4

Small Business Act, 15 U.S.C.

RE oro, 2,4

reer cy” CS 2

cian v's ee c s.s,0 0's 0 neo» ove a a ae 6

oo ks ccs vos sudan pean 6

United States Judicial Code,

SPIED; ss o's ov oo cb bbe eee eee 2

Regulations:

Defense Acquisition Regulations,

SS 2 Fe ee aca a passim

Small Business Administration

13 C.F.R. § 121.3-8 and Schedule A.............. 3

Other Authorities:

Federal Register (Small Business Administration)

| CR Ts ses Soe Uk ce hinting 18

. Reich, The New Property, 73 Yale L.J. 733, (1964)..... 8

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1983

J. H. RUTTER REX MANUFACTURING CO., INC.

Petitioner

VERSUS

UNITED STATES OF AMERICA, HAROLD BROWN,

SECRETARY OF DEFENSE, LT. GENERAL GERALD

J. POST, DIRECTOR, DEFENSE LOGISTICS AGENCY,

GENERAL EMMETT BOWERS, COMMANDER,

DEFENSE PERSONNEL SUPPORT CENTER,

AND FRANK L. COCCIA, DIRECTOR,

CLOTHING AND TEXTILES DIRECTORATE,

DEFENSE PERSONNEL SUPPORT CENTER,

Respondents

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

MAY IT PLEASE THE COURT:

J. H. Rutter Rex Manufacturing Co., Inc., petitions

for a Writ of Certiorari to review the opinion of the United

States Court of Appeals for the Fifth Circuit entered on June

9, 1983 (Appendix A), and judgment entered on July 5, 1983

(Appendix B).

OPINIONS BELOW

The opinion of the Fifth Circuit Court of Appeals

(Appendix A, infra) is reported 702 F.2d 706 (5th Cir. 1983).

The opinion of the district court (Appendix B, infra) is

reported 534 F.Supp. 331 (E.D. La. 1982).

JURISDICTION

The judgment of the Court of Appeals was entered

on July 5, 1983. (Appendix C, infra). The jurisdiction of this

Court is invoked under 28 U.S.C. §1254(1).

CONSTITUTIONAL, STATUTORY AND

REGULATORY PROVISIONS INVOLVED

The Constitutional provision involved is Amend-

ment V. The statutory provisions and regulations involved

are 10 U.S.C. §§2301 and 2305(a); 15 U.S.C. §§631(a) and

644(a); 32 C.F.R. §1, Part 7. These are set forth in relevant

part in Appendix D.

STATEMENT OF THE CASE

At issue is the validity of Department of Defense

(DOD) regulations governing the set-aside of military pro-

curement contracts for bidding by small business concerns.

The regulations are codified at 32 C.F.R. Sec. 1, Part 7

known as the Defense Acquisitions Regulations (DAR),

formerly known as Armed Services Procurement Regula-

tions (ASPR).

Rutter Rex contended below that the

governing set-asides are invalid and that

implementation should be enjoined. The

complaint are that the regulations are unconstitutional and

in excess of statutory authority.

At stake here, if Rutter Rex is successful, is merely

the opportunity to submit competitive bids for a propor-

tion of government apparel contracts. Also at stake is the

public’s interest in maintaining a fair and reasonable na-

tional procurement policy in compliance with law. This ac-

tion is not an attack on the small business programs of the

United States or the assertion of a claim of entitlement to

a particular procurement contract. This action seeks no

more than a constitutional balancing of interests in order

to achieve a fair result in the government's procurement

program.

Rutter Rex is an apparel manufacturer in New

Orleans, Louisiana. In its combined operations, Rutter Rex

employs in excess of 500 persons and therefore is not a

‘small business’ under the relevant standard. 13 C.F.R. §

121.3-8 and § 121-Schedule A. For over 40 years Rutter

Rex manufactured apparel procured by DOD. For over 20

years, its New Orleans plant was operated almost ex-

clusively for such production. Its government business

steadily decreased since 1976 when Rutter Rex bid on and

obtained five procurement contracts with a value in excess

of $14.7 million. By 1981, Rutter Rex was unable to secure

a single contract.

Defendants represent the basic chain of command for

procurement of garments for DOD. Annually they procure

from private sector manufacturers billions of dollars of pro-

perty for the military, including apparel.

In 1947, Congress passed the Armed Services Pro-

curement Act which provides, ‘‘It is the policy of Congress

that a fair proportion of the purchases and contracts under

this Chapter be placed with small business concerns.’’ 10

U.S.C. §2301. The ‘‘fair proportion’ requirement extends

to all government procurements under the Federal Proper-

ty and Administrative Services Act of 1949 (41 U.S.C. §251

et seq.) and the Small Business Acts of 1953 and 1958 (15

U.S.C. §631 et seq.). Congress has also mandated that ‘‘full

and free competition’’ be preserved in DOD and other

government procurements. (10 U.S.C. § 2305(a); 15 U.S.C.

§631(a)).

In 1958, the DOD adopted regulations (ASPR) to im-

plement these policies. These regulations provided, inter

alia, that certain procurements would be set aside for the

exclusive participation of small business concerns (32

C.F.R. 1-706.1/o)), if the contracting officer determines:

‘* that there is a reasonabie expectation that of-

fers will be obtained from a sufficient number of

responsible small business concerns so that

awards will be made at reasonable prices.’’ 32

C.F.R. §1-706.5(a)(1) (1958).

This section was changed effective July 27, 1979 (Ap-

pendix D, infra) to provide that bids need only be

reasonably expected from ‘‘at least two responsible small

business concerns’’ (32 C.F.R. §1-705.(a)(1)-1979). This

created the fiction that as few as two bidders for any pro-

curement satisfied the ‘‘full and free competition”

requirement.

More importantly, a new provision, 32 C.F.R.

§1-706.1(f), was added. It states that once a product has

been acquired successfully on the basis of a small business

set-aside, ‘'...all future requirements of that office for that

particular product...shall be acquired on the basis of a

repetitive set-aside.’’ [emphasis added]

These significant changes in the regulations have

resulted in the total, automatic exclusion of Rutter Rex

from access to the procurement contracts on which it tradi-

tionally bid.!

The district judge found,

‘I have no serious doubt that plaintiff's loss of

government business was caused at least by the

government’s small business program.”’ (App. B

at p. A-31)

Defendants conceded the correctness of this finding during

oral argument before the appellate court.

Cross motions for Summary Judgment were filed (in-

tervenor having filed a Motion to Dismiss) supported by

discovery and affidavits. The material facts were not in

dispute. After extensive briefing and argument, the

district judge issued an opinion on February 22, 1982 gran-

ting the Government’s Motion for Summary Judgment.

Judgment dismissing the suit was entered on February 22,

1982.

The district court’s holdings were:

1) Rutter Rex has standing to maintain this suit.

2) There is no constitutionally protected property

It was argued below that certain bidding opportunities were af-

forded Rutter Rex even after July 27, 1979. This begs the question. The

challenged regulations mandate 100 percent set-asides whenever possi-

ble and the possibility for same exists in the garment industry which is

dominated »»y small businesses. (App. A at fn. 20 and App. B at p. A-38)

interest in the right or opportunity to seek to do

business with the government.

3) The Court should not interfere with DOD's ‘‘com-

plete discretion”’ in implementing broadly stated

procurement policies and, therefore, the regulations

should be upheld.

4) The goal practices under attack are not

reviewable.

The Fifth Circuit, in an opinion by Judge Tuttle (sit-

ting by designation from the Eleventh Circuit), affirmed. The

court ruled that there is no constitutional right of access to

government contracts and:

‘Since no fundamental! rights are implicated, we

need only determine whether the contested socio-

economic legislation rationally relates to a

legitimate governmental purpose.”’ (App. A at p.

A-23)

Re'ving upon the broad discretion afforded agencies

in the implementation of statutes, the judicial deference due

such agencies, the broadness of the ‘‘fair proportion’ con-

cept which Congress has never undertaken to define, and

given the Congressional intent to place a greater number of

procurement contracts generally with small businesses, the

court ruled that the Congress intended “fair proportion”’ to

be a floor, that is, small businesses were intended to receive

at least a fair proportion of government procurement con-

tracts and that, accordingly, the subject regulations:

- *arsuant to 15 U.S.C. §644(gih) and $2 C.F.R. §1-705.6/e), and

for many years prior to the passage of these provisions, defendants

established ‘‘goals"’ for participation by small business concerns in pro-

Although

required for resolution of the issue raised by this Petition.

‘‘_.are rationally related to the sound legislative

purpose of promoting small businesses....’’ (App.

A at p. A-23)

Although Rutter Rex disagrees with the appellate

court’s opinion on the latter point, it is the constitutional

issue which is asserted to merit consideration by this

Court. This issue overshadows all others, particularly the

political issues mentioned during the numerous Congres-

sional hearings prominently cited below (App. A at fn. 12).

The nature of the right of access to government pro-

curement contracts is a basic and important question of

federal law which has not been, but should be, answered by

this Court.

ARGUMENT

THERE IS A CONSTITUTIONALLY PRO-

TECTED PROPERTY RIGHT TO AN EQUAL

OPPORTUNITY OF ACCESS TO GOVERN-

MENT CONTRACTS

The threshold inquiry is whether the right to bid on

government procurement contracts falls within the zone of

interests afforded constitutional protection. This Court

repeatedly has held that the property interests afforded

due process protection are not limited by narrow, rigid

boundaries. As noted in Board of Regents v. Roth, 408 U.S.

564, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972):

‘Liberty’ and ‘property’ are broad and majestic

terms. They are among the ‘[g]reat [constitu-

tional] concepts...purposely left to gather mean-

ing from experience....[T]hey relate to the whole

domain of social and economic fact and the states-

men who founded this Nation knew too well that

only a stagnant society remains unchanged. ***

[T]he property interests protected by procedural

due process extend well beyond actual ownership

of real estate, chattels or money.”’ [Footnote and

citations omitted] 408 U.S. at 571-2, 92 S.Ct. at

2706.

Roth reflects the current economic reality that citizens

have vested property interests in numerous forms of

wealth that are far removed from the traditional notions of

‘property’. Roth recognizes that the Fifth Amendment’s

due process protection extends to other than traditional

forms of property and the benefits provided by the state

and federal governments are included.

“One of the most important developments in the

United States during the past decade has been

the emergence of government as a major source of

wealth. Government is a gigantic syphon. It

draws in revenue and power, and pours fourth

wealth: money, benefits, services, contracts, fran-

chises, and licenses. Government has always had

this function. But while in early times it was

minor, today’s distribution of largess is on a vast,

imperial scale.

The valuables dispensed by government take

many forms, but they all share one characteristic.

They are steadily taking the place of traditional

forms of wealth—forms which are held as private

property. Social insurance substitutes for sav-

ings; a government contract replaces a

businessman’s customers and goodwill. The

wealth of more and more Americans depends

upon a relationship to government.”’ Reich, The

New Property, 73 Yale L.J. 733 (1964).

In Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 25

L.Ed.2d 287 (1970), this Court expressly endorsed the no-

tion that government benefits, including defense contracts,

are important forms of property in modern-day America.

‘‘Much of the existing wealth in this country

takes the form of rights that do not fall within

traditional common-law concepts of property. It

has been aptly noted that ‘society today is built

around entitlement. *** Many of the most impor-

tant entitlements now flow from government:

subsidies of farmers and businessmen; routes for

airlines and channels for television stations; long

term contracts for defense, space, and education;

social security pensions for individuals. Such

sources of security, whether private or public, are

no longer regarded as luxuries or gratuities; to

the recipients they are essentials, fully deserved,

and in no sense a form of charity.’ ’’ [Emphasis

added] 397 U.S. at 262, 90 S.Ct. at 1017, fn. 8

This Court has extended due process protection to a wide

range of government benefits. Matthews v. Eldridge, 424

U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976) (social securi-

ty); Perry v. Sindermann, 408 U.S. 593, 92 S.Ct. 2694, 33

L.Ed.2d 570 (1972), and Board of Regents of State Colleges

v. Roth, supra, (government employment); Goldberg v. Kel-

ly, supra, (welfare benefits); Wheeler v. Montgomery, 397

U.S. 280, 90 S.Ct. 1026, 25 L.Ed.2d 307 (1970) (old age

assistance benefits); Goss v. Lopez, 419 U.S. 565, 95 S.Ct.

729, 42 L.Ed.2d 725 (1975) and San Antonio Ind. School

District v. Rodriguez, 411 U.S. 1, 93 S.Ct. 1278, 36 L.Ed.2d

16 (1973), (public education); Speiser v. Randall, 357 U.S.

513, 78 S.Ct. 1332, 2 L.Ed.2d 1460 (1958) (tax exemptions).

The expansion of the definition of property to include

government benefits has created a need to define the limits

of due process protection. In Roth, supra, this Court said

that procedural due process now extends ‘‘well beyond ac-

tual ownership of real estate, chattels or money,” and said

further:

“To have a property interest in a benefit, a person

clearly must have more than an abstract need or

desire for it. He must have more than a unilateral

expectation of it. He must, instead, have a

legitimate claim of entitlement to it. Jt is a pur

pose of the ancient institution of property to pro-

tect those claims upon which people rely in their

daily lives, reliance that must not be arbitrarily

undermined. *** Property interests, of course,

are not created by the Constitution. Rather they

are created and their dimensions are defined by

existing rules or understandings that stem from

an independent source such as state law—rules or

understandings that secure certain benefits and

that support claims of entitlement to those

benefits.”’ [Emphasis added] 408 U.S. at 577, 92

S.Ct. at 2709.

