Petition for Writ of Certiorari — Arcwel Corp. v. Southwest Marine, Inc.

ts t

(1) * Supreme Court, U.S,

87 755 FILED

. OCT 2% 3887

; gOSEPH F. SPANTOL, JR. |

IN THE | Pei

SUPREME COURT OF THE UNITED

OCTOBER TERM, 1987

NO.

ARCWEL CORPORATION,

Petitioner,

versus

SOUTHWEST MARINE, INC. and

SAN DIEGO UNIFIED PORT DISTRICT,

Respondents.

PETITION FOR WRIT OF CERTIORARI

MICHAEL J. RADFORD :

PROCOPIO, CORY, HARGREAVES

AND SAVITCH

530 B Street, Suite 1900

San Diego, California 92101

Telephone: (619) 238-1900

Counsel of Record for

Petitioner Arcwel Corporation

QUESTIONS PRESENTED

Whether federal maritime law or state

law should be applied to determine the valid-

ity of a clause in a contract which limits

tort liability for the negligence of an oper-

ator of a land-based stationary dry dock?

Whether enforcement of such an excul-

patory clause in a contract for the use of a

Navy-owned and quasi-public dry dock is

barred by public policy.

(1)

LIST OF PARTIES

The parties to the proceedings below

were Arcwel Corporation, Southwest Marine,

Inc., the San Diego Unified Port District,

and Sipco Marine, Inc.

The parties before this Court are peti-

tioner, Arcwel Corporation,’ and Respondents

Southwest Marine, Inc. and the San Diego

Unified Port District.

1/ In its earlier pleadings, Petitioner

listed Superior Crane and Rigging, Inc. as an

affiliate pursuant to Supreme Court Rules,

Rule 28.1. As of this date, Arcwel is no

longer affiliated with Superior Crane and

Rigging.

(11)

TABLE OF CONTENTS

QUESTIONS PRESENTED .........--ee-- (i)

ge ge re (ii)

OPINIONS BELOW 2... ccccccccccscvce 2

JURISDICTION wccccccccccccscsccccees 2

STATEMENT OF THE CASE ....-cccccccece 3

A. Factual History ......... 3

B. Procedural History ...... 10

REASONS FOR GRANTING THE WRIT ..... 16

A. This Case Involves A

Conflict of Law

Between Federal And

State Law Which Has é

Not Been, But Should

Be, Resolved By This

COURE cseesesedveecesesssevne 16

B. The Ninth Circuit’s

Decision Conflicts

With A Decision of

California’s Highest

State Court On A

Non-federai Issue ....... 20

_ The Ninth Circuit’s

Decision Conflicts

With Decisions In

GERee CIPCULES ceiccececses 24

D. The Ninth Circuit’s

Decision Conflicts

With Decisions Of

_ 3S Be, 29

Page

CONCLUSION ..cccecccccecceeesencces 31

APPENDIX A (Opinion and Judg-

ment of Court of

Appeals, Order Deny-

ing Petition for

Rehearing, Judgment

of District Court,

Findings of Fact and

Conclusions of Law

of District Court) ... 1A

APPENDIX B (Statutes and Regulations) 1B

(iv)

TABLE OF AUTHORITIES

Page

CASES:

A & M Produce v. FMC Corp. (1982)

135 Cal.App.3d 473 wccccccccccsvees 20

Berwind-White Coal Mining Co. v.

City of New York (2d Cir. 1943)

135 F.2d 443 cccccccccseccccccccces 19

Bisso v. Inland Water Ways Corp.

i OR Xs a Se 29

D.M. Picton & Co. v. Eastes

(5th Cir. 1947) 160 F.2d 189

[cert. denied, 331 U.S. 859

ee re eee 19

Eastern Massachusetts Street Railway Co.

v. Transmarine Corp. (lst Cir. 1930)

42 F.2d SS cccccccccccccsccscscccses 19

Executive Jet Aviation v. Cleveland

(1972) 409 U.S. 249 ceccccccccscccs 19

Foremost Ins. Co. v. Richardson

(1982) 457 U.S. 668 cccccccccsccces 17

Foster Const. C.A. & Williams Bros. Co.

v. United States (1970) 435 F.2d

YE RPP rrererrrrrrerrrrrrerrrrerrierrry 25

Gardner v. Downtown Porsche Audi

(1986) 180 Cal. App.3d 713 ........ 23

Pelletier v. Alameda Yacht Harbor

(1986) 188 Cal. App.3d 1551 ....... 23

(v)

PE Ce ahinal LI set

,

Royal Ins. Co. of America v. Pier 39

Ltd. (9th Cir. 1984) 738 F2d.

1035 eeee#ee#ee#e#e#ee#e#e®# @eeeeee*eeseeesees3«eesrf7fe#e8seqeeee#ee#e®# 18

Salton Bay Marina, Inc. v. Imperial

Irrigation Dist. (1985) 172

Cal. APP.3d 914 wccccccccsccsesececs 24

Sea Land Industries, Inc. v. General

Ship Repair (D.C. Md. 1982)

530 F. Supp. 550 ccc ccc ccccccvceces 19

Tunkl v. Regents of the University

of California (1963) 60

CAL~.2G DS ceccccesccecseces esscvecse Bh, 29

United States Lines, Inc. v.

Maryland Port Administration ao

L9G1l A.M.C. BSP caevcesesevaessseee 31

West Golf Maritime Association v.

Galveston (1979) 1981:°A.M.C.

938 wcccccce ee Teer ecscscesecscececcece 31

STATUTES:

LO UneSeSe FSIOR ccccccssssesiecscecseccsees 28

a a | TS a nr 3

42 UebsGs. FSSD eee cvsscesecsssssssaves 28

SSA UsEsGe GASPS Kes sees ce cvvriiseseseae 2

Federal Acquisition Regulation

ep) ee Te a > ee ere ere 28

ee re ee eee 29

Pee ne BOL OOe 4s ea 0 bh 546 ae a aeee 30

FAM GOCTION S2.24SSL9 2c ccvcsrcscsesve 30

(vi)

NO.

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1987

ARCWEL CORPORATION,

Petitioner,

nis versus

SOUTHWEST MARINE, INC. and

SAN DIEGO UNIFIED PORT DISTRICT,

Respondents.

PETITION FOR WRIT OF CERTIORARI

Petitioner, Arcwel Corporation, 2/ res-

pectfully prays that a writ of certiorari

issue to review the judgment and opinion of

the United States Court of Appeals for the

Ninth Circuit entered in the above-entitled

proceeding on May 1, 1987, and finally

decided by an order denying Petitioner’s

petition for rehearing on June 29, 1987.

2/ Arcwel Corporation was erroneously

labeled "Arcwel Marine, Inc." in the opinion

of the Ninth Circuit. This usage is not

continued herein except in the opinion of the

Ninth Circuit contained in Appendix A.

- l-

OPINIONS BELOW

The opinion of the Court of Appeals for

the Ninth Circuit is reported at 816 F.2d

468, and reprinted in full at pages 1A-13A of

Appendix A. The order denying the Peti-

tioner’s petition for rehearing is reprinted

in Appendix A at pages 14A-15A.

The judgment and findings of fact and

conclusions of law of the United States

District Court for the Southern District of

California (Infante, Magistrate) are also

reprinted in Appendix A at pages 16A-36A.

JURISDICTION

Petitioner initiated the instant action

against respondent by way of a third-party

complaint which invoked the jurisdiction of

the United States District Court for the

Southern District of California under 42

U.S.C. $1332;

On April 15, 1986, the District Court

entered a judgment in favor of petitioner and

against respondent Southwest Marine, Inc.

See Appendix A, pages 16A.

Respondent appealed and, on May 1, 1987,

the Ninth Circuit reversed the District

Court’s judgment. See Appendix A, pages 1A-

13A. Petitioner’s petition for rehearing was

denied on June 29, 1987. Appendix A, pages

14A-15A.

On September 23, 1987, Justice O’Connor

ordered that the time for filing this peti-

tion for writ of certiorari be extended to

and including October 27, 1987. The juris-

diction of this. Court to review the judgment

and opinion of the Ninth Circuit is invoked

under 28 U.S.C. §1254(1).

STATEMENT OF THE CASE

A. Factual History.

Petitioner Arcwel Corporation (herein-

after "Arcwel") and Respondent Southwest

Marine, Inc. (hereinafter "Southwest") are

competitors. Both companies are engaged in

the business of building and repairing ships.

A great deal of the business of both compa-

nies is derived from United States Navy con-

tracts.

In April 1982, the Navy solicited bids

from San Diego ship builders to overhaul the

U.S.S. Dubuque. The bid invitation described

the work to be performed on the ship and pro-

vided prospective bidders with all pertinent

information concerning the facility at which

the work was required to be done (i.e., the

32nd Street Naval Dry Dock) .2/

In 1982, the 32nd Street Naval Dry Dock

was owned by the Navy and leased to the San

Diego Unified Port District ("Port

District"), a public corporation. One of the

purposes of the lease was to make the facil-

ity available to ship repair contractors

working on Navy ships. To accomplish this

purpose, the Port District contracted with a

3/ To aid prospective bidders in

determining their fixed bids, the bid

invitation included a description of the

services, equipment, etc. available at the

32nd Street Naval Dry Dock and an estimate of

the cost of dry dock services.

- 4-=-

private entity to operate and maintain the

32nd Street facility for use by Navy con-

tractors. The private entity responsible for

operating and maintaining the dry dock was

none other than Arcwel’s competitor,

Southwest.

Arcwel and Southwest bid against each

other on a Navy contract to overhaul the

U.S.S. Dubuque. Arcwel, as the low bidder,

was awarded the contract on July 8, 1982.

However, the work on the U.S.S. Dubuque was

not scheduled to commence until October 1982.

In preparation for the commencement of

work on the U.S.S. Dubuque, Arcwel signed an

agreement for the use of the 32nd Street

Naval Dry Dock with Southwest and the Port

District. The "User’s Agreement" -- the exe-

cution of which was required in order to

secure the use of the dry dock specified in

the Navy’s contract -- incorporated a local

dry dock tariff containing the following pro-

visions:

6.2 Disclaimer of Warranty

- 5 =-

Users should understand

that the Dry Dock is made

available on an "as is,

where is" basis without

warranty of any kind

either expressed or

implied. A User using

the Dry Dock should make

an independent inspection

and may not rely upon any

representation concerning

the condition or state of

repair of the Dry Dock or

any part hereof including

any promise to improve,

alter, adopt or repair

the Dry Dock or any part

thereof unless such rep-

resentation is made in

writing by the District.

