United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 18, 1999 Decided January 11, 2000
No. 99-5088
The Iceland Steamship Company, Ltd.-Eimskip and
Van Ommeren Shipping (USA) LLC,
Appellees
v.
The United States Department of the Army and
Louis Caldera, Secretary of the Army,
Appellees
Transatlantic Lines-Iceland ehf. and
TransAtlantic Lines, L.L.C.,
Appellants
Appeal from the United States District Court
for the District of Columbia
(No. 98cv02631)
Michael Joseph argued the cause for appellants. With him
on the briefs was Joseph O. Click.
David L. Smith, Assistant U.S. Attorney, argued the cause
for the federal appellees. With him on the brief were Wilma
A. Lewis, U.S. Attorney, and R. Craig Lawrence, Assistant
U.S. Attorney.
Joanne W. Young argued the cause for the non-federal
appellees. With her on the brief were David M. Kirstein,
Lee T. Ellis, Jr., Richard A. Hibey, and Constantine G.
Papavizas.
George J. Mannina, Jr., was on the brief for amicus curiae
The Government of the Republic of Iceland. With him on the
brief was Gary C. Adler.
Before: Sentelle, Henderson and Garland, Circuit
Judges.
Opinion for the Court filed by Circuit Judge Sentelle.
Opinion concurring in part and dissenting in part filed by
Circuit Judge Henderson.
Sentelle, Circuit Judge: Appellants TransAtlantic Lines-
Iceland ehf. ("TLI") and TransAtlantic Lines, L.L.C. ("TLL")
are affiliated corporations and awardees of military shipping
contracts for shipping between the eastern United States and
Iceland. They appeal from an order of the district court
allowing summary judgment in favor of appellees, Iceland
Steamship Company, Ltd.-Eimskip ("Eimskip") and Van Om-
meren Shipping (USA) L.L.C. ("Van Ommeren"), and requir-
ing the U.S. Army to rebid the contracts. The district court
required rebidding on two grounds: First, it held that a 1986
treaty entered into between the United States and Iceland
prohibited the award of the contracts to appellants because of
their affiliation with each other. Second, the district court
held that the contracting officer's determinations of responsi-
bility for appellants were arbitrary and capricious in that she
failed to follow relevant solicitation procedures. Applying the
deferential standard of review of executive branch decisions
which govern in both these contexts, we reverse the district
court and uphold the Army's award.
I. Facts
A. Overview
While the interpretation of an international treaty is impli-
cated in this action, this is essentially a disappointed bidder
case. Cf. Elcon Enters., Inc. v. Washington Metro. Area
Transit Auth., 977 F.2d 1472 (D.C. Cir. 1992); CACI, Inc.-
Federal v. United States, 719 F.2d 1567 (Fed. Cir. 1983). At
stake are government contracts for shipping between the
eastern United States and Iceland. Appellants were awarded
the contracts on September 18, 1998, by the United States
Army's Joint Traffic Management Office of the Military Traf-
fic Management Command ("Army"). Appellees were losing
bidders and the incumbent carriers on these contracts. Dis-
appointed bidders may challenge a government contract
award under the Administrative Procedure Act ("APA"),
which empowers courts to set aside any agency action that is
"arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law." 5 U.S.C. s 706(2)(A) (1994); see
Scanwell Lab., Inc. v. Shaffer, 424 F.2d 859, 874 (D.C. Cir.
1970).
B. History
This action is the latest in a series of disputes over the
military shipping contracts for trade between the United
States and Iceland. We will briefly review the history of this
trade and the earlier disputes to provide context for the
current case.
The United States has maintained formal arrangements for
the use of military facilities in Iceland since at least 1951,
when the two countries entered into a defense agreement.
See Defense Agreement Pursuant to the North Atlantic Trea-
ty ("Defense Agreement"), May 5, 1951, U.S.-Ice., 2 U.S.T.
1195. Prior to 1984, Icelandic shippers traditionally serviced
the U.S. military's Keflavik Air Base in Iceland. In that
year, Rainbow Navigation, a newly formed United States flag
carrier, took over the trade by invoking the Cargo Preference
Act of 1904, 10 U.S.C. s 2631 (1994). That statute requires
that American military supplies be carried by U.S. flagged
vessels if available. See Curran v. Laird, 420 F.2d 122, 127-
28, 133 (D.C. Cir. 1969).
The government of Iceland asked that Icelandic shippers
be given some accommodation in order to maintain Iceland's
good defense relationship with the United States. At first,
the U.S. Navy tried to disqualify Rainbow by invoking an
exception in the Cargo Preference Act for excessive rates, but
this was rejected as based on insufficient evidence. See
Rainbow Navigation, Inc. v. Department of the Navy, 783
F.2d 1072, 1073, 1080-81 (D.C. Cir. 1986). The Navy then
tried to "dispense with Rainbow's services by a diversion of
the cargo ... to military aircraft," but the District Court
rejected this tactic. Rainbow Navigation, Inc. v. Depart-
ment of the Navy, 686 F. Supp. 354, 355 (D.D.C. 1988)
(reviewing prior challenges).