In order for a given government benefit to constitute

a constitutionally protected property interest, the recipient

of that benefit must have a legitimate claim of entitlement

to the continued receipt of that benefit. The appellate court

recognized this but erred in concluding on the basis of the

holding in Perkins v. Lukens Steel Co., 310 U.S. 113, 60

S.Ct. 869, 84 L.Ed. 1108 (1940), that in the area of govern-

ment procurement, a prospective bidder does not have

grounds to “‘claim more than a ‘unilateral expectation’ of

access to the government bidding process.’’ (App. A at p.

A-22)

The decisions of this Court and lower federal court

jurisprudence have identified two primary bases for

legitimate claims of entitlement that are sufficient to

elevate a government benefit to the status of a constitu-

tionally protected property interest: (1) statute, and (2)

mutually explicit understandings between the government

and the recipient of the benefit. The majority of en-

titlements are of course statutorily created, but this Court,

on the same day that it decided Roth, supra, recognized

that the manner in which the government administers the

distribution of benefits may also give rise to ‘‘legitimate

claims of entitlement.’ In Sindermann, supra, the Court

discussed the respondent college teacher's claim of entitle-

ment to continued employment as follows:

‘‘A teacher, like the respondent, who has held his

position for a number of years, might be able to

show from the circumstances of this service—and

from other relevant facts—that he has a

legitimate claim of entitlement to job tenure. Just

as this Court has found there to be a ‘common law

of a particular industry or of a particular plant’

that may supplement a collective-bargaining

agreement, United Steelworkers v. Warrier &

Gulf Nav. Co., 363 U.S. 574, 579, 80 S.Ct. 1347,

1351, 4 L.Ed.2d 1409, so there may be an unwrit-

ten ‘common law’ in a particular university that

certain employees shall have the equivalent of

tenure. This is particularly likely in a college or

university, like Odessa Junior College, that has

no explicit tenure system even for senior

members of its faculty, but that nonetheless may

have created such a system in practice. *** We

disagree with the Court of Appeals insofar as it

held that a mere subjective ‘expectancy’ is pro-

tected by procedural due process, but we agree

that the respondent must be given an opportunity

to prove the legitimacy of his claim of such en-

titlement in light of ‘the policies and practices of

the institution.’ '' [Emphasis added] 408 U.S. at

602-603; 92 S.Ct. at 2700.

In Geneva Towers Tenants Organization v. Federated Mor-

tgage Investors, 504 F.2d 483 (9th Cir. 1974), it was noted,

“‘Sindermann demonstrates that the source [of a legitimate

claim of entitlement] need not be explicit but can be im-

plicit in the overall workings of a governmental program."’

Id. at 489.

The DOD's long-established regulations which allow-

ed Rutter Rex access to procurement contracts for military

apparel results in a legitimate claim of entitlement to

future opportunities to bid on such contracts. The practice

and policy of the DOD for over forty years was to permit

and, at times to encourage Rutter Rex to bid for apparel

procurement contracts. The extended business relationship

between Rutter Rex and the DOD must be viewed in the

context of economic reality. The result of the DOD's conti-

nuing acceptance of bids from Rutter Rex and its regular

granting of contracts to Rutter Rex was that Rutter Rex

took the financial and operational steps necessary to

satisfy the DOD's future demands. Rutter Rex's reaction

was that of a prudent business enterprise—it made capital

expenditures and operational modifications which enabled

it to meet the needs of a long standing reliable customer.

Rutter Rex tailored those operations so that it could effi-

ciently serve a customer which, in any given year, would ac-

count for a substantial portion of its business. Similar cir-

cumstances have beer cited as a factor supporting the

legitimacy of a claim of entitlement. In Trumbull Division,

Owens-Corning Fiberglass Corp. v. City of Minneapolis,

445 F.Supp. 911 (D. Minn. 1978), the court stated:

‘Plaintiff here has more than a mere expectan-

cy or abstract hope of license renewal; it has a

legitimate claim of entitlement to its license. The

investment necessary to carry on an asphalt

manufacturing business could not be made unless

there were an understanding that operations

could continue year to year."’ Jd. at 916.

The investment necessary to carry on a clothing manufac-

turing operation, which for a twenty-year period was

designed to and satisfactorily did produce almost ex-

clusively military garments, could not be made without the

understanding that Rutter Rex would be permitted to bid

on uniform procurement contracts in the future.

Several courts have recognized that there is a right

to an equal opportunity for access to government procure-

ment contracts. Chief Justice (then Judge) Burger describ-

ed the hardships that arise from discontinuation of a long-

standing business relationship with the government and

then describes a contractor's rights in Gonzalez uv.

Freeman, 334 F.2d 570, 574 (D.C. Cir. 1964), thusly:

‘Interruption of an existing relationship between

the government and a contractor places the latter

in a different posture from one initially seeking

government contrects and can carry with it grave

economic consequences.

‘The consequences of administrative termination

of all right to bid or contract, colloquially called

“‘blacklisting’’ and formally called suspension or

debarment, will vary, depending upon multiple

factors: the size and prominence of the contrac-

tor; the ratio of his government business to non-

government business; the length of his contrac-

tual relationship with the government; his

dependence on that business; his ability to secure

other business as a substitute for government

business, These are some of the basic factors in-

volved. The impact of debarment on a contractor

may be a sudden contraction of bank credit,

adverse impact on market price of shares of listed

. stock, if any, and critical uneasiness of creditors

generally, to say nothing of ‘loss of face’ in the

businesss community. These consequences are in

addition to the loss of specific profits from the

business denied as a result of debarment. We need

not resort to a colorful term such as ‘stigma’ to

characterize the consequences of such govern-

mental action, for labels may blur the issues. But

we strain no concept of judicial notice to

acknowledge these basic facts of economic life.

‘Thus, to say that there is no ‘right’ to govern-

ment contracts does not resolve the question of

justiciability. Of course there is no such right; but

that cannot mean that the government can act ar-

bitrarily, either substantively or procedurally,

against a person or that such person is not entitl-

ed to challenge the processes and the evidence

before he is officially declared ineligible for

government contracts.’’ Jd. at 574.

It has also been held that: ‘‘It is well established that

anyone hoping to contract with the United States has no

property right to government contracts; only a right to an

equal opportunity to seek government contracts.’’ Alaska

Movers Ass'n. v. Brown, 445 F.Supp. 363, 364 (D.D.C.

1978). Accord, Copper Plumbing & Heating Co. v. Camp-

bell, 290 F.2d 368, 370-371 (D.C. Cir. 1961). While Rutter

Rex has not been ‘‘blacklisted’’, the DOD’s small business

set-aside regulations achieve the same result and impose

the same economic hardships.

In rejecting Rutter Rex’s constitutional claim, the

Fifth Circuit Court of Appeals committed serious errors.

The court failed to recognize that a legitimate entitlement

to a constitutionally protected property interest can arise

from the circumstances of Rutter Rex’s relationship with

the government. After discussing those cases which state

that there is a right to an equal opportunity for access to

government contracts, the Fifth Circuit states:

“None of these cases point to any statute or

regulation creating a Fifth Amendment property

interest in the circumstances of the present case.”

[Emphasis added] (App. A at fn. 22).

The court’s statement implies that a Fifth Amendment

property interest must be created by statute or regulation.

After quoting the Roth standard for Fifth Amendment pro-

perty interests, the Court remarks:

“We are unaware of a single independent source

in either state or federal law which would support

Rutter Rex’s claim of a Fifth Amendment proper-

ty entitlement to participate in the awarding of

government contracts.’’ (App. A at p. A-21)

The significance of these statements is their revelation of

the Fifth Circuit’s failure to recognize that legitimate, con-

stitutionally protected property interests may be based on

“mutually explicit understandings’’?; “the practices and

policies’’4 of the DOD, “unwavering custom’; “the

9° Sindermann, supra, 408 U.S. at 601, 92 S.Ct. at 2699; Leis v.

Flynt, 439 U.S. 438, 443, 99 S.Ct. 698, 701, 58 L.Ed.2d 717 (1979).

4 Sindermann, supra, 408 U.S. at 603, 92 S.Ct. at 2700.

5 Hermes v. Hein, 511 F.Supp. 123, 125 (N.D. Ill. 1980).

overall workings of a government program’’®; or ‘‘well-

established patterns of practice’’’, as well as written law.

The error in the Court of Appeals’ search for a

statutorily created entitlement is compounded by the

court’s misplaced reliance on the following statement from

this Court’s decision in Perkins v. Lukens Steel Co., supra:

“Like private individuals and businesses, the

Government enjoys the unrestricted power...to

determine those with whom it will deal, and to fix

the terms and conditions upon which it will make

needed purchases.”’ (310 U.S. at 127, 60 S.Ct. at

876).

The Perkins Court did not mean to say that the govern-

ment was not restricted by the Constitution. The quoted

language dealt with the government’s executive and

legislative authority to impose conditions on contractors

with which it deals and not with the question here

presented. This Court in King v. Smith, 392 U.S. 309, 88

S.Ct. 2128, 20 L.Ed.2d 1118 (1968), effectively reworded

the Perkins statement to emphasize that it is not

dispositive of constitutional issues:

‘There is of course no question that the Federal

Government, unless barred by some controlling

constitutional prohibition, may impose the terms

and conditions upon which its money allotments

to the States shall be disbursed...’’ [Emphasis

added] (392 U.S. at 333, 88 S.Ct. at 2141, fn. 34).

If the Fifth Circuit’s interpreiation of Perkins is

7 Hermes, supra.

permitted to stand, it will endorse the concept that govern-

ment agencies involved in procurement may establish the

conditions that contractors must satisfy in dealing with

the government, and may also exercise unfettered discre-

tion in deciding which categories of citizens may bid on

such contracts, according no significance to the possibility

that a constitutional right may emanate from a contrac-

tor’s long-standing relationship with the government. The

Fifth Circuit’s interpretation of Perkins removes such ar-

bitrary decision-making from the scope of judicial review

and places it beyond the reach of the Constitution. Perkins

is not dispositive of Rutter Rex’s constitutional claim and

reliance upon it to this effect is an unwarranted extension

of the Perkins doctrine.®

Where a constitutionally protected property interest

is implicated, it must be determined whether the govern-

ment action that deprives a citizen of this interest also

deprives him of due process of law. In Mathews v.

Eldridge, supra, this Court listed four factors ‘‘to be con-

sidered in assessing the validity of any administrative

decision-making process’: (1) the degree of potential

deprivation; (2) the possible length of deprivation; (3) the

fairness and reliability of the existing pretermination pro-

cedures; and (4) the public interest. (424 U.S. at 343-347; 96

S.Ct. at 907-909). An analysis of these factors in this case

indicates that Rutter Rex has been deprived of its property

5 Even as to the rule of standing for which Perkins is most often

cited, its efficiency has eroded. B. K. Instrument, Inc. v. U.S., 52 L.W.

2123 (2nd Cir. 8/4/83); Haynes International Corp. v. McLucas, 509 F.2d

245 (5th Cir. 1975); Scanwell Laboratories, Inc., v. Schaffer, 424 F. 859

(D.C. Cir. 1970).

entitlement without due process. The first two factors

weigh heavily in favor of Rutter Rex. The degree of Rutter

Rex’s deprivation is substantial. The DOD's repetitive set-

aside regulations completely and permanently foreclose

Rutter Rex’s future opportunity to bid on procurement

contracts for products that it supplied to the DOD for over

forty years as long as there are at least two small

businesses interested in future contracts. The latter is a

given. It goes without saying that mandatory repetitive

set asides achieve the maximum duration of deprivation.

The public interest in this case consists of two major con-

cerns: (1) the efficient procurement of supplies in the case

of a national emergency; and (2) the promotion of small

businesses. Neither of these concerns warrants the sudden,

complete and permanent deprivation of Rutter Rex’s right

to bid on apparel procurement contracts through an ar-

bitrary decision-making process. Permitting large

businesses an equal opportunity to bid on a fair proportion

of such contracts would not significantly infringe on the

policy of awarding government contracts to small

businesses because of the high percentage of defense pro-

curement contracts for apparel which traditionally have

been allocated to small businesses. (See App. B at p. A-38)9

Evaluation of the Mathews factors reveals that the

magnitude of Rutter Rex’s deprivation more than

outweighs any speculative harm to the public interest in

the small business program.

CONCLUSION

There is not the slightest doubt that the July 27,

% Furthermore, the national policy as expressed by the Smail

Business Administration is that ‘‘Small business concerns should not

become dependent on continuing assistance under the Small Business

Act from ‘cradle to grave’...”’ (45 F.R. 15443, March 10, 1980)

1979 modifications to the Defense Acquisition Regulations

have resulted in the total destruction of a forty year rela-

tionship between Rutter Rex and the government, an un-

fair and damagi:.g result of agency action. This action was

taken without according any consideration to the constitu-

tional interest of Rutter Rex in continuing access to

government procurement contracts. Had this interest been

taken into account, a balancing of it and of the small

business policies of the nation would have been required.

This Court is urged to decide the basic federal law issue of

whether Rutter Rex’s right is constitutional in nature and

deserving of protection against arbitrary deprivation

resulting from the DOD regulations.

Respectfully submitted,

(sanen) HENRY J, READ

HENRY J. READ

|s} Daniel Lund

DANIEL LUND

1800 First National Bank of

Commerce Building

New Orleans, Louisiana 70112

Telephone: (504) 561-8989

Counsel for Petitioner,

J. H. Rutter Rex Manufacturing

Co., Inc.