Indemnification

Users shall defend,

indemnify, and hold harm-

less the District, the

Government, and the Dry

Dock Operator and Dock-

master and their respec-

tive officers, agents,

and employees against

causes of action, liabil-

ity, damage and expense,

including reasonable

attorney’s fees, for

judicial relief of any

kind, for damage to prop-

erty of any kind what-

soever and to whomever

belonging, including

without limitation, user

or its employees, or

injury or death of any

person or persons,

including without limita-

tion, user or its employ-

ees, resulting directly

or indirectly from the

granting and performance

of the User’s Agreement

or arising from the use

and operation of the Dry

Dock or any defect in any

part thereof or services

of the District, the

Government, the Dry Dock

Operator or the Dock-

master, or any of their

respected officers,

agents or employees.

Users shall be and remain

liable for any and all

claims, costs, expense

and loss or liability

arising from any _ act,

omission, fault or negli-

gence of its subcontrac-

tors, agents, employees,

invitees and guests and

shall defend, indemnify

and save the District,

the Government, the Dry

Dock Operator and the

Dockmaster, harmless

against all such claims,

costs, expense and loss

or liability incurred in

connection therewith,

including attorney’s

fees, for injury to or

death of persons or dam-

age or loss of property.

User also agrees to

release and hold the

District, the Government,

and the Dry Dock Operator

and Dockmaster and their

respective officers,

agents and employees,

harmless from any cost or

loss including loss of

property arising from

disruption to or delay in

User’s contract work do

to acts oor omissions

(including negligence) of

the District, the Govern-

ment, the Dry Dock Oper-

ator or Dockmaster in the

operation of the Dry Dock

so long as such parties

have acted in good faith.

The U.S.S. Dubuque was docked for refur-

bishing on October 5, 1982. Unfortunately,

during the period between bidding process and

the actual repairs, the 32nd Street Naval Dry

Dock had fallen into a state of disrepair.

Southwest -- which, in its capacity as a user

(rather than operator) of the dock, had just

finished refitting the U.S.S. Okinawa -- left

the dry dock dirty and in disrepair. The

dock was in "deplorable condition" -- "clut-

tered with trash and litter" and clogged with

sand from Southwest’s sandblasting operation

on the U.S.S. Okinawa. Appendix A, pages

23A-24A. Contrary to its obligations under

the User’s Agreement, */ Southwest had not

maintained the dry dock "so as to assure its

full availability and usefulness at all

times."

Before commencing repairs on the U.S.S.

Dubuque, Arcwel was forced to clean and

repair the dry dock. Furthermore, in order

to perform the heavy repairs required by the

Navy contract, it was necessary for Arcwel to

rent several land-based cranes to replace the

two malfunctioning gantry cranes which

(according to the bid invitation) were sup-

posed to be available at the dry dock. The

land-based cranes leased by Arcwel were, by

necessity, less efficient than the gantry

cranes. The unavailability of the gantry

cranes added to Arcwel’s labor costs and

adversely affected the work of Sipco Marine,

4/ The Operation and Maintenance Agreement

between the Port District and Southwest pro-

vided that Southwest would "maintain, protect

and repair the dry dock in accordance with

sound industrial practice and shall keep it

in good working order and operating condition

so as to assure its full availability and

usefulness at all times."

- 9Q-

Inc. (hereinafter "Sipco"), the subcontractor

hired to do the sandblasting work on the

U.S.S. Dubuque.

B. Procedural History.

On February 10, 1983, Sipco sued Arcwel

for amounts allegedly owed under the sand-

blasting subcontract. As part of that suit,

Sipco claimed that the unavailability of the

gantry cranes caused inefficiencies, slow-

downs and extra costs for the subcontracted

weet. Arcwel filed a third-party complaint

against the Port District and Southwest

alleging negligence, breach of contract under

a third-party beneficiary, and indemnity --

all based on allegations that the gantry

cranes were improperly repaired and main-

tained.

In defense, Southwest and the Port

District asserted the exculpatory provisions

of the local dry dock tariff precluded any

recovery by Arcwel. This defense was asser-

ted by Southwest and the Port District in two

- 10 -

summary judgment motions filed in December

1983. On February 3, 1984, the district

court (Nielsen, J.) granted the Port

District’s motion for summary judgment as to

all claims. Southwest’s summary judgment

motion was sustained as-to the third-party

beneficiary and indemnity counts.

On April 15, 1985, pursuant to stipula-

tion, Arcwel’s negligence claim was tried

before United States Magistrate Edward

Infante. After an eighty-day trial, the

magistrate entered judgment in favor of

Arcwel for $464,705.48, plus costs. In sup-

port of his judgment, Magistrate Infante

found (1) Southwest owed a legal duty to

Arcwel, as a user of the dry dock, to prop-

erly maintain and repair the gantry cranes in

accordance with sound industrial practice,

(2) Southwest violated this duty giving rise

to a cause of action in tort, (3) a tort

occurring on a stationary dry dock does not

invoke admiralty law, (4) under California

- ll -

law (which governed Arcwel’s tort action for

negligence), the exculpatory provisions

incorporated in the User’s Agreement were

unconscionable and therefore unenforceable.

On appeal, Arcwel challenged the dis-

trict court’s summary judgment orders on the

grounds, inter alia, that (1) the exculpatory

clauses in the User Agreement were unenforce-

able and therefore could not support summary

disposition of Arcwel’s claims -against the

Port District, (2) a question of law existed

as to whether Arcwel was an intended third-

party beneficiary of the lease agreement

between the Navy and the Port District, and

(3) the Port District was liable, under gen-

eral agency principles, for the negligence of

Southwest.

In its cross appeal, Southwest argued

that (1) California law was inapplicable to

Arcwel’s claims and, under federal maritime

law, the exculpatory clauses in the User’s

Agreement were enforceable, and (2) even if

California was applicable, the magistrate

erred in finding that the clauses were uncon-

scionable.

On May 1, 1987, the Court of Appeals for

the Ninth Circuit reversed Magistrate’s

Infante judgment against Southwest Marine and

affirmed the district court’s summary judg-

ment orders. In rendering its decision, the

Ninth Circuit side-stepped the conflicts of

law issue:

The choice of governing

law in this case presents

a close question cs

There is a split of

authority as to whether

maritime law applies to

such contracts. [Cita-

tion] Happily, we need

not resolve this diffi-

cult issue because we

reached the same conclu-

sion under either body of

law.

x rerenrrkrekk tk

Whichever law applies,

the clause shifting the

risk of loss due to

negligent maintenance to

Arcwel is enforceable,

shielding both Arcwel

[sic] and Southwest from

liability.

In analyzing California law,

Circuit reasoned as follows:

California courts have

generally upheld exculpa-

tory provisions so long

as they do not "affect

the public interest."

[Citaticn. ] However,

California courts have

emphasized that the pub-

lic interest exceptions

should not be applied to

invalidate exculpatory

clauses entered into

between commercial enti-

ties of equal bargaining

power. There is "no rea-

son" why one party, "hav-

ing determined, as a mat-

ter of business judgment,

at the price fixed justi-

fied assuming the risk of

loss, should now be

allowed to shift the risk

so assumed to [the other

party], which had neither

the Ninth

agreed to assume it nor .

been compensated for such

assumption." [Citations. ]

. »« Arcwel admits that,

when it submitted its bid

to the Navy, it was aware

that it would be [sic]

have to sign the User’s

Agreement and was famil-

iar with the terms.

Therefore, it had an

opportunity to make its

bargain based on the

entire package offered by

the Navy, including the

allocation of various

- 14 =

risks associated with the

project. If the package

as a whole was unaccept-

able, Arcwel could have

declined to bid. Or, it

could have increased its

bid price to take into

account the risk imposed

by the exculpatory

clause. We find the pub-

lic interest not seri-

ously implicated by this

provision. {[ Footnote

omitted. }

Under federal maritime law, the Ninth

Circuit found that the exculpatory clause in

this case "stands on even stronger footing."

The appellate court noted that "’absent evi-

dence of overreaching, clauses limiting lia-

bility in ship repair contracts will be

enforced.’ [Citations.]" The Ninth Circuit

did not equate the Magistrate’s findings of

adhesion with the requirement of overreach-

ing. The appellate court therefore found "no

evidence overreaching" in this case. >/

S/ Based on its conclusion that_ the

exculpatory clauses in the User’s Agreement

were valid, the Court of Appeals found that

the district court’s orders granting summary

judgment to Southwest and the Port District

"were correct."

- 15 =-

REASONS FOR GRANTING THE WRIT

The decision of the United States Court

of Appeals for the Ninth Circuit should be

reviewed by this Court for several reasons:

(1) This case involves a conflict of law

between federal and state law which has not

been, but should be, resolved by this Court,

(2) the Ninth Circuit’s decision conflicts

with a decision of California’s highest state

court on a non-federal issue, (3) the Ninth

Circuit’s decision conflicts with previous

decisions of this Court and (4) the Ninth

Circuit’s decision conflicts with the deci-

sions of other circuits concerning competi-

tive bidding in government contracts.

A. This Case Involves A Conflict

of Law Between Federal And

State Law Which Has Not Been,

But Should Be, Resolved By This

Court.

In its decision below, the Ninth Circuit

has side-stepped an important issue concer-

ning the choice of law in this case by con-

Cluding that it would reach the same result

- 16-

under either federal or state law. As dis-

cussed more fully below, petitioner submits

that there is a substantial difference

between California law and federal maritime

law concerning the enforceability of exculpa-

tory clauses such as found in this case.

Petitioner submits that a split of

authority has developed concerning whether

federal or state law applies to negligence

claims arising from the use and maintenance

of a land-based naval support facilities.

Under the criteria established by this Court

in Executive Jet Aviation v. Cleveland

(1972) 409 U.S. 249 and Foremost Ins. Co. v.

Richardson (1982) 457 U.S. 668, the proper

invocation of admiralty jurisdiction is

dependent on a number of factors including

(1) the locale of the allegedly tortious con-

duct, and (2) the nature of the activity

which is the subject of the action. In

applying this criteria to tort claims arising

from the use of land-based naval support

- 17 -

facilities, various circuit courts have come

to different conclusions.

As the Ninth Circuit noted in this case:

"There is a split of authority as to whether

maritime applies to [a contract for the use

of a dry dock]." Clearly Arcwel’s contract

with the Navy is subject to maritime law, but

its agreement with Southwest does not involve

a "traditional maritime activity," and the

application of maritime law in this case does

not "serve the interests that lie behind the

constitutional grant of admiralty jurisdic-

tion." See Royal Ins. Co. of America v. Pier

39 Ltd. (9th Cir. 1984) 738 F.2d 1035, 1037.

The application of maritime law is not

necessary to prevent Southwest, as operator

of the dry dock, from being subject to claims

leveled against it in distant foreign ports;

nor is the invocation of admiralty juris-

diction warranted based on the desirability

of a uniform approach to such contracts.

