In the United States Court of Federal Claims
No. 96-784C
(Filed July 28, 1997)
_______________________________
)
R.R. DONNELLEY & SONS, )
COMPANY ) Contracts; summary judgment;
Plaintiff, ) suit for bid preparation costs;
) promissory estoppel; burden of
v. ) proof of all four Keco factors.
)
THE UNITED STATES, )
)
Defendant. )
_______________________________)
Frederic G. Antoun, Jr., Chambersburg, PA, for plaintiff.
Steven E. Gordon, Washington, DC, with whom was Assistant
Attorney General Frank W. Hunger, for defendant. Kerry L. Miller,
U.S. Government Printing Office, of counsel.
ORDER
MILLER, Judge.
This case is before the court after argument on defendant's
motion to dismiss Count II of plaintiff's complaint for lack of
subject matter jurisdiction and for summary judgment on Count I.
Plaintiff claims that the Government's cancellation of an
Invitation for Bids relating to the printing of United States
patents was arbitrary and capricious, thus entitling plaintiff to
bid preparation and related costs. The issues are 1) whether
Count II of plaintiff's complaint is a promissory estoppel or an
equitable estoppel claim, and 2) whether plaintiff has raised a
genuine issue of material fact demonstrating that the Government
acted in an arbitrary and capricious manner when it canceled the
Invitation for Bids.
FACTS
The instant dispute arose from a solicitation for the printing of
patents issued by the Government Printing Office (the "GPO") on
November 15, 1993. 1/ The solicitation, issued in the form of an
Invitation for Bids ("IFB"), called for a one-year requirements
contract. According to defendant, the IFB estimated that the
Government would require approximately 35,270,000 leaves over the
12-month term of the contract, or about 2,939,000 leaves per
month. Plaintiff disagrees, arguing that the IFB contemplated
that the Government would require approximately 46,772,273 leaves
over the course of the contract, or about 3,897,689 leaves per
month. 2/ In addition, defendant contends that the IFB contained
a pricing schedule contemplating that the GPO would order at
least 45 copies of each patent and calling for a line item price
for the first 45 copies. Plaintiff, while agreeing that the IFB
contained a pricing schedule calling for a line item price for
the first 45 copies, suggests that the IFB is not clear
concerning the minimum number of copies for each patent.
On December 13, 1993, the GPO received two bids, one from R.R.
Donnelley & Sons, Company ("plaintiff" or "Donnelley"), in the
amount of $2,887,812.39 and one from GraphicData, Inc.
("GraphicData"), the incumbent Program D306S contractor, in the
amount of $2,933,925.23. Soon thereafter, the contracting officer
ordered a full pre-award survey and began evaluating whether
plaintiff possessed the financial and technical resources to
perform the contract.
On December 27, 1993, GraphicData filed a pre-award protest with
the contracting officer. GraphicData alleged that 1) plaintiff's
bid was not signed by an authorized official and therefore was
not responsive. and 2) plaintiff lacked the necessary facilities
to perform the contract. The contracting officer ultimately
dismissed the protest.
A government pre-award survey team, consisting of three GPO
employees and three employees of the Patent and Trademark Office
(the "PTO"), conducted an on-site Survey of plaintiff's facility
on January 12.1994. According to plaintiff,
Larry McHugh, one of the GPO representatives, told Llewellyn
Dortch, a Donnelley employee responsible for preparing
plaintiff's bid for the Program D306S contract, that "he [Mr.
McHugh] saw no reason why Donnelley would not be certified to
receive [the] award, assuming that several questions were
addressed, and our various plans were modified to reflect changes
we made since their original submission." Affidavit of Llewellyn
Dortch, May 12, 1997, ¶ 9. Mr. Dortch also contends that Mr.
McHugh and the PTO representatives instructed plaintiff to
complete all arrangements necessary for performing the contract
within the next 20-30 days. Id. ¶ 10.
On January 13, 1994, GraphicData filed a pre-award bid protest
with the General Accounting Office (the "GAO") challenging
plaintiff's responsiveness and its ability to perform the
contract. GraphicData later filed three additional protests with
the GAO. Both the GPO and plaintiff filed pleadings with the GAO
urging the dismissal of GraphicData's protests. The GPO wrote to
plaintiff informing plaintiff that it could not make an award
under the solicitation until the GAO ruled on GraphicData's
protests. On January 28, 1994, the GPO's pre-award survey team
recommended to the contracting officer that the GPO award the
Program D306S contract to plaintiff.