Of Counsel:

MONTGOMERY, BARNETT, BROWN & READ

A-l

APPENDIX “A”

J.H. RUTTER REX MANUFACTURING CO., INC.,

Plaintiff-Appellant,

UNITED STATES of AMERICA, et al.,

Defendants-Appellees.

No. 82-3239

United States Court of Appeals,

Fifth Circuit

June 9, 1983

Manufacturer of military clothing, ineligible for

Department of Defense program relating to set-aside of cer-

tain military procurement contracts for small business con-

cerns because of its size, brought action asking court to

declare program invalid and enjoin its further implementa-

tion by the Department of Defense. The United States

District Court for the Eastern District of Louisiana, Fred

J. Cassibry, J., 534 F.Supp. 331, granted summary judg-

ment in favor of the Department of Defense, and manufac-

turer appealed. The Court of Appeals, Tuttle, Senior Cir-

cuit Judge, sitting by designation, held that: (1) Depart-

ment of Defense procurement regulation providing that a

procurement may be set aside for small business if the con-

tracting officer anticipates receiving bids from at least two

responsible small business concerns did not violate federal

procurement statutes’ preference for competition; (2) fact

that Department of Defense procurement regulations did

not establish a ceiling on the percentage of awards that

A-2

could be set aside for small business on an industry-by-

industry basis did not put the regulations in violation of

federal procurement statutes’ ‘‘fair proportion’’ require-

ment; (3) Department of Defense procurement regulation

providing that no set aside for a small business shall be

disapproved merely because small business concerns are

considered to be receiving a fair proportion of total con-

tracts for supplies or services was not an unreasonable con-

struction of the fair proportion mandate in the federal pro-

curement statutes; (4) manufacturer did not have a Fifth

Amendment property entitlement to access to the bidding

process for awarding government contracts; and (5) federal

procurement statutes and regulations promulgated

thereunder providing for set asides for small business were

rationally related to the sound legislative purpose of pro-

moting small business in order to contribute to the security

and economic health of the nation, and, therefore, such

statutes and regulations did not violate the due process

clause of the Fifth Amendment.

Affirmed.

Appeal from the United States District Court for the

Eastern District of Louisiana.

Before TUTTLE,* POLITZ and GARWOOD, Cir-

cuit Judges.

TUTTLE, Circuit Judge:

This case is an appeal from a summary judgment in

the United States District Court for the Eastern District

* Circuit Judge of the Eleventh Circuit, sitting by designation.

A-3

of Louisiana, 534 F.Supp. 331. The plaintiff-appellant, J.H.

Rutter Rex Manufacturing Company, Inc., (‘‘Rutter Rex’’)

contends (1) that United States Department of Defense

(‘‘DOD”’) regulations authorizing the ‘‘set aside’ of certain

government contracts for exclusive participation by small

business concerns exceed statutory authority, and (2) that

it has been unlawfully deprived of a constitutional property

right of access to the government contract bidding process.

Because we find that the disputed regulations are a proper

exercise of the broad authority granted by Congress to

government procurement agencies and that no constitu-

tional protections of the type urged by Rutter Rex exist for

access to the government bidding process, we reject the ap-

pellant’s claims and affirm the holdings of the court below.

Rutter Rex is an apparel manufacturer in New

Orleans, Louisiana. Since it employs approximately 1500

persons in its combined operations, the appellant is ineligi-

ble to bid on certain government contracts which have been

set aside for small businesses! pursuant to the Armed Ser-

vices Procurement Act, 10 U.S.C. § 2301 et seg., and

regulations promulgated thereunder.

Over the last 20 years, Rutter Rex has operated its

New Orleans plant almost exclusively for the production of

garments procured by the U.S. Government. However,

since 1976, the appellant has experienced gradually

decreasing government business culminating with its

failure to secure a single government contract in 1981.

Rutter Rex contends that its loss of tinis lucrative source

1 A small business concern in the apparel industryis defined by

Small Business Administration regulations as one which employs fewer

than 500 persons. 13 C.F.R. § 121.3-8 and § 121-Schedule A.

A-4

of business is the result of DOD regulations issued and en-

forced in violation of the powers granted to government

procurement agencies by the Small Business Act and the

Armed Services Procurement Act (hereafter referred to as

the ‘‘procurement statutes’’). It brings this action seeking

to have these regulations declared invalid.

Il.

In 1947, Congress passed the Armed Services Pro-

curement Act which provides, ‘‘It is the policy of Congress

that a fair proportion of the purchases and contracts under

this Chapter be placed with small business concerns.’’ 10

U.S.C. § 2301. The Senate Report accompanying this

legislation noted that this requirement was grounded in a

desire to diversify the Nation’s defense production and

thus add “‘production security in the event of any emergen-

cy and assist in establishing insurance against bot-

tlenecks.”’ S.Rep. No. 571, 80th Cong., 1st Sess. 6 (1947).

Congress extended the fair proportion requirement

to all government procurements when it enacted the

Federal Property and Administrative Services Act of 1949

(41 U.S.C. § 251 et seg.) and the Small Business Acts of

1953 and 1958 (15 U.S.C. § 631 et seg.). The 1953 Act

stated:

It is the declared policy of the Congress that the

government should aid, counsel, assist, and protect

insofar as is possible the interests of small-business

concerns in order to serve free competitive enter-

prise, to insure that a fair proportion of the total

purchases and contracts for supplies and services

for the Government be placed with small-business

enterprises, and to maintain and strengthen the

overall economy of the Nation.

A-5

15 U.S.C. § 631. The 1958 Act provided slightly more

specific guidelines for procuring agencies attempting to

comply with Congressional intent when it declared that

government procurement contracts should be awarded to

small business concerns when such awards are determined:

1. To be in the interest of maintaining or mobiliz-

ing the Nation's full productive capacity;

2. To be in the interest of war or national defense

programs;

3. To be in the interest of assuring that a fair pro-

portion of the total purchases and contracts for

property and services for the Government are

placed with small business concerns; or

4. To be in the interest of assuring that a fair pro-

portion of the total sales of Government property

be made to small-business concerns ...

15 U.S.C. § 644(a).

In 1958, the DOD adopted regulations intended to

implement the requirements of the procurement statutes.”

* These regulations, originally known as the Armed Forces Pro-

curement Regulations, are now entitled the Defense Acquisition Regula-

tions and are set forth at 32 C.F.R. Part 7.

Though the Armed Services Procurement Act governs the pro-

cedures for DOD procurement, the DOD (like all federal agencies) is also

bound by the strictures of the Small Business Act and has promulgated

its regulations in conformance therewith. In fact, 15 U.S.C. § 639(d)

evidences that Congress was particularly concerned that the DOD com-

ply with the policies favoring small businesses. That Code section re-

quires the DOD (but no other agency) to make a monthly report to Con-

gress ‘‘showing the amount of funds appropriated to the Department of

Defense which have been expended, obligated or contracted to be spent

with small business concerns.”

A-6

These regulations provided, inter alia, that certain govern-

ment acquisitions would be ‘‘set aside for the exclusive par-

ticipation of small business concerns.’ 32 C.F.R. 1-706.1(b).

The regulations further provided that such set asides would

occur “‘if the contracting officer determines that there is a

reasonable expectation that (i) offers will be obtained from

a significant number of responsible small business concerns

and (ii) awards will be made at reasonable prices.’ 32 C.F.R.

1-706.3(a). In 1979, subpart (i) of the above regulation was

amended to provide that bids need only be reasonably ex-

pected from ‘‘at least two responsible small business con-

cerns.’’ 32 C.F.R. 1-706.5.

This procedure for the determination of set asides was

slightly altered in 1979 when the DOD issued new regula-

tions providing that once a contracting officer successfully

acquired a product under a small business set aside, all future

requirements of that agency (or agency subdivision) for that

product may continue to be so acquired until such time as

the contracting officer determines that either of the two

necessary conditions no longer exists. 32 C.F.R. § 1-706.1(f).

These recently-promulgated regulations also provide that no

set aside will be disapproved merely because ‘‘a large percen-

tage of previous acquisitions of the item has been placed with

small business concerns [or because] small business concerns

are considered to be receiving a fair proportion of total con-

tracts for supplies or services.’ 32 C.F.R. § 1-706.1(j)(i, vi).

Also, in 1978, Congress amended 15 U.S.C. § 644 to

require the head of each federal agency to establish goals

for the participation of small business concerns in the pro-

curement of contracts of more than $10,000. 15 U.S.C. §

644(g).9 Congress ordered that these goals should ‘‘realis-

915 U.S.C. § 644(g) provides:

A-7

tically reflect the potential of small business concerns to per-

form such contracts ...'' 15 U.S.C. § 644(g). Though the head

of each federal agency is required to justify a failure to meet

such goals in an annual report to the Small Business Ad-

ministration, 15 U.S.C. § 644(h), no sanctions are imposed

for such failure and the goals do not as a matter of law have

any impact on individual set aside decisions.

II,

The parties to this action vigorously dispute whether

Rutter Rex has standing to challenge the validity of the

regulations. Because the standing issue is not determinative,

we assume, without deciding, that Rutter Rex has standing

to contest these regulations.

IV,

Rutter Rex makes two principal attacks on the DOD

regulations. First, Rutter Rex notes that the procurement

(Footnote 3 continued)

The head of each Federal agency shall, after consultation

with the Administration, establish goals for the participation

by small business concerns, and by small business concerns

owned and controlled by socially and economically disadvan-

taged individuals, in procurement contracts of such agency

having values of $10,000 or more. Goals established under this

subsection shall be jointly established by the Administration

and the head of each Federal agency and shall realistically

reflect the potential of small business concerns and small

business concerns owned and controlled by socially and

economically disadvantaged individuals to perform such con-

tracts and to perform subcontracts under such contracts.

Whenever the Administration and the head of any Federal

agency fail to agree on established goals, the disagreement

shall be submitted to the Administrator of the Office of

Federal Procurement Policy for final determination.

A-8

regulations promulgated by DOD provide both in theory

and in practice for a 100 percent small business set aside of

certain products. In the appellant's industry, the manufac-

ture and marketing of apparel, over 90 percent of DOD pro-

curements have been allocated to small business. Rutter

Rex argues that such high levels of set asides clearly con-

stitute more than a ‘‘fair proportion’’ of procurements in

the apparel industry and that the regulations are thus in

excess of statutory authority. Rutter Rex also asserts that

the goal practices, as implemented by the DOD and other

procurement agencies, contribute substantially to awards

in excess of a fair proportion by placing additional pressure

on procurement officers to make set asides, particularly in

industries such as the appellant's where the great majority

of participants are small business concerns.

Second, Rutter Rex contends that the significant

percentage of set asides in particular industries violates

the express direction of Congress for ‘‘full and free competi-

tion’’ in the procurement process. The appellant particular-

ly focuses on the 1979 DOD regulation which allows a set

aside whenever reasonable bids are anticipated from two or

more responsible sr. \ll business concerns. Rutter Rex con-

tends that two bids can hardly constitute the open competi-

tion envisioned by Congress.

Congress nas delegated broad powers to federal

agencies to achieve the purposes of the procurement

statutes;* our review is therefore limited to determining

4See 10 U.S.C. § 2202:

Notwithstanding any other provision of law, an officer or

agency of the Department of Defense may obligate funds for

A-9

whether the disputed regulations are ‘‘reasonably related

to the purposes of the enabling legislation.’’ Thorpe v.

Housing Authority of the City of Durham, 393 U.S. 268,

280-81, 89 S.Ct. 518, 525-526, 21 L.Ed.2d 474 (1969); Mour-

ning v. Family Publications Service, 411 U.S. 356, 364, 93

S.Ct. 1652, 1658, 36 L.Ed.2d 318 (1973). In National Muf-

fler Dealers Association v. United States, 440 U.S. 472, 99

S.Ct. 1304, 59 L.Ed.2d 519 (1979), the Supreme Court add-

ed flesh to the bare bones of this loosely-worded test:

In determining whether a particular regulation

carries out the Congressional mandate in a proper

manner, we look to see whether the regulation

harmonizes with the plain language of the

statute, its origin, and its purpose. A regulation

may have particular force if it is a substantially

contemporaneous construction of the statute by

those presumed to have been aware of congres-

sional intent. If the regulation dates from a later

period, the manner in which it evolved merits in-

quiry. Other relevant considerations are the

length of time the regulation has been in effect,

the reliance placed on it, the consistency of the

[agency's] interpretation, and the degree of

scrutiny Congress has devoted to the regulation

during subsequent reenactments of the statute.

(Footnote 4 continued)

procuring, producing, warehousing, or distributing supplies,

or for related functions of supply management, only under

regulations prescribed by the Secretary of Defense. The pur-

pose of this section is to achieve the efficient, economical,

and practical operation of an integrated supply system to

meet the needs of the military departments without

duplicate or overlapping operations or functions.

See also 15 U.S.C. § 634(b)(6): “In the performance of, and with

respect to, the functions, powers and duties vested in him by this

chapter the [Small Business] Administrator may ... make such rules and

regulations as he deems necessary to carry out the authority vested in

him by or pursuant to this chapter.”

A-10

Id. at 477, 99 S.Ct. at 1307.

