B-162910, JAN. 17, 1968

B-162910, JAN. 17, 1968

BIDS - NEGOTIATION - PACIFIC TRUST TERRITORY DECISION DENYING PROTEST OF NORTHWEST AIRLINES, INC. AGAINST NEGOTIATED AWARD OF A 5 YEAR CONTRACT TO CONTINENTAL AIRLINES, INC. FOR AIR TRANSPORTATION SYSTEM WITH THE GOVERNMENT OF THE TRUST TERRITORY OF THE PACIFIC ISLANDS. WHERE RECORD OF NEGOTIATION PROCEDURE SHOWS THAT SELECTION OF SUCCESSFUL OFFEROR'S PROPOSAL WAS ON BASIS OF OVERALL SUPERIORITY AND DOES NOT SHOW PREFERENTIAL TREATMENT UNCOMMUNICATED PREFERENCE OR UNDUE EMPHASIS ON PARTICULAR REQUIREMENT ON PART OF NEGOTIATING TEAM, PROPOSAL SELECTION WILL NOT BE QUESTIONED. IN VIEW OF INTENTION OF REPRESENTATIVES OF DEPT. OF INTERIOR TO FOLLOW THE FED. PROCUREMENT REGULATIONS IN THE NEGOTIATION OF AN AIR TRANSPORTATION SYSTEM FOR PACIFIC TRUST TERRITORY, A DETERMINATION OF THE APPLICABILITY OF THE REGS. TO THE TRUST TERRITORY IS UNNECESSARY.

TO KLAGSBRUNN AND HANES:

REFERENCE IS MADE TO YOUR TELEGRAM DATED NOVEMBER 13, 1967, AND TO YOUR LATER LETTERS ON BEHALF OF NORTHWEST AIRLINES, INC., PROTESTING AGAINST THE SELECTION OF CONTINENTAL AIRLINES, INC., TO PROVIDE AIR SERVICE TO, FROM AND WITHIN THE TRUST TERRITORY OF THE PACIFIC ISLANDS. IT WAS ORIGINALLY ANTICIPATED THAT AWARD WOULD BE MADE BY JANUARY 1, 1968. HOWEVER, AWARD HAS BEEN WITHHELD PENDING OUR DECISION.

THE SOLICITATION FOR PROPOSALS WAS ISSUED BY THE HIGH COMMISSIONER OF THE TRUST TERRITORY AND ANY RESULTING CONTRACT WILL BE WITH THE GOVERNMENT OF THE TRUST TERRITORY RATHER THAN WITH THE UNITED STATES GOVERNMENT. THE TRUST TERRITORY IS ADMINISTERED BY THE DEPARTMENT OF THE INTERIOR PURSUANT TO THE TRUSTEESHIP AGREEMENT FOR THE FORMER JAPANESE MANDATED ISLANDS BETWEEN THE UNITED STATES AND THE UNITED NATIONS, BUT IT IS NOT A TERRITORY OR POSSESSION OF THE UNITED STATES.

THE SOLICITATION CONTEMPLATED THE AWARD OF A CONTRACT FOR A 5-YEAR TERM, BUT IT WAS AGREED WITH OFFERORS DURING THE COURSE OF NEGOTIATIONS THAT THE GRANTING OF A CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY BEFORE THE EXPIRATION OF THE 5-YEAR TERM BY THE CIVIL AERONAUTICS BOARD (CAB) IN A CASE CURRENTLY PENDING THERE FOR THE SAME ROUTES SET OUT IN THE SOLICITATION WOULD IN ALL PROBABILITY CAUSE ANY CONTRACT AWARDED PURSUANT TO THE SOLICITATION TO BE TERMINATED OR AT LEAST SEVERELY RESTRICTED.