Realizing that the Cargo Preference Act was a formidable
barrier, the United States (through the State Department)
and Iceland negotiated a treaty and memorandum of under-
standing in 1986. These documents are intended to ensure
that the Iceland trade will be shared by United States flag
carriers and Icelandic shippers. Article I of the treaty
provides:
Transportation services for cargo transported by sea
between Iceland and the United States for purposes of
the Defense Agreement shall be provided by vessels of
the United States and vessels operated by Icelandic
shipping companies on the basis of competition between
United States flag carriers and Icelandic shipping compa-
nies pursuant to this Article. Any such competition shall
result in contract awards that ensure that both United
States flag carriers and Icelandic shipping companies are
able to maintain a viable presence in the trade. To
ensure achievement of these objectives, the percentage of
cargo transported ... by Icelandic shipping companies
and vessels of the United States on the basis of such
competition shall be determined by agreement between
the United States and Iceland.
Treaty to Facilitate Defense Relationship ("Treaty"), Sept.
24, 1986, U.S.-Ice., T.I.A.S. No. 11,098, at 3. The memoran-
dum of understanding fleshes out how this competition should
proceed:
Transportation services for cargo transported by sea
between Iceland and the United States for purposes of
the Defense Agreement shall be provided by vessels of
the United States and vessels operated by Icelandic
shipping companies on the basis of periodic competitions
between United States flag carriers and Icelandic ship-
ping companies. Each competition shall result in con-
tract awards to both an Icelandic shipping company and
a United States flag carrier such that not to exceed 65
percent of the cargo shall be carried by the lowest bidder
and the remainder shall be carried by the next lowest
bidder of the other country....
Memorandum of Understanding in Implementation of the
Treaty to Facilitate Defense Relationship ("MOU"), Sept. 24,
1986, U.S.-Ice., T.I.A.S. No. 11,098, at 2. The MOU is to be
reviewed yearly and may be amended upon mutual agree-
ment of the parties at any time. See id. at 3.
Upon ratification of the Treaty, Icelandic shippers were
able to claim back some of Iceland trade. In fact, the
Icelandic shippers got back 65 percent of the trade. Al-
though the MOU does not guarantee this allocation, Icelandic
shipping companies have much lower costs than U.S. flag
carriers, cf. Aeron Marine Shipping Co. v. United States, 695
F.2d 567, 569 (D.C. Cir. 1982), and generally will be able to
submit lower bids than their American competitors. There-
fore, in light of this economic reality, the lowest bidder among
Icelandic shipping companies will generally be awarded 65
percent of the trade, and the lowest bid from a U.S. flag
carrier will be awarded the remainder.
We interpreted the Treaty and MOU in Rainbow Naviga-
tion, Inc. v. Department of the Navy, 911 F.2d 797 (D.C. Cir.
1990). Rainbow Navigation claimed that the Treaty and
MOU, supplemented by legislative testimony on the ratifica-
tion of the Treaty, required a bidding process protecting
Rainbow by including restrictive specifications to disqualify
small domestic supply boats. It also contended that the
solicitation must include a provision ensuring it could recover
the fixed costs of operating a vessel which could carry 65
percent of the trade even if awarded only 35 percent. See id.
at 801. We rejected the theory that Rainbow should be
accorded any greater protection than other U.S. flag carriers,
seeing nothing in the language of the Treaty or MOU requir-
ing such a result. We summarized the requirements of the
Treaty and MOU:
By its terms, the Treaty and the MOU require only (1)
that the [government] award contracts by means of a
competition; (2) in a manner that "ensure[s] that both
United States flag carriers and Icelandic shipping compa-
nies are able to maintain a viable presence in the trade";
and (3) that the lowest U.S. bidder receive at least 35
percent of the cargo.
Id.
C. Present Controversy
This brings us to the present controversy. On January 30,
1998, the Army1 issued a solicitation for the Iceland trade,
specifically stating that awards would be allocated "[p]ursuant
to the Treaty and its implementing Memorandum of Under-
standing." Of course, the solicitation stated numerous other
requirements for bidders to meet. Those we mention here
are relevant to appellees' non-treaty related challenges. The
solicitation required the Contracting Officer to make an "af-
firmative determination" of offeror responsibility. It cited to
Federal Acquisition Regulation ("FAR"), Subpart 9.1 on Re-
__________
1 Although the Navy handled the administration of the bidding
process in the past, see, e.g., Rainbow, 911 F.2d at 799, this
responsibility was transferred at some point to the Army, who
administered this solicitation through the Joint Traffic Management
Office of the Military Traffic Management Command.
sponsible Prospective Contractors, which mandates that an
awardee "[h]ave adequate financial resources to perform the
contract, or the ability to obtain them." 48 C.F.R. s 9.104-
1(a) (1998). The solicitation also stated that each offer should
"include sufficient evidence to establish control or irrevocable
right to gain control of the necessary vessels in sufficient time
to commence service on [the contract start date]."
The solicitation stated that offers were due on March 5,
1998, and the contracts had a proposed starting date of May
1, 1998 because the prior contracts were set to expire on April
30, 1998. Due to delays in the bidding process, the proposed
start date was moved back to November 1 and the incumbent
carriers given a six month extension.
TLI and TLL each submitted bids.2 TLI and TLL have
substantially similar ownership and are principally managed
by Gudmundur Kjaernested, who is a citizen of Iceland and
United States resident. At the time the original bids were
submitted, Kjaernested and Brandon C. Rose, a United
States citizen, were the primary owners of both companies.
Despite this close relationship, TLI and TLL are separate
corporate entities. TLL is a limited liability company regis-
tered in Delaware, and TLI is an Icelandic company regis-
tered in Iceland.