Royal Ins. Co. of America v. Pier 39 Ltd.,

- 18 -

supra at 1038. As stated by one court: A

contract for the maintenance of equipment on

a land-based pier "is no more closely con-

nected to maritime activity than would be

similar services performed on some other

fixed structure P . . ” Sea Land

Industries, Inc. v General Shop Repair (D.C.

Md. 1982) 530 F. Supp. 550, 560.

On the other hand, several courts have

held contracts relating to the construction

or maintenance of docks or wharves to be

within the federal courts’ admiralty juris-

diction. See Berwind-White Coal Mining Co.

v. City of New York (2d Cir. 1943) 135 F.2d

443; Eastern Massachusetts Street Railway Co.

v. Transmarine Corp. (lst Cir. 1930) 42 F.2d

58; and D.M. Picton & Co. v. Eastes (5th Cir.

1947) 160 F.2d 189 [cert. denied, 331 U.S.

859 (1947)]. Petitioner submits that these

cases are distinguishable on the ground that

the breach of the contracts in each case

caused a tort which clearly fell within the

- 19 =

court’s admiralty jurisdiction. Here, South-

west’s negligence is governed by California

law.

In any event, this issue has not yet

been resolved by this Court. Resolution of

the question is crucial to the determination

of the claims in this case, as well as the

claims of other litigants in pending and

future litigation.

B. The Ninth Circuit’s Decision

Conflicts With A Decision of

California’s Highest State Court

On A Non-federal Issue.

Furthermore, the Ninth Circuit’s opinion

(which concludes that the subject clause does

not offend California law) is contrary to

established precedent from the California

courts.

Under California law, contract provi-

sions which limit a party’s liability for his

own negligence are disfavored. A & M Produce

Vv. FMC Corp. (1982) 135 Cal.App.3d 473.

Where, as here, the exculpatory provision is

required on a "“take-it-or-leave-it" basis,

- 20 -

| aa

the contract will be carefully scrutinized.

Id. In a situation where the party to be

bound has no meaningful choice, California

courts have refused to recognize such con-

tractual limitations on liability. Tunkl v.

Regents of the University of California

(1963) 60 Cal.2d 92. If the exculpatory

clause goes so far as to adversely affect a

public interest, it will be held invalid.

Id.

In Tunkl, the California Supreme Court

held that an exculpatory clause should be

invalidated if it involves the transactions

that exhibit some, or all, of the following

characteristics:

It concerns a business of

a type generally thought

suitable for public regu-

lation. The party seek-

ing exculpations is

engaged in performing a

service of great impor-

tance to the _ public,

which is often a matter

of practical necessity

for some members of the

public. The party holds

himself out as willing to

perform this service for

any member of the public

- 21-

who seeks it, or at least

for any member’ coming

within certain estab-

lished standards. As a

result of the essential

nature of the service, in

the economic setting of

the transaction, the

party invoking exculpa-

tion possesses a decisive

advantage of bargaining

strength against any men-

ber of the public who

seeks his services. In

exercising a superior

bargaining power the

party confronts the pub-

lic with a standardized

adhesion contract of

exculpation and makes no

provision whereby a pur-

chaser may pay additional

reasonable fees and

obtain protection against

negligence. Finally as a

result of the trans-

action, the person or

property of the purchaser

is placed under the con-

trol of the seller, sub-

ject to the risk of care-

lessness by the seller or

his agents. Id. at 98-

101. (Footnote omitted.)

Magistrate Infante found the existence

of each of these characteristics in this

case. He concluded that the exculpatory

- 22 -

clause in the tariff was invalid under the

Tunkl standard.

The Ninth Circuit’s conclusion that

Tunkl is distinguishable because "the public

intesede [is] not seriously implicated by

[the exculpatory clauses in the User’s Agree-

mentj]" is not supported by established

California law. In Pelletier v. Alameda

Yacht Harbor (1986) 188 Cal. App.3d 1551, a

California court, applying the standards

enunciated in Tunkl, recently concluded that

a similar clause in a private mooring agree-

ment was ineffective to relieve the harbor

owner of liability for his negligence in con-

nection with the sinking of the moored vessel

during repairs. The court concluded that the

"(mooring] transaction exhibit[ed] all six of

the Tunkl characteristics." Id. at 1556; see

also Gardner v. Downtown Porsche Audi (1986)

180 Cal. App.3d 713 [clause exculpating

service station for negligence resulting in

damage to automobile during repairs found to

- 23-

be against public interest]; Salton _ Bay

Marina, Inc. v. Imperial Irrigation Dist.

(1985) 172 Cal. App.3d 914 #£x[exculpatory

clause in agreement which must, pursuant to

county ordinance, be executed by landowner

as a prerequisite to issuance of building

permit is void as against public policy].

Cc. The Ninth Circuit’s Decision

Conflicts With Decisions’ [In

Other Circuits.

The Ninth Circuit’s opinion also con-

flicts with established precedent aimed at

preserving competition in the federal pro-

curement and contracting process.

First, the opinion (which suggests that

Arcwel should have declined to bid or, in the

alternative, increased its bid price to take

into account the risk imposed by the exculpa-

tory clause) conflicts with federal procure-

ment policies aimed at keeping the cost of

government contracts down. The Ninth

Circuit’s decision is inconsistent, for

example, with federal policies which encour-

- 24 -

age government contractors to disregard con-

tingencies in a project which may increase

the ultimate cost to the parties. See Foster

Const. C.A. & Williams Bros. Co. v. United

States (1970) 435 F.2d 873, 887. By elimin-

ating the need to provide for such contin-

gencies, the Government is able to secure the

lowest possible bids from government con-

tractors. Id. In most cases, the work is

completed as anticipated at the agreed-upon

price. In the event changed circumstances

hamper the completion of the contract or sub-

stantially increase the cost to the contrac-

ting parties, an equitable adjustment proce-

dure is available to compensate the govern-

ment contractor for its additional expendi-

tures. Id. The Ninth Circuit’s decision in

this case encourages the inflation of bids on

government contracts. As such, it is con-

trary to sound federal procurement policy.

Second, the Ninth Circuit’s decision

condones the existence of an unfair competi-

- 25 -

tive advantage in the government contract

bidding process. Congress has enacted a

panoply of safeguards aimed at ensuring fair

and open competition in federal procurements.

See 10 U.S.C. §2304 and 41 U.S.C. §253

(Appendix B). These safeguards are scrupu-

lously adhered to by the Government in order

to secure a fair bargain for both parties.

Id.; see also Federal Acquisition Regulation

(FAR) section 1.101 et seq. (Appendix B).

In this case, Southwest’s position as

the operator of the 32nd Street Naval Dry

Dock gave it an unfair advantage over its

competitors in the Navy ship repair business.

Southwest was privy to information about the

condition of the dock which was unavailable

during the bidding process. Furthermore, the

evidence at trial established that South-

west’s role as the operator of the 32nd

Street Dry Dock placed it in a position to

ensure that all of the cranes were function-

ing for its work on the U.S.S. Okinawa, but

- 26 -

inoperable when its competitor, Arcwel, was

ready to commence repairs on the U.S.S.

Dubuque.

The Ninth Circuit’s opinion ignores the

competitive advantage given to Southwest in

this case, and penalizes Arcwel for circum-

stances beyond its control. In particular,

the Ninth Circuit’s decision is contrary to

federal procurement policy aimed at eliminat-

ing the competitive advantage given to con-

tractors like Southwest. This policy is

embodied in FAR section 45.102 which states:

"(Ijf contractors possess Government prop-

erty, [contracting] agencies shall .. .

[ejliminate to the maximum practical extent

any competitive advantage that might arise

from using such property." (Appendix B).

Third, the Ninth Circuit’s opinion

(which assumes that Arcwel’s bid on the

U.S.S. Dubuque contract was based on an

inspection of the dry dock and acceptance of

the facility "as is") ignores a practical

- 27 -

consideration which is present in every

government contract -- the amount of time

between the bidding process and the actual

performance of the bided work. This con-

sideration has been recognized in connection

with other public contracts requiring the use

of government-furnished property. FAR

Section 45.308, for example, permits enforce-

ment of “as is" provisions in contracts for

the use of government production and research

facilities only so far as to disclaim damages

for defects which existed at the time of the

offer of inspection during the bid solicita-

tion period. If there is any change in the

condition of the government-owned facility

between the solicitation period and the com-

mencement of work, the contractor is afforded

relief. FAR Section 52.245-19. (Appendix

B).

- 28 -

D. The Ninth Circuit’s Decision

Conflicts With Decisions Of

This Court.

Finally, the Ninth Circuit’s decision

conflicts with a prior precedent of this

Court.

The seminal case in maritime law, which

holds that a party may not contract against

liability for its own negligence, is Bisso v.

Inland Water Ways Corp. (1955) 349 U.S. 85.

Although Bisso involved a release from lia-

bility provision in a contract between a tug-

boat and its tow, the case has been cited by

many courts and the Federal Maritime Commis-

sion®/ for the proposition that indemnity

clauses in the tariffs of public dock facil-

ities are void as a matter of law. See West

Golf Maritime Association v. Galveston (1979)

1981 A.M.C. 938 and United States Lines, Inc.

v. Maryland Port Administration (1980) 1981

5/ Decisions of the Federal Maritime

Commission, as an agency with substantial

expertise in this area, have been given great

deference by the federal courts. Maryland

Port Administration v. S.S. American Legend

(D.Maryland 1978) 453 F.Supp. 584, 593

- 29 -

A.M.C. 952. Such an interpretation is con-

sistent with the opinion of this Court.

Justice Black, writing for the Court, stated:

This rule is merely a

particular application of

the towage business of a

general rule long used by

courts and legislatures

to prevent enforcement of

release from negligence

contracts in many rela-

tionships such as bailors

and bailees, employers

and employees, public

service companies and

their customers. 349

U.S. at 90-91.

In contrast, the Ninth Circuit has adop-

ted the position that a contract for the use

of a dry dock somehow differs from a towage

agreement and therefore a clause limiting

liability in connection with the use of a dry

dock is enforceable "absent evidence of over-

reaching." Petitioner submits that review of

the Ninth Circuit’s decision in this case is

necessary to avoid a misinterpretation of

this Court’s decision in Bisso.

- 30 -

CONCLUSION

For the foregoing reasons, it is

respectfully submitted that the petition for

writ of certiorari should be granted.

