American Federation of Government Employees, Local 2119 v. Rumsfeld

In the
United States Court of Appeals
For the Seventh Circuit

No. 00-3512

AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES,
LOCAL 2119, TONY CARNES, KATHERINE CRUZ, et
al.,

Plaintiffs-Appellants,

v.
DONALD RUMSFELD, Secretary of the
Department of
Defense, TOGO D. WEST, JR., Secretary of
the Department of the Army, JOHNNIE E.
WILSON, Commanding General U.S. Army
Material Command, et al.,

Defendants-Appellees,

and

GENERAL DYNAMICS LAND SYSTEMS, INCORPORATED,

Intervener-Appellee.

Appeal from the United States District Court
for the Central District of Illinois.
No. 97 C 4020--Michael M. Mihm, Judge.

ARGUED MARCH 28, 2001--DECIDED August 21, 2001

Before RIPPLE, KANNE and EVANS, Circuit
Judges.

RIPPLE, Circuit Judge. The individual
plaintiffs in this case are present or
former civilian employees of the
Department of the Army employed at the
Rock Island Arsenal ("Rock Island") in
Rock Island, Illinois. They, along with
their labor union, American Federation of
Government Employees, Local 2119, brought
this action against the federal
defendants,/1 who are officials and
officers of the United States Government.
The plaintiffs contend that the Army
violated the provisions of the Arsenal
Act, 10 U.S.C. sec. 4532, with regard to
two defense programs: (1) the production
of tank gun mounts for the upgraded M1A2
Abrams tank and (2) the development of
the Lightweight 155mm ("LW155") Towed
Howitzer. The plaintiffs allege that the
Army violated the Act by allowing these
items to be produced by private
contractors without first undertaking a
cost analysis, required by the Act
("Arsenal Act cost analysis"), to
demonstrate that production of those
items could not instead be performed at a
government-owned facility on an
economical basis. The district court
granted summary judgment to the
defendants. For the reasons set forth in
the following opinion, we affirm the
judgment of the district court.

I

BACKGROUND

A. Facts

1.

Rock Island is a government-owned
weapons manufacturing facility, one of
only two remaining manufacturing arsenals
operated by the Army today. It has
produced a number of different forms of
weaponry for many years, including both
of the items at issue in this case--gun
mounts and howitzers. However, in recent
years the number of manufacturing
projects performed at Rock Island has de
clined. As a result, the number of
civilian workers employed at Rock Island
has been reduced continually, and some
employees have been placed involuntarily
in lower-graded positions.

Since 1976, the Army has acquired and
upgraded the M1 Abrams series of tanks
from Chrysler Defense, Inc. and its
corporate successor General Dynamics Land
Systems ("GDLS"). One component of this
tank and its upgraded versions is a gun
mount. Prior to 1982, all of the gun
mounts for the Abrams tank system were
produced at the Detroit Army Tank Plant
("DATP") by the contractor./2 In 1982,
due to increased demand for the tank, the
Army and GDLS amended their contract to
provide that one half of the gun mounts
needed for the tank would be provided
separately to GDLS as government-
furnished material, while the other half
would continue to be made by GDLS
personnel at the DATP ("the DATP gun
mounts"). Since that time, the gun mounts
produced by the government have been
manufactured at Rock Island. The contract
for the M1A2 tank upgrade program, at
issue in this case, provides that GDLS is
responsible for delivering the tank
system in its entirety and for
determining where it will produce the
various components of the system. It also
states that the gun mounts needed for the
M1A2 upgrade will be produced in the
manner described above--half by the
government at Rock Island and half by
GDLS at the DATP.

In 1995, pursuant to the Defense Base
Closure and Realignment Act of 1990, 10
U.S.C. sec. 2687, a base closure
commission recommended to Congress that
the DATP be closed. At this time, the
Army discussed the possibility of having
all gun mount production for the M1A2
upgrade program transferred to a GDLS-
owned-and-operated facility. Ultimately,
in 1996, the Army and GDLS amended their
contract to allow for the transfer of
equipment used toproduce the DATP gun
mounts to a GDLS owned-and-operated
facility in Muskegon, Michigan.
Production of those gun mounts began at
the Muskegon site in March 1997. In
effecting this site change, the Army
determined that a decision to transfer
production on this half of the gun mounts
was not subject to an Arsenal Act cost
analysis. It took the view that the Act
applied only to the manufacture of the
"end-item" of a contract and not to the
production of each component of that end-
item. Because the end-item of the
contract for the upgraded M1A2 tank
system (the tanks themselves) was being
made at a government factory, the Lima
Army Tank Plant, the Army determined that
a cost analysis was not required./3

Production of the other half of the gun
mounts was not shifted from Rock Island
to a GDLS facility. Because those items
were acquired by the Army directly from a
government-run arsenal as a separate item
of supply, the government determined that
any decision to remove them from Rock
Island would require an Arsenal Act cost
analysis. After a cost analysis showed
that it would be eighteen percent cheaper
to continue to produce these gun mounts
at Rock Island, as opposed to at a GDLS
facility, the Army did not shift their
production.