The Army announced the awards on September 18, 1998.
TLI, the Icelandic company, was the lowest overall bidder
and the Army awarded it a contract covering 65 percent of
the trade. The Army awarded TLL a contract for the
remaining 35 percent because it was the lowest bid among
U.S. flag carriers.
The Contracting Officer also made the required determina-
tion that each company was a responsible contractor. As to
TLI, the Contracting Officer cited a bank letter tentatively
approving a $1 million credit line to TLL. This letter noted
the bank's prior history with TLI and TLL stockholder
__________
2 We are referring to separate bids that TLI and TLL submitted.
TLI and TLL also submitted two other bids which were rejected
because they were in the nature of joint venture proposals.
Brandon Rose as being important in setting up the line of
credit. The Contracting Officer also had a letter from Kjaer-
nested stating that the credit line was available to both TLI
and TLL. As to TLL, the Contracting Officer's responsibili-
ty determination concluded that TLL had "the necessary
equipment and facilities to perform this contract." Before
the officer were four letters from marine companies pledging
vessels, with varying levels of specificity.
Eimskip and Van Ommeren filed protests with the U.S.
Government Accounting Office ("GAO"). Under the Compe-
tition in Contracting Act, this action automatically stayed the
awards. See 31 U.S.C. s 3553(b)-(d) (1994). On October 23,
1998, approval to override the stay was granted by the
Assistant Secretary of the Army. Eimskip then filed this suit
in the district court causing the GAO to dismiss the bid
protest. See 4 C.F.R. s 21.11 (1997). TLL, TLI, and Van
Ommeren timely intervened.
During this same period, the government of Iceland sent a
diplomatic note to the U.S. Department of State protesting
the awards. Citing the Treaty and MOU, Iceland stated two
problems it had with the awards to TLI and TLL: (1) that as
commonly owned companies, TLI and TLL could not be
awardees, and (2) that TLI was not a true Icelandic shipping
company. Specifically, the note stated:
The Government of Iceland has concluded, based on
available information, that [TLI and TLL] are affiliated
companies under common direction, ownership and/or
control of Icelandic citizens, and that [TLI] lacks the
necessary experience, technical capability, financial re-
sponsibility, and material connection with Iceland.
....
... [T]he Government of Iceland interprets the Treaty
and [MOU] to preclude awards by the [Army] of both the
Icelandic and United States portions of the trade subject
to the Treaty and [MOU] to affiliated companies under
common direction, ownership and/or control.
... [T]he Government of Iceland interprets the Treaty
and [MOU] to preclude any award of the Icelandic
portion of that trade to any company that lacks the
experience, technical capability, financial responsibility,
and material connection with Iceland that are necessary
to ensure ... maintenance of a viable presence of Icelan-
dic shipping companies in that trade providing for the
security of Iceland and the equitable participation of
Iceland in the benefits of the Defense Agreement....
Iceland Ministry of Foreign Affairs, Diplomatic Note to the
Department of State of the United States of America (Sept.
28, 1998), Joint Appendix ("J.A.") 124, 126 ("Iceland Diplo-
matic Note").
The U.S. State Department issued a diplomatic note on
December 30, 1998 in response to Iceland's position:
The Government of the United States considers its ac-
tions in the recent competition and award of the Icelan-
dic military cargo contract are fully consistent with the
Treaty and MOU.
....
... Until the recent contract competition, the Govern-
ment of Iceland has not expressed any views regarding
the qualifications of particular Icelandic companies nor
informed the Government of the United States that it
held views that appear to the United States to go beyond
the plain meaning of the words themselves.
....
... The Government of the United States notes that
none of [the] four criteria cited by the Government of
Iceland to render [TLI] a non-Icelandic shipping compa-
ny appears in the text of the Treaty or MOU.
....
It is the position of the Government of the United
States that none of the terms in the Treaty or MOU
require recourse to supplementary means of interpreta-
tion when the terms of the treaty are plain and unambig-
uous.... Iceland, consistent with its obligations under
international law, is of course free to enact specific
statutory or regulatory criteria for "Icelandic shipping
companies" should it wish to do so (just as the internal
law of the United States provides specific criteria for
"U.S. flag vessels").
....
... [T]he Government of Iceland [has] expressed its
concern that there had been no effective competition
because of the relationship between two of the bidders.
The Government of the United States, however, followed
its own contracting processes in this procurement and
believes that the goal of competition was indeed met....
... [T]here is no evidence of an attempt to eliminate
competition from other bidders.... [T]he two compa-
nies ... were not competing to fill the same contract
requirement. Rather, the Iceland company submitted a
proposal for the 65% share while the U.S.-flag company
submitted one for the 35% share....
Since the portion of the cargo trade which would be
reserved for Icelandic interests was determined on the
basis of competition between offers submitted by entities
from each country, it is the view of the United States
that any relationship between Icelandic companies and
companies operating U.S.-flag vessels was and is irrele-
vant to the fact that there was full, vigorous, and open
competition in full compliance with the Treaty and MOU.
U.S. Department of State, Diplomatic Note to the Embassy of
the Republic of Iceland (Dec. 30, 1998), J.A. 128, 128-35
("U.S. Diplomatic Note").
Meanwhile, appellees' district court action was proceeding.