THE INTENT OF THE TRUST TERRITORY GOVERNMENT IN ISSUING THE SOLICITATION, AS STATED THEREIN, IS "TO TAKE THOSE STEPS NECESSARY TO STIMULATE THE DEVELOPMENT OF A VIABLE TRUST TERRITORY AIR TRANSPORTATION SYSTEM COMPARABLE, TO THE EXTENT FEASIBLE, TO UNITED STATES DOMESTIC COMMERCIAL AIR SERVICE. IT IS THE OBJECTIVE OF THE GOVERNMENT THAT SUCH AIR TRANSPORTATION SYSTEM WILL PROVIDE EXPANDED AND BETTER SERVICE TO THE PEOPLE OF THE TRUST TERRITORY THAN NOW EXISTS AND FACILITATE THE DEVELOPMENT OF GENERAL INDUSTRY, COMMERCE, AND TOURISM.'

THE SOLICITATION AS ORIGINALLY ISSUED CONTEMPLATED CONNECTING SERVICE BETWEEN THE EASTERN PORTION OF THE TRUST TERRITORY AND HONOLULU AND BETWEEN THE WESTERN PORTION OF THE TRUST TERRITORY AND OKINAWA. BECAUSE SUCH SERVICE WOULD REQUIRE THE GRANTING OF AN EXEMPTION BY THE CIVIL AERONAUTICS BOARD WHICH COULD NOT BE GRANTED BEFORE THE AWARD OF A CONTRACT, THE SOLICITATION WAS AMENDED TO REQUIRE AIR SERVICES ONLY WITHIN THE TRUST TERRITORY AND GUAM AND TO PERMIT ALTERNATIVE PROPOSALS FOR CONNECTING SERVICE CONTINGENT UPON THE ISSUANCE OF CAB EXEMPTION. THE CAB APPROVAL WOULD ALSO BE REQUIRED FOR SERVICE TO AND FROM GUAM, WHICH IS NOT A PART OF THE TRUST TERRITORY BUT WHICH IS LOCATED IN THE SAME GEOGRAPHIC AREA, BUT THIS SERVICE WAS RETAINED AS A SOLICITATION REQUIREMENT BECAUSE IT IS A PART OF THE EXISTING SERVICE AND IT WAS FELT THAT ANY OBJECTIONS TO CAB APPROVAL POSSIBLY EXISTING WITH REGARD TO HONOLULU AND OKINAWA WOULD NOT EXIST WITH REGARD TO GUAM.

AT PRESENT, AIR SERVICES WITHIN THE TRUST TERRITORY ARE PROVIDED WITH GOVERNMENT-OWNED PLANES UNDER AN OPERATIONS CONTRACT WITH PAN AMERICAN WORLD AIRWAYS, INC., TO PROVIDE FLIGHT CREWS AND MAINTENANCE. THE SOLICITATION ANTICIPATED THAT SERVICE DEMONSTRABLY BETTER THAN THE EXISTING SERVICE IS POSSIBLE BUT BECAUSE THE VOLUME OF TRAFFIC WHICH WOULD BE GENERATED BY BETTER SERVICE WAS NOT CAPABLE OF ESTIMATION THE EXTENT TO WHICH OFFERORS WOULD BE WILLING OR ABLE TO COMMIT THEMSELVES TO THE DEVELOPMENT OF A "VIABLE TRUST TERRITORY AIR TRANSPORTATION SYSTEM" WAS NOT KNOWN, AND THE ONLY SPECIFIC REQUIREMENT STATED IN THE SOLICITATION THEREFORE WAS THAT "AT LEAST THE EXISTING MINIMUM SERVICE AS SET FORTH IN PRESENT AIR SCHEDULES BE PROVIDED.'