In the present case, Rutter Rex bears a particularly

heavy burden. The Supreme Court has long recognized the

special judicial deference due administrative agencies in

the area of procurement. Perkins v. Lukens Steel Co., 310

U.S. 113, 127-28, 60 S.Ct. 869, 876-877, 84 L.Ed. 1108

(1940). See also Hayes International Corp. v. McLucas, 509

F.2d 247, 258 (5th Cir.1975). In construing the statutes

relevant to the present action, this Court has noted the ex-

traordinarily broad discretion bestowed on agencies by the

Congress: “‘[the procurement statutes] simply require that

a ‘fair proportion’ of government purchases and contracts

be placed with small businesses. Congress left it to the

agencies to implement this policy through regulations and

practices of their own construction.’’ Kinnett Dairies, Inc.

v. Farrow, 580 F.2d 1260, 1272 (5th Cir.1978).° This broad

grant of power to procuring agencies is heightened con-

siderably by the fact that Congress has never undertaken

to define the term ‘“‘fair proportion”’ despite its use in six

separate statutes.©

® See also Ray Baillie Trash Hauling, Inc. v. Kleppe, 477 F.2d

[696], 699 (5th Cir.1973): ‘Congress ... has given the Small Business Ad-

ministration the statutory authority and necessary discretion in awar-

ding subcontracts to accomplish [the goal of development of small

businesses]. The discretion as to which firm shall receive subcontracts

and the decision as to which regulations shall govern procurement is left

to the Small Business Administration.’’ Jd. at 703-04.

We also note that one of the primary purposes of the Armed Ser-

vices Procurement Act of 1947 was to encourage the exercise of judg-

ment and discretion by individual contracting officers. S.Rep. No. 571,

80th Cong., 1st Sess. (1947).

6 S.Rep. No. 760, 93d Cong., 2d Sess., App. A, “Legislative

History of the Phrase ‘Fair Proportion’ in Small Business Act”’ (1974).

The six statutes which have utilized the term ‘‘fair proportion’’ in rela-

tion to procurement from small businesses are:

A-11

With these principles in mind, we consider first Rut-

ter Rex’s contention that the DOD regulations invalidly

limit competition in the government procurement process.

While it is certainly true that the procurement acts

recognize the vital role of ‘‘full and free pean deury yee in the

maintenance of this Nation’s economic health,’ the Con-

gress has explicitly stated that ‘‘[s]uch security and well-

being cannot be realized unless the actual and potential

capacity of small business is encouraged and developed.”’

15 U.S.C. § 631(a). This statement of purposes, together

with the protections provided for small businesses in the

procurement statutes, makes it clear that Congress intend-

ed these statutes as a means to protect small businesses

from the ravages of unchecked competition so as to ensure

(Footnote 6 continued)

1. The Armed Services Procurement Act of 1947, Section

2(b), 10 U.S.C. § 2301;

2. The Selective Service Act of 1948, Section 18a), 50

U.S.C.App. § 468/(a} (1970);

3. The Federal Property and Administrative Services Act of

1949, Section 302(b), 41 U.S.C. § 252(b) (1970);

4. The Defense Production Act Amendments of 1951, Sec-

tion 714(f)(2);

5. The Small Business Act of 1953; and

6. The Small Business Act of 1958, Section 2[2], 15 U.S.C. §

631 (1970).

7 The essence of the American economic system of private enter-

prise is free competition. Only through full and free competition can free

markets, free entry into business and opportunities for the expression

and growth of personal initiative and individual judgment be assured.

The preservation and expansion of such competition is basic not only to

the economic well-being but to the security of this Nation ...’’ 15 U.S.C.

§ 631(a). See also 10 U.S.C. § 2305(a).

A-12

a vibrant, diversified economy; this Court recognized as

much in Ray Baillie Trash Hauling, Inc. v. Kleppe, 477

F.2d 696 (5th Cir.1973) where it stated:

The purpose of the [Small Business] Act is to

assist small business concerns. The Act is based

on the premise that such firms are unable to com-

pete effectively in the marketplace and therefore

cannot secure government procurement contracts

awarded through competitive bidding. By in-

creasing their participation in government pro-

curement, however, these firms can eventually

become self-sufficient, viable businesses capable

of competing effectively in the marketplace.

Id. at 708.8 Rutter Rex therefore fundamentally

misconstrues the procurement statutes when it interprets

“full and free competition’’ as a means to achieve the

statutes’ purposes rather than an end in itself; though the

legislative history of the relevant statutes does not shed

much light on this question, Congress has apparently judg-

ed that it is in the best interests of the American people to

risk the possibility of slightly higher costs for today’s

government purchases in return for the dividends of an

economy and national defense that are not dependent on a

small number of potentially _yulnerable producers.?

More specifically, we conclude that amended 32

Business Act and regulations favoring small businesses modify these

more general requirements that [agencies] procure goods at ‘competitive

market prices ...' "’

9 Kinnett Dairies, 580 F.2d at 1275: “We recognize that the

policies of the Small Business Act are to some extent inconsistent with

what might be perceived as the primary function of the [DOD procure-

ment regulations], to supply the procurement needs of the armed forces

at minimum cost.”

A-13

C.F.R. § 1-706.3(a) does not violate the statutory preference

for competition simply because it provides that a procure-

ment may be set aside if the contracting officer anticipates

receiving bids from at least two responsible small business

concerns. Rutter Rex simply ignores that portion of the

regulation which requires that set aside awards be made

only at reasonable prices. 32 C.F.R. § 1-706.3(a)(ii). Read as

a whole, the regulations can only be said to enhance the

twin (yet sometimes divergent) goals of the procurement

acts: the promotion of small business interests and the effi-

cient and economical acquisition of goods and services by

the government. !°

We now turn to the assertion of Rutter Rex that the

regulations in question are invalid since they do not

establish a ceiling on the percentage of awards which may

be set aside in any particular industry. Rutter Rex notes

that over 90 percent of the awards for which it would other-

wise be eligible to compete have been set aside and argues

that no possible construction of the term ‘fair proportion”’

might include set asides of such lofty proportions.

However, since DOD set asides in 1980 were only 7.2

percent of its total procurement awards,!! the appellant’s

argument rests on the assumption that Congress intended

10 Section 1-706.3(a) is also consistent with the long-standing con-

gressional desire that a greater portion of government procurement con-

tracts be placed with small businesses. See discussion, section IV.D. in-

fra. This specific quantification of a minimal number of necessary bid-

ders appears to best serve this purpose while maintaining the head-to-

head competition necessary to assure economical government purchses.

11 This figure was derived from the district court opinion. 534

F.Supp. at 338. Neither party took exception to the trial court's reliance

on this figure.

A-14

the fair proportion mandate to be applied on an industry-

by-industry (or even product-by-product) basis rather than

to the collective pool of DOD procurements. In support of

this contention, the appellant notes that the Small

Business Act requires that a ‘‘fair proportion of the total

purchases and contracts” (emphasis added) of each agency

be placed with small businesses whereas the Armed Ser-

vices Procurement Act omits the word ‘‘total’’ and only re

quires that small businesses receive a ‘fair proportion of

the purchases and contracts” of the DOD. The appellant

contends that this disparity evidences a deliberate attempt

by Congress to place defense procurements on a different

footing whereby fair proportion would be calculated on an

industry-by-industry basis rather than on the basis of total

defense procurements.

Unfortunately for the appellant, its imaginative

argument goes no further. The appellant does not direct

this Court to any portion of the legislative history of either

statute which would support its interpretation nor does it

advance a single ground on which defense procurements

might reasonably be distinguished for these purposes from

procurements of other federal agencies. In fact, the

voluminous legislative histories of these government pro-

curement acts, while not casting any direct light on this

dilemma, evidence a consistent and uninterrupted eager-

ness on the part of Congress to place a greater number of

procurement contracts, defense and otherwise, in the hands

of small businesses. !2 Despite these many volumes of

12 See, e.g., Hearings:

Small Business Procurement Expansion and Simplification Act:

Hearings Before the Subcomm. on Government Procurement of the

Senate Select Comm. on Small Business, 95th Cong., 2d Sess. (1978);

DOD Procurement Policies and Practices: Hearings Before the Sub-

comm. on Minority Enterprise and General Oversight of the House

A-15

committee reports, hearing transcripts, and floor debates

(Footnote 12 continued)

Comm. on Small Business, 95th Cong., 2d Sesss. (1978); Oversight Hear-

ings on Small Business Administration Programs and Activities: Hear-

ings Before the Subcomm. on SBA Oversight and Minority Enterprise

of the House Comm. on Small Business, 94th Cong., 2d Sess. (1976); Pro-

curement Assistance Programs of the Small Business Administration:

Hearing Before the Senate Select Comm. on Small Business, 94th Cong.,

lst Sess. (1975); The Position of Small Business in Procurements for

Federally Supported Programs: Hearing Before the Subcomm. on

Government Procurement and International Trade of the House Perma-

nent Select Comm. on Small Business, 93rd Cong., 1st Sess. (1973); Com-

mission on Government Procurement Recommendations and Labor

Surplus Area Procurement: Hearings Before the Subcomm. on Govern-

ment Procurement of the Senate Select. Comm. on Small Business, 93rd

Cong., 1st Sess. (1973); The Position and Problems of Small Business in

Government Procurements: Hearing Before the Subcomm. on Small

Business, 92d Cong., 1st Sess. (1971); Small Business and Labor Surplus

Set-Asides and 8(a) Contracts: Hearing Before the Subcomm. on

Government Procurement of the Senate Select Comm. on Small

Business, 91st Cong., 2d Sess. (1970); Small Business in Government

Procurement— Before and After Defense Cutbacks, Hearings Before the

Subcomm. on Government Procurement of the House Select Comm. on

Small Business, 91st Cong., 2d Sess. (1970); The Position of Small

Business in Government Procurement: Hearings Before Subcomm. No.

2 on Government Procurement and Economic Concentration of the

House Select Comm. on Small Business, 90th Cong., Ist & 2nd Sess.

(1967-1968); government Procurement— 1966: Hearing Before the Sub-

comm. of the Senate Select Comm. on Small Business, 89th Cong., 2d

Sess. (1966); Small Business Subcontracting and Set-Aside Programs:

Hearings Before Subcomm. No. 2 on Government procurement of the

House Select Comm. on Small Business, 89th Cong., 1st Sess. (1965);

The Role of Small Business in Government Procurement: Hearings

Before the Subcomm. of the Senate Select Comm. on Small Business,

88th Cong., 2d Sess. (1964); Government Small Business Procurement

Practices and Programs: Hearings Before Subcomm. No. 2 on Govern-

ment Procurement of the House Select Comm. on Small Business, 88th

Cong., 1st Sess. (1963); The Role of Small Business in Government

Procurements— 1962-1963; Hearing Before the Senste Select Comm. on

Small Business, 87th Cong., 2d Sess. (1962); The Role of Small Business

in Government Procurement— 1961, Hearings Before the Subcomm. of

the Senate Select Comm. on Small Business, 87th Cong., Ist Sess.

(1961); government Procurement— 1960: Hearings Before the Subcomm.

of the Senate Select Comm. on Small Business, 86th Cong., 2d Sess.

(1960).

A-16

pertinent to the Small Business Act and the Armed Ser-

vices Procurement Act, the appellant fails to direct our at-

tention to any evidence of Congressional concern that large

businesses are being victimized by the operation of these

statutes and regulations.

The absence of any such evidence is especially com-

pelling in light of the intense scrutiny to which these

statutes have been subjected! and the numerous amend-

ments of both Acts.!4 In this regard, we take special note

(Footnote 12 continued)

Reports:

House Select Comm. on Small Business Government Procure-

ment Within Military and Civilian Agencies, H.R.Rep. No. 1749, 94th

Cong., 2d Sess. (1976); Senate Select Comm. on Small Business: Twenty-

Sixth Annual Report, S.Rep. No. 636, 94th Cong., Ist Sess. (1976);

Senate Select Comm. on Small Business, Twenty-Fifth Annual Report

of the Select Comm. on Small Business, S.Rep. No. 13, 94th Cong., 1st

Sess. (1975); Senate Select Comm. on Small Business, Small Business

Aspects of Selected Recommendations of the Commission on Govern-

ment Procurement, S.Rep. No. 760, 93rd Cong., 2d Sess. (1974); Senate

Select Comm. on Small Business; Twenty-Third Annual Report, S.Rep.

No. 760, 93rd Cong., 2d Sess. (1974); House Select Comm. on Small

Business, Small Business Procurement Policies of Federally Supported

Programs, H.R.Rep. No. 449, 93rd Cong., 1st Sess. (1973); House Select

Comm. on Small Business, The Position and Problems of Small Business

in Government procurement, H.R.Rep. No. 1609, 92nd Cong., 2d Sess.

(1972); House Select Comm. on Small Business in Government—Before

and After Defense Cutbacks, H.R.Rep. No. 1608, 91st Cong., 2d Sess.

(1970); House Select Comm. on Small Business, The Position of Small

Business in Government Procurement, H.R.Rep. No. 1975, 90th Cong.,

2d Sess. (1968); House Select Comm. on Small Business, Small Business

Subcontracting and Set-Aside Programs, H.R.Rep. No. 2341, 89th

Cong., 2d Sess. (1966); House Select Comm. on Small Business, Govern-

ment Small Business Procurement Policies and Programs, H.R.Rep. No.

1937, 88th Cong., 2d Sess. (1964); House Select Comm. on Small

Business, Smal] Business and Government Procurement, H.R.Rep. No.

2562, 87th Cong., 2d Sess. (1962).

14 E.g., amendments to the Armed Services Procurement Act:

A-17

of a 1974 Report issued by the U.S. Senate Select Commit-

tee on Small Business after a series of hearings on the

government procurement process. 15 The hearings and the

report focus specifically on certain recommendations of the

Commission on Government Procurement, !§ including

that the Congress, ‘‘Establish new standards for annually

measuring the performance of procuring agencies and their

prime contractors in using small businesses. Standards for

measuring performance, including the sound use of set

aside techniques, should assess progress made in assisting

small businesses to obtain a fair proportion of awards—not

just statistical percentages.”’