Respectfully submitted,

MICHAEL J. RADFORD

PROCOPIO, CORY, HARGREAVES

AND SAVITCH

Counsel of Record for

Petitioner Arcwel

Corporation

Appendix A

Be tha ey 3 sah wos HI Ay AR af Ui oie ks Se Ray ee he ale Bh an OST OGD BE 9 Mar

ee Se eee ee” ee ee ee Se ee

ae ‘ ‘

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ARCWEL MARINE, INC, )

) Nos. 86-5882;

Third-party Plaintiff/) 86-5889

Appellee/Cross~-Appeliant, )

) D.C. No.

vs. ) CV-83-0342-N(I)

)

SOUTHWEST MARINE, INC., ) OPINION

)

Third-party Defendant/)

Appellant/Cross-Appellee )

)

and )

SAN DIEGO UNIFIED PORT )

DISTRICT, )

)

Third-party Defendant/)

Cross~Appellee. )

)

Argued and Submitted

March 4, 1987 -- Pasadena, California

Filed May 1, 1987

Before: Thomas Tang, Arthur L. Alarcon and

Alex Kozinski, Circuit Judges.

Opinion by Judge Kozinski

Appeal from the United States District Court

for the Southern District of California

Leland C. Nielsen, District Judge, and

Edward A. Infante, Magistrate, Presiding

SUMMARY

Contracts

Appeal from magistrate’s judgment and dis-

trict Court’s summary judgment orders. The

magistrate’s judgment is reversed; the dis-

trict court’s summary judgment orders are

affirmed.

This action arises from appellee Arcwel

Corporation’s contract with the United States

Navy to overheu the U.S.S. Dubuque. Pursu-

ant to that contract, Arcwel signed a User’s

Agreement with cross-appellee the San Diego

Unified Port District (District) which

included a clause exculpating the District or

appellant Southwest Marine -- which main-

tained and repaired the dry dock -- for any

losses arising from disruption, delay or

negligence. Arcwel’s subcontractor subse-

quently filed suit against Arcwel and Arcwel

in turn filed a third-party action against

the District and Southwest. The district

ee

court granted summary judgment for the Dis-

trict as to all claims and for Southwest as

to all but the negligence claim. A magis-

trate entered judgment against Southwest as

to negligence, refusing to give effect to the

exculpatory clause on the grounds of uncon-

scionability.

[1] There is split authority as_ to

whether maritime law applies to the User’s

Agreement -- a contract for the use of a dry

dock. [2] California courts have generally

upheld exculpatory provisions so long as they

do not affect public interest. [3] Arcwel

was aware when it submitted its bid that it

would have to sign the User’s Agreement and

was familiar with its terms. It could have

declined to bid, or increased its price to

take into account the risk imposed by the

exculpatory clause. Therefore, the public

interest is not seriously implicated by the

provision. [4] Under maritime law, absent

evidence of overreaching, clauses limiting

liability in ship repair contracts will be

enforced.

COUNSEL

Peter J. Ippolito, San Diego, California, for

the appellee/cross-appellant.

C. Douglas Alford, San Diego, California, for

the appellant/cross-appellee.

OPINION

KOZINSKI, Circuit Judge:

We consider whether an _ exculpatory

clause in a contract for use of a dry dock,

itself an integral part of a Navy procurement

contract package, was unenforceable’ on

grounds of unconscionability.

Facts

Arcwel Corporation ("Arcwel") was

awarded a contract by the United States Navy

to overhaul the U.S.S. Dubuque. The contract

required that the overhaul be perforned ata

Navy-owned dry dock that was under lease to

the San Diego Unified Port District ("Port

District"). The dry dock lease obligated the

Port District to maintain the leased property

and "keep it in good working order and oper-

ating condition so as to assure full avail-

ability and usefulness at all times." The

Port district in turn entered into a contract

with Southwest Marine, Inc. ("Southwest")

for the maintenance and repair of the dry

dock facility.

Pursuant to its contract with the Navy,

Arcwel signed a User’s Agrement with the Port

District. The User’s Agreement provided that

Arcwel would indemnify and hold harmless the

Port District and Southwest for any losses

arising out of the docking or undocking of

any vessel. The User’s Agreement also incor-

porates a dry dock tariff, which contains a

Clause exculpating the Port District and

Southwest for any loss arising from disrup-

tion, delay or negligence, "so long as [the]

parties have acted in good faith." The

tariff also provides that the dry dock is

made available on an "as is, where is" basis,

"without warranty of any kind either express

or implied."

The dry dock was equipped with two

gantry cranes, the Wellman and the Myerstein.

The lease listed one of these cranes as

included in the leased property; a map

attached to the lease showed both cranes; and

the Tariff provided that the Myerstein and,

at certain time, the Wellman were available

for use.

Unfortunately, when Arcwel got down to

the business of performing the overhaul it

discovered that neither crane could be used

effectively. The U.S.S. Dubuque was docked

October 5, 1982. The Wellman did not become

available until October 12 and even then did

not function properly. The Myerstein was

finally made available November 6. In the

meantime, Arcwel had to rent ¥ land-based

cranes as substitutes. Land-based cranes are

less efficient than gantry cranes, adding to

Arcwel’s labor costs. The unavailability of

the gantry cranes also adversely affected the

6-A

work of Sipco Marine, Inc. (Sipco), the sub-

contractor hired to do sandblasting work on

the U.S.S. Dubuque.

Proceedings Below

Sipco sued Arcwel for amounts allegedly

owed under the sandblasting subcontract. As

part of that suit Sipco claimed that the

unavailability of the gantry cranes caused

inefficiencies, slowdowns and extra cost for

the subcontracted work. Arcwel filed a

third-party complaint against the Port Dis-

trict and Southwest alleging negligence,

breach of contract under a third-party bene-

ficiary theory, and indemnity, all based on

allegations that the gantry cranes were

improperly repair and maintained. The dis-

trict court granted the Port District’s

motion for summary judgment as to all claims.

In addition, the district court granted

Southwest’s summary judgment motion as to the

third-party beneficiary and indemnity counts,

leaving only the negligence claim pending.

7-A

ee ee aT ae ee y

The parties proceeded trial before a

magistrate. The magistrate entered final

judgment after trial in favor of Arcwel for

$464,705.48 plus costs for the negligent

failure to maintain the gantry cranes. He

refused to give effect to the exculpatory

clause in the User’s Agreement on grounds of

unconscionability.

Southwest appeals the magistrate’s deci-

sion; Arcwel cross-appeals from the district

court’s summary judgment order.

Discussion

Southwest challenges the magistrate’s

ruling that the exculpatory clause was uncon-

scionable and therefore unenforceable under

California law. The magistrate based that

conclusion on his finding that Southwest and

the Port District were in a superior bargain-

ing position and that Arcwel had no choice

but to perform the work on the dry dock

offered. Southwest argues that the magis-

trate should have applied maritime law, not

California law, in interpreting the contract.

8-A

Southwest also claims that, whichever law

applies, the clause should be enforced. The

magistrate’s factual findings are reviewed

under the clearly erroneous standard, while

his conclusion that the clause was uncon-

scionable raises a question of law subject to

de novo review. See Co-efficient Energy

Systems v. CSL Industries, Inc. No. 86-5862,

slip op. at 4 (9th Cir. March 11, 1987). The

choice of law determination is also reviewed

de novo. Phillips v. Amoco Trinidad Oil Co.,

632 F.2d 82, 84 (9th Cir. 1980), cert.

denied, 451 U.S. 920 (1981).

[1] The choice of governing law in this

case presents a close question. The contract

between the Navy and Arcwel is one for the

repair of a vessel, traditionally subject to

maritime law. See Kossick v. United Fruit

Co., 365 U.S. 731, 735 (1961). On the other

hand, the exculpatory clause is part of the

User’s Agreement between Arcwel and the Port

District, a contract for the use of a dry

dock. There is a split of authority as to

9-A

whether maritime law applies to such con-

tracts. See, e.g., Royal Ins. Co. of America

v. Pier 39, Ltd., 738 F.2d 1035, 1037-38 (9th

Cir. 1984) (insurance policy on dry dock not

within admiralty jurisdiction, citing cases

on maintenance of docks) .2/ Happily, we need

not resolve this difficult issue because we

reach the same conclusion under either body

of law.

1. California law

[2] California courts have generally

upheld exculpatory provisions so long as they

do not “affect the public interest." Tunkl v.

Regents of the Univ. of Cal., 60 Cal.2d 92,

96, 32 Cal.Rptr. 33, 383 P.2d 441 (1963).

However, California courts have emphasized

that the public interest exception should not

be applied to invalidate exculpatory clauses

af We note that exercise of admiralty jur-

isdiction and the application of maritime law

are not necessarily coextensive. The court

may exercise diversity jurisdiction, as it

did in this case, and still apply principles

of maritime law. See, e.g., Kermarec v.

Compagnie Generale Transatlantique, 358 U.S.

625, 628 (1959).

10-A

entered into between commercial entities of

equal bargaining power. There is "no reason"

why one party, "having determined, as a mat-

ter of business judgment, that the price

fixed justified assuming the risk of loss,

should now be allowed to shift the risk so

assumed to [the other party], which had

neither agreed to assume it nor been compen-

sated for such assumption." Delta Air Lines,

Inc. v. Douglas Aircraft Co., 238 Cal.App.2d

95, 47 Cal.Rptr. 518, 524 (1965); see also

Philippine Airlines, Inc. Vv. McDonnell

Douglas Corp. 87 Daily J. D.A.R. 613, 615

(Ist Dist. Cal.App. Feb. 11, 1987).

[3] The commercial context presented by

this case raises equities far different from

those of the helpless patient entering the

hospital in Tunkl. Arcwel admits that, when

it submitted its bid to the Navy, it was

aware that it would be have to sign the

User’s Agreement and was familiar with the

terms. Therefore, it had an opportunity to

make its bargain based on the entire package

11-A

»ffered by the Navy, including the allocation

»f various risks associated with the project.

[ff the package as a whole was unacceptable,

\rcwel could have declined to bid. ge &

could have increased it bid price to take

into account the risk imposed by the exculpa-

-ory clause. We find the public interest not

seriously implicated by this provision.2/

2. Maritime law

[4] If we analyze the contract under

naritime law, the exculpatory clause stands

on even seeisidiaie footing. Clear precedent

1i0lds that, "absent evidence of overreaching,

slauses limiting liability in ship repair

contracts will be enforced." M/V American

Jueen v. San Diego Marine Const. Corp. 708

af Indeed, insofar as the public interest

is implicated here at all, it cuts against

\rcwel’s position. The User’s Agreement was

oart of a package offered by the Navy pursu-

ant to a competitive bid procedure for the

award of a public contract. All bidders sub-

nitted their proposals based on the terms set

forth in the bid documents. To allow the

successful bidder to change a key term retro-

actively would be unfair to the other bid-

jers; such post-hoc renegotiation of the con-

tract’s terms could also seriously undermine

the government’s procurement process.