Appellees challenged the award on two primary grounds
which are before us on appeal. First, they claim that the
Treaty and MOU prohibited awards to TLI and TLL for the
same reasons cited by the Iceland Diplomatic Note: (1)
because the common ownership of TLI and TLL made the
bidding process something other than a competition and (2)
because TLI is not a true "Icelandic shipping company."
Appellees also make two challenges to the Contracting Offi-
cer's responsibility findings: (1) that TLI was a financially
responsible contractor, and (2) that TLL was responsible in
that it had a vessel ready to perform.
After initially denying a motion for a preliminary injunc-
tion, the district court granted appellees' motions for sum-
mary judgment on February 3, 1999, and ordered the Army
to cancel the contracts and rebid. The court first ruled that
the ownership status of TLL and TLI defeated the MOU's
requirement of a single competition for the Icelandic trade.
The court also found that the Army's decisions under the
solicitation procedures were arbitrary and capricious on both
counts. The district court was not yet aware of the recently-
issued U.S. Diplomatic Note addressing the treaty issues.
TLL, TLI, and the Army appealed the judgment of the
district court. We granted a stay pending appeal. The
Government of Iceland submitted an amicus brief on behalf of
the losing bidders. The Army originally dismissed its appeal,
but has asked leave to file a brief which addresses only the
treaty issues.3
Addressing the treaty issues first, we conclude that the
Army's contract awards to TLL and TLI do not violate the
plain language of the Treaty and MOU. As to the responsi-
bility determinations of the Contracting Officer, the context
of which requires an especially deferential version of arbi-
trary and capricious review, we determine that the Army's
actions were permissible.
II. Treaty Issues
A. Standard of Review
When interpreting a treaty or memorandum of understand-
ing, we are guided by principles similar to those governing
statutory interpretation. We "must, of course, begin with the
language of the Treaty itself." Sumitomo Shoji Am., Inc. v.
Avagliano, 457 U.S. 176, 180 (1982). At this level, "[t]he
__________
3 The Army's brief does not address the responsibility determina-
tions of the Contracting Officer. At oral argument the Army
clarified that it has not changed its position on these issues but has
simply chosen not to appeal the district court's decision.
clear import of treaty language controls unless 'application of
the words of the treaty according to their obvious meaning
effects a result inconsistent with the intent or expectations of
its signatories.' " Id. (quoting Maximov v. United States, 373
U.S. 49, 54 (1963)).
To the extent that the meaning of treaty terms are not
plain, we give "great weight" to "the meaning attributed to
treaty provisions by the Government agencies charged with
their negotiation and enforcement." Sumitomo, 457 U.S. at
184-85; see also In re Papandreou, 139 F.3d 247, 252 n.2
(D.C. Cir. 1998). Although "we give somewhat less defer-
ence" where an agency and another country disagree on the
meaning of a treaty or MOU, where an agency has "wide
latitude in interpreting the MOU, ... we will defer to its
reasonable interpretation." Air Canada v. U.S. Dep't of
Transp., 843 F.2d 1483, 1487 (D.C. Cir. 1988).
In this case, we deem it proper to refer to the U.S.
Diplomatic Note for guidance as to the meaning of the terms
"competition" and "Icelandic shipping companies" under the
Treaty and MOU, although the Note was not in the record
before the district court. Although the Army may have
considered the Note confidential, TLL and TLI apparently
had access to it since they presented it to this court at the
time of the initial application for temporary restraint. We
would not, of course, consider evidence offered to support a
factual proposition which had not been before the district
court. However, the Diplomatic Note is not offered as evi-
dence to support a factual proposition, but rather as an
interpretive guide for our use in making a legal interpreta-
tion. And although all parties refer to the Note in their
briefs, appellees do not object to those references, or our
consideration of the Note, on the ground that it was not in the
record below. Because it is important for this court to have
the guidance of the agency responsible for negotiating this
treaty, we consider the Note along with the Army's argu-
ments adopting the same views. A diplomatic note is an
official position of the type which is unlikely to be taken for
litigation purposes, and is entitled to deference. Cf. Smiley v.
Citibank (South Dakota), N.A., 517 U.S. 735, 741 (1996).
B. Competition
Having reviewed the applicable principles guiding our rea-
soning, we proceed to the issue of whether the affiliated
status of TLI and TLL transformed the bidding process into
something other than a "competition." We hold that there
was still a "competition" under the Treaty and MOU. The
plain meaning of the Treaty and MOU comport with this
view, but to the extent the meaning of the word "competition"
is in any doubt, it does not prevent bids of separate corporate
entities that have common ownership. Therefore, we agree
with the U.S. Diplomatic Note that the bidding process was a
competition.4
On a surface level, a "competition" certainly occurred be-
tween U.S. flag carriers and Icelandic shippers. TLI and
TLL were competing against other U.S. flag carriers and
Icelandic shippers. Regardless of whether TLI and TLL
competed against each other, nothing in the Treaty and MOU
suggests, as appellees contend, that each and every bidder
must compete against each and every other bidder.
In fact, that has never been the nature of the competition.
Because bidders may bid for between 35 percent and 65
percent of the trade each has never competed against all.
Because TLI was effectively vying for the 65 percent portion
and TLL for the remainder, perhaps it can be said they were
not in head to head competition. But the same can be said
for Eimskip and Van Ommeren and all the other bidders.
Eimskip, being an Icelandic shipper, and Van Ommeren, a
U.S. flag carrier, were not in direct head to head competition
either. The bottom line is that this conception of a "full
competition" has nothing to do with the affiliation of bidders.