2.

In December 1994, the Marine Corps and
the Army collaborated to begin work on
the LW155 Towed Howitzer program. This
program was to produce a new design for
the LW155 Towed Howitzer to replace the
previous model, which had tactical and
physical shortcomings. Private
contractors had been developing
prototypes of a lighter-weight howitzer
for a number of years at their own
expense. With the LW155 howitzer program,
the Marine Corps and the Army hoped to
take advantage of the technology being
developed by these private contractors in
order to save money and time on research
and development. As a result, the Army’s
Armament Research, Development and
Engineering Center announced a market
survey to identify a source for the new
LW155 howitzers and later issued draft
solicitations to obtain comments from
industry on future production of the
howitzers.

A formal request for proposals to obtain
the LW155 howitzer contract was issued in
April 1996. It was contemplated that this
contract would be awarded after a two-
step process. First, prospective offerors
would deliver a prototype howitzer for
initial screening and technical
documentation, with each eligible offeror
to receive a fixed-price contract to
support further development and testing.
Second, the government would hold a
"shoot-off" between all of the offerors’
howitzers; the winner of this shoot-off
would receive a contract for the
engineering and development phase of the
program and, after that phase was
successfully completed, a full-scale
production contract./4 This process went
forward, and following the shoot-off, the
government entered into an engineering
and manufacturing contract with Cadillac
Gage Textron, Inc. ("Textron")./5

It was anticipated that a total of 869
howitzers would be produced under the
contract. Funding for the howitzer
program initially was provided by the
Marine Corps, although both services will
contribute financially to its budget. The
Army is also developing a "Towed
Artillery Digitalization" ("TAD") system,
a location and targeting system that will
be included as part of the LW155
howitzer. In the course of its
participation in the LW155 howitzer
program, the Army did not engage in an
Arsenal Act cost analysis to determine
whether the howitzers instead could be
produced more economically at Rock
Island.

B. District Court Proceedings

On March 5, 1997, the plaintiffs brought
this action in the district court for
declaratory and injunctive relief under
the Administrative Procedure Act ("APA").
They claimed that the defendants had
violated a number of statutes, including
the Arsenal Act, with regard to the
production of both the DATP gun mounts
and the LW155 howitzers. The district
court dismissed the action for lack of
standing. We affirmed in part and
reversed and remanded in part, holding
that the plaintiffs had standing to sue
only under the Arsenal Act. See Am. Fed’n
of Gov’t Employees, Local 2119 v. Cohen,
171 F.3d 460 (7th Cir. 1999).

Following remand and the filing of a
4,025 page administrative record, the
case was submitted to the district court
on motions for summary judgment filed by
the plaintiffs and the defendants. On
August 23, 2000, the court granted the
defendants’ motion for summary judgment.
The court first examined the Arsenal Act.
It concluded that the statute’s language,
which states that the Army "shall have
supplies . . . made" in Army facilities
if it is economical to do so, 10 U.S.C.
sec. 4532(a), was mandatory, rather
thanpermissive in its direction. The
court also concluded that what
constituted "supplies" covered by the Act
was less clear. Consequently, the court
concluded, the Army’s construction of
that ambiguous term was entitled to
deference under Chevron U.S.A. Inc. v.
Natural Resources Defense Council, Inc.,
467 U.S. 837 (1984).

The district court then examined whether
the Arsenal Act’s cost-analysis
requirement applied to the production of
the DATP gun mounts. The court determined
that the Act’s provisions did not apply
for two reasons. First, it noted the
determination of the Army and the
Comptroller General that the Arsenal Act
does not apply to contracts that are
justified on an independent statutory
basis. It then explained that, because
the DATP gun mounts were produced as part
of a "sole source" contract, a type of
contract governed by a provision in the
Competition and Contracting Act of 1984
("CICA"), the Arsenal Act’s cost-analysis
requirement did not apply to those items.
Second, the court agreed with the Army’s
rationale that the Arsenal Act only
governed determinations regarding the
production of the ultimate end-item
contracted for, not the production of
every component part of a larger system.
Therefore, production of the DATP gun
mounts, a component of the larger
contract involving the upgrade of the
M1A2 Abrams tank, was not subject to an
Arsenal Act cost analysis./6

The court also agreed with the
defendants that the Arsenal Act did not
apply to the LW155 howitzer program.
Because the evidence demonstrated that
the LW155 howitzer program was a Marine
Corps program to be administered under
the Department of the Navy’s acquisition
regulations, the court determined that
the Army’s Arsenal Act did not apply to
contracting decisions for that program.