By memorandum dated March 6, 1994, the PTO advised the GPO that
it would be substituting CD-ROM patent documents for paper and
microfilm patent documents. On March 8, 1994, representatives of
the PTO met with the GPO's contracting officer to discuss how the
conversion to CD-Rom documents would affect the PTO's paper
document requirements. A March 15, 1994 memorandum from Richard
Weiss, the GPO contracting officer. to the GPO Contract Review
Board, predicted that tile conversion to CD-ROM would result in
the reduction of 12 paper patent sets. Mr. Weiss opined that
[t]he initial reduction of the 12 sets would result in an
immediate reduction of approximately 20% in the soft copy work
load. This reduction would directly effect the printing line
items, the collating line items (if a charge were entered), and
result in a significant drop in the paper to be used. Further
reductions would result in a workload drop in excess of 50% over
what was originally estimated.
Plaintiff strenuously disagrees with Contracting Officer Weiss'
predictions and argues that the contracting officer did not have
a reasonable basis for predicting a 20-50% reduction in paper
patent documents, pointing to the correspondence, internal
memoranda, and other documents in the record to support
plaintiff's points.
On March 15, 1994, Kerry Miller, counsel for the GPO, informed
plaintiff that the GPO planned to cancel the solicitation for
Program D306S because the conversion to CD-ROM would cause a 25%
reduction in the PTO's paper requirements. The GPO formally
canceled the November 15, 1993 solicitation on March 22, 1994,
citing "extensive changes in the estimated requirements" as the
reason for cancellation.
The GPO issued a revised solicitation for the Program D306S
contract on April 11, 1994. The revised solicitation provided, in
pertinent part:
NOTICE TO CONTRACTORS All contractors planning to bid on this
solicitation are put on notice that beginning October 1, 1994 the
Patent and Trademark Office will be offering to supply U.S.
Patents sets to their customers on CD- ROM rather than on paper.
The basis of award figures offered in this solicitation were
compiled utilizing two time periods....
At this time it is unknown EXACTLY how many customers will
request the change-over to CD-ROM, but based on the Patent
Office's knowledge of their customers present capabilities, they
anticipate that as many as 25 customers now receiving paper sets
will switch to CD-ROM. The basis of award figures compiled for
the second time period reflects the 25 set drop.
Only one company, GraphicData, bid on the revised solicitation.
The GPO awarded the revised Program D306S contract to GraphicData
on May 20,1994.
On July 6, 1994, plaintiff submitted a claim to Contracting
Officer Weiss contending that the GPO had breached its duty to
deal fairly with plaintiff when it canceled the solicitation.
Plaintiff sought reimbursenent in the amount of $336,673.37 for
costs incurred in "bid preparation; formulation and
implementation of quality, security and production plans; pre-
award survey and provision of necessary information to GPO to
respond to various protests and preparation to perform the
contract; facilities acquisition cost and expenses; [and] legal
expenses." Mr. Weiss responded to plaintiff's claim on April 24,
1995. He explained that he did not have jurisdiction to enter a
final decision on plaintiff's claim.
Plaintiff filed suit in the Court of Federal Claims on December
16, 1996. Plaintiff's complaint contained two counts, breach of
implied contract (Count I) and equitable estoppel (Count II).
Plaintiff seeks $310,957.01 in monetary damages and an award of
attorney's fees and other costs.
DISCUSSION
I. Defendant's motion to dismiss Count II of the complaint
Defendant argues that Count II of the complaint, although
captioned as an equitable estoppel claim, actually is a
promissory estoppel claim. Whether Count II of plaintiff's
complaint is an equitable estoppel claim or a promissory estoppel
claim is significant, for the United States " 'has not waived its
sovereign immunity with regard to a promissory estoppel cause of
action." Biagioli v. United States, 2 Cl.Ct. 304, 308 (1983)
(quoting Jablon v. United States, 657 F.2d 1064, 1070 (9th
Cir.1981)); see Knaub v. United States, 22 Cl.Ct. 268, 276
(1991); American Maritime Transp., Inc. v. United States. 18
Cl.Ct. 283, 292 (1989).
Promissory estoppel is " 'used to create a cause of action,
whereas equitable estoppel is used to bar a party from raising a
defense or objection it otherwise would have, or from instituting
an action which it is entitled to institute.' " Biagioli, 2 CI.
Ct. at 307 (quoting Jablon, 657 F.2d at 1068). Promissory
estoppel functions as a sword, while equitable estoppel functions
as a shield. Biagioli, 2 Cl.Ct. at 307. Count II of plaintiff's
complaint states that plaintiff is entitled to monetary damages
because the GPO induced plaintiff to expend funds on a contract
that had not yet been awarded and plaintiff relied on the GPO's
representations. Complaint filed Dec. 16, 1996, ¶¶ 35-39. Through
Count II of its complaint, plaintiff attempts to create a cause
of action. 3/ Consequently. the court dismisses Count II for
lack of subject matter jurisdiction.