Under the appellees' theory, a competition could not occur
unless each and every bidder requested 100 percent of the
trade. The Treaty and MOU do not require such 100 percent
bids.
__________
4 We have no occasion to consider whether appellants' behavior
would or would not constitute "competition" within the meaning of
the antitrust laws.
On a deeper level, a form of head to head competition does
occur between all bidders. Every bidder is submitting bids in
a single competition to award the shipping trade. All the
bids must be compared in the first instance to determine who
is the overall lowest bidder. Even though TLL and Van
Ommeren (or other U.S. flag carriers) have little chance of
being the lowest overall bidder, they still compete against
everyone else. In this portion of the competition, even TLI
and TLL's bids are stacked against each other.
While appellees object to the substantially common owner-
ship of TLI and TLL, it is worth noting that the Comptroller
General allows affiliated companies to submit multiple bids
for the same procurement. In Pioneer Recovery Sys., Inc.,
B-214878, 1984 WL 46915, at *2 (Comp. Gen. Nov. 13, 1984),
the Comptroller General stated that "[t]he general rule is
that multiple bids may be accepted unless such multiple
bidding is prejudicial to the interests of the government or
other bidders in which case it is clear that the reason for
multiple bidding was not legitimate." See also David I. Abse,
51 Comp. Gen. 403, 404-06 (1972) (upholding award where
high and low bids were signed by same person of affiliated
companies). While the Comptroller General's opinion is not
binding precedent, we agree that the existence of affiliation
does not negate the presence of "competition" in the usual
sense of that word.
The language of the Treaty and MOU does not define
"competition" in any peculiar way requiring a different result.
There is "nothing in the Treaty ... clearly prohibit[ing] a
relationship between the two awardees." Iceland Steamship
Co. v. United States Dep't of the Army, slip op. at 4, No.
98-2631 (D.D.C. Nov. 10, 1998) (order denying preliminary
injunction). The Treaty contemplates awards "on the basis of
competition between United States flag carriers and Icelandic
shipping companies," and the MOU uses similar language.
Neither document addresses a situation in which a U.S. flag
carrier and Icelandic shipping company have similar owner-
ship.
Appellees argue that the dictionary definition of competi-
tion precludes affiliates from bidding. Black's Law Dictio-
nary, for example, describes "competition" as "[t]he effort of
two or more parties, acting independently, to secure the
business of a third party by the offer of the most favorable
terms." Black's Law Dictionary 257 (5th ed. 1979). But this
is exactly what all the bidders, including TLI and TLL, did.
Even if TLI and TLL colluded and were not acting indepen-
dent of each other, the participation of other bidders would
meet the definition's requirements. Appellees' "plain mean-
ing" argument therefore fails.
We note that the suggestion of collusion (as opposed to
mere affiliation) could be cause for concern. It might be
called "unfair competition," but even that term admits that a
"competition" occurs. And there is a mechanism for protect-
ing against collusive bidding. A Certificate for Independent
Price Determination ("CIPD") certifies the independent de-
velopment of a bid. Appellees raised a CIPD issue before the
district court, but have not pressed it on appeal.
In Maximov v. United States, 373 U.S. 49 (1963), a peti-
tioner similarly sought to impose a meaning on a term that it
could not bear. Under the Income Tax Convention between
the United States of America and the United Kingdom, Apr.
16, 1945, 60 Stat. 1377, 1384, capital gains of a "resident of the
United Kingdom" were exempt from taxation by the United
States. See id. at 49. The petitioner was trustee of a trust
created under Connecticut law by a grantor who was a
resident of the United Kingdom. A trust was considered a
person under the law of both countries and thus a "resident"
of the United States, not the United Kingdom, under the
treaty. Petitioner urged that the purpose of the treaty
required the opposite result. The Supreme Court disagreed.
Reviewing the plain language, the Court could not construe
the treaty to effect "so significant a deviation from normal
word use or domestic tax concepts." Id. at 52.
This case is not unlike Maximov. We cannot, in the name
of effectuating the purposes of the Treaty and MOU, read
into those documents a meaning of "competition" which would
prohibit the bids of separate corporate entities with common
ownership. To do so would distort the meaning of the term
"competition." If TLI and TLL were one corporation, then
the entire shipping trade could not be split between them
because the Treaty and MOU contemplate two separate
awards to one entity of each country. But TLI and TLL are
separate entities, and are entitled to be treated as such.
Therefore, we conclude that the Treaty and MOU require-
ment of a "competition" does not foreclose bids from affiliated
companies. To the extent that the term admits of any
ambiguity, we will defer to the position of the U.S. Diplomatic
Note that the bids did not create some unnamed creature that
was not a "competition."
C. Icelandic Shipping Companies
Our disposition of the meaning of "competition" does not
end our discussion of the Treaty. We must also consider
whether TLI is an "Icelandic shipping company." As a
preliminary point, we make clear that this dispute is not
whether TLI is a properly registered Icelandic company,
although it appears to be one. Instead, we are asked to
decide whether it is an "Icelandic shipping company" as that
term in used in the Treaty and MOU. While it could be said
these two inquiries, absent other direction, should be identi-
cal, we need not decide that issue. We can conclude that
whatever the Treaty and MOU require, the interpretation of
the U.S. Diplomatic Note is reasonable and is entitled to
deference.