The district court therefore awarded
summary judgment to the defendants. The
plaintiffs now appeal that decision to
this court.

II

DISCUSSION

The plaintiffs submit that the district
court erred in determining that the
defendants were not required to engage in
an Arsenal Act cost analysis before
allowing the DATP gun mounts and the
LW155 howitzers to be produced by private
contractors. After delineating the proper
standard of review, we shall address both
of the plaintiffs’ contentions.

A. Standard of Review

Our review of the district court’s
decision to grant summary judgment is de
novo. See Mosher v. Dollar Tree Stores,
Inc., 240 F.3d 662, 666 (7th Cir. 2001).
Summary judgment is appropriate when "the
pleadings, depositions, answers to
interrogatories, and admissions on file,
together with the affidavits, if any,
show that there is no genuine issue as to
any material fact and that the moving
party is entitled to a judgment as a
matter of law." Fed. R. Civ. P. 56(c);
see also Wade v. Lerner New York, Inc.,
243 F.3d 319, 321 (7th Cir. 2001).
Therefore, in reviewing a grant of
summary judgment, like the district
court, we must view all of the facts and
draw all reasonable inferences in favor
of the nonmoving party. See Del Raso v.
United States, 244 F.3d 567, 570 (7th
Cir. 2001); Basith v. Cook County, 241
F.3d 919, 926 (7th Cir. 2001).

The district court’s interpretation of
the Arsenal Act’s terms is a conclusion
of law that we review de novo. See
Ulichny v. Merton Cmty. Sch. Dist., 249
F.3d 686, 699 (7th Cir. 2001). The
district court determined that, because
it was reviewing the Army’s
interpretation of a statute that the Army
was charged with administering, it would
defer to that Department’s position on
these issues under the holding of Chevron
U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837, 842-43
(1984). In Chevron, the Supreme Court
explained that, if the intent of a
statute is clear, the court and the
agency must give effect to the
unambiguously expressed will of Congress.
See id. at 842-43. However, when the
statute is silent or ambiguous with
respect to an issue before the court, the
court should defer to the agency’s
interpretation so long as it is based on
a permissible construction of the
statute. See id. at 843-44.

As the Supreme Court has clarified
recently, Chevron deference only applies
when "it appears that Congress delegated
authority to the agency generally to make
rules carrying the force of law, and that
the agency interpretation claiming
deference was promulgated in the exercise
of that authority." United States v. Mead
Corp., 121 S. Ct. 2164, 2171 (2001). Such
delegation will often be demonstrated by
an agency’s power to engage in
adjudication or notice-and-comment
rulemaking that produces regulations or
rulings for which deference is claimed.
See id.; Christensen v. Harris County,
529 U.S. 576, 587 (2000). In contrast,
informal agency interpretations such as
those contained in "opinion letters . . .
policy statements, agency manuals, and
enforcement guidelines, all of which lack
the force of law--do not warrant Chevron-
style deference." Christensen, 529 U.S.
at 587; see also Mead, 121 S. Ct. at
2175. Nevertheless, given the specialized
experience and broader information
available to such an agency, these
informal interpretations are "entitled to
respect" to the extent that they have the
"power to persuade." Christensen, 529
U.S. at 587; see also Mead, 121 S. Ct. at
2175-76; Skidmore v. Swift & Co., 323
U.S. 134, 139-40 (1944).

B. The Arsenal Act

This case requires us to examine the
text and meaning of the Arsenal Act,/7
which today reads as follows:

(a) The Secretary of the Army shall have
supplies needed for the Department of the
Army made in factories or arsenals owned
by the United States, so far as those
factories or arsenals can make those
supplies on an economical basis.

(b) The Secretary may abolish any United
States arsenal that he considers
unnecessary.

10 U.S.C. sec. 4532./8

The basic purpose of this statute is
well-recognized. As we noted when this
case was first before this court, the
statute is "aimed at preserving the
government’s in-house military production
capabilities." Cohen, 171 F.3d at 473. We
further noted that the statute’s
legislative history explained that
"’[t]he purpose of [the Act] is to compel
the executive officers of the Government
to have Government work done at such
arsenals . . . and to cease handing out
appropriations to private manufacturers.’"
Id. at 474 (quoting 59 Cong. Rec. 4157
(March 10, 1920) (remarks of Congressman
Sanford)). A December 15, 1960, opinion
letter of the Comptroller General (File
No. B-143232) also explains that "the
basic concept of the statute would appear
to be a requirement that Government-owned
industrial facilities should not be
permitted to lie idle if it would be
possible to use such facilities [to
produce supplies] at a cost to the
Government no greater than the cost of
procuring such needs from private
industry." R.50, Ex.18 at 5. Therefore,
the statute requires that, before the
Army makes a decision to produce supplies
at a non-governmental facility, it must
engage in "a comparison of all costs
incurred by the Government as a result of
producing an article in Government-owned
facilities, with the price at which the
article could be purchased from a private
manufacturer." Id. If that cost
comparison demonstrates that it is more
economical to produce the supplies at a
government factory or arsenal, then the
Act dictates that the Army must do so.