THE SOLICITATION DID, HOWEVER, IN A GENERAL WAY, STATE THE OVERALL OBJECTIVES OF THE TRUST TERRITORY FOR MORE EFFICIENT SERVICE BUT OF NECESSITY LEFT THE DETERMINATION OF THE MANNER AND EXTENT OF PARTICIPATION UP TO THE RESPECTIVE OFFERORS. IN THIS REGARD CONCERNING EQUIPMENT, THE SOLICITATION STATES:

"IT IS THE INTENT OF THE GOVERNMENT THAT AIR SERVICE BE PROVIDED BY THE MOST MODERN AND EFFICIENT FLIGHT EQUIPMENT SUITABLE UNDER EXISTING AND FUTURE CONDITIONS. ALL PROPOSALS SHOULD CONTAIN A DETAILED STATEMENT OF EQUIPMENT PROPOSED FOR USE AND UNDER WHAT CIRCUMSTANCES, IF PREREQUISITES TO THE USE OF SUCH EQUIPMENT EXIST. THE AIRCRAFT NOW IN USE, CONSISTING OF TWO DC-4'S AND TWO AMPHIBIOUS SA-16-S, CAN BE MADE AVAILABLE ON A LEASE BASIS TO THE EXTENT THAT THEIR UTILIZATION IS REQUIRED. IF SUCH UTILIZATION IS REQUIRED, THE PROPOSAL SHOULD STATE THE NATURE OF AND SUGGESTED TERMS FOR THE LEASING OF THESE AIRCRAFT.' WITH REGARD TO GOVERNMENT UNDERTAKINGS, THE SOLICITATION PROVIDES AS FOLLOWS:

"IN SUPPORT OF THE AIR SERVICE TO BE ESTABLISHED, THE GOVERNMENT WILL, WITHIN ITS CAPABILITIES AND AUTHORITY:

"1. GRANT THE SELECTED CARRIER APPROPRIATE AUTHORITY TO PROVIDE SCHEDULED AIR SERVICE WITHIN THE TRUST TERRITORY, AND BETWEEN POINTS IN THE TRUST TERRITORY AND GUAM, SUBJECT TO APPROVAL BY THE UNITED STATES CIVIL AERONAUTICS BOARD WHERE REQUIRED. SAID AUTHORITY WILL BE GRANTED FOR A PERIOD OF FIVE (5) YEARS.

"2. CONSTRUCT AND MAINTAIN THE AIRSTRIPS, THE TERMINAL FACILITIES, THE INTERNAL TRUST TERRITORY COMMUNICATIONS SYSTEM AND THE NAVIGATIONAL AIDS REQUIRED FOR COMMERCIAL AIRLINE OPERATIONS AS DETERMINED BY THE TRUST TERRITORY GOVERNMENT EXCEPT TO THE EXTENT THAT SUCH RESPONSIBILITIES INCLUDING SAFETY STANDARDS SHALL BE LODGED WITH THE UNITED STATES FEDERAL AVIATION AGENCY.

"3. ASSIST THE SELECTED CARRIER IN PROMOTING THE DEVELOPMENT OF TOURISM IN THE TRUST TERRITORY. BECAUSE THE DEVELOPMENT OF A VIABLE TOURISM AND TRAVEL INDUSTRY IN THE TRUST TERRITORY WILL DEPEND UPON THE CONSTRUCTION OF TOURIST FACILITIES, THE GOVERNMENT WILL MAKE EVERY REASONABLE EFFORT TO ENCOURAGE THE DEVELOPMENT OF TOURIST-TYPE HOTELS, MEETING MINIMUM TOURIST STANDARDS, IN ALL SIX (6) DISTRICTS OF THE TERRITORY. HOWEVER, SINCE A VIABLE TOURISM AND TRAVEL INDUSTRY WILL DIRECTLY AND MATERIALLY BENEFIT THE SELECTED CARRIER, IT IS DESIRABLE THAT SUCH CARRIER MAY ITSELF PROMOTE AND UNDERTAKE DEVELOPMENT PROJECTS OF THIS NATURE. GOVERNMENT ASSISTANCE WILL INCLUDE, BUT NOT NECESSARILY BE LIMITED TO: (A) OFFERING THE USE OF PUBLIC DOMAIN LAND AT REASONABLE CHARGES FOR HOTEL AND RELATED FACILITIES; AND (B) PROVIDE ASSISTANCE FOR ADVERTISING AND PROMOTION EFFORTS TO THE EXTENT FEASIBLE AND WITHIN THE GOVERNMENT'S BUDGET.