The Iceland Diplomatic Note suggests that all Icelandic
shipping companies must fulfill four requirements: "experi-
ence, technical capability, financial responsibility, and materi-
al connection with Iceland." How much of any of these
factors is required? The Note says sufficient "to ensure a
viable presence of Icelandic shipping companies" in the trade.
Unfortunately that is not helpful given that the term "Icelan-
dic shipping company" is used in the "definition" itself.
Whichever Icelandic shipping company is awarded the con-
tract will have a viable presence. As the district court feared,
this is not a meaningful way for a court to analyze what
constitutes an Icelandic shipping company within the meaning
of the Treaty. See Iceland Steamship Co. v. United States
Dep't of the Army, slip op. at 6 n.2, No. 98-2631 (D.D.C. Feb.
3, 1999).
We do recognize the concerns of the government of Ice-
land. Apparently, when the Treaty was drafted, it was not
contemplated that newly formed Icelandic-owned shipping
companies would be able to capture the trade. Thus a
specific definition of the term was not included. Just as
Rainbow Navigation was formed as a U.S. flag carrier in 1984
to capture to the entire trade under the Cargo Preference
Act, TLI was founded by an Icelandic citizen in an attempt to
capture the Icelandic portion under the regime established in
1986. However, if Iceland wished the limitation it now seeks,
it could have insisted that a more specific definition be
included. For example, the U.S. portion of the trade is
reserved for "U.S. flag carriers" instead of "U.S. shipping
companies."
The parties to the international agreements included no
explicit definition. We have no authority for engrafting
terms onto the MOU that they did not include. The plain
meaning of the words "Icelandic shipping company" does not
compel us to find as a matter of law that TLI does or does
not qualify for such status. Insofar as there is any ambigui-
ty, we will defer to the reasonable interpretation offered in
the U.S. Diplomatic Note. We therefore hold that it was
reasonable for the Army to find that TLI is an Icelandic
shipping company under the Treaty and MOU.
Because we need only decide the case before us, we do not
identify a line between actions that are permitted and those
which are prohibited by the Treaty and MOU. We recognize
that a reasonable range of choices might exist. There is no
call for us to go further.
III. Solicitation Issues
A. Standard of Review
Finally, we consider the challenges to the Contracting
Officer's responsibility determinations. Because of the spe-
cial nature of contracting determinations, our review is an
especially deferential application of the arbitrary and capri-
cious standard. We clarified the application of the standard
to contracting determinations in Old Dominion Dairy Prods.,
Inc. v. Secretary of Defense, 631 F.2d 953 (D.C. Cir. 1980):
As stated in Keco Industries, Inc. v. United States, 492
F.2d 1200, 1203 (Ct. Cl. 1974), the ultimate standard is
"whether the Government's conduct was arbitrary and
capricious toward the bidder-claimant." Concerning a
determination of nonresponsibility, the court in Keco
Industries specifically stated that contracting officers
"have very wide discretion," and that a complaining
bidder "would normally have to demonstrate bad faith or
lack of any reasonable basis in order to prevail." Id. at
1205. In describing the reasonable basis test, the court
elsewhere noted that, "although based on external facts
and circumstances rather than a showing of animosity
toward plaintiff or favoritism for a competitor, this prin-
ciple is not far removed from the bad faith test; courts
often equate wholly unreasonable action with conduct
motivated by subjective bad faith." Id. at 1204.
Old Dominion, 631 F.3d at 960; see also YRT Servs. Corp. v.
United States, 28 Fed. Cl. 366, 387-88 (1993).
As in other agency review contexts, "a procurement deci-
sion is not 'irrational' simply because we might have reached
a different decision in the first instance." Elcon Enters., 977
F.2d at 1478. But we look for no more than "substantial
compliance with applicable law and baseline substantive ra-
tionality [because] '[j]udges are "ill-equipped to settle the
delicate questions involved in procurement decisions." ' " Id.
at 1479 (quoting Delta Data Sys. Corp. v. Webster, 744 F.2d
197, 203 (D.C. Cir. 1984) (quoting Kinnett Dairies, Inc. v.
Farrow, 580 F.2d 1260, 1271 (5th Cir. 1978))).
Applying this deferential standard, we conclude that a
rational basis existed for the responsibility determinations of
the Contracting Officer.
B. TLI
Although various challenges were advanced below, appel-
lees' primary argument is that the Contracting Officer should
not have relied on a tentative letter of credit to one compa-
ny--TLL--in finding another--TLI--to be financially re-
sponsible. While the basic proposition is appealing, on the
specific facts before us we cannot hold that the officer acted
improperly. The line of credit letter relied on was addressed
to Mr. Rose at TLL, a stockholder of both companies, and
stated that the line of credit was based on the bank's relation-
ship with Mr. Rose's family. TLI also provided written
assurance to the Army that the letter of credit applied to both
companies. And while the letter was "tentative," it does not
state what "tentative" means.
Viewing the totality of the evidence, we hold that the Army
had a rational basis for finding TLI to be responsible. In
fact, before the district court, the Army even suggested that
the Contracting Officer could have found that no line of credit
was needed at all. See Iceland Steamship Co. v. United
States Dep't of the Army, slip op. at 13 n.9, No. 98-2631
(D.D.C. Feb. 3, 1999). This suggestion highlights the diffi-
culty of second-guessing the Contracting Officer's determina-
tion. We have no basis for requiring that a letter of credit be
more than "tentative." And while the fact that the letter of
credit was addressed to TLL might be troubling, the ultimate
weight given to this piece of information is based on a
discretionary weighing of financial risks and rewards by the
Contracting Officer.