However, as the district court noted,
the Act is ambiguous as to what items
constitute supplies. Moreover, the Act’s
text gives no hint as to how its terms
should be interpreted when they conflict
with other military procurement statutes
or regulations.

C. Production of the DATP Gun Mounts

We now turn to whether the Arsenal Act
governs the production of the DATP gun
mounts, now manufactured at GDLS’
Muskegon facility, that are a part of the
M1A2 Abrams tank upgrade program. The
district court held that the Arsenal
Act’s provisions did not apply to the
production of these items because they
were manufactured as part of a sole
source contract permitted as an exception
to standard military procurement
procedures as set forth in the CICA.

The CICA requires executive agencies to
"obtain full and open competition through
the use of competitive procedures" when
undertaking the procurement of property
or services. 10 U.S.C. sec.
2304(a)(1)(A). We have noted that the
CICA’s purpose is to "save money, curb
cost growth, promote innovation and the
development of high quality technology
and to maintain ’the integrity of the
expenditure of public funds.’" Cohen, 171
F.3d at 472 (quoting S. Rep. No. 98-50,
at 2-4 (1984), reprinted in 1984
U.S.C.C.A.N. 697, 2174, 2175). However,
the CICA lists a number of situations in
which the armed forces are not required
to follow the procedures for competition
set forth in the Act. See 10 U.S.C. sec.
2304(c)(1)./9 Among those exceptions is
the sole source exception at issue in
this case, which states that:

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 responsible source or only from
a limited number of responsible sources
and no other type of property or services
will satisfy the needs of the agency[.]

10 U.S.C. sec. 2304(c). There is no
dispute that this provision was the basis
for the Army’s determination to grant
GDLS the contract to complete the M1A2
Abrams tank upgrade program.

The plaintiffs contend that the district
court erred in determining that a
contract that is made under the CICA’s
sole source exception is not subject to
the Arsenal Act’s mandates. However,
after reviewing the Army’s interpretation
of the statute, as confirmed by the
legislative history of the Arsenal Act
and an authoritative interpretation of
the Act’s meaning by the Comptroller
General, we believe that the district
court correctly held that the Act is
inapplicable in such a case.

Although the Army’s interpretation of
this statutory provision does not appear
in a source deserving of Chevron
deference,/10 we nevertheless ought to
study the Army’s interpretation of the
statute that it administers and, to the
extent that it has the "power to
persuade," it is "entitled to respect."
Christensen, 529 U.S. at 587; see also
Mead, 121 S. Ct. at 2175-76; Skidmore,
323 U.S. at 139-40.

The record establishes that the Army
consistently has interpreted the Arsenal
Act’s provisions to be inapplicable to
contracts reached under the exceptions
listed in CICA’s Section 2304(c). For
example, a July 20, 1992, Army memorandum
entitled "Implementation of Statutory
Authorities for Manufacturing by Army
Industrial Facilities" states that the
Arsenal Act’s provisions do not apply to
"Army supply requirements under
solicitations restricted to particular
sources." Administrative Record ("A.R.")
at 2775. Therefore, the Arsenal Act "does
not affect the ability to award supply
contracts to particular suppliers . . .
to maintain their availability in the
event of national emergency or industrial
mobilization [the exception listed in the
CICA’s Section 2304(c)(3)(A)]." Id.
Although noting that the Arsenal Act
typically requires the Army to
manufacture supplies at in-house
facilities if economical to do so, the
memorandum concludes that the "[u]se of
CICA . . . excepts requirements from
solicitation under the Arsenal Statute."
Id. Similarly, a June 6, 1995, draft Army
document entitled "Regulation on
Manufacturing and Subcontracting by Army
Industrial Facilities" lists certain
categories of items that are not
appropriate for a "make or buy
evaluation" (a term synonymous with the
Arsenal Act’s cost-analysis requirement).
Id. at 2849, 2853. Among these categories
are included "items that are restricted
to [a] particular source of supply
pursuant to a statutory exception to the
requirement for full and open
competition." Id. at 2853. Moreover, a
November 6, 1995, memorandum from Army
Material Command Associate Counsel Paul
D. Harrington, regarding the application
of the Arsenal Act to the production of
the DATP gun mounts, states that an
Arsenal Act cost analysis would "not
apply if an award to GDLS is justified on
an independent statutory basis, such as a
properly applicable exception to full and
open competition under the Competition in
Contracting Act, 10 U.S.C. Sec. 2304."
Id. at 1379./11