In its consideration of this proposal, the Senate Com-

mittee specifically addressed the possibility of ‘‘a fair

(Footnote 14 continued)

65 Stat. 700 (1951); 69 Stat. 551 (1955); 70A Stat. 130 (1956); Pub.L.

85-800, 7° Stat. 967 (1958); Pub.L. 87-653, 76 Stat. 528 (1962); Pub.L.

90-268, 82 Stat. 50 (1968); Pub.L. 93-356, 88 Stat. 390 (1974); Pub.L.

96-513, 94 Stat. 2926 (1980); Pub.L. 97-86, 95 Stat. 1117 (1981); Pub.L.

97-375, 96 Stat. 1821 (1982).

Amendments to Small Business Act:

69 Stat. 225 (1955); Pub.L. 85-4, 71 Stat. 4 (1957); Pub.L. 87-305, 75

Stat. 666 (1961); Pub.L. 88-560, 78 Stat. 786 (1964); Pub.L. 89-754, 80

Stat. 1295 (1966); Pub.L. 90-104, 81 Stat. 268, 269 (1967); Pub.L. 91-596,

84 Stat. 1618 (1970); Pub.L. 92-385, 86 Stat. 554, 555 (1972), Pub.L.

93-386, 88 Stat. 742 (1974); Pub.L. 95-89, 91 Stat. 553-562 (1977); Pub.L.

95-507, 92 Stat. 1760-1762 (1978); Pub.L. 96-302, 94 Stat. 833-852 (1980);

Pub.L. 97-95, 95 Stat. 767-780 (1981).

These lists are not a complete documentation of the amendments

of the statutes, but provide an illustration of the intensive oversight by

Congress of the operation of the statutes.

15 S.Rep. 760, 93d Cong., 2d Sess. (1974).

16 This Commission was created by Congress in 1969 to review

the federal procurement process and recommend ways to improve the

process. P.L. 91-129 (Nov. 26, 1969), noted in 41 U.S.C. § 251.

A-18

proportion projection based on an industry-by-industry

analysis.”’!7 In rejecting the blanket imposition of such a

system, the Committee quoted the testimony of John M.

Malloy, Deputy Assistant Secretary of Defense for Procure-

ment, that:

Extension of the present system to provide an

optimum measure would involve analysis of many

thousands of individual procurement actions, pro-

posed to be made and already made, and analysis

of the potential (or actual) share for small

businesses. We simply do not have the capability

of making projections in that detail, nor of analyz-

ing the circumstances surrounding individual pro-

curements at a level above the purchasing activi-

ty. ner do I think we could gear up to cope with

it.

Thus, in 1973, sixteen years after the initial promulga-

tion of the Defense Acquisition Regulations, Congress was

unequivocally notified that the Defense Department was not

applying the fair proportion standard on an industry-by-

industry basis. Furthermore, this Senate Committee

specifically relied on the above testimony of a DOD official

in concluding that an industry-by-industry analysis should

be applied only on a very limited test basis. It has been oft-

stated that ‘‘a consistent administrative interpretation of

a statute, shown clearly to have been brought to the atten-

tion of Congress and not changed by it, is almost conclusive

evidence that the interpretation has congressional approval.”

Kay v. Federal Communications Commission, 443 F.2d 638,

646-47 (D.C.Cir.1970).19

mu S.Rep. 760, 93d Cong., 2d Sess. 14.

18 74. at 14-15.

19 See also, North Haven Board of Education v. Bell, 456 U.S.

A-19

Our conclusion gains additional support from deci-

sions of the Comptroller General that the ‘‘fair proportion”’

requirement is applicable to the totality of government pro-

curements. J.H. Rutter Rex Manufacturing Co., Inc.,

Comp.Gen. B-190905 (July 11, 1978); Fermont Division,

Dynamics Corporation of America, Comp.Gen. B-195431

(June 23, 1980). Such decisions of the Comptroller General

are entitled to special deference given the complexities and

intricacies of government purchasing decisions. M. Stein-

thal & Co. v. Seamans, 455 F.2d 1289, 1301 (D.C.Cir.1971);

Hayes International, 509 F.2d at 258 n. 17; Kinnett

Dairies, 580 F.2d at 1271-72.29

Rutter Rex levels a specific attack at 32 C.F.R. §

1-706.1(j)(vi) which provides that no set aside shall be

disapproved merely because ‘‘small business concerns are

considered to be receiving a fair proportion of total con-

tracts for supplies or services.’’ Rutter Rex contends that

this provision allows set asides without any reference to

the fair proportion statutory language and may result in

(Footnote 19 continued)

512, 102 S.Ct. 1912, 1925, 72 L.Ed.2d 299 (1982); United States v.

Rutherford, 442 U.S. 544, 554 n. 10, 99 S.Ct. 2470, 2476 n. 10, 61

L.Ed.2d 68 (1976); Red Lion Broadcasting v. Federal Communications

Commission, 395 U.S. 367, 381, 89 S.Ct. 1794, 1801, 23 L.Ed.2d 371

(1969); Florida v. Matthews, 526 F.2d 319, 324 (5th Cir.1976).

20 Even if we concluded that Congress intended the fair propor-

tion standard to apply on an industry-by-industry basis, it is unlikely

that Rutter Rex would be entitled to relief. In Basic-Witz Furniture In-

dustries, Inc., 41 Comp.Gen. 649 (1962), the Comptroller General ruled

that the placement of 90 percent of government contracts for wooden

household furniture with small business concerns did not violate the fair

proportion standard where over 99 percent of that industry's par-

ticipants were small businesses. Likewise, in the present case, according

to figures provided for the year 1977 by Andrew Canellas, the Director

of the Industry Analysis Division of the Small Business Administra-

tion, 95.8 percent of firms in the textile mill products industry were

small business concerns.

A-20

small businesses actually receiving far in excess of a fair

proportion of government contracts.

As noted by the government in its brief, this dispute

boils down to a question of whether the fair proportion

mandate constitutes a floor or a ceiling on the allocation of

government contracts to small businesses. We are unable

to conclude that the DOD’s apparent decision that the

mandate is a floor constitutes an unreasonable construc-

tion of the statutory language. The fair proportion stan-

dard is not an end in itself, but a means of enforcing the

purposes of the Small Business Act and the Armed Ser-

vices Procurement Act, i.e., the protection of our country in

time of national emergency and the promotion of its

economic well-being. Given the exceptional deference due

decisions of administrative agencies charged with im-

plementing congressional desires and the absence of any

evidence of a contrary congressional purpose, we may not

overturn the agency determination that Congress intended

small businesses to receive at least a fair proportion of

government procurement contracts.2!

Finally, we briefly consider the appellant's challenge

to the goal practices of the government. The goals are not

the creation of the administrative agencies but are a

specific direction of Congress. 15 U.S.C. § 644(g). We con-

cur with the district court that ‘‘[t]he goals do not deter-

mine which contracts will be set aside; the goals set are

sometimes not attained. Their function is rather to gauge

the effectiveness of the small business program.” 534

“1 We also note that 15 U.S.C. § 644(a) apparently authorizes set

asides in certain circumstances without any reference to the fair propor-

tion standard when it provides that awards shall be set aside when

determined ‘‘(1) To be in the interest of maintaining or mobilizing the

Nation's full production capacity [or] (2) to be in the interest of war or

National defense programs ..."’

A-21

F.Supp. at 340. The appellant has not alleged that the goal

practices are unconstitutional nor has it presented any

evidence that agency implementation of the goal practices

is arbitrary and capricious or in excess of statutory

authority; we thus decline to interfere with this Congres-

sional effort to assure compliance with a legitimate

legislative program.

Rutter Rex also contends that it has unconstitu-

tionally been denied access to the bidding process for

government contracts. Our analysis begins with the ques-

tion of whether Rutter Rex has a constitutional property

interest in equal access to the bidding process.

In Board of Regents v. Roth, 408 U.S. 564, 92 S.Ct.

2701, 33 L.Ed.2d 548 (1972), the Supreme Court wrote:

To have a property interest in a benefit, a per-

son clearly must have more than an abstract need

or desire for it. He must have more than a

unilateral expectation of it. He must, instead,

have a legitimate claim of entitlement to it ... Pro-

perty interests, of course, are not created by the

Constitution. Rather, they are created and their

dimensions are defined by existing rules of

understanding that stem from an independent

source such as state law—rules or understandings

that secure certain benefits and that support

claims of entitlement to those benefits.

408 U.S. at 577, 92 S.Ct. at 2709. We are unaware of a

single independent source in either state or federal law

which would support Rutter Rex’s claim of a Fifth Amend-

ment property entitlement to participate in the awarding of

A-22

government contracts.22 In fact, the Supreme Court in

Lukens Steel stated, ‘Like private individuals and

businesses, the Government enjoys the unrestricted power

.. to determine those with whom it will deal, and to fix the

terms and conditions upon which it will make needed pur-

chases.” 310 U.S. at 127, 60 S.Ct. at 876.23 This Court is

not cognizant of any subsequent jurisprudence which

would diminish the vitality of the Supreme Court’s declara-

tion and provide Rutter Rex with any grounds to claim

more than a “unilateral expectation’’ of access to the

government bidding process.

Were we not otherwise convinced of the correctness

of this result, our decision appears compelled by the prior

ruling of this Court in Ray Baillie. In that case, several

small business concerns which had previously performed

contracts to collect refuse from the Homestead (Florida)

Air Force Base brought suit when the Small Business Ad-

ministration denied their demands for an opportunity to

continue to compete for the contract. The SBA in turn

“< The cases cited by Rutter Rex do not support its claim The

cases may be categorized as standing for one of the following holdings.

First, that a person who contends that he or she was invalidly denied ac-

cess to the government bidding process possess standing to bring an ac-

tion challenging such denial. Copper Plumbing & Heating Co. v. Camp-

bell, 290 F.2d 368 (D.C.Cir.1961). Second, that a person may not be

denied access to the government bidding process absent procedural

regulations authorizing or governing such denial. Gonzalez v. Freeman,

334 F.2d 570 (D.C.Cir.1964). Finally, that when Congress delineates

specific qualifications for potential bidders, a person may not be denied

access to the bidding process if he or she meets those qualifications.

Schraier v. Hinkel, 419 F.2d 663 (D.C.Cir.1969). None of these cases

point to any statute or regulation creating a Fifth Amendment property

interest in the circumstances of the present case.

23 See also United States v. New Orleans Public Service, Inc., 553

F.2d 459, 469 (5th Cir.1977). Of course, in making such decisions, the

government is subject to constitutional due process requirements. Ray

Baillie, 477 F.2d at 709.

A-23

negotiated the contract with a black-owned competitor of

the plaintiffs pursuant to a newly-promulgated program to

benefit businesses owned by ‘‘disadvantaged persons.”’

After rejecting the plaintiffs’ claim that the minority

program violated statutory authority, the Court summari-

ly dismissed their constitutional challenge. The Court

stated, ‘‘[W]e cannot accept the plaintiffs’ argument that

the [minority] program is unconstitutional because the

plaintiffs may be disadvantaged competitively. There is no

constitutional duty to offer government procurement con-

tracts for competitive bidding.’’ 477 F.2d at 709 (emphasis

added).

Since no fundamental rights are implicated, we need

only determine whether the contested socio-economic

legislation rationally relates to a legitimate governmental

purpose.”4 Richardson v. Belcher, 404 U.S. 78, 81, 92 S.Ct.

254, 257, 30 L.Ed.2d 231 (1971); Dandridge v. Williams,

397 U.S. 471, 485-86, 90 S.Ct. 1153, 1161, 1162, 25 L.Ed.2d

491 (1970). Our previous discussion adequately demon-

strates that the procurement statutes and the regulations

promulgated thereunder are rationally related to the sound

legislative purpose of promoting small businesses in order

to contribute to the security and economic health of this

Nation.

AFFIRMED.

“4 4 second predicate to the application of this lesser standard of

review (as opposed to the strict scrutiny standard of review and its re-

quirement of a compelling governmental interest) is that Rutter Rex not

be a member of a suspect class such as a racial minority. United States

v. Kras, 409 U.S. 434, 446, 93 S.Ct. 631 [638], 34 L.Ed.2d 626 (1973).

Needless to say, corporations such as Rutter Rex are not entitled to

such protection.

A-24

APPENDIX “B”

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

J. H. RUTTER REX CIVIL ACTION

MANUFACTURING CO., INC.

NO. 80-2865

VERSUS

SECTION “E”’ (3)

UNITED STATES OF AMERICA

HAROLD BROWN, SECRETARY OF DEFENSE

LT. GENERAL GERALD J. POST,

DIRECTOR, DEFENSE LOGISTICS AGENCY

GENERAL EMMETT BOWERS, COMMANDER,

DEFENSE PERSONNEL SUPPORT CENTER

FRANK L. COCCIA, DIRECTOR, CLOTHING

AND TEXTILES DIRECTORATE, DEFENSE

PERSONNEL SUPPORT CENTER,

DEFENDANTS

DEROSSI & SON COMPANY,

INTERVENOR

Daniel Lund, Esq.

Attorney for "laintiff

Elizabeth O’Connell, Asst. U.S. Atty.

June Rose Carbone, Atty., Dept. of Justice

Sandra M. Schraibman, Atty., Dept. of Justice

Attorneys for Defendants

Phillip A. Wittmann, Esq.