II. Defendant's motion for summary judgment
1. Standard of review
Expenses incurred when preparing a bid for a government contract
normally are "lost" when the bidder does not receive the
contract. E.W. Bliss Co. v. United States, 77 F.3d 445, 447
(Fed.Cir.1996). Where, however, the Government's consideration of
the disappointed bidder's proposal was arbitrary or capricious,
the disappointed bidder may recover the costs of preparing its
unsuccessful bid., "The standards that permit a disappointed
bidder to recover proposal preparation expenses are high and the
burden of proof is heavy." Id. (quoting Lincoln Servs., Ltd. v.
United States, 230 Ct. Cl. 416. 417- 18, 678 F.2d 157, 158
(1982), and citing CACI, Inc.-Fed. v. United States, 719 F.2d
1567, 1573 (Fed.Cir.1983); Coastal Corp. v. United States, 713
F.2d 728, 730 (Fed.Cir.1983)); see United States Fidelity & Guar,
Co. v. United States, 230 Ct. CI. 355,366, 676 F.2d 622, 630
(1982).
Defendant contends that plaintiff must prove the arbitrary and
capricious nature of the Government's actions by "clear and
convincing evidence." In support of imposing an elevated standard
of proof, plaintiff cites Shields Enterprises, Inc. v. United
States, 28 Fed. Cl. 615, 622 (1993). This court respectfully
disagrees with Shields' interpretation of the binding precedent.
As discussed above, the Federal Circuit and its predecessor, the
United States Court of Claims, have defined the standard of proof
as "high," not as "clear and convincing." 4/ See E.W. Bliss Co.,
77 F.3d at 445; Lincoln Servs., Ltd., 230 Ct. Cl. at 417-18, 678
F.2d at 158; Excavation Constr., Inc. v. United States, 204 Ct.
Cl. 299, 302, 494 F.2d 1289, 1290 (1974).
In Keco Indus., Inc v. United States, 203 Ct. Cl. 566, 492 F.2d
1200 (1974), the Court of Claims set forth four "criteria" used
in determining whether an agency's action is arbitrary and
capricious:
One is that subjective bad faith on the part of the procuring
officials, depriving a bidder of the fair and honest
consideration of his proposal, normally warrants recovery of bid
preparation costs. [5/] A second is that proof that there was
"no reasonable basis" for the administrative decision will also
suffice, at least in many situations. The third is that the
degree of proof of error necessary for recovery is ordinarily
related to the amount of discretion entrusted to the procurement
officials by applicable statutes and regulations. The fourth is
that proven violation of pertinent statutes or regulations can,
but need not necessarily, be a ground for recovery. The
application of these four general principles may well depend on
(1) the type of error or dereliction committed by the Government,
and (2) whether the error or dereliction occurred with respect to
the claimant's own bid or that of a competitor.
Id. at 574, 492 F.2d at 1204 (citations omitted). Plaintiff does
not contend that the contracting officer canceled the IFB in bad
faith or in violation of an applicable regulation. Rather, the
reasonableness of the decision is questioned.
In order to establish that government action was arbitrary and
capricious, a disappointed bidder need not prove that each of the
four Keco factors is present. Prineville Sawmill Co. v. United
States, 859 F.2d 905, 911 (Fed.Cir.1988). To the extent that
Custom Contract Drapery Serv. v. United States, 6 Cl.Ct. 811, 818
(1984), holds that "[o]nly a bad faith rejection of all bids or
cancellation of the solicitation may give rise to a right to
recover bid preparation costs[,]" the Federal Circuit's decision
in Prineville is to the contrary: "[T]he absence of any
allegation or evidence of bad faith ... is not determinative."