This position of the Army finds support
in other material that sheds light on the
relationship of the Arsenal Act to the
other statutes regulating military
procurement. First, the legislative
history of the Arsenal Act suggests that
it was not meant to apply to contracts
such as those based on the sole source
exception. When the statutory language
that largely mirrors that of the present
Arsenal Act was added as Section 101(e)
of the Army Organization Act of 1950,
Congress clarified its intent that:

Subsection[ ] 101 . . . (e) . . . do[es]
not replace or modify the provisions of
the Armed Services Procurement Act of
1947 ["ASPA"] . . . which act applies
uniformly to all of the armed services
[and] vests authority in matters
pertaining to contracts for the
procurement of materials and services in
the heads of the three military
departments . . . .

H.R. Rep. No. 81-2110, at 13 (1950),
reprinted in 1950 U.S.C.C.A.N. 2607,
2620. As we have noted, although the ASPA
did not contain the sole source exception
at that time, it did include a number of
exceptions to competitive procurement
procedures that are like those presently
found in Section 2304(c) of the CICA.
This legislative history confirms that
Congress believed that the Arsenal Act’s
requirements might at times conflict with
those imposed on all the armed forces by
the ASPA, and that, when such a conflict
arose, the strictures of the Arsenal Act
should not hinder the ASPA’s application.

More significantly, the defendants’
position also is bolstered by the
December 15, 1960, opinion letter of the
Comptroller General. The district court
described this opinion letter as the
"lead decision interpreting the
requirements of the Arsenal Act," R.74 at
13 n.3 (quotation marks and citation
omitted), and even the plaintiffs refer
to it as the "landmark analysis of the
Arsenal Act," Appellants’ Br. at 31. The
opinion letter explains that the Arsenal
Act’s preference for government
production will at times conflict with
those exceptions in the ASPA that require
the government to contract with a private
entity without undergoing a competitive
bidding process. The opinion letter then
concludes that, to the extent that the
two statutes do conflict, "the provisions
of the Armed Services Procurement Act
would control." R.50, Ex.18 at 8./12
As an example of such a situation, the
opinion letter cites the ASPA’s Section
2304(a)(16) (now listed in the CICA’s
Section 2304(c)(3)(A)), "which
authorize[s] the Secretary of the Army to
negotiate a contract with a particular
supplier in the interest of national
defense and industrial mobilization,
notwithstanding the existence of other
private or Government-owned production
facilities." Id. The opinion also notes
that there might be circumstances in
which other exceptions in the ASPA would
allow the government to invoke the
ability to contract with a private entity
"notwithstanding the existence of
Government-owned facilities capable of
economically producing the product
needed." Id. Ultimately, it concludes
that "unless a particular procurement of
Army supplies falls within an exception
prescribed by other law," the Arsenal
Act’s provisions apply to production
decisions regarding those supplies. Id.
at 9 (emphasis added).
 The plaintiffs argue to the contrary
that application of CICA’s sole source
exception can coexist with the Arsenal
Act’s mandates, instead of preempting the
use of the Arsenal Act’s cost-analysis
provision altogether. They maintain that
the Arsenal Act first requires the Army
to make a decision as to whether
particular supplies can be produced
economically by government personnel. The
plaintiffs assert that, only if this cost
analysis determines that such work may be
undertaken by a private contractor, do
the CICA’s provisions (regarding how such
a contractor should be selected and when
competitive procedures should be
bypassed) come into play.

The plaintiffs cite no authority for
this interpretation, which certainly
conflicts with both the legislative
history of the Arsenal Act and the
Comptroller General’s opinion with regard
to the exceptions to competitive bidding
practices enumerated in CICA’s Section
2304(c). These exceptions, including the
sole source exception, reference
situations in which either a national
emergency or a narrow set of compelling
circumstances requires that a branch of
the armed services must contract with a
particular private entity./13 As we
have noted, the Comptroller General’s
opinion cites one such exception, now
located in the CICA’s Section
2304(c)(3)(A), which allows the Army to
negotiate a contract with a private
supplier, without regard for competitive
practices, when it is necessary to do so
to prepare for a national emergency or to
achieve industrial mobilization. As in
that example, it is not difficult to
imagine circumstances in which the Army
would need to contract with the sole
source of a particular item without
regard for the cost analysis required by
the Arsenal Act. The Arsenal Act’s
legislative history, bolstered by the
ComptrollerGeneral’s interpretation,
counsels that, in such circumstances, the
Army should be able to contract with the
private entity without first satisfying
the requirements of the Arsenal Act.