"4. GRANT EXTENDED ENTRY INTO THE TRUST TERRITORY, AS PERMITTED UNDER EXISTING RULES AND REGULATIONS, TO THOSE NON-MICRONESIANS DEEMED NECESSARY FOR THE MANAGEMENT AND OPERATION OF THE AGREED SERVICES OF THE CARRIER.

"5. GRANT THE CARRIER THE RIGHT TO COLLECT REVENUES FOR SERVICES RENDERED IN ACCORDANCE WITH PUBLISHED TARIFFS.

"6. REIMBURSE THE CARRIER ON THE BASIS OF AGREED RATES OF COMPENSATION RELATED TO THE QUANTITY AND QUALITY OF MINIMUM AIR SERVICES PROVIDED AND THE NEEDS FOR ADDITIONAL REVENUES TO PROVIDE A REASONABLE PROFIT, UNDER ESTABLISHED TARIFFS, FROM SUCH AIR SERVICES. A REASONABLE PROFIT IS INTERPRETED TO MEAN A TEN (10) PERCENT RETURN ON RELATED INVESTED CAPITAL IN THE CASE OF OPERATIONS CONDUCTED BY THE CARRIER'S OWN AIRCRAFT, AFTER ANY APPLICABLE TAXES. THE GOVERNMENT IS DESIROUS OF RECEIVING PROPOSALS WHICH CONTAIN PROFIT-SHARING INCENTIVES, WHEREBY ADDITIONAL PROFITS, WHICH MAY BE REALIZED THROUGH INCREASED REVENUES AND OPERATING ECONOMIES, FROM THE BASIC SERVICES CAN BE SHARED BY THE CARRIER AND THE GOVERNMENT, THEREBY BOTH INCREASING THE CARRIER'S PROFIT AND REDUCING THE AMOUNT OF REIMBURSEMENT REQUIRED FOR THE CARRIER FROM THE GOVERNMENT.' ALSO, WITH REGARD TO CARRIER'S UNDERTAKINGS THE SOLICITATION PROVIDES:

"IN CONSIDERATION OF THE FOREGOING UNDERTAKINGS BY THE GOVERNMENT, THE SELECTED CARRIER WILL:

"1. ESTABLISH ON A CONTINUING BASIS, A TECHNICAL AND ON-THE-JOB PROGRAM TO TRAIN CITIZENS OF THE TRUST TERRITORY IN THE TECHNICAL AND SEMI- TECHNICAL SKILLS REQUIRED IN THE AIRLINE OPERATIONS WITH THE OBJECTIVE OF EXTENDING TO MICRONESIANS THE OPPORTUNITY TO BECOME COMPETENT IN ALL PHASES OF AIRLINE OPERATIONS.

"2. EMPLOY MICRONESIANS TO THE EXTENT FEASIBLE, IN THE OPERATIONS OF THE PROPOSED AIR SERVICES.

"3. ESTABLISH SAIPAN, MARIANA ISLANDS, AS THE AGENCY HEADQUARTERS FOR THE CARRIER'S OPERATIONS WITHIN THE TRUST TERRITORY IN ORDER TO EFFECT CLOSE LIAISON WITH THE GOVERNMENT.

"4. PROVIDE HOUSING FOR ITS EMPLOYEES STATIONED IN THE TRUST TERRITORY.

"5. PROVIDE A PROPOSAL FOR THE ESTABLISHMENT OF AIRCRAFT MAINTENANCE FACILITIES WITHIN THE TRUST TERRITORY AND SPECIFY THE MERITS OF AN ALTERNATIVE.

"6. PROVIDE RESERVATIONS AND PASSENGER TICKETING SERVICES AND FREIGHT SALES AND SERVICES.

"7. PROVIDE AIRCRAFT AND PASSENGER GROUND SERVICE EQUIPMENT AND FACILITIES, OTHER THAN BASIC TERMINAL FACILITIES PROVIDED BY THE GOVERNMENT, WHEREVER REQUIRED WITHIN THE TERRITORY.