12-A

',.2d 1483, 1488 (9th Cir. 1983), see also

forton v. Zidell Explorations, Inc. 695 F.2d

347, 350 (9th Cir. 1982), cert. denied, 460

JS. 1039 (1983). We find no evidence of

yverreaching here.

Conclusion

Whichever law applies, the clause shift-

ng the risk of loss due to negligent main-

-enance to Arcwel is enforceable, shielding

oth Arcwel and Southwest from liability.

siven the validity of the exculpatory clause,

-he district court’s orders granting summary

judgment to Southwest and the Port District

vere correct.

The magistrate’s judgment against

southwest Marine (No. 86-5882) is REVERSED;

the district court’s summary judgment orders

appealed by Arcwel Corp. (No. 86-5889) are

AFFIRMED.

427A

IN THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

rea kkkkkkkkeekekkekkekkeRKRKESE

.RCWEL MARINE, INC., Nos. 86-5882

86-5889

Third-party Plaintiff/

Appellee/Cross-Appellant, D.C. No.

CV-83-0342-N(I)

Ve

SOUTHWEST MARINE, INC.,

Appellant/Cross-Appellee,

and

SAN DIEGO UNIFIED PORT

JISTRICT,

Third-party Defendant/

Cross-Appellee.

SEESESEEESESE SESE EELS ES SF FS

*

*

*

*

*

*

*

*

*

*

Third-party Defendant/ * ORDER

*

*

*

*

*

*

*

*

*

*

Before: TANG, ALARCON and KOZINSKI,

Sircuit Judges.

The panel has voted to deny the petition

‘or rehearing and to reject the suggestion

“or rehearing en banc. ”

The full court has been advised of the

suggestion for en banc rehearing and no judge

»9f the court has requested a vote on the sug-

yjestion for rehearing en banc. Fed. R. App.

14-A

35(b). The petition for rehearing is

enied, and the suggestion for a rehearing en

anc is rejected.

15-A

iT

ria,

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

RCWEL CORPORATION,

CASE NO.

Third-Party Plaintiff, 83-0342-(I1)

Vs. JUDGMENT

SUTHWEST MARINE, INC., —

Third-Party Defendant.

ee eee ee ee ee ee ee”

This action came on for trial before the

surt, United States Magistrate Edward A.

ifante Presiding, and the issues having been

ily tried and a decision having been ren-

>red,

IT IS ADJUDGED that third-party plain-

iff Arcwel Corporation recover from third-

arty defendant Southwest Marine, Inc. the

ym of $464,705.48 together with costs of

stion.

ATED: April 15, 1986

/b/ Edward A. Infante

EDWARD A. INFANTE

UNITED STATES MAGISTRATE

spy to:

ll Counsel

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

Civil No.

83-0342-(I)

ARCWEL CORPORATION,

)

)

« Third-Party Plaintiff, )

) FINDINGS OF

vs. ) FACT AND CON-

) CLUSION OF LAW

SOUTHWEST MARINE, INC., )

)

)

)

Third-Party Defendant.

The trial of third-party plaintiff,

Arcwel Corp. ("Arcwel"), for damages against

third-party defendant, Southwest Marine, Inc.

("SWM"), came on regularly for trial without

a jury on April i5, 1985, in Courtroom A of

the above-entitled court before United States

Magistrate Edward A. [Infante sitting by

Stipulation as the trial judge pursuant to 28

U.S.C. §636(c).

Arcwel was represented by Peter J.

Ippolito and Oscar Irwin of Hillyer & Irwin.

SWM was represented by C. Douglas Alford and

Daniel B. MacLeod of Alford & MacLeod.

17-A

This Court having received evidence both

oral and documentary and heard arguments of

counsel the matter was taken under submis-

sion. Having considered the same and being

fully advised in the premises, this Court

makes the following findings of fact and con-

clusions of law:

FINDINGS OF FACT

1. Arcwel is a California corporation

engaged in the ship repair and overhaul busi-

ness with its principal place of business in

San Diego, California.

2. SWM is a California corporation

engaged in the ship repair and overhaul busi-

ness with its principal place of business in

San Diego, California.

3. On July 8, 1982, Arcwel was awarded

a fixed price Master Ship Repair Contract by

the United States Navy for the overhaul of

the USS DUBUQUE for the sum of $8,169,868.

Both Arcwel and SWM are certified by the Navy

to overhaul Navy vessels. SWM, along with

other local bidders submitted a bid to over-

18-A

haul the USS DUBUQUE. During the bidding

process for the USS DUBUQUE, SWM, as the dry

dock operator, published information to all

prospective bidders regarding the estimated

amount that it would cost the low bidder to

dry dock the USS DUBUQUE for one (1) haul day

and thirty-nine (39) lay days, as well as the

estimated cost of other dry dock services.

4. The Navy awarded the contract to

Arcwel after determining that Arcwel was the

lowest qualified bidder to perform the over-

haul work. Prior to accepting Arcwel’s bid,

the Navy asked Arcwel for verification for

the accuracy of its bid. In response to the

Navy’s request, Arcwel verified the amount of

its bid. neeninate original bid for the

entire job was a firm fixed price of

$8,169,780.

5. The Invitation for Bid issued by the

Navy in conjunction with this bid required

the overhaul to take place at the Naval

Station Graving Dock, San Diego, California.

The graving dock is a fixed stationary dry

dock owned by the Navy.

6. From July 3, 1976, to February 28,

1983, the dry dock facility with specifically

identified equipment and realty was leased by

the Navy to the San Diego Unified Port

District ("Port District") under a written

lease.

7. After the Port District was granted

a lease by the Navy to operate the dry dock

facility, the Port District contracted with

SWM on or about September 22, 1981, to oper-

ate and maintain the dry dock facility. The

Operation and Maintenance Agreement was in

effect during the period of the dry dock

evolution for the USS DUBUQUE. SWM, as oper-

ator of the dry dock, was initially notified

that the dry docking of the USS DUBUQUE was

scheduled for October 12, 1983.

8. Arcwel, as the successful low bidder

for the overhaul, was required to execute a

User’s Agreement with the Port District that

established the obligations of the parties

20-A

with regard to the use of the dry dock facil-

ity by hreust for the overhaul. This agree-

ment was a. standard form contract containing

exculpatory provisions that Arcwel was

required to sign as a condition precedent to

performing the overhaul. Thus, Arcwel was

not in a position to negotiate any of the

terms or conditions contained in the User’s

Agreement but was required to accept the

Agreement without change. Arcwel was com-

pelled to accept the User’s Agreement as a

whole or reject it in its entirety. The

exculpatory provisions contained in the

User’s Agreement is in a land-based contract,

not a contract for ship repair.

9. Initially, Arcwel was obligated to

pay $305,893 to the Port District as the dry

dock user fee. As a result of the extended

period that the USS DUBUQUE remained in dry

dock, the dry dock user fee increased an

additional $167,000.

10. The leases and agreements, when

read together, establish SWM’s' independent

21-A

obligation as the operator of the dry dock

facility to maintain the leased property in

accordance with sound industrial practice and

to keep the facility, including the gantry

cranes, in good working order so as to assure

the full availability and usefulness of the

facility at all times. SWM was required to

perform the normal maintenance program in a

timely manner pursuant to the terms of the

agreement.

11. Gantry cranes Nos. 4 and 8 are

included in Exhibit IV, Normal Maintenance

Program, and made part of the Operation and

Maintenance Agreement. One gantry crane at

the dry dock (the Meyerstein or No. 4) was

specifically included in the lease between

the Navy and the Port District. The second

gantry crane located at the dry dock (the

Wellman or No. 8) was at all times relevant

to this action the sole property of the Navy.

The Wellman is functionally identical to the

Meyerstein except that it has a slightly

greater lifting capacity.

22-A

12. Prior to Arcwel’s entry into the

User’s Agreement with the Port District for

repair of the USS DUBUQUE, SWM had executed a

User’s Agreement with the Port District to

use the dry dock to repair the USS OKINAWA.

SWM’s User’s Agreement with the Port District

required SWM to leave the dry dock in as good

a condition as when they first occupied it.

They did not.

13. SWM was first advised by the Navy

and/or Arcwel at a docking conference on

September 30, 1982, that the beginning of the

dry dock period was being advanced from

October 12, 1982, to October 5, 1982. The

Navy’s acceleration of the USS DUBUQUE dry

dock evolution cut the amount of time avail-

able between the undocking of the USS OKINAWA

and the docking of the USS DUBUQUE. The USS

DUBUQUE entered the stationary dry dock on

October 5, 1982, and was undocked on December

5, 1982.

14. When SWM turned over the dry dock

facility to Arcwel on October 5, 1982, the

23-A

facility was in deplorable condition. The

dry dock was Cluttered with trash and litter

and had not been properly cleaned in the base

of the dock or its surrounding area as

required by their written agreement with the

Port District.

15. SWM failed to properly maintain the

gantry cranes in good working condition

despite its ability to repair them. On May

10, 1982, SWM identified to the Port District

a major problem in the Wellman crane and

requested authorization to have repairs made.

SWM repeated its request for authorization to

make repairs to the Wellman crane on July 26,

1982, and advised the Port District that

repairs were necessary at a cost of approxi-

mately $1,000. Both SWM and the Port Dis-

trict knew the Wellman crane had mechanical

problems about five months before the USS

DUBUQUE was to be dry docked.

16. Pursuant to the Operation and Main-

tenance Agreement, SWM was authorized to

expend up to $90,000 per fiscal year for

24-A

maintenance, protection, and repair of the

dry dock facility without prior approval from

the Port District. SWM did not need prior

written consent for emergency repairs. The

Wellman crane had been previously repaired,

and the Port District was billed for those

repairs.

17. Prior to the docking of the USS

DUBUQUE, Arcwel had been advised that the

Myerstein gantry crane would be available for

use. However, on or about October 4, 1982,

Arcwel discovered that the Myerstein was

inoperable in that it would travel on the

track without being bump started and towed or

pushed with a forklift. It was hazardous and

contrary to sound industrial practice to use

a gantry crane in such a manner. The

Myerstein was unavailable to Arcwel from

October 5 through November 5, 1982.

18. The Wellman gantry crane which was

located on the spur track had been inoperable

Since May of 1982. Repairs were commenced on

or about October 5, 1982. On October 12,

25-A

1982, it was made available to Arcwel. How-

ever, it was in deplorable condition and

could not be operated efficiently. The

engine leaked water necessitating extraor-

dinary efforts by Arcwel to keep it operable.