Dennis J. Riley, Esq.

Attorneys for Defendant-Intervenor

CASSIBRY, District Judge:

A-25

MOTIONS FOR SUMMARY JUDGMENT

This action is before the court on cross-motions of

the parties for summary judgment.! At issue is the legality

of the Department of Defense (‘‘DOD”’) regulations govern-

ing the set-aside of certain military procurement contracts

for small business concerns, codified at 32 C.F.R. Part. 7.

Plaintiff, a manufacturer of military clothing, ineligible for

the program because of its size, asks the court to declare

the program invalid and enjoin its further implementation

by the Department of Defense. Plaintiff claims that the

program results in the award of more than a ‘‘fair propor-

tion’’ of government contracts to small businesses in the

clothing industry, in violation of the due process clause of

the Fifth Amendment to the U.S. Constitution, the Ad-

ministrative Procedures Act, 5 U.S.C. §§ 552(a)(1)(E) (1976)

and the ‘fair proportion’’ language of the Armed Forces

Procurement Act, 10 U.S.C. § 2301 (1976), and the Small

Business Act, 15 U.S.C. § 631 (1976).

Defendants, the Secretary of Defense, the Director of

the Defense Logistics Agency (‘‘DLA”’), the Commander of

the Defense Personnel Support Center (‘‘DPSC’’) and the

Director of the Clothing and Textiles Directorate of the

DPSC, are responsible for clothing procurement for the

military services and for uniformed civilian personnel of

| Defendant-intervenor's motion to dismiss will be treated as a

motion for summary judgment as well, since matters outside the

pleadings have been taken into consideration in deciding the motion.

2 In its plants in New Orleans and Franklinton, Louisiana, and

Columbia, Mississippi, plaintiff employed roughly 1500 people during

periods of full production. A small business concern as here pertinent is

defined by Small Business Administration regulations as one which

employs fewer than 500 persons. 13 C.F.R. § 121.3-8 and § 121-Schedule

A-26

the Department of Defense (“‘DOD’’). Defendant-intervenor

is a qualified small business clothing manufacturer with a

direct interest in the continuation of the set-aside program.

Upon careful consideration of the voluminous

pleadings and exhibits filed in this action, as well as the argu-

ment of counsel, and there being no material fact in issue,

the court grants the defendants’ and defendant-inter-

venor’s motions for summary judgment.

I. BACKGROUND

In 1947, Congress passed the Armed Forces Procure-

ment Act, declaring that: ‘‘It is the policy of Congress that

a fair proportion of the purchases and contracts under this

chapter be placed with small business concerns.’’ 10 U.S.C.

§ 2301 (1976). That language was extended to a ‘‘fair pro-

portion’”’ of total government contracts with the Federal Pro-

perty and Administrative Services Act of 1949, 41 U.S.C.

§ 252(b) (1976) and the Small Business Acts of 1953 and 1958,

15 U.S.C. § 644 (1976). The Small Business Act requires that

government agencies award procurement contracts to small

business concerns when the award is determined

(1) to be in the interest of maintaining or mobiliz-

ing the Nation's full productive capacity, (2) to be

in the interest of war or national defense programs,

(3) to be in the interest of assuring that a fair pro-

portion of the total purchases and contracts for pro-

perty and services for the Government are placed

with small-business concerns, or (4) to be in the in-

terest of assuring that a fair proportion of the total

sales of Government property be made to small-

business concerns ...

¥ 15 U.S.C. § 644(a) (1976).

A-27

The Department of Defense adopted small business

regulations in 1957 to implement the Armed Forces Pro-

curement Act. Part 7 of the Armed Forces Procurement

Regulations4 echoed the ‘‘fair proportion’”’ language of the

statute:

1-702 (a) It is the policy of the Department of

Defense to place a fair proportion of its total pur-

chases and contracts for supplies, research and

development, and services ... with small business

concerns.

To implement this long-standing policy, the regula-

tions provide that the entire amount of a contract shall be

set aside for exclusive small business participation if the

contracting officer finds certain conditions present. This

‘“‘set-aside’’ program operates to aid small business

whenever there is a reasonable expectation that at least

two responsible small businesses will make offers, and that

awards of contracts will be made at reasonable prices. Once

a contract has been awarded in the set-aside program, all

future requirements by the purchasing office for that par-

ticular product or service are subject to a ‘repetitive set-

aside’, as long as the same reasonable expectations are

present.” The fact that a large percentage of previous

4 These regulations have been incorporated with only slight

modification into the Defense Acquisition Regulations, 32 C.F.R. Part

7, which now govern military procurement.

5 32 C.F.R. § 1-706.5 provides:

(a) the entire amount of a contract shall be set aside for ex-

clugive small business participation...if the contracting of-

ficer determines that there is a reasonable expectation that

(i) offers will be obtained from at least two responsible small

business concerns offering the products of different small

business concerns and (ii) awards will be made at reasonable

prices....Total set asides shall not be made unless such a

A-28

acquisitions of the item has been placed with small

businesses, or that small businesses are considered to be

already receiving a fair proportion of total contracts, is ir-

relevant to the decision to set aside a particular contract.®

Plaintiff urges that the program outlined by the

(Footnote 5 continued)

reasonable expectation exists. Although past acquisition

history of the item or similar items is always important, it

is not the only factor which should be considered in deter-

mining whether a reasonable expectation exists.

32 C.F.R. § 1-706.1(f) provides:

Once a product or service has been acquired successfully by

a contracting office on the basis of a small business set-aside,

all future requirements of that office for that particular pro-

duct or service not subject to simplified small purchase pro-

cedures shall be acquired on the basis of a repetitive set-

aside. This procedure will be followed unless the contracting

officer determines that there is not a reasonable expectation

that (i) offers will be obtained from at least two responsible

small business concerns offering the products of different

small business concerns and (ii) awards will be made at

reasonable prices.

Section 1-706.1(f) was added effective July 27, 1979. In addition, section

1-706.5(a)li) was changed in 1979 from “'...offers will be obtained from a

sufficient number of responsible...'’ to read, ‘‘...offers will be obtained

from at least two responsible..."’. Plaintiff attributes its loss of business

with the government to these changes. Defendants maintain that the

changes were not consequential.

6 1-7061(j) provides:

None of the following is, in itself, sufficient cause for not making

a set-aside:

(i) a large percentage of previous acquisitions of the item has

been placed with small business concerns;

(vi) small business concerns are considered to be receiving a

fair proportion of total contracts for supplies or services;...

A-29

above regulations, by requiring repetitive set-asides and by

providing that bids from only two small businesses will

validate the set-aside of a contract, does not satisfy the

statutory mandate for ‘‘free and full’’ competition em-

bodied in the Armed Forces Procurement Act’ and the

Small Business Act.8

II. STANDING

Before analyzing plaintiff's claims for declaratory

and injunctive relief, defendants’ argument that plaintiff

lacks standing must be addressed. Defendants’ earlier

“10 U.S.C. § 2305(a) provides:

Whenever formal advertising is required under section 2304

of this title, the advertisement shall be made a sufficient

time before the purchase or contract. The specifications and

invitations for bids shall permit such free and full competi-

tion as is consistent with the procurement of the property

and services needed by the agency concerned...

® 15 U.S.C. § 631(a) provides:

The essence of the American economic system of private

enterprise is free competition. Only through full and free

competition can free markets, free entry into business, and

opportunities for the expression and growth of personal in-

itiative and individual judgment be assured. The preserva-

tion and expansion of such competition is basic not only to

the economic well-being but to the security of this Nation.

Such security and well-being cannot be realized unless the

actual and potential capacity of small business is encouraged

and developed. It is the declared policy of the Congress that

the Government should aid, counsel, assist, and protect, in-

sofar as is possible, the interests of small-business concerns

in order to preserve free competitive enterprise, to insure

that a fair proportion of the total purchases and contracts or

subcontracts for property and services for the Govern-

ment...be placed with small-business enterprises, to insure

that a fair proportion of the total sales of Government pro-

perty be made to such enterprises, and to maintain and

strengthen the over-all economy of the Nation.

A-30

motion to dismiss for lack of standing was denied by

minute entry on March 13, 1981. The government defen-

dants and defendant-intervenor urge the court to recon-

sider its prior ruling in the motions now before the court.

Although as a general rule courts should not reconsider

issues which have already been decided in an action,

Messenger v. Anderson, 225 U.S. 436, 32 S.Ct. 739, 56

L.Ed. 1152 (1912), prior rulings have no res judicata effect

and may be reconsidered in light of newly announced legal

doctrine. Industrial Workers of the World v. Clark, 385

F.2d 687 (D.C.Cir. 1967), cert. denied, 390 U.S. 948, 88

S.Ct. 1036, 19 L.Ed.2d 1138 (1968). See also United States

v. Horton, 622 F.2d 144, 148 (5th Cir. 1980); Wm. G. Roe

& Company v. Armour & Company, 414 F.2d 862 (5th Cir.

1969). On March 25, 1981, the District of Columbia Court

of Appeals issued a thoughtful analysis of the probiem of

standing in the government procurement arena, Control

Data Corporation v. Baldridge, 655 F.2d 283, which this

court finds instructive. After careful reexamination of the

problem of standing under the facts presented by this case,

I find again that plaintiff has standing to invoke judicial

review of the DOD regulations at issue here.

Under Fifth Circuit jurisprudence, there is a three-

part test for standing to contest the validity of agency ac-

tions: 1) the challenged action must result in injury in fact

to the plaintiff; 2) the interest invaded must be arguably

within the zone of interest to be protected by the statute or

constitutional guarantee in question; and 3) there must be

no statutory prohibition of judicial review. Suntex Dairy v.

Berglund, 591 F.2d 1063, 1066 (5th Cir. 1979); Baker v.

Bell, 630 F.2d 1046, 1050 (5th Cir. 1980).

A-31

A. Injury in Fact

Plaintiff's stake in the outcome of this controversy is

sufficiently direct and concrete to satisfy the

constitutionally-compelled injury in fact requirement for

standing. See Flast v. Cohen, 392 U.S. 83, 95, 88 S.Ct.

1942, 20 L.Ed.2d 947 (1968); Duke Power Co. v. Caroline

Environmental Study Group, Inc., 438 U.S. 59, 73; 98 S.Ct.

2620, 57 L.Ed.2d 595 (1978). Plaintiff alleges that the

percentage of DPSC contracts set aside for small business

has effectively precluded it from participating in bidding

for the type of government procurement contracts for

which it successfully bid over the past twenty years or

more. Plaintiff claims injury from plant closings and

employee lay-offs which allegedly result directly from the

implementation of DOD small business regulations and

goal practices. Causation of plaintiff's injuries, while not

clear-cut, is not “‘merely speculative’. See Warth v. Seldin,

422 U.S. 490, 507, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975).

Courts have held that an allegation of economic harm to a

competition interest was sufficient to satisfy the injury in

fact requirement of standing. Marshall and Ilsey Corpora-

tion v. Heimann, 652 F.2d 685, 692-93 (7th Cir. 1981). I

have no serious doubt that plaintiff's loss of government

business was caused at least by the government’s small

business program.

In addition, plaintiff meets the constitutional re-

quirement for standing because its claimed injury is “likely

to be redressed by a favorable decision.’’ Gladstone

Realtors v. Village of Bellwood, 441 U.S. 91, 100; 99 S.Ct.

1601; 60 L.Ed.2d 66 (1979), citing Simon v. Eastern Ken-

tucky Welfare Rights Organization, 426 U.S. 26, 45; 96

S.Ct. 1917, 48 L.Ed.2d 450 (1976); Village of Arlington

Heights v. Metropolitan Housing Development, 429 U.S.

A-32

252, 262; 97 S.Ct. 555, 50 L.Ed.2d 450 (1977). Plaintiff

satisfies this court that the competitive harm alleged

would be remedied by the requested relief. If this court

were to issue declaratory or injunctive relief against the

operation of the small business set-aside program where it

operated to effectively exclude plaintiff from bidding on

any contract, plaintiff's share of DOD contract awards

would most likely rise.

Injury in fact has been found in cases involving both

‘disappointed bidders’, who actually bid on a given con-

tract, see, e.g., Kinnett Dairies, Inc. v. Farrow, 580 F.2d

1260 (1978); Hayes Intearnational Corp. v. McLucas, 509

F.2d 247 (5th Cir.), cert. denied, 423 U.S. 864, 96 S.Ct. 123,

46 L.Ed.2d 92 (1975), and ‘frustrated bidders’ who are

precluded from continuing their relationship as a govern-

ment supplier by a change in regulations, see, e.g.,

Ballerina Pen Co. v. Kunzig, 433 F.2d 1204 (D.C. Cir. 1970),

cert. dismissed, 401 U.S. 950, 91 S.Ct. 1186, 28 L.Ed.2d 234

(1971); Ray Baillie Trash Hauling, Inc. v. Kleppe, 477 F.2d

696 (5th Cir. 1973); cert. denied, 415 U.S. 914, 94 S.Ct.

1410, 39 L.Ed.2d 468 (1974); Control Data Corporation v.

Baldridge, 655 F.2d 283 (D.C. Cir. 1981). Thus although

plaintiff has not pointed to any specific contract on which

it was wrongfully denied the opportunity to bid, plaintiff

has suffered an interruption of a long-standing relationship

with the government as a successful bidder on government

contracts. I therefore find that plaintiff has satisfied the

first part of the standing test.