"8. CONDUCT ALL FLIGHT OPERATIONS AND MAINTAIN AIRCRAFT USED, IN ACCORD WITH FEDERAL AVIATION AGENCY RULES AND REGULATIONS AS MAY BE APPLICABLE AND SUCH RULES AND REGULATIONS SUPPLEMENTARY THERETO OR IN LIEU THEREOF AS MAY BE PROMULGATED BY THE GOVERNMENT.

"9. PROVIDE THE GOVERNMENT WITH PERIODIC REPORTS OF THE OPERATION OF THE TRUST TERRITORY AIR SERVICE, RENDERED BY THE CARRIER. THE FORM AND CONTENT OF THESE REPORTS TO BE SPECIFIED BY THE GOVERNMENT.

"10. PROVIDE A PERFORMANCE BOND OF AT LEAST $500,000 TO BE FORFEITED IN THE EVENT THAT AIR SERVICE OPERATIONS ARE SUSPENDED OR TERMINATED WITHOUT PROVIDING THE TRUST TERRITORY GOVERNMENT WITH AT LEAST SIX (6) MONTHS NOTIFICATION OF THE CARRIER'S INTENT TO SUSPEND OR TERMINATE OPERATIONS.'

THE SOLICITATION ALSO SETS OUT GENERAL AND SPECIFIC GUIDELINES FOR PROPOSAL CONTENTS, STILL, HOWEVER, LEAVING THE CHOICE OF METHODS AND MODES TO THE OFFERORS.

FINALLY, WITH REGARD TO THE SELECTION OF A CARRIER THE SOLICITATION PROVIDES:

"AMONG THE FACTORS WHICH WILL BE CONSIDERED IN SELECTING A CARRIER WILL BE THE FOLLOWING:

"1. GENERAL FITNESS AND ABILITY.

"2. QUALITY OF MINIMUM SERVICES PROPOSED.

"3. COST TO THE GOVERNMENT AND THE PUBLIC.

"4. PLANS FOR EXPANSION OF SERVICE, AND RELATED COST TO THE GOVERNMENT AND THE PUBLIC.

"5. WILLINGNESS TO EMPLOY MICRONESIANS, WITH TRAINING AS NECESSARY.

"6. WILLINGNESS TO MAKE ARRANGEMENTS, TO THE EXTENT FEASIBLE, FOR FINANCIAL PARTICIPATION BY MICRONESIANS.

"7. WILLINGNESS TO WORK ON A PROFIT-SHARING BASIS WITH INCENTIVES FOR ECONOMIC DEVELOPMENT OF EXPANDED SERVICES.

"8. WILLINGNESS AND ABILITY TO ENCOURAGE THE DEVELOPMENT OF TOURISM.

"9. AFTER INITIAL SELECTION OF CARRIER, REASONABLENESS IN NEGOTIATING A FORMAL CONTRACT.'

PROPOSALS WERE RECEIVED FROM FIVE SOURCES ONE OF WHICH WAS ELIMINATED AS NONRESPONSIVE AFTER THE FIRST NEGOTIATION SESSION. NEGOTIATIONS WERE CONDUCTED WITH THE OTHER FOUR OFFERORS SEPARATELY ON THREE OCCASIONS. THE INITIAL NEGOTIATIONS WERE DESIGNED TO SIMPLY CLARIFY THE RESPECTIVE PROPOSALS. AMPLIFICATION OR UPGRADING OF THE PROPOSALS WAS PERMITTED DURING THE SECOND NEGOTIATION SESSIONS, BUT AT LEAST ONE OF THE OFFERORS WAS UNDER THE IMPRESSION THAT OFFERORS WERE REQUIRED TO STAY WITHIN THE BOUNDS OF THE PROPOSALS AS ORIGINALLY SUBMITTED. CONSEQUENTLY, A THIRD NEGOTIATION SESSION WAS CONDUCTED WITH EACH OF THE FOUR RESPONSIVE OFFERORS FOR THE PURPOSE OF PERMITTING THE UPGRADING OF PROPOSALS AND FOR THE ADDITIONAL PURPOSE OF ESTABLISHING WITH AS GREAT A DEGREE OF CERTITUDE AS POSSIBLE WHICH PORTIONS OF THE RESPECTIVE PROPOSALS COULD BE REDUCED TO NONCONTINGENT CONTRACTUAL COMMITMENTS AND WHICH PORTIONS WERE DEPENDENT ON FUTURE EVENTS.