In sum, the defendants have pointed to
evidence drawn from consistent Army
practice, legislative history and a
landmark decision of the Comptroller
General, all of which suggest that an
Army contract entered into pursuant to
CICA’s sole source exception should not
be subject to the Arsenal Act’s
requirements. Moreover, a reading of the
exceptions listed in the CICA’s Section
2304(c) make it understandable why this
would be so, because these exceptions
deal with important circumstances in
which it would be either impractical or
potentially dangerous to hinder the
agency from contracting with a particular
private entity. In contrast, the
plaintiffs point to no persuasive
authority to demonstrate that their
alternative reading of the interplay of
the two acts is a viable one.
Consequently, we believe that the
district court correctly granted summary
judgment to the defendants with regard to
the DATP gun mounts./14

D. LW155 Howitzer Program

The district court also concluded that
the Army did not violate the Arsenal Act
with regard to the production of the
LW155 howitzers. The court determined
that the Act, which applies only to the
Army, was not implicated by the howitzer
program because that program was directed
by the Marine Corps (a component of the
United States Naval Service) and was
intended to be executed pursuant to
Department of the Navy acquisition
regulations. We agree with the district
court’s decision.

The evidence of record persuades us that
the LW155 howitzer program is not an Army
procurement program and that it was meant
to be directed under Navy acquisition
regulations. The program is a joint
endeavor between the Marine Corps and the
Army, to which both services devote
personnel and funds and from which both
ultimately will receive howitzers for
their use. However, the Marine Corps has
the clear authority to direct the
program’s implementation. A November 3,
1995, "Memorandum of Agreement" between
the two services regarding the program’s
direction and scope clearly states:

General Policy. As the Lead Service
acting under the guidance of the ASN
(RDA) [Assistant Secretary of the Navy
(Research, Development and Acquisition)],
the U.S. Marine Corps, represented by the
COMMARCORSYSCOM [Commander, Marine Corps
Services Command], has the authority to
direct the program under the policies and
procedures set forth in Department of
Defense (DOD) and Department of the Navy
acquisition regulations. The PEO-FAS [the
Army’s executive agent for the LW155
howitzer program] will execute the
program per the decisions and direction
of the COMMARCORSYSCOM and the ASN (RDA).

A.R. at 2789 (emphasis added); see also
id. at 2795 ("FY96 Acquisition Plan No.
1-96 for Lightweight 155mm Howitzer
(LW155)") (hereinafter "FY96 Acquisition
Plan") (stating that "the U.S. Marine
Corps . . . has the authority to direct
the program under the policies and
procedures set forth in Department of
Defense and Department of the Navy
acquisition regulations"). This
memorandum explicitly designates the
Marine Corps as the service in charge of
the howitzer program and explains that
Navy acquisition regulations, not those
of the Army, apply to that program. Cf.
id. at 2797 (FY96 Acquisition Plan)
(stating that "[t]he Marine Corps and the
Army signed a Joint Memorandum of
Agreement on 3 Nov 1995 which stipulated
how the Army would support a Marine Corps
lead LW155 program").

Moreover, a number of other factors
support the conclusion that the Marine
Corps is the service charged with the
direction of the howitzer program. One
such factor is the division of
responsibilities allocated to each
service regarding the program’s
implementation. The Marine Corps’
responsibilities as "Lead Service"
include retaining authority over all
program funds and their transfer as well
as competing for necessary resources to
support execution of the program. Id. at
2790. In contrast, the Army’s
responsibilities as the "Participating
Service" include the supportive tasks of
offering procurement and policy
"guidance," providing staff and
facilities and executing the Marine
Corps’ contracting actions. Id. at 2791;
see also id. at 2795 (FY96 Acquisition
Plan). Additionally, the Marine Corps
plays a significantly larger role in
providing funding for the howitzers. The
Marines contributed all of the initial
funding for the program in its first five
years and will have contributed $1.085
billion of the $1.853 billion total
program cost (58.6%) by 2009, the last
year for which cost evaluations were
reflected in the record./15 Lastly,
the Marines also will receive a far
greater number of the howitzers than the
Army. Of the 869 total howitzers that
will be produced under the program, the
Marines will be allotted 450 while the
Army will receive only 273./16

The Arsenal Act states that the
"Secretary of the Army shall have
supplies needed for the Department of the
Army made in factories or arsenals owned
by the United States." 10 U.S.C. sec.
4532. This language suggests that, for
supplies to fall within the purview of
that Act, the Secretary of the Army must
have the authority to direct that their
production follow Arsenal Act
regulations. However, in this case, the
documents surrounding the howitzer
program demonstrate that the Navy was the
designated service that would retain this
power, not the Army. The plaintiffs do
not explain how, after ceding authority
for acquisitions under the howitzer
program to the Marine Corps, the Army
could then force the Marine Corps to
abide by its acquisition policies.