Furthermore, it is in an agency's self-interest to make
proper responsibility determinations. Otherwise, the agency
runs the risk of contractor default which could cause "sub-
stantial delay and inconvenience." Keco Indus., 492 F.2d at
1206. But in any event, considering the deferential standard
of review applied to this type of decision, and the fact that
judges are not financial advisors to the United States govern-
ment, we conclude that there is no basis for overturning the
Contracting Officer's finding that TLI was responsible.
C. TLL
Appellees challenge the Contracting Officer's responsibility
determination regarding TLL on the ground that TLL pre-
sented insufficient evidence to show a right to control a
vessel. The solicitation required "sufficient evidence to es-
tablish control or irrevocable right to gain control of the
necessary vessels in sufficient time to commence service on
[the contract starting date]." TLL submitted four letters
from marine companies pledging the availability of vessels.
For example, the letter from Tidewater Marine stated:
This is to confirm that [TLL] has the option to charter
the supply boat Native Dancer.... The maximum char-
ter shall not exceed 180 days. Additional unspecified
options shall be mutually negotiated.
The purpose of the charter is to fulfill a part of [TLL's]
obligation to the Joint Traffic Management Office, in the
event that the company is awarded the contract.
J.A. at 216. Based on these submissions, the Contracting
Officer concluded that TLL would obtain the ships necessary
to be a responsible contractor.
Deferring to the expertise of the Contracting Officer in
these matters, we find this decision to be rational. We have
no occasion to weigh the quantum of evidence needed to
establish the legal requirements of an irrevocable option.
Considering these letters, we cannot say it was arbitrary for
the Contracting Officer to decide that TLL would be able to
obtain vessels. Moreover, we note that we have held in a
contract action that an irrevocable option can be created
despite a paucity of stated terms. See Ammerman v. City
Stores Co., 394 F.2d 950, 954-55 (D.C. Cir. 1968). Although
the letters apparently did not state price terms, we have no
information on the typical evidence required by contracting
officers, or furnished by prospective charterers. Therefore,
we must conclude that the appellees have not established that
the Contracting Officer's decision was arbitrary or capricious.
IV. Conclusion
For the reasons set forth above, we conclude that the
Army's decision to award the shipping contracts to TLI and
TLL does not require rebidding. Because there are no issues
of material fact to be decided, we reverse the judgment of the
district court and remand for the entry of summary judgment
in favor of appellants.
So ordered.
Karen LeCraft Henderson, Circuit Judge, concurring in part
and dissenting in part:
The majority rightly focuses on our narrow standard of
review of the Contracting Officer's two responsibility determi-
nations. Although its focus is blurred by the quotation from
Old Dominion Dairy Products, Inc. v. Secretary of Defense,
631 F.2d 953, 960 (D.C. Cir. 1980), discussing an ill-defined
"reasonable basis test," Maj. Op. at 18, in the end my
colleagues adhere to the well-established arbitrary and capri-
cious standard of review of administrative action. See id. at
18, 20 ("[O]ur review is an especially deferential application of
the arbitrary and capricious standard."); id. at 18 ("[T]he
ultimate standard is 'whether the Government's conduct was
arbitrary and capricious.' ") (quoting Old Dominion Dairy
Prods., Inc. v. Secretary of Defense, 631 F.2d 953 (D.C. Cir.
1980)).
In any event, even with "an especially deferential applica-
tion" of an already deferential standard of review, id., we are
nevertheless obligated to review the administrative decisions
with some scrutiny. The Army regulations mandate that
contracts "be awarded to[ ] responsible prospective contrac-
tors only." See 48 C.F.R. s 9.103(a). My review of the
Contracting Officer's decision leads me to reject his determi-
nation of TLI's financial responsibility. In addition, although
I concur in the majority holding regarding the Contracting
Officer's determination of TLL's operational responsibility, I
cannot agree that our standard of review intends nothing
more than rubber-stamping the same.
I.
The regulations governing the financial responsibility de-
termination mandate that a bidder provide information "clear-
ly indicating" it has, or can obtain, adequate financial re-
sources to perform the contract.1 48 C.F.R. s 9.103(b) ("In
__________
1 The solicitation here provided:
The Government shall require a showing of financial and
operational responsibility prior to making an award. The
applicable provisions of the FAR [Federal Acquisition Regula-
tion], Sub-part 9.1 require that prior to award, an affirmative
determination be made by the Contracting Officer that the
the absence of information clearly indicating that the prospec-
tive contractor is responsible, the contracting officer shall
make a determination of nonresponsibility."); see id. s 9.104-
1 ("To be determined responsible, a prospective contractor
must ... [h]ave adequate financial resources to perform the
contract, or the ability to obtain them."). Evidence of a
prospective contractor's ability to obtain required resources
"normally consists of a commitment or explicit arrangement."