AFTER THE SECOND NEGOTIATION SESSIONS, THE PROPOSALS WERE EVALUATED BY A CONSULTANT TO THE TRUST TERRITORY GOVERNMENT, SIMAT, HELLIESEN AND EICHNER, INC. WHILE THE REPORT SUBMITTED BY THIS FIRM ATTEMPTED TO USE A NUMERICAL RATING SYSTEM, THE STANDARDS USED WERE OF A GENERAL NATURE AND THE RANKING OF OFFERS CONTAINED IN THE REPORT'S CONCLUSIONS WAS NOT IN ACCORDANCE WITH THEIR NUMERICAL RANKING. SINCE PROPOSALS CHANGED SUBSTANTIALLY DURING THE FINAL NEGOTIATION SESSIONS THE CONCLUSIONS OF THE REPORT, MADE AFTER THE SECOND SESSIONS, HAD DIMINISHED IMPORTANCE.

THE THIRD NEGOTIATION SESSIONS WERE COMPLETED ON NOVEMBER 2, 1967, AND ON NOVEMBER 10, 1967, A NEWS RELEASE WAS ISSUED BY THE DEPARTMENT OF THE INTERIOR THAT CONTINENTAL HAD BEEN SELECTED TO RECEIVE THE AWARD.

THE CONTENTS OF THE FINAL PROPOSALS OF CONTINENTAL AND NORTHWEST, AS SUMMARIZED BY THE DEPARTMENT OF THE INTERIOR, ARE SET OUT BELOW:

"NORTHWEST

"NORTHWEST WILL PROVIDE THE MINIMUM REQUIRED SERVICE WITHIN THE TRUST TERRITORY TOGETHER WITH TWICE WEEKLY SERVICE TO HONOLULU AND OKINAWA. WILL MAINTAIN THE EXISTING FARES WITH A ONE-FOURTH DISCOUNT FOR ROUND TRIPS. THE SERVICE WILL BE PERFORMED WITH TWO ELECTRA AIRCRAFT SPECIALLY DESIGNED FOR FLEXIBILITY FOR CARGO HANDLING. BY THE THIRD YEAR THE USE OF JET AIRCRAFT IS EXPECTED. TWO HUNDRED THOUSAND DOLLARS WILL BE SPENT IN THE FIRST YEAR ON THE DEVELOPMENT OF TOURISM. HOTELS WILL BE BUILT AND OPERATED THROUGH WESTERN HOTELS AND $2,000,000 FOR CONSTRUCTION IS COMMITTED. TWO 90-UNIT HOTELS WILL BE IN OPERATION WITHIN 18 TO 24 MONTHS, WITH THE FIRST 30-ROOM UNITS AVAILABLE WITHIN 12 TO 15 MONTHS. THE COMMITMENT FOR ADDITIONAL HOTELS IS NOT FIRM. CONSTRUCTION OF FACILITIES AT SAIPAN FOR AIRCRAFT MAINTENANCE WILL START IMMEDIATELY. IS ANTICIPATED THAT WHEN SUCH MAINTENANCE FACILITIES ARE COMPLETED 65 PERCENT OF THE MAINTENANCE WILL BE DONE AT SAIPAN. A MINIMUM OF 90 MICRONESIANS PER 90-ROOM HOTEL WILL BE EMPLOYED WITH AN ESTIMATED PAYROLL OF $225,000 PER YEAR AFTER TWO HOTELS ARE IN FULL OPERATION. THE SERVICE WILL BE PROVIDED BY A SEPARATE DIVISION OF NORTHWEST AIRLINES AND AFTER ONE YEAR 25 PERCENT PARTICIPATION IN THE OPERATION WILL BE OFFERED TO MICRONESIANS AND AFTER THREE YEARS AN ADDITIONAL 25 PERCENT WILL BE SO OFFERED. SEVENTY-FIVE PERCENT OF PROFITS WILL BE MADE AVAILABLE TO THE TRUST TERRITORY.