B. Zone of Interest

Injury in fact alone is not sufficient to merit stan-

ding, however. Plaintiff must also demonstrate that its in-

terests fall ‘‘arguably within the zone of interests to be

A-33

protected or regulated’’ by the statutes or constitutional

guarantees relied upon. Sierra Club v. Morton, 405 U.S. 727,

733, 92 S.Ct. 1361, 31 L.Ed.2d 636 (1972), cited in American

Federation of Government Employees, AFL-CIO v. Stetson,

640 F.2d 642, 646 (5th Cir. 1981); Association of Data Pro-

cessing Service Organizations v. Camp, 397 U.S. 150, 153,

90 S.Ct. 827, 25 L.Ed.2d 184 (1970). Although this limita-

tion of the standing doctrine beyond injury in fact has been

termed “‘prudential’’ rather than constitutional, the duty to

apply this limitation in the instant case is nondiscretionary.

Contra, Peoples Gas, Light & Coke Co. v. U.S. Postal Ser-

vice, 658 F.2d 1182, 1202 (7th Cir. 1981) (Campbell, J., dissen-

ting). The Fifth Circuit has consistently applied this stan-

dard to complaints arising from agency action taken pur-

suant to a particular statutory mandate where there exists

no specific congressional authorization of review, as is the

case here.

Plaintiff seeks to avoid the application of the zone of

interest test by urging that it deserves standing in order to

prosecute the public interest in agencies not exceeding their

statutory mandates. In Scanwell Laboratories, Inc. v. Shaf-

fer, 424 F.2d 859 (D.C. Cir. 1970), the court held that a disap-

pointed bidder in a government procurement contract has

standing under the Administrative Procedure Act, 5 U.S.C.

§ 701, et seg. (‘‘APA”’), thereby dispensing with the old “‘legal

interest’’ test of Perkins v. Lukens Steel Co., 310 U.S. 113,

60 S.Ct. 869, 84 L.Ed. 1108 (1940), which had deprived un-

successful bidders standing to challenge the legality of bid-

ding procedures. The Scanwell court determined that allow-

ing disappointed bidders to bring suit would permit them

to ‘‘vindicate their very real interests’’ and further as well

“the public interest in having agencies follow the regulations

which control government contracting.’’ Jd. at 864, quoted

in Control Data Corp., 655 F.2d at 292.

A-34

Plaintiff here alleges not the failure of DOD to follow

its own procurement regulations in awarding a contract,

but rather the illegality of the regulations. After a careful

and detailed discussion of the problem of standing in the

bidder context, the D.C. Circuit Court declined to extend

the Scanwell rationale ‘‘beyond its ‘disappointed bidder’

context.’’ Control Data Corporation 655 F.2d at 292. Accor-

ding due respect to the expertise of the D.C. Circuit in

these matters, see Union Carbide Corporation v. Train, 73

F.R.D. 620, 622 (S.D.N.Y. 1977), I find that plaintiff here,

not having bid on a specific contract, cannot achieve stan-

ding under the Scanwell rationale.?

The zone of interest test focuses upon the proper

relationship between the legislative and judicial branches

of government, serving the purpose of ‘allowing courts to

define those instances where it believes the exercise of its

power at the instigation of a particular party is not con-

gruent with the mandate of a legislative branch in a par-

ticular subject area.’’ Control Data, 655 F.2d at 297

(D.C.Cir. 1981), quoting Tax Analysts and Advocates v.

y “Disappointed bidder’’ cases following Scanwell include Hayes

International Corporation v. McLucas, 509 R.2d 247 (5th Cir. 1975); Kin-

nett Dairies, Inc. v. Farrow, 580 F.2d 1260 (5th Cir. 1978); Union Carbide

v. Train, 73 F.R.D. 620 (S.D.N.Y. 1977); Merriam v. Kunzig, 476 F.2d

1233 (3d Cir.), cert. denied, 414 U.S. 911, 94 S.Ct. 233, 38 L.Ed.2d 149

(1973) (‘the statute protects not only the Government's interest in

securing advantageous contracts, but also the interest of those respon-

ding to the Government's invitation to do business with it.” Id. at 1242);

Goldhaber v. Foley, 519 F.Supp. 466, 480 (E.D.Pa. 1981); Collins & Co.

v. Clayton, 476 F.Supp. 407 (N.D.Ga. 1979).

See also J.H. Rutter Rex Manufacturing Co., Inc. v. U.S.A., et al,

Civil Action No. 77-3018 (E.D.La. March 6, 1978).

Cf. PRI Price Supports v. Tennessee Valley Authority, 494

F.Supp. 974 (N.D.Miss. 1980) (APA not sufficient basis for standing

where plaintiff's bid was non-responsive.)

A-35

Blumenthal, 566 F.2d 130, 140, (D.C.Cir.), cert. denied, 434

U.S. 1086, 98 S.Ct. 1280, 55 L.Ed.2d 791 (1978). To apply

the zone of interest test, this court must examine the

language of the relevant statutes, regulations, and

legislative history to discern whether Rutter Rex’s interest

arguably falls within the zone Congress intended to be pro-

tected or regulated. Control Data, 655 F.2d at 293.

“Slight’’ beneficial indicia will be sufficient to sustain a

party’s assertion of standing. Constructores Civiles de Cen-

troamerica, S.A. v. Hannah, 459 F.2d 1183, 1189 (D.C.Cir.

1972); Control Data, 655 F.2d at 295.

While small business bidders clearly fall within the

zone of protected interests of the Small Business Act and

the Armed Forces Procurement Act, Ray Baillie, 477 F.2d

at 701; Kinnett Dairies, 580 F.2d at 1265-66, the status of

a large bidder under these statutes is not settled. Plaintiff

argues that its near-preclusion!° from bidding on govern-

ment contracts contravenes the express interest of the

Small Business Act in promoting competition in the

American economic system. Plaintiff's interest in its own

economic well-being might be said to be arguably within

the zone sought to be protected by the Small Business Act

if the Act is read broadly to promote small business not on-

ly for the benefit of small business, but also for the well-

being of the nation.!1 Recognizing that analysis of the

10 The court does not hereby rule on plaintiff's claim that it

should be considered as a ‘‘frustrated’’ bidder, completely precluded

from bidding for any contracts, since plaintiff's lack of opportunity to

bid is contested by the defendants. It is significant, however, that the

frustrated bidder in Ballerina Pen Co. v. Kunzig, 433 F.2d 1204 (D.C.Cir.

1970), was found to be an intended beneficiary of the statute in question.

11 «The purposes of the Act would not be achieved, however, if

the aid to small business consisted of a structure which undermined the

vitality of other businesses within the industry. Inherent in such action

are the seeds of destruction of the same free system the Act is intended

A-36

question of standing requires the court to look at the par-

ty’s status and not at the merits of the case, and noting the

availability of the summary judgment proceeding under

Rule 56 of the Federal Rules of Civil Procedure to weed out

frivolous lawsuits, I read the language of the Small

Business Act, 15 U.S.C. § 631(a), to encompass plaintiff's

interest in economic viability within the parameters of the

zone of interests to be protected by the Act. Rutter Rex

thus meets the second prong of the standing test.

C. No Statutory Prohibition

The third part of the test is also met. None of the

relevant statutes expressly prohibits judicial review of

agency action, and the court ‘‘cannot infer a congressional

intent to preclude judicial review of agency actions which

are alleged to have subverted a clearly stated declaration of

policy.’’ Cincinnati Electronics Corporation v. Kleppe, 509

F.2d 1080, 1086 (6th Cir. 1975). Plaintiff alleges that DOD

actions and regulations undermine the arguably clear

policy of the Small Business Act and the Armed Forces

Procurement Act to enhance competition, and so gains

standing to contest their validity.

III. DISCUSSION

A. Constitutional Claim

Because of plaintiff's long-standing relationship with

the government as a supplier of military garments, plain-

tiff claims that the small business program, by greatly

(Footnote 11 continued)

to protect.’’ Duke City Lumber Co. v. Butz, 382 F.Supp. 362 (D.D.C.

1974), aff'd in relevant part, 539 F.2d 220 (D.C.Cir. 1976), cert. denied,

429 U.S. 1039, 97 S.Ct. 737, 50 L.Ed.2d 751 (1977).

re:

A-37

reducing the number of contracts on which it is able to bid,

operates to deprive it of a property interest without due pro-

cess of law in violation of the due process clause of the Fifth

Amendment. However, it has long been recognized that the

government, like private individuals and businesses, has the

power ‘‘to determine those with whom it will deal, and to

fix the terms and conditions upon which it will make need-

ed purchases.”’ Perkins, 310 U.S. at 127. In exercising this

power, of course, the government remains subject to the con-

stitutional requirement of due process. I cannot accept the

plaintiff's argument that the Department of Defense Small

Business Program is unconstitutional because the plaintiff

is disadvantaged competitively. ‘‘There is no constitutional

duty to offer government procurement contracts for com-

petitive bidding." Ray Baillie, 477 F.2d at 709; Crown Zeller-

bach Corp. v. Marshall, 441 F.Supp. 1110 (E.D.La. 1977) (de-

nying preliminary injunction requiring government to con-

tract with firms not meeting standard for affirmative action

plan). The DOD has chosen to encourage small business par-

ticipation in procurement contracts through the award of a

‘fair proportion”’ of contracts, drawing up industry classifica-

tions as it sees fit. No breach of its own procedures has been

alleged. ‘‘In the area of socio-economic legislation, the govern-

ment’s action must be upheld if it is rationally related to a

proper government purpose.’’ Ray Baillie, 477 F.2d at 709,

citing Dandridge v. Williams, 397 U.S. 471, 90 S.Ct. 1153,

25 L.Ed.2d 491 (1970). Certainly the small business program

passes constitutional muster. Plaintiff's claims of due pro-

cess violation are without merit.

B. Statutory Claim

Plaintiff additionally requests declaratory and injunc-

tive relief under the Administrative Procedure Act, 5 U.S.C.

§§ 702-706, on the grounds that the DOD small business

A-38

set-aside regulations contained in Part 7 of 32 C.F.R. are

arbitrary and capricious and in excess of statutory authori-

ty. Although the challenge to the validity of the regula-

tions may be decided solely by reference to the regulations

and their statutory authority, the wellspring of plaintiff's

dissatisfaction with the small business program is best ap-

preciated by examining the undisputed facts.

The clothing manufacturing industry involves con-

siderable participation by small business concerns, while

many other industries from which the government must

procure its equipment and supplies do not. As a result of

the differences among industries, varying proportions of

contracts are set aside for small business in each industry.

DOD small business set-asides in 1980 were 7.2% of total

awards, but in the contract categories for which plaintiff

would have liked to have bid, over 90% of the contracts

were set aside for plaintiff's smaller competitors. Plaintiff

claims to have been effectively excluded from the bidding

process. The regulations exceed statutory authority, plain-

tiff claims, because they fail to place a ceiling on set-asides

at some point below 100%, reserving to large business the

opportunity to compete for contracts in every industry, as

mandated by the ‘‘full and free competition’’ provisions of

the relevant statutes, the Small Business Act and the Arm-

ed Forces Procurement Act.

The Fifth Circuit rejected a similar challenge to a

program to award federal subcontracts to socially or

economicaliy disadvantaged small businesses in Ray

Baillie. The court’s reluctance to encroach upon agency

discretion is instructive:

The complex and volatile nature of problems,

including allocation of government procurement

A-39

contracts, often causes Congress to cast its statu-

tory provisions in general terms, leaving to the

agency the task of spelling out the specific regula-

tions and programs. In this manner, agency ex-

pertise may be fully employed in dealing with

such problems. The agency may evaluate the

competing alternatives and formulate the policy

best suited to the attainment of the statutory

goal. Furthermore, the agency is left free to res-

pond to the demands of changing circumstances

or conditions unanticipated by Congress. Indeed,

an agency could easily be prevented from serving

its intended purpose if burdened with specific

statutory regulations and programs.

So it is with the case at bar. Congress has

declared that the actual and potential capacity of

small business concerns must be developed and

that a fair proportion of total purchases and con-

tracts of the federal government must be placed

with such firms. 15 U.S.C. §631. It has given the

SBA the statutory authority and necessary

discretion in awarding subcontractors to ac-

complish that goal. The discretion as to which

firms shall receive subcontracts and the decision

as to what regulations shall govern procurement

is left to the SBA. 15 U.S.C. §637. It is not the

duty of the courts to evaluate the arguments

regarding allocation of government procurement

contracts or to consider the wisdom of the present

programs.

More recently, in Kinnett Dairies, the court address-

ed the DOD small business set-aside program:

The government's interpretation of the procure-

ment regulation is fully consistent with the

12477 F.2d 696, 703-4 (5th Cir. 1973).

A-40

statutory requirements of the Small Business Act

and the Armed Forces Procurement Act. These con-

trolling statutes simply require that a ‘fair propor-

tion’’ of government purchases and contracts be

placed with small businesses. Congress left it to

the agencies to implement the policy through re

lations and practices of their own construction. 3

Furthermore, congressional review of the issues

plaintiff raises in this action, together with congressional

failure to modify longstanding agency practice, mandate

that the administrative construction of the statutes be

followed by this court ‘unless there are compelling indica-

tions that it is wrong.’’ Florida v. Mathews, 526 F.2d 319,

324 (5th Cir. 1976). See also Red Lion Broadcasting Co. v.