Id. s 9.104-3(a). Moreover, the regulations consider affiliat-
ed entities like TLL and TLI separately for the purpose of
determining financial responsibility. See id. s 9.104-3(c).2
The majority concludes that there is no basis to overturn
the Contracting Officer's finding that TLI was financially
responsible. See Maj. Op. at 19. His determination was
based on a letter from the State Bank of Long Island
purporting to extend a tentative line of credit. As the
majority notes, see id., the letter was addressed to Brandon
Rose, a stockholder in both TLI and TLL. The majority,
however, omits that it was addressed to Rose at TLL. More-
over, the letter extended nothing to Rose and nothing to TLI;
it merely "tentatively approved" a line of credit to TLL. JA
313. One of the bases for the bank's decision was its relation-
ship with Rose's family. The bank also cited TLL's business
plan and made no reference to TLI. Perhaps the State Bank
of Long Island would not extend credit equally to an entity
like TLI, organized under the laws of another country. Per-
haps TLI's financial status or business plan was not as sound
as TLL's. I also wonder if the letter "clearly indicat[ed]" the
prospect of a line of credit for other companies Rose owned
stock in.3
__________
prospective offeror is responsible and meets the minimum
standards specified herein.
Joint Appendix (JA) 107-08.
2 Section 9.104-3(c) provides that "[a]ffiliated concerns ... are
normally considered separate entities in determining whether the
concern that is to perform the contract meets the applicable stan-
dards for responsibility."
3 Although TLL provided the Contracting Officer a letter of
assurance that the credit applied equally to both companies, TLL
Even assuming the letter bears on the determination of
TLI's financial responsibility, the letter approved the line of
credit only "tentatively." JA 313. The majority discounts
the conditional nature of the approval because the letter
"does not state what 'tentative' means." Maj. Op. at 19.
Indeed, the letter did not detail what conditions must be
satisfied before the bank in fact extended credit. But "tenta-
tive" means "subject to change or withdrawal" or otherwise
"not final." Webster's Third New International Dictionary
2357 (1981). The majority also claims: "We have no basis for
requiring that a letter of credit be more than 'tentative.' "
Maj. Op. at 19. On the contrary, the standards that govern
award of a procurement contract (the FAR, Sub-part 9.1,
discussed above) plainly envision that a bidder provide more
than a tentatively approved line of credit to an affiliated
entity. See 48 C.F.R. s 9.103(b) ("In the absence of informa-
tion clearly indicating that the prospective contractor is re-
sponsible, the contracting officer shall make a determination
of nonresponsibility.").
Because the letter from the bank neither "clearly indi-
cat[ed]" applicability to TLI nor extended credit to anyone, I
would conclude that the Contracting Officer's determination
of TLI's financial responsibility was especially arbitrary and
capricious and that he was bound to "make a determination of
nonresponsibility." Id.
II.
The majority omits review of the Contracting Officer's
operational responsibility determination regarding TLL. The
Army's solicitation mandates that "[n]o offer will be consid-
ered for award which does not include sufficient evidence to
establish control or irrevocable right to gain control of the
necessary vessels in sufficient time to commence service on
[contract starting date]." JA 102. Because TLL proffered
no evidence "establish[ing] control," our review focuses on
__________
did not purport to be speaking for the bank. See JA 187. In any
event, the regulations provide that affiliated entities are to be
considered separately. See 48 C.F.R. s 9.104-3(c).
whether TLL proffered sufficient evidence establishing "an
irrevocable right to gain control." Id. The majority notes
that the Contracting Officer relied on four letters from ma-
rine companies pledging the availability of vessels to TLL. It
concludes that "[w]e have no occasion to weigh the quantum
of evidence needed to establish the legal requirements of [an]
irrevocable option." Maj. Op. at 20. I disagree. First, while
the majority is no doubt correct that, as a general rule,
"judges are ill-equipped to settle the delicate questions in-
volved in procurement decisions," id. at 18, the determination
of an "irrevocable right to gain control" requires a legal
conclusion and, thus, a conclusion which judges are presum-
ably adept at making. Moreover, the solicitation provides
that an "irrevocable right" is a prerequisite to the operational
responsibility determination, JA 102; therefore, finding a
bidder to be responsible without an irrevocable right is
arbitrary and capricious. In reviewing the Contracting Offi-
cer's responsibility determination under any formulation of
the arbitrary and capricious standard, then, we must consider
whether the four letters TLL submitted were sufficient to
establish an "irrevocable right to gain control of the neces-
sary vessels." JA 102.
Because I believe the four letters could constitute an
irrevocable option, see Ammerman v. City Stores Co., 394
F.2d 950 (D.C. Cir. 1968); see generally Restatement (Sec-
ond) of Contracts (1979) s 87(2) ("An offer which the offeror
should reasonably expect to induce action or forbearance of a
substantial character on the part of the offeree before accep-
tance and which does induce such action or forbearance is
binding as an option contract to the extent necessary to avoid
injustice."); 3 Eric Mills Holmes, Corbin on Contracts s 11.7
(rev. ed. 1996) ("[A]n option contract can be made binding and
irrevocable ... by subsequent action ... by the option holder
in reliance on the option."), I join the majority in deferring to
the Contracting Officer's determination that the letters con-
stituted "sufficient evidence" to establish an "irrevocable
right to gain control of the necessary vessels in sufficient time
to commence service," JA 102, and that TLL was therefore
operationally responsible.
Accordingly, I concur in toto in Parts I and II and in Parts
III.A and III.C as explained above. I respectfully dissent
from Part III.B. My resolution of Part III.B, finding revers-
ible error in the award to TLI, would require remand to the
Army for rebidding.