859 F.2d at 911 n. 5.
The third Keco factor, the "amount of discretion possessed by the
procurement official," is not so much an independent element as
an analytical tool for determining "the degree of proof necessary
to prove arbitrary and capricious conduct." United States
Fidelity & Guar. Co., 230 Ct. Cl. at 369, 672 F.2d at 630;
Lincoln Servs., Ltd., 230 Ct. Cl. at 427. 678 F.2d at 163-64. The
more discretion that a procurement official possesses, the harder
it is for a disappointed bidder to prove that the official's
actions are arbitrary and capricious. Burroughs Corp. v. United
States, 223 Ct. Cl. 53, 65, 617 F.2d 590, 597 (1980). In a
negotiated procurement, procurement officials possess a high
degree of discretion in their efforts to obtain a contract most
beneficial to the Government. Id., at 65, 617 F.2d at 597. In a
formal procurement, such as this case, however, procurement
officials require less discretion to perform their duties. Id.,
GPO Printing Procurement Regulation ch. XI. § 2(l)(a) (undated),
provides:
Preservation of the integrity of the competitive bid system and
prevention of unnecessary exposure of bid prices dictate that,
after bids have been opened, award must be made to that
responsible bidder who submitted the lowest responsive bid.
unless there is a compelling reason to reject all bids and cancel
the invitation. Wherever possible, changes in requirements shall
be made prior to bid opening.
(Emphasis added.) Consequently, the contracting officer's
discretion to cancel a solicitation after bid opening is limited
to those circumstances where "compelling reasons" exist.
2. Summary judgment standard
Summary judgment is appropriate when there are no genuine issues
of material fact in dispute and the moving party is entitled to
judgment as a matter of law. RCFC 56(c); Seal-Flex, Inc. v. Track
and Court Const., 98 F.3d 1318, 1321 (Fed.Cir.1996) (citing
Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
251-52 (1986)). The moving party bears the initial burden of
establishing the absence of any disputes of material fact. Id.,
(citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)).
"When the movant has met its initial burden, the non-movant must
respond with sufficient evidence to show that there is a material
factual dispute and that, on the non-movant's evidence, the
movant is not entitled to judgment as a matter of law." Id.,
When resolving a motion for summary judgment, the court cannot
weigh the evidence and determine the truth of the matter.
Anderson, 477 U.S. at 249. 255. Any evidence presented by the
non-movant is to be believed, and all justifiable inferences are
to be drawn in its favor. Id. at 255. Accordingly, in its
capacity as the opponent of summary judgment, plaintiff is
entitled to "all applicable presumptions, inferences, and
intendments." H.F. Allen Orchards v. United States, 749 F.2d
1571, 1574 (Fed.Cir.1984).
3. Reasonableness of the cancellation
Defendant argues that once the contracting officer learned from
the PTO that the latter predicted a 20% reduction in its paper
patent requirements, the contracting officer had a reasonable
basis for canceling the IFB. In support of its position,
defendant cites GPO Printing Procurement Regulation ch. XI, §
2(b), which provides, in pertinent part:
IFBs may be canceled after opening but prior to award and all
bids rejected, only where such action is clearly in the best
interest of the Government.... The following are examples of
circumstances which may justify cancellation of an IFB after
opening:
(ii) The supplies or services are no longer required.
....
(vii) For other reasons cancellation is clearly in the
Government's interest.
Defendant posits that, at the time of the cancellation, the
contracting officer reasonably believed that the 20% reduction in
the PTO's paper patent requirements would cause the GPO to
purchase supplies it did not require and, in addition,
potentially could expose the GPO to a claim for negligent
estimates of its requirements.
Plaintiff does not dispute that a predicted 20% reduction in the
PTO's paper patent requirements would justify the cancellation of
the IFB. However, plaintiff challenges the reasonableness of the
contracting officer's prediction that a 20% reduction would
occur. 6/ According to plaintiff, the contracting officer, given
the information available to him at the time of the cancellation
of the IFB, should have predicted a 5% reduction in the PTO's
paper patent requirements, not a 20% reduction. If a reasonable
evaluation of the available information would have suggested only
a 5% reduction in the PTO's paper patent requirements, plaintiff
contends that the contracting officer's decision to cancel the
IFB lacked a reasonable basis.
Based on the correspondence, internal memoranda, and other
documents included in the record, plaintiff has raised a genuine
issue of material fact concerning the reasonableness of the
contracting officer's determination that implementation of the
CD-ROM technology would cause a 20% reduction in the PTO's paper
patent requirements. The court is left with two competing
interpretations of the evidence. In resolving defendant's motion
for summary judgment, the court cannot determine which party's
interpretation is more credible. See Anderson, 477 U.S. at 249.
Trial is required to determine whether the contracting officer
had a reasonable basis, given the information available to him on
March 22, 1994, for predicting that the PTO's paper patent
requirements would decrease by 20%.
During oral argument, defendant expressed concern that a trial on
the merits would be tantamount to a judicial second-guessing of
the contracting officer's decision. The court is well aware of
its limited role in reviewing an agency action under the
arbitrary and capricious standard. Trial will focus on the
question of whether the contracting officer had a reasonable
basis for his decision.