FCA, 395 U.S. 367, 381, 89 S.Ct. 1794, 23 L.Ed.2d 371

(1969). Since the enactment of the ‘‘fair proportion”’

language in the Small Business Act and the Armed Forces

Procurement Act, Congress has frequently reviewed defen-

dants’ implementation of the small business set-aside

program. !4

The court’s task in searching for ‘‘compelling indica-

tions’’ that DOD interpretation of ‘‘fair proportion’’ is

1S 580 F.2d 1260, 1272 (5th Cir. 1978).

14 See, e.g., Congressional Hearings:

Small Business Procurement Expansion and Simplifica-

tion Act: Hearings Before the Subcomm. on Government

Procurement of the Senate Select Comm. on Small Business,

95th Cong., 2d Sess. (1978); DOD Procurement Policies and

Practices: Hearing Before the Subcomm. on Minority Enter-

prise and General Oversight of the House Comm. on Small

Business, 95th Cong., 2d Sess. (1978); Oversight Hearings

on Small Business Administration Programs and Activities:

Hearings Before the Subcomm. on SBA Oversight and

Minority Enterprise of the House Comm. on Small Business,

94th Cong., 2d Sess. (1976).

A-41

wrong is eased by the existence of a decision by the General

Accounting Office on a protest by this plaintiff to a DLA

small business set-aside. The Fifth Circuit explained in

Kinnett Dairies:

When actions of procurement officials have been

expressly validated by considered decision of the

GAO or are in compliance with a reasonably con-

sistent pattern of GAO determinations, the

courts should be extremely reluctant to overturn

such actions.

See also Wheelabrator Corp. v. Chafee, 455 F.2d 1306

(D.C.Cir. 1971); M. Steinthal & Co. v. Seamans, 455 F.2d

1289, 1305 (D.C.Cir. 1971).

Rutter Rex alleged in its protest in December, 1977,

that DLA’s set-aside program was not authorized by law,

unfairly denied it the opportunity to compete, and preclud-

ed the government from obtaining a fair and reasonable

price. The Comptroller General found:

What Congress intended by the phrase ‘‘fair pro-

portion,’ however, is not evident from either the

statutory language itself or any legislative

history....What is clear is that the broadly worded

statutory language refers to the totality of

Government procurement, i.e., small business is

to receive a fair proportion of the Government’s

total procurements. In other words, the fact that

small business concerns may receive a significant

portion of Government contracts in a particular

industry does not necessarily mean that they are

receiving more than a fair proportion of the

15 580 F.2d 1260, 1272 (5th Cir. 1978).

A-42

Government's total contracts. [cites omitted]!

See also Fermont Division, Dynamics Corporation of

America, Comp. Gen. B-195431, 13 (June 23, 1980). This

court can discover no reason to reverse the conclusion of

the Comptroller General's decision that ‘‘fair proportion”

refers to the totality of government procurements.

This court further finds no basis for complying with

plaintiff's request that agency small business set-asides be

suspended pending definition of ‘‘fair proportion’. Courts

have repeatedly held that broad, undefined statutory terms

grant complete discretion to the agency. See, e.g., Perkins

v. Bergland, 608 F.2d 803, 805-806 (9th Cir. 1979); Hi-Ridge

Lumber Co. v. United States, 443 F.2d 452, 455 (9th Cir.

1971).

C. Goal Practices

Plaintiff challenges not only the regulations discuss-

ed above, but also the internal DOD practice of setting

goals for the department’s set-asides and for total small

business awards. Congress amended the Small Business

Act in 1978 to encourage even greater efforts to increase

small business participation:

(g) The head of each Federal agency shall, after

consultation with the [Small Business] Ad-

ministration, establish goals for the participation

by small business concerns ... in procurement con-

tracts of such agency having values of $10,000 or

more. Goals established under this subsection

shall be jointly established by the Administration

and the head of each Federal agency and shall

16 J. H. Rutter Rex Manufacturing Co., Inc., Comp. Gen.

B-190905 (July 11, 1978).

A-43

realistically reflect the potential of small business

concerns ... to perform such contracts ....

15 U.S.C. § 644(g).17

The goal for small business participation required by

the Small Business Act applies to all awards to small

business from set-asides, unrestricted bidding, or any other

award procedure. The Department of Defense also sets a

goal for small business set-asides alone. To implement the

goals, the DOD sets a goal for the defense Logistics Agen-

cy (‘‘DLA’’), and DLA, in turn, sets goals for each of the six

supply centers under its jurisdiction, including the DSPC.

Until fiscal year 1981, DLA also assigned goals to each of

DPSC’s three directorates, ‘‘Clothing and Textiles’’, ‘‘Sub-

sistance’, and ‘‘Medical and Material’’, but now simply

sets goals for the entire Center.

In past years, higher goals were set for the Clothing

and Textile directorate of DPSC than for other directorates

because the clothing manufacturing industry is one which

involves considerable participation by small business con-

cerns. Even within the Clothing and Textile directorate,

few manufacturers for products in ‘‘textile’’ categories

qualify for the set-aside program. As a result, to meet even

a modest goal for set-asides in the Clothing and Textile

direct orate, or in DPSC, a high percentage of set-asides are

made in the clothing industry, and specifically in the three

contract categories in which plaintiff is prepared to bid.}8

1! The Department of Defense added a provision to the Defense

Acquisition Regulations in 1979 in compliance with the amendment: 32

C.F.R. § 1-705.6.

18 Rutter Rex has in the past bid on and competed successfully

for contracts to furnish items of sewing apparel to the defendants falling

within Federal Stock Classifications 8405—‘‘outerwear-men's’’; 8410—

outerwear-women's; and 8415—‘‘clothing, special purpose’.

A-44

The goals, claims plaintiff, are established on an an-

nual basis in a completely arbitrary fashion, but never-

theless serve as minimum quotas. Without a firm definition

of ‘‘fair proportion’’, the goal setting activity is arbitrary

and capricious, it is argued.

Plaintiff's challenge to the goals practices of DOD

and DLA which govern small business set-asides must fail.

The goals do not determine which contracts will be set

aside; the goals set are sometimes not attained. Their func-

tion is rather to gauge the effectiveness of the small

business program. As internal management tools, they do

not constitute final agency action reviewable under the Ad-

ministrative Procedure Act, 5 U.S.C. § 704.

IV. CONCLUSION

Although plaintiff has standing to invoke judicial

review of the DOD interpretation of the Small Business

Act and the Armed Forces Procurement Act, I find as a

matter of law that the challenged regulations are consis-

tent with DOD's statutory mandate. I further find that the

challenged goal practices carried out by defendants are not

final agency action amendable to review by this court.

Accordingly, summary judgment in favor of defen-

dants and defendants-intervenor is granted and plaintiff's

motion for summary judgment is denied.

UNITED STATES DISTRICT JUDGE

New Orleans, La.

February 19th, 1982.

A-45

APPENDIX “‘C”

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

NO. 82-3239

D. C. Docket No. CA-80-2865-"E”’

J. H. RUTTER REX MANUFACTURING CO., INC.,

Plaintiff-Appellant,

versus

UNITED STATES OF AMERICA, ET AL.,

Defendants-Appellees.

Appeal from the United States District Court for the

Eastern District of Louisiana

Before TUTTLE,* POLITZ and GARWOOD, Circuit

Judges.

JUDGMENT

This cause came on to be heard on the record on ap-

peal and was argued by counsel;

ON CONSIDERATION WHEREOF, It is now here

ordered and adjudged by this Court that the judgment of

the said District Court in this cause be, and the same is

hereby, affirmed;

* Circuit Judge of the Eleventh Circuit, sitting by designation.

A-46

IT IS FURTHER ORDERED that plaintiff-

appellant pay tc defendants-appellees the costs on appeal,

to be taxed by the Clerk of this Court.

JUNE 9, 1983

Issued as Mandate: July 5, 1983

A-47

APPENDIX “D”

CONSTITUTIONAL PROVISION INVOLVED

Amendment V to the United States Constitution

states, in pertinent part:

“‘No person shall be...deprived of life, liberty, or

property, without due process of law...”’

PRINCIPAL STATUTORY PROVISIONS INVOLVED

The Armed Forces Procurement Act, passed in 1947

to govern specifically military procurement declares:

“It is the policy of Congress that a fair proportion

of the purchases and contracts under this chapter

be placed with small business concerns.” [10

U.S.C. §2301-1976] (re-enacted, Pub. L. 97-86, 10

U.S.C. §2301(b)-1981)****

“Whenever formal advertising is required under

section 2304 of this title, the advertisement shall

be made a sufficient time before the purchase or

contract. The specifications and invitations for

bids shall permit such free and full competition as

is consistent with the procurement of the proper-

ty and services needed by the agency concerned.

we’ [10 U.S.C. §2305 (a)]

The Small Business Act provides in part:

“(a) The essence of the American economic

system of private enterprise is free competition.

Only through full and free competition can free

markets, free entry into business, and oppor-

tunities for the expression and growth of personal

initiative and individual judgment be assured.

A-48

The preservation and expansion of such competi-

tion is basic not only to the economic well-being

but to the security of this Nation. Such security

and well-being cannot be realized unless the ac-

tual and potential capacity of small business is

encouraged and developed. It is the declared

policy of the Congress that the Government

should aid, counsel, assist, and protect, insofar as

is possible, the interests of small-business con-

cerns in order to preserve free competitive enter-

prise, to insure that a fair proportion of the total

purchases and contracts or subcontracts for pro-

perty and services for the Government (including

but not limited to contracts or subcontracts for

maintenance, repair, and construction) be placed

with small business enterprises, to insure that a

fair proportion of the total sales of Government

property be made to such enterprises, and to

maintain and strengthen the.over-all economy of

the Nation.” [15 U.S.C. §631(a)]****

“‘(a) To effectuate the purposes of this chapter,

small-business concerns within the meaning of

this chapter shall receive any award or contract

or any part thereof, and be awarded any contract

for the sale of Government property, as to which

it is determined by the Administration and the

contracting procurement or disposal agency (1) to

be in the interest of maintaining or mobilizing the

Nation's full productive capacity, (2) to be in the

A-49

respect to the sale of electrical power or other pro-

perty by the Government or any agency thereof.

These determinations may be made for individual

awards or contracts or for classes of awards or

contracts. Whenever the Administration and the

contracting procurement agency fail to agree, the

matter shall be submitted for determination to

the Secretary or the head of the appropriate

department or agency by the Administrator. [15

U.S.C. §644(a)]

REGULATIONS INVOLVED

The general legisiative intent expressed in the Arm-

ed Forces procurement Act and in the Small Business Act

is carried over into DAR which contains the following, in

pertinent part (July 27, 1979):

“It is the policy of the Department of Defense to

place a fair proportion of its total purchases and

contracts for supplies, research and development,

and services’ (including contracts for

maintenance, repairs, and construction) with

small business concerns.”’ [32 C.F.R.

§1-702(a))****

“Small business concerns, both established and

potential suppliers (1-701.3 and 1-701.4), shall be

afforded an equitable opportunity to compete for

all contracts that they can perform.” [32 C.F.R.

§1-702(b)]

However, DAR contains the following additional

regulations, each of which, as written and as applied, is

specifically challenged in this action. The net effect of these

regulations is the accomplishment, by exceeding Congres-

sional intent, of a mandate to contracting officers

A-50

employed by the defendants to set aside 100% of the defen-

dants’ clothing procurement contracts for exclusive par-

ticipation by small business concerns. These regulations

are:

‘Once a product or service has been acquired suc-

cessfully by a contracting office on the basis of a

small business set-aside, all future requirements

of that office for that particular product or ser-

vice not subject to simplified small purchase pro-

cedures shall be acquired on the basis of a

repetitive set-aside. This procedure will be follow-

ed unless the contracting officer determines that

there is not a reasonable expectation that (i) offers

will be obtained from at least two responsible

small business concerns offering the products of

different small business concerns and (ii) awards

will be made at reasonable prices. Withdrawal of

a repetitive set-aside will be in accordance with

1-706.3.” [32 C.F.R. §1.706.1(f)]****

“None of the following is, in itself, sufficient

cause for not making a set-aside:

(i) a large percentage of previous acquisitions of

the item has been placed with small business

concerns;****

(vi) small business concerns are considered to be

receiving a fair proportion of total contracts for

supplies or services;"’ (32 C.F.R. §1-706.1(j)****

‘Subject to the order of precedence established in

1-706. 1(a), the entire amount of an individual ac-

A-51

exclusive small business participation (see

1-701.1) if the contracting officer determines that

there is reasonable expectation that (i) offers will

be obtained from at least two responsible small

business concerns offering the products of dif-

ferent small business concerns and (ii) awards will

be made at reasonable prices (see 1-706.3)(a)).

Total set-asides shall not be made unless such a

reasonable expectation exists. (But see 1-706.6 as

to partial set-asides.) Although past acquisition

history of the item or similar items is always im-

portant, it is not the only factor which should be

considered in determining whether a reasonable

expectation exists. In making R&D small busi-

ness set-asides, there must also be a reasonable

expectation of obtaining from small business the

best scientific and technological sources consis-

tent with the demands of the proposed acquisi-

tion for the best mix of cost, performances, and

schedules.”’ (32 C.F.R. §1-706.5(a)(1)]****

“Contracts for total small business set-asides

may be entered into by conventional negotiation

or by a special method of contracting known as

‘Small Business Restricted Advertising.’ The lat-

ter method shall be used wherever possible (see

also 3-201.3). Where multiyear contracting pro-

cedures are appropriate (see 1-322), total set-

asides may be made in connection therewith.

Solicitations shall be restricted to small business

concerns. Small Business Restricted Advertising,

including awards thereunder, shall be conducted

in the same way as prescribed for formal advertis-

ing in Section II, except that bids and awards will

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.