The fuel lines leaked. The electrical system

was faulty with lollypop sticks propped in

the circuit breakers. Arcwel experienced

daily breakdowns and problems with the

Wellman crane.

19. The unavailability of the gantry

cranes during the dry docking of the USS

DUBUQUE was the result of the failure of SWM

to properly carry out the scheduled main-

tenance required by the Operation and Main-

tenance Agreement as specified in Exhibit A-

51. SWM failed to maintain the gantry cranes

in accordance with sound industrial practice

as to assure their availability to drydock

users.

20. As a result of the unavailability

of operable gantry cranes, Arcwel rented

land-based mobile cranes. They were supplied

26-A

by Superior Crane & Rigging Co. ("Superior

Crane") during the drydock evolution of the

USS DUBUQUE without obtaining competitive

bids from other mobile cranes. Arcwel and

Superior Crane have common ownership to some

degree; however, it is not unusual for ship

repair contractors to have an ownership

interest in crane and rigging companies.

Arcwel -acted reasonably in continuing to

lease cranes from Superior Crane because both

cranes were unavailable, unreliable, and

unsafe. Arcwel had no property interest or

ownership whatsoever in the dry dock or any

of its equipment.

21. Land-based cranes cannot perform

the dry dock evolution as efficiently as the

granty cranes; land-based cranes do not have

the capacity of gantry cranes and require

additional labor.to operate.

22. No gantry cranes were available at

all during the most critical phase of the dry

dock evolution. The unavailability of the

Wellman and Meyerstein cranes in good working

27-A

ESS

condition caused substantial delays in laying

the blocks in the dry dock; removing ship

parts for overhaul; sandblasting by subcon-

tractor, Sipco Marine, Inc.; and performing

other functions in the dry dock evolution.

This caused labor inefficiency and excessive

overtime and double time costs by Arcwel.

The government-approved billing rate estab-

lished in July of 1982 for the overhaul of

Navy vessels was $29.52 per hour.

23. The unavailability of both gantry

cranes caused Arcwel to sustain damages in

the nature of rental costs, labor ineffici-

ency and labor overtime expenses. Damages

flowing from the disruption of the overhaul

of the USS DUBUQUE are difficult to calcu-

late. Arcwel need only show its damages with

reasonable certainty, and SWM must bear the

risk of uncertainty created by its wrong.

Plaintiff’s expert Ralph Clements, has used a

reasonable method of assessing and calculat-

ing damages proximately caused by the

unavailability of gantry cranes. Mr.

28-A

ee

Clements’ calculations take into account

overruns caused by other factors.

24. The total damage to Arcwel for the

rental of additional cranes caused by the

unavailability of the gantry cranes amounted

to $129,683.

25. The total damage to Arcwel for the

labor inefficiency caused by the unavail-

ability of the gantry cranes amount to

$335,022.48 ($11,349 overrun hours x $29.52

billing rate).

26. Although Arcwel expended labor

costs for overtime during the dry dock evolu-

tion, it is not possible from the evidence to

determine what portion of the overtime costs,

if any, were caused by the unavailability of

the gantry cranes. Other problems which

occurred during dry docking, unassociated

with the cranes, caused disruption delays,

thereby impacting on overtime costs. More-

over, the evidence fails to establish that

overtime costs incurred were excessive beyond

normal expectations. Arcwel’s damage expert,

29-A

Mr. Clements, made assumptions in Schedule D

of his report (Exhibit A-49) which are unsup-

ported by an evidentiary basis. Conse-

quential damages for "excessive" overtime

costs have not been established as the proxi-

mate result of the unavailability of the

gantry cranes.

27. All findings stipulated to as con-

tained in the Amended Pretrial Order of March

18, 1985, are hereby adopted.

CONCLUSIONS OF LAW

1. The Court has ancillary jurisdiction

over this case based on the diversity juris-

diction of the original complaint, Sipco v.

Arcwel, pursuant to 28 U.S.C. §1332(a)(1).

The original action was between citizens of

different states, and the amount in contro-

versy exceeded $10,000 exclusive of interest

and costs.

2. California law governs the validity

and interpretation of the October 1, 1982,

User’s Agreement between Arcwel Corporation

and the Port District and the September 22,

30-A

1981, Operation and Maintenance Agreement

between the Port District and SWM.

3. California law governs the validity

and interpretation of the July 3, 1976, lease

agreement and all supplemental agreements

between the United States of America and the

Port District.

4. California law governs the exculpa-

tory provision contained in the User’s Agree-

ment, page 3, paragraph 5.

5. A stationary dry dock is not a ves-

sel for purposes of admiralty jurisdiction.

6. Overhauling a ship is not a tradi-

tional maritime activity.

7. A tort occurring on a stationary dry

dock does not invoke admiralty law.

8. Arcwel’s claim is not a maritime

tort barred under admiralty law.

9. California law, not admiralty law,

governs this tort action for negligence.

10. SWM owed a legal duty to Arcwel, as

a user of the dry dock, to properly maintain

and repair the gantry cranes known as the

31-A

Meyerstein and Wellman pursuant to the Opera-

tion and Maintenance Agreement between SWM

and the Port District and in accordance with

sound industrial practice.

11. Arcwel was entitled to the use of

both gantry cranes in its dry docking opera-

tion.

12. SWM was obligated to supply or

arrange tor the supplying of required equip-

ment by others when equipment was needed that

was not provided as part of the dry dock.

13. Even though there was no privity of

contract between Arcwel and SWM regarding the

use of the dry dock, SWM, as operator of the

dry dock, owed a legal duty to Arcwel under

the doctrine of J’Aire Corp. v. Gregory, 24

Cal.3d 799 (1979). The Operation and Main-

tenance Agreement between the Port District

and SWM was clearly in tended affect future

dry dock users. The harm to a dry dock user

in the overhaul of a ship occasioned by the

unavailability of inoperable gantry cranes

was clearly foreseeable. The connection

32-A

between SWM’s conduct and the injuries suf-

fered by Arcwel is established with a high

degree of certainty. SWM, as the exclusive

operator of the dry dock and as a direct com-

petitor with Arcwel, was morally responsible

in preventing harm to Arcwel. J’Aire Corp.

v. Gregory, supra; and Biakanja v. Irving, 49

Cal.2d 647 (1958).

14. The duty of care owed by SWM to

Arcwel is measured by SWM’s obligations under

the Operation and Maintenance Agreement. The

Operation and Maintenance Agreement is of

significance to this action only in creating

a legal duty in tort.

15. SWM breached its duty to Arcwel by

failing to properly maintain the Meyerstein

and Wellman gantry cranes and keep them in

proper working order for dry dock users.

16. Breach of duty by SWM caused damage

to Arcwel in that but for the breach, Arcwel

would not have incurred substitute crane

rental costs and labor inefficiency damages.

33-A

17. SWM’s conduct is a material element

and substantial factor in bringing about harm

to Arcwel and the proximate cause of Arcwel’s

loss.

18. SWM may not escape liability by

attempting to show that other causes may have

contributed to Arcwel’s damages.

19. SWM was negligent in performing its

responsibilities as dry dock operator of the

Naval Station dry dock.

20. The validity of the exculpatory

provision contained in the User’s Agreement

is not governed by admiralty law.

21. SWM and the Port District were in

superior bargaining positions at the time of

contract.

22. Arcwel was bound to perform its

work on the USS DUBUQUE in the subject dry

dock.

23. SWM and the Port District had a

“monopolistic grip on the one dry dock in San

Diego that Arcwel could use to overhaul the

USS DUBUQUE.

34-A

24. The exculpatory provision could not

be altered through negotiation.

25. The exculpatory clause and its

results are unconscionable and were uncon-

scionable at the time of contract.

26. An exculpatory clause in a contract

entered into between parties of unequal bar-

gaining power expressed in a standardized

contract written by the more powerful bar-

gainer to meet its own needs is invalid where

the public interest is affected.

27 The exculpatory provisions contained

in the User’s Agreement is unenforceable.

28. Arcwel incurred damages proximately

caused by the negligence of SWM due to labor

inefficiencies from the lack of gantry cranes

in the amount of $335,022.48 ($11,349 overrun

hours x $29.52 billing rate).

29. Arcwel incurred damages proximately

caused by the negligence of SWM due to rental

costs of substitute gantry cranes in the

amount of $129,683.

35-A

30. Arcwel need only show its damages

with reasonable certainty, and SWM must bear

the risk of uncertainty created by its wrong.

31. Consequential damages for "“exces-

sive" overtime costs have not been estab-

lished as the proximate result of the negli-

gence of SWM.

32. Arcwel is entitled to an award of

$464,705.48 ($335,022.48 plus $129,683) plus

costs.

DATED: April 15,1986

/s/ Edward A. Infants

EDWARD A. INFANTE

UNITED STATES MAGISTRATE

Copies to:

All Counsel

36-A

Appendix B

§ 253. Competition requirements

(a) Procurement through full and open compe-

tition; competitive procedures

(1) Except as provided in subsections

(b), (c), and (g) of this section and except

in the case of procurement procedures other-

wise expressly authorized by statute, an exe-

cutive agency in conducting a procurement for

property or services--

(A) shall obtain full and open

competition through the use of competitive

procedures in accordance with the require-

ments of this chapter and the modifications

to regulations promulgated pursuant to

section 2752 of the Competition in

Contracting Act of 1984; and

(B) shall us the competitive pro-

cedure or combination of competitive proce-

dures that is best suited under the circum-

stances of the procurement.

(2) In determining the competitive pro-

cedures appropriate under the circumstance,

an executive agency--

(A) shall solicit sealed bids if--

(i) time permits the solici-

tation, submission, and evaluation of sealed

bids;

(ii) the award will be made

on the basis of price and other price-related

factors;

(iii) it is not necessary to

conduct discussions with the responding

sources about their bids; and

(iv) there is a reascnable

expectation of receiving mere than one sealed

bid; and

(B) shall request competitive pro-

posals if sealed bids are not appropriate

under clause (A).

(b) Exclusion of particular source; restric-

tion of solicitation to small business con-

cerns |

(1) An executive agency may provide for

the procurement of property of property or

services covered by this section using compe-

titive procedures but excluding a particular

source in order to establish or maintain any

alternative source or sources of supply for

that property or service if the agency head

determines that to do so--

(A) would increase or maintain

computation and would likely result in

reduced overall costs for such procurement,

or for any antiuieaked procurement, of such

property or services;

(B) would be in the interest of

national defense in having a facility (or a

producer, manufacturer, or other supplier)

available for furnishing the property or ser-

vice in case of a national emergency or

industrial mobilization; or

(C) would be in the interest of

national defense in establishing or main-

taining an essential engineering, research,

or development capability to be provided by

an educational or other nonprofit institution

or a federally funded research and develop-

ment center.