CONCLUSION
Accordingly, based on the foregoing,
IT IS ORDERED, as follows:
1. Defendant's motion is granted in part, insofar as Count II of
the complaint is dismissed for lack of jurisdiction. and is
otherwise denied.
2. All discovery shall be completed by November 3.1997.
3. The submissions required by ¶¶ 12, 13, and 15 of Appendix G
shall be filed by November 25, 1997.
4. The pretrial conference shall be held at 2:00 p.m. on Tuesday,
December 2, 1997, in the National Courts Building, 717 Madison
Place, N.W., Washington, DC.
5. Trial, not to exceed 5 days, shall commence at 10:00 a.m. on
Monday, December 8, 1997, in the National Courts Building.
____________________________
Christine Odell Cook Miller
Judge
_______________
1/ The GPO contracts with private parties in order to meet the
requirements of the Patent and Trademark Office (the "PTO"). The
printing of U.S. Patents is known as Program D306S.
2/ A leave is one sheet of 8 1/2 inch by 11 inch paper.
3/ Plaintiff apparently acknowledges that the court does not
have jurisdiction over count II of its complaint: "Plaintiff
concedes that, in the event it fails to make out a claim for bid
preparation costs under the Keco II standards, Plaintiff's
'estoppel' theory may not be sufficient, in and of itself. to
create a cause of action." Plf's Br. filed May 22.1997, at 7.
4/ See infra note 5.
5/ In Heyer Prod. Co. v. United States, 135 Ct. Cl. 63, 71, 140
F.Supp. 409, 414 (1956), the Court of Claims did apply the clear
and convincing standard of proof:
Recovery can be had in only those cases where it can be shown by
clear and convincing proof that there has been a fraudulent
inducement for bids, with the intention, before the bids were
invited or later conceived, to disregard them all except the ones
from bidders to one of whom it was intended to let the contract,
whether he was the lowest responsible bidder or not.
Heyer, which was decided before Keco, dealt exclusively with the
question of whether the Government had induced bids in bad faith.
A finding that the Government acted in bad faith requires "
'well-nigh irrefragable proof,' " Kalvar Corp. v. United States,
211 Ct. Cl. 192, 198, 543 F.2d 1298, 1301-02 (1976) (citation
omitted), and, therefore, the clear and convincing standard is
appropriate. However, no direct authority supports the
proposition that the clear and convincing standard applicable to
claims of bad faith conduct applies to the other Keco factors,
unreasonableness and violations of applicable statutes and
regulations. The court notes that the Court of Claims in
Burroughs Corp. v. United States, 223 Ct. C1. 53, 65, 617 F.2d
590, 597 (1980), described the without-any-reasonable-basis test
as "closely related" to the bad-faith test. However, Burroughs
did not suggest that the types of proof are the same. The Federal
Circuit's decision in Prineville Sawmill Co. v. United States,
859 F.2d 905 (Fed.Cir.1988), see infra p. 8, would appear to take
issue with Burroughs, in any event.
6/ Plaintiff makes two additional arguments. First, plaintiff
argues that the PTO was considering converting to CD-ROM
technology earlier than March 1994. and that the GPO therefore
should have canceled the solicitation at an earlier date.
Plaintiff's argument requires too much of the contracting
officer. Although certain PTO employees, who were not involved in
the procurement of the Program D306S contract, were contemplating
a conversion to CD-ROM technology prior to March, 1994, the
Commissioner of Patents and Trademarks did not institute the CD-
ROM conversion program until March 16, 1994. "GPO Contracting
Officers have many important responsibilities, but trying to
predict the future management actions of another agency with
respect to its contracts is not one of them, and it would be
foolish for them to try to do so." In the Matter of the Appeal of
GraphicData, Inc., No. 35-94, 1996 WL 812875. at * 39
(G.P.O.B.C.A. June 14, 1996).
Second, plaintiff argues that the actual reduction in the PTO's
paper patent requirement was less than predicted in March 1994.
thus proving that the CO's prediction lacked a reasonable basis.
The fact that the contracting officer's prediction did not come
to fruition does not prove that the original prediction was
unreasonable. As the Court of Claims explained in Womack v.
United States, 182 Ct. Cl. 399, 412-13, 389 F.2d 793, 801 (1968),
"in promulgating an estimate for bidding-invitation purposes, the
Government is not required to be clairvoyant but is obliged to
base that estimate on all relevant information that is reasonably
available to it." The proper focus of the court's inquiry is on
the knowledge possessed by the contracting officer at the time he
canceled the solicitation.
Reported at 38 Fed. Cl. 518 (1997)