For these reasons, we believe that the
district court correctly determined that
production of the LW155 howitzers was not
subject to an Arsenal Act cost analysis.

Conclusion

The district court did not err in
determining that the decisions to produce
the DATP gun mounts and the LW155
howitzers at private facilities were not
subject to the Arsenal Act’s
requirements. Accordingly, we affirm the
judgment of the district court.

AFFIRMED

FOOTNOTES

/1 The federal defendants are joined in this case by
General Dynamics Land Systems ("GDLS"), a defen-
dant-intervener that challenges the plaintiffs’
position only as it relates to the M1A2 Abrams
tank gun mounts.

/2 The DATP is a "government-owned, contractor-
operated facility," or a government facility kept
in operating condition under a contract with a
private company. This type of facility does not
produce materials independently. Instead, it is
made available to private industry so that the
private contractor may add its own personnel and
perform contracts that the government has awarded
to it. In contrast, Rock Island is a "government-
owned, government-operated" facility.

/3 In a July 1996 memorandum, the Department of
Defense ("DOD") Inspector General disagreed with
the Army’s end-item theory and concluded that a
decision to transfer the DATP gun mounts to a
GDLS facility would require an Arsenal Act cost
analysis. This dispute was settled by a March
1997 memorandum from the DOD General Counsel.
This officer took the view that the Army was
contracting to buy the upgraded tank as a com-
plete system of which the gun mount was a compo-
nent. Under the contract, noted the DOD General
Counsel, the contractor is responsible for deter-
mining where to produce the various components of
the system.

/4 Rock Island initially attempted to act as a
subcontractor on the howitzer program, so that it
could work with a private contractor to develop
an entry for the shoot-off. The Army agreed,
provided that Rock Island would work only as a
subcontractor, because Army policy prohibited
head-to-head competition between government and
private industry. Rock Island then entered into
an agreement with a private contractor, Lewis
Machine & Tool Company ("Lewis"), and Lewis
ultimately submitted a prototype to compete in
the shoot-off. However, the Army ultimately
declared this entry ineligible because Rock
Island’s role in the production of the prototype
was so great that it had essentially acted as the
de facto prime contractor, in violation of Army
policy. Lewis protested this decision, but it was
upheld by the contracting officer, by the Comp-
troller General and by the federal courts. See
Lewis Mach. & Tool Co. v. United States Dept. of
Def., No. 97-1035, 1997 WL 615863 (4th Cir. Oct.
6, 1997) (per curiam) (unpublished disposition).

/5 Textron was replaced in December 1998 as the
prime contractor by Vickers Shipbuilding & Engi-
neering, Ltd., previously the design subcontrac-
tor on the program. The district court noted that
Rock Island’s expertise and experience had been
utilized as the program completed development and
that Rock Island would be given the opportunity
to compete with private industry for subcontract-
ing opportunities as the program entered the
production stage. However, in their brief, the
plaintiffs note that Vickers subsequently was
acquired by BAE Systems, and they suggest that
BAE does not plan to utilize Rock Island during
the production stage.

/6 In contrast, the court noted that, when the Army
and GDLS decided to transfer the other half of
gun mount production from the DATP to Rock Island
in 1982, they determined that those gun mounts
would be provided separately to GDLS as govern-
ment-furnished material. Therefore, that half of
the gun mounts became supplies covered by the
Arsenal Act because (1) they were no longer
included within the specifications of the sole
source contract with GDLS for the tank upgrade
program and (2) they now were produced as a
separate end-item of supply, not as one component
of a larger system.

/7 As the district court noted, although the Arsenal
Act applies to the Army, the Air Force is gov-
erned by a similar statute, 10 U.S.C. sec. 9532,
that largely parallels the Arsenal Act’s provi-
sions. See R.74 at 6 (explaining, however, that
the Air Force statute is permissive in requiring
that the Secretary of the Air Force "may" have
supplies made in government factories if such
production is economical, as opposed to the
Arsenal Act’s requirement that the Army Secretary
"shall" do so). The defendants explain that the
Army is the only service with a mandatory Arsenal
Act, in that a cost analysis is required if items
are considered supplies under the Act.

/8 The statutory language that gives shape to the
present version of the Act was first enacted in
1920, as Section 5a of the National Defense Act
of 1916, 39 Stat. 166. Section 5a was later
repealed by the Army Organization Act of 1950, 64
Stat. 263, which reintroduced the relevant statu-
tory language as part of its Section 101(e). In
1956, Section 101(e) was repealed and replaced by
the present version of the Arsenal Act, codified
at 10 U.S.C. sec. 4532.