(2) An executive agency may provide for

the procurement of property or services

covered by this section using competitive

procedures, but excluding other than small

business concerns in furtherance of sections

638 and 644 of Title 15.

(3) A contract awarded pursuant to the

competitive procedures referred to in para-

graphs (1) and (2) shall not be subject to

the justification and approval required by

subsection (f)(1) of this section.

(c) Use of noncompetitive procedures

An executive agency may use procedures

other than competitive procedures only when--

(1) the property or services needed by

the executive agency are available from only

one responsible source and no other type of

property or services will satisfy the needs

of the executive agency;

(2) the executive agency’s need for the

property or services is of such an unusual

and compelling urgency that the Government

would be seriously injured unless the execu-

tive agency is permitted to limit the number

of sources from which it solicits bids or

proposals;

(3) it is necessary to award the con-

tract to a particular source or sources in

order (A) to maintain a facility, producer,

manufacturer, or other supplier available for

furnishing property or services in case of a

national emergency or to achieve industrial

mobilization, or (B) to establish or maintain

an essential enginewring, research, or

development capability to be provided by an

educational or other nonprofit institution or

a federally funded research and development

center;

(4) the terms of année international

agreement or treaty between the United States

Government and a foreign government or

international organization, or the written

directions of a foreign government reim-

bursing the executive agency for the cost of

procurement of the property or services for

such government, have the effect of requiring

\

the use of procedures other than competitive

procedures;

(5) a statute expressly authorizes or

requires that the procurement be made through

another executive agency or from a specified

source, or the agency’s need is for a brand-

name commercial item for authorized resale;

(6) the disclosure of the executive

agency’s needs would compromise the national

security unless the agency is permitted to

limit the number of sources from which it

solicits bids or proposals; or

(7) the head of the executive agency--

(A) determines that it is neces-

sary in the public interest to use procedures

other than competitive procedures in the par-

ticular procurement concerned, and

(B) notifies the Congress in

writing of such determination not less than

30 days before the award of the contract.

(d) Property or services deemed available

from only one source; nondelegable authority

(1) For the purposes of applying sub-

section (c)(1) of this section--

(A) in the case of a contract for

property or services to be awarded on the

basis of acceptance of an unsolicited

research proposal, the property or services

shall be considered to be available from only

one source if the source has submitted an

unsolicited research proposal that demon-

strates a unique and innovative concept the

substance of which is not otherwise available

to the United States and does not resemble

the substance of a pending competitive pro-

curement; and

(B) in the case of a follow-on

contract for the continued development or

production of a major system or highly

specialized equipment when it is likely that

award to a source other than the original

source would result in (i). substantial dup-

lication of cost to the Government which is

not expected to be recovered through compe-

tition, or (ii) unacceptable delays in ful-

filling the executive agency’s needs, such

property may be deemed to be available only

from the original source and may be procured

through procedures other than competitive

procedures.

(2) The authority of the head of an

executive agency under subsection (c)(7) of

this section may not be delegated.

(e) Offer requests to potential sources

An executive agency using procedures

other than competitive procedures to procure

property or services by reason of the appli-

cation of subsection (c)(2) or (c)(6) of this

section shall request offers from as many

potential sources as is practicable under the

circumstances.

(f) Justification for use of noncompetitive

procedures

(1) Except as provided in paragraph

(2), an executive agency may not award a con-

tract using procedures other than competitive

procedures unless--

(A) the contracting officer for

the contract justifies the use of such pro-

cedurc : in writing and certifies the accuracy

and completeness of the justification;

(B) the justification is

approved--

(i) in the case of a contract

for an amount exceeding $100,000 (but equal

to or less than $1,000,000), by the competi-

tion advocate for the procuring activity

(without further delegation) ;

(ii) in the case of contract

for an amount exceeding $1,000,000 (but equal

to or less than $10,000,000), by the head of

the procuring activity or a delegate who, if

a member of the armed forces, is a general or

flag officer or, if a civilian; is serving in

a position in grade GS-16 or above under the

General Schedule (or in a comparable or

higher position under another schedule); or

(iii) in the case of a con-

tract for an amount exceeding $10,000,000, by

the senior procurement executive of the

agency designated pursuant to section 414(3)

of this title (without further delegation) ;

and

(C) any required notice has been

published with respect to such contract pur-

suant to section 416 of this title and all

bids or proposals received in response to

such notice have been considered by such

executive agency.

(2) In the case of a procurement per-

mitted by subsection (c)(2) of this section,

the justification and approval required by

paragraph (1) may be made after the contract

is awarded. The justification and approval

required by paragraph (1) is not required--

(A) when a statute expressly

requires that the procurement be made from a

specified source;

(B) when the agency’s need is for

a brand-name commercial item for authorized

resale;

10-B

(C) in the case of a procurement

permitted by subsection (c)(7) of this

section; or

(D) in the case of procurement

conducted under (i) the Act of June 25, 1938

(41 U.S.C. 46 et seq.), popularly referred to

as the Wagner-O’Day Act, or (ii) section

637(a) of Title 15.

(3) The justification required by para-

graph (1)(A) shall include--

(A) a description of the agency’s

needs;

(B) an identification of the sta-

tutory exception from the requirement to use

competitive procedures and a demonstration,

based on the proposed contractor’s qualifica-

tions or the nature of the procurement, of

the reasons for using that exception;

(C) a determination that the anti-

cipated cost will be fair and reasonable;

(D) a description of the market

survey conducted or a statement of the

reasons a market survey was not conducted;

11-3

(E) a listing of the sources, if

any, that expressed in writing an interest in

the procurement; and

(F) a statement of the actions, if

any, the agency may take to remove or over-

come a barrier to competition before a sub-

sequent procurement for such needs.

(4) The justification required by para-

graph (1)(A) and any related information

shall be made available for inspection by the

public consistent with the provisions of

section 552 of Title 5.

(3) -tn me case may an executive

agency-- |

(A) enter into a contract for pro-

perty or services using procedures other than

competitive procedures on the basis of the

lack of advance planning or concerns related

to the amount of funds available to the

agency for procurement functions; or

(B) procure property or services

from another executive agency unless’ such

other executive agency complies fully with

12-B

the requirements of this chapter in its pro-

curement of such property or services.

The restriction set out in clause (B) in

addition to, and not in lieu of, any other

restriction provided by law.

(g) Simplified procedures for small pur-

chases

(1) In order to promote efficiency and

economy in contracting and to avoid unneces-

sary burdens for agencies and contractors,

the regulations modified, in accordance with

section 2752 of the Competition in Con-

tracting Act of 1984, shall provide for spe-

cial simplified procedures for small pur-

chases of property and services.

(2) For the purposes of this chapter, a

small purchase is a purchase or contract for

an amount which does not exceed $25,000.

(3) A proposed purchase or contract for

an amount above $25,000 may not be divided

into several purchases or contracts for les-

ser amounts in order to use the small pur-

chase procedures required by paragraph (1).

(4) In using small purchase procedures,

an executive agency shall promote competition

to the maximum extent practicable.

§ 2304. Contracts: competition require-

ments.

(a) (1) Except as provided in subsections

(b), (c), and (g) and except in the case of

procurement procedures otherwise expressly

authorized by statute, the head of an agency

in conducting a procurement for property or

services--

(A) shall obtain full and open

competition through the use of competitive

procedures in accordance with the require-

ments of this chapter and the modifications

to regulations promulgated pursuant to

section 2752 of the Competition in Contract-

ing Act of 1984; and

(B) shall us the competitive pro-

cedure or combination of competitive proce-

dures that is best suited under the circum-

stances of the procurement.

14-B

(2) In determining the competitive pro-

cedure appropriate under the circumstances,

the head of an agency--

(A) shall solicit sealed bids if--

(i) time permits the solici-

tation, submission, and evaluation of sealed

bids;

(ii) the award will be made

on the basis of price and other price-related

factors;

(iii) it is not necessary to

conduct discussions with the responding

sources about their bids; and

(iv) there is a reasonable

expectation of receiving more than one sealed

bid; and

(B) shall request competitive pro-

posals if sealed bids are not appropriate

under clause (A).

(b) (1) The head of an agency may provide

for the procurement of property or services

covered by this chapter using competitive

procedures but excluding a particular source

15-3

in order to establish or maintain an alterna-

tive source or sources of supply for that

property or service if the head of the agency

determines that to do so--

(A) would increase or maintain

competition and would likely result in

reduced overall costs for such procurement,

or for any anticipated procurement, of pro-

perty or services;

(B) would be in the interest of

national defense in having a facility (or a

producer, manufacturer, or other supplier)

available for furnishing the property or ser-

vice in case of a national emergency or

industrial mobilization; or

(C) would be in the interest of

national defense in establishing or main-

taining an essential engineering, research,

or development capability to be provided by

an educational or other nonprofit institution

or a federally funded research and develop-

ment center.

(2) An executive agency may provide for

the procurement of property or _ services

covered by this section using competitive

procedures, but excluding other than small

business concerns in furtherance of sections

9 and 15 of the Small Business Act (15 U.S.C.

638; 644).

(3) A contract awarded pursuant to the

competitive procedures referred to in para-

graphs (1) and (2) shall not be subject to

the justification and approval required by

subsection (f) (1).

(c) The head of an agency may use procedures

other than competitive procedures only when--

(1) the property or services needed by

the agency are available from only one res-

ponsible source and no other type of property

or services will satisfy the needs of the

agency;

(2) the agency’s need for the property

or services is of such an unusual and con-

pelling urgency that the United States would

be seriously injured unless the agency is

permitted to limit the number of sources from

which it solicits bids or proposals;

(3) it is necessary to award the con-

tract to a particular source or sources in

order (A) to maintain a facility, producer,

manufacturer, or other supplier available for

furnishing property or services in case of a

national emergency or to achieve industrial

mobilization, or (B) to establish or maintain

an essential engineering, research, or

development capability to be provided by an

educational or other nonprofit institution or

a federally funded research and development

center;

(4) the terms of an international

agreement or a treaty between the United

States and a foreign government or interna-

tional organization, or the written direc-

tions of a foreign government reimbursing the

agency for the cost of the procurement of the

property or services for such government,

have the effect of requiring the use of pro-

cedures other than competitive procedures;

18-B

(5) a statute expressly authorizes or

requires that the procurement be made through

another agency or from a specified source, or

the agency’s need is for a brand-name commer-

cial item for authorized resale;

(6) the disclosure of the agency’s

needs would compromise the national security

unless the agency is permitted to limit the

number of sources from which it solicits bids

or proposals; or

(7) the head of the agency--

(A) determines that it is neces-

sary in the public interest to use procedures

other than competitive procedures in the par-

ticular procurement concerned, and

(B) notifies the ieciinidite in

writing of such determination not less than

30 days before the award of the contract.

(da) (1) For the purposes of applying sub-

section (c) (1)--

(A) in the case of a contract for

property or services to be awarded on the

basis of acceptance of an_- unsolicited

research proposal, the property or services

shall be considered to be available from only

one source if the source has submitted an

unsolicited research proposal that demon-

strates a unique and innovative concept the

substance of which is not otherwise available

to the United States and does not resemble

the substance of a pending competitive pro-

curement; and

(B) in the case of a follow-on

contract for the continued development or

production of a major system or highly spe-

cialized equipment when it is likely that

award to a source other than the original

source would result in (i) substantial dupli-

cation of cost to the United States which is

not expected to be recovered through competi-

tion, or (ii) unacceptable delays in ful-

filling the agency’s needs, such property may

be deemed to be available only from the ori-

ginal source and may be procured through pro-

cedures other than competitive procedures.

(2) The authority of the head of an

agency under subsection ((c)(7) may not be

delegated.

(e) The head of an agency using procedures

other than competitive procedures to procure

property or services by reason of the appli-

cation of subsection (c)(2) or (c)(6) shall

request offers from as many potential sources

as is practicable under the circumstances.

(f) (1) Except as provided in paragraph

(2), the head of an agency may not award a

contract using procedures other than competi-

tive procedures unless -

(A) the contracting officer for

the contract justifies the use of such pro-

cedures in writing and certifies the accuracy

and completeness of the justification;

(B) the justification is approved-

(i) in the case of a contract

for an amount exceeding $100,000 (but equal

to or less than $1,000,000), by the competi-

tion advocate for the procuring activity

(without further delegation) ;

(ii) in the case of a contract

for an amount exceeding $1,000,000 (but equal

to or less than $10,000,000), by the head of

the procuring activity or a delegate who, if

a member of the armed forces, is a general or

flag officer or, if a civilian, is serving in

a position in grade GS-16 or above under the

General Schedule (or in a comparable or

higher position under another schedule); or

(iii) in the case of a contract

for an amount exceeding $10,000,000, by the

senior procurement executive of the agency

designated pursuant to section 16(3) of the

Office of Federal Procurement Policy Act (41

U.S.C. 414(3)) (without further delegation) ;

and

(C) any required notice has been

published with respect in such contract pur-

suant to section 18 of the Office of Federal

Procurement Policy Act and all bids or pro-

posals received in response to that notice

have been considered by the head of the

agency.

22-B

ane lee) emma ne oe

(2) In the case of a procurement per-

mitted by subsection (c)(2), the justifica-

tion and approval required by paragraph (1)

may be made after the contract is awarded.

The justification and approval required by

paragraph (1) is not required-

(A) when a statute expressly

requires that the procurement be made from a

specified source;

(B) when the agency’s need is for

a brand-name commercial item for authorized

resale;

(C) in the case of a procurement

permitted by subsection (c) (7); or

(D) in the case of a procurement

conducted under (i) the Act of June 25, 1938

(4) U.S.C. 46 et seq.), popularly referred to

as the Wagner-O’Day Act, or (ii) section 8(a)

of the Small Business Act (15 U.S.C. 637(a)).

(3) The justification required by para-

graph (1)(A) shall include-

(A) a description of the agency’s

needs;

(B) an identification of the sta-

tutory exception from the requirement to use

competitive procedures and a demonstration,

based on the proposed contractor’s qualifica-

tions or the nature of the procurement of the

reasons for using that exception;

(C) a determination that the anti-

cipated cost will be fair and reasonable;

(D) a description of the market

survey conducted or ae statement of the

reasons a market survey was not conducted;

| (E) a listing of the sources, if

any, that expressed in writing an interest in

the procurement; and .

(F) a statement of the actions, if

any, the agency may take to remove or over-

come any barrier to competition before a sub-

sequent procurement for such needs.

(4) The justification required by para-

graph (1)(A) and any related information

shall be made available for inspection by the

public consistent with the provisions of

section 552 of a title 5.

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(5) In no case may the head of an

agency-

(A) enter into a contract for pro-

perty or services using procedures other than

competitive procedures on the basis of the

lack of advance planning or concerns related

to the amount of funds available to the

agency for procurement functions; or

(B) procure property or services

from another agency unless such other agency

complies fully with the requirements of this

chapter in its procurement of such property

or services.

The restriction contained in clause (B)

is in addition to, and not in lieu of, any

other restriction provided by law.

(g) (1) In order to promote efficiency and

economy in contracting and to avoid unneces-

Sary burdens for agencies and contractors,

the regulations modified in accordance with

section 2752 of the Competition in

Contracting Act of 1984 shall provide for

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special simplified procedures for small pur-

chases of property and services.

(2) For the purposes of this chapter, a

small purchase is a purchase or contract for

an amount which does not exceed $25,000.

(3) A proposed purchase or contract for

an amount above $25,000 may not be divided

into several purchases or contracts for les-

ser amounts in order to use the small pur-

chase procedures required by paragraph (1).

(4) In using small purchase procedures,

the head of an agency shall promote competi-

tion to the maximum extent practicable.

(h) For the purposes of the following laws,

purchase or contracts awarded after using

procedures other than sealed-bid procedures

shall be treated as if they were made with

sealed bid procedures:

(1) The Act entitled "An Act to provide

conditions for the purchase of supplies and

the making of contracts by the United States,

and for other purposes," approved June 30,

1936 (commonly referred to as the "Walsh-

Healey Act") (41 U.S.C. 35-45).

(2) The Act entitled "An Act relating

to the rate of wages for laborers and mecha-

nics employed on public buildings of the

United States and the District of Columbia by

contractors and subcontractors, and for other

purposes," approved March 3, 1931 (commonly

referred to as the "Davis-Bacon Act" (40

U.S.C. 276a-276a-5).

(i) (1) The Secretary of Defense shall pre-

scribe by regulation the manner in which the

Departuent of Defense negotiates prices for

supplies to be obtained through the use of

procedures other than competitive procedures,

as defined in section 2303(2) of this title.

(2) The regulations required by para-

graph (1) shall-

(A) specify the incurred overhead

a contractor may appropriately allocate to

supplies referred to in that paragraph; and

(B) require the contractor to

identify those supplies which it did not

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manufacture or to which it did not contribute

significant value.

(3) Such regulations shall not apply to

an item of supply included in a contract or

subcontract for which the price is based on

established catalog or market prices of conm-

mercial items sold in substantial quantities

to the general public.

§ 45.102. Policy.

Contractors are ordinarily required to

furnish all property necessary to perform

Government contracts. However, if contrac-

tors possess Government property, agencies

shall-

(a) Eliminate to the maximum . practical

extent any competitive advantage that might

arise from using such property;

(b) Require contractors to use Government

property to the maximum practical extent in

performing Government contracts;

(c) Permit the property to be used only when

authorized;

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"

(ad) Charge appropriate rentals when the pro-

perty is authorized for use on other than a

‘ rent-free basis;

(e) Require contractors to be responsible

and accountable for, and keep the Govern-

ment’s official records of Government pro-

perty in their possession or control (but see

45.105);

(f) Require contractors to review and pro-

vide justification for retaining Government

property not currently in use; and

(g) Ensure maximum practical reutilization

of contractor inventory (see 45.601) within

the Government.

§ 45.308. Providing Government production

and research property "as is."

(a) The contracting officer may provide

Government production and research property

on an "as is" basis for performing fixed-

price, time-and-material, and labor-hour con-

tracts. It may also be furnished under a

facilities contract, in which case the con-

tract shall state that the contractor will

not be reimbursed for transporting, install-

ing, modifying, repairing, or otherwise

making the property ready for use.

(b) When the property is provided under

other than a facilities contract, the solici-

tation shall state that-

(1) Offerors may inspect the property

before submitting offers and the conditions

under which it may be inspected;

(2) The property is offered in its cur-

rent condition, f.o.b. present location (pro-

vide specific locations) ;

(3) Offerors must satisfy themselves

the property is suitable for their use;

(4) The successful offeror shall bear

the cost of transporting, installing, modify-

ing, repairing, or otherwise making the pro-

perty suitable for use; and

(5) Evaluations will be made in accord-

ance with Subpart 45.2 to eliminate any com-

petitive advantage resulting from using the

property.

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§ 52.245-19. Government Property Furnished

"As Is."

As prescribed in 45.305(c), insert the

following clause in solicitations and con-

tracts when a contract other than a consoli-

dated facilities contract, a facilities

acquisition contract, or a facilities use

contract is contemplated and Government pro-

duction and research property is to be fur-

nished "as is." (See 45.106 for additional

clauses that may be required) ;

GOVERNMENT PROPERTY FURNISHED

"AS IS" (APR 1984)

(a) The Government makes no warranty whatso-

ever with respect to Government property fur-

nished "as is," except that the property is

in the same condition when placed at the

f.o.b. point specified in the solidification

as when inspected by the Contractor pursuant

to the solicitation or, if not inspected by

the Contractor, as when last available for

inspection under the solicitation.

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pres hein ss

(b) The Contractor may repair any property

made available on an "as is" basis. Such

repair will be at the Contractor’s expense

except as otherwise provided in this clause.

Such property may be modified at _ the

Contractor’s expense, but only with the writ-

ten permission of the Contracting Officer.

Any repair or modification of property fur-

nished "as is" shall not affect the title of

the Government.

(c) If there is any change in the condition

of Government property furnished "as is" from

the time inspected or last available for

inspection under the solicitation to the time

placed on board at the location specified in

the solicitation, and such change will

adversely affect the Contractor, the

Contractor shall, upon receipt of the pro-

perty, notify the Contracting Officer detail-

ing the facts and, as directed by the

Contracting Officer, either (1) return such

property at the Government’s expense or

otherwise dispose of the property or (2)

32-B

effect repairs to return the property to its

condition when inspected under the solicita-

tion or, if not inspected, last available for

inspection, under the solicitation. After

completing the directed action and upon writ-

ten request of the Contractor, the Contract-

ing Officer shall equitably adjust any con-

tractual provisions affected by the return,

disposition, or repair in accordance with the

procedures provided for in the Changes clause

of this contract. The foregoing provisions

for adjustment are the exclusive remedy

available to the Contractor, and the Govern-

ment shall not be otherwise liable for any

delivery of Government property furnished "as

is" in a condition other than that in which

it was originally offered.

(d) Except as otherwise provided in this

clause, Government property furnished "as is"

shall be governed by the Government Property

Clause of this contract.

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