The district court noted that, when Section
101(e) of the Army Organization Act of 1950 was
recodified as the present Arsenal Act at 10
U.S.C. sec. 4532, its language was changed to
reference "supplies needed for the Department of
the Army" from the former "all those supplies
needed by the Army." The court also noted that
the 1956 recodification intended only to restate
existing law, not to make new law. Although the
court reasoned that "the change from the former
’all supplies’ language to simply ’supplies’
seems to indicate that the statute apply to some
quantity less than ’all supplies,’" it ultimately
found the term’s scope to be ambiguous. R.74 at
7.

/9 Some of the exceptions were listed in the Armed
Services Procurement Act of 1947 ("ASPA"), 10
U.S.C. sec. 2304(a) (1982), the Act that Congress
had amended with the CICA. The CICA incorporated
some of the competitive exceptions previously
listed in the ASPA and added others, including
the sole source exception at issue here.

/10 The defendants have relied on conclusions drawn
in internal agency memoranda. These documents are
obviously not the product of formal adjudication
or notice-and-comment rulemaking; instead they
are akin to interpretations contained in opinion
letters, policy statements, agency manuals and
enforcement guidelines.

/11 Harrington did not make a definitive statement
that the DATP gun mounts fell under a CICA
exception only because he had not yet been pro-
vided with adequate facts to substantiate that,
in fact, the contract with GDLS was made pursuant
to CICA’s sole source exception.

/12 The opinion letter drew this conclusion in part
from the fact that, prior to the 1956 recodifica-
tion of the present-day Arsenal Act, the stat-
ute’s requirement that supplies be produced in
government facilities if economical to do so was
preceded by the phrase "[e]xcept as otherwise
prescribed by law." R.50, Ex.18 at 8. Although
that phrase was dropped from the text in 1956,
the opinion letter noted that Congress had ex-
plained that the amendments made in that year
were not intended to alter the substantive provi-
sions of the law. Therefore, the Comptroller
General concluded that, because prior to 1956,
Congress had intended for any conflict between
the ASPA and the Arsenal Act to be resolved in
favor of the ASPA’s provisions, that intent also
had force after the 1956 amendments. (The opinion
letter notes that Congress, in omitting the above
language, stated that it did so "since there is
no law within the scope of the exception." Id.
The opinion letter does not find this noteworthy
and concludes that the Arsenal Act does conflict
with the ASPA.)

/13 More particularly, the CICA’s Section 2304(c)
states that the head of an agency may use proce-
dures other than competitive procedures only
when:

(1) the property or services needed by the
agency are available from only one responsible
source or only from a limited number of responsi-
ble sources and no other type of property or
services will satisfy the needs of the agency;

(2) the agency’s need for the property or ser-
vices is of such an unusual and compelling urgen-
cy 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 contract 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, (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,
or (C) to procure the services of an expert for
use, in any litigation or dispute (including any
reasonably foreseeable litigation or dispute)
involving the Federal Government, in any trial,
hearing, or proceeding before any court, adminis-
trative tribunal, or agency, or to procure the
services of an expert or neutral for use in any
part of an alternative dispute resolution or
negotiated rulemaking process, whether or not the
expert is expected to testify;

(4) the terms of an international agreement or
a treaty between the United States and a foreign
government or international organization, or the
written directions of a foreign government reim-
bursing the agency for the cost of the procure-
ment of the property or services for such govern-
ment, have the effect of requiring the use of
procedures other than competitive procedures;

(5) subject to subsection (k), a statute ex-
pressly authorizes or requires that the procure-
ment be made through another 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 agency’s needs would
compromise the national security unless the
agency is permitted to limit the number of sourc-
es from which it solicits bids or proposals; or

(7) the head of the agency--

(A) determines that it is necessary in the
public interest to use procedures other than
competitive procedures in the particular procure-
ment concerned, and

(B) notifies the Congress in writing of such
determination not less than 30 days before the
award of the contract.

10 U.S.C. sec. 2304(c).

/14 Indeed, the district court also determined that
the DATP gun mounts were not supplies under the
Arsenal Act on the alternate rationale that they
were a component part of the larger M1A2 tank
upgrade program and that "nothing in the language
of the Arsenal Act . . . indicates that the
Secretary [of the Army] is bound to perform a
cost comparison on each and every nut, bolt,
screw, or other component part of any end product
or system that is produced or manufactured for
the Army." R.74 at 14. In light of our determina-
tion that CICA’s sole source exception provided
sufficient justification for the Army’s actions
regarding the DATP gun mounts, we need not ad-
dress the merits of this alternative theory.

/15 This total includes funds allocated by the Army
for the TAD location and targeting system as well
as funding for program "Deliveries." R.50, Ex.34.

/16 Additionally, 73 of the completed howitzers are
to be utilized by Great Britain while the remain-
ing 73 are to be utilized by Italy.