"CONTINENTAL

"CONTINENTAL WILL PROVIDE MINIMUM SERVICE WITHIN THE TRUST TERRITORY TOGETHER WITH ONCE A WEEK SERVICE TO HONOLULU. BY 1971 THE HONOLULU SERVICE WILL BE EXPANDED TO TWICE A WEEK, AND EARLIER IF TRAFFIC DICTATES. EXISTING FARES WILL BE MAINTAINED WITH A ONE-THIRD DISCOUNT FOR ROUND TRIPS ORIGINATING OUTSIDE THE TERRITORY, AND A 5 PERCENT DISCOUNT ON ALL GOVERNMENT TRAVEL. THE SERVICE WILL BE PROVIDED WITH A BOEING 727-100 QC BACKED UP BY ONE DC-6B. THE 727 WILL BE EQUIPPED WITH GRAVEL GUARDS FOR SERVICE ON THE AIR FIELDS IN THE TRUST TERRITORY AND A SECOND 727 WILL BE SO EQUIPPED SO AS TO BE AVAILABLE AS A STANDBY IN THE EVENT THE FIRST PLANE IS NOT AVAILABLE FOR SERVICE. A MINIMUM OF 6 PERCENT OF PASSENGER REVENUES WILL BE DEDICATED TO TOURIST PROMOTION. TWO HOTELS PER YEAR WILL BE CONSTRUCTED DURING EACH OF THE FIRST THREE YEARS OF THE CONTRACT, ONE IN EACH OF THE DISTRICTS. EACH HOTEL WILL CONTAIN 25 UNITS WITH PROVISIONS FOR SUBSEQUENT EXPANSION. MAINTENANCE OF AIRCRAFT WILL BE DONE PRIMARILY IN HONOLULU WITH TURN-AROUND MAINTENANCE FACILITIES IN SAIPAN. SERVICE WILL BE PROVIDED THROUGH A SUBSIDIARY CORPORATION (AIR MICRONESIA), 45 PERCENT OF WHICH IS OWNED BY MICRONESIANS. AFTER FIVE YEARS LOCAL OWNERSHIP MAY BE INCREASED TO 51 PERCENT, AND AFTER SEVEN YEARS, MAY BE INCREASED TO 60 PERCENT. ALL PROFITS WILL BE AVAILABLE TO THE TRUST TERRITORY OR WILL BE APPLIED TO REDUCE FARES. INITIAL FARE STRUCTURE WILL NOT BE RAISED WITHOUT THE APPROVAL OF THE TRUST TERRITORY.'

NORTHWEST PROTESTED THE SELECTION OF CONTINENTAL ON NOVEMBER 13, 1967. THE GROUNDS OF THE PROTEST, AS STATED IN YOUR LETTERS, ARE AS FOLLOWS:"FIRST, THAT NO STANDARDS WERE SET UP OR VALUES ASSIGNED TO VARIOUS FACTORS UNDER WHICH THE COMPANIES COULD MAKE THEIR PROPOSALS. SECOND, THAT NORTHWEST AIRLINES' PROPOSAL WAS THE BEST PROPOSAL SUBMITTED IN THE INTEREST OF THE GOVERNMENT. THIRD, THAT NORTHWEST AIRLINES' PROPOSAL WOULD AFFORD THE GOVERNMENT THE LARGEST DOLLAR RETURN.'

AT THE OUTSET, WE MUST STATE THAT THE DETERMINATION OF WHAT CONSTITUTES THE BEST APPROACH TO A PROCUREMENT PROBLEM IS A FUNCTION PECULIARLY WITHIN THE DISCRETIONARY AUTHORITY OF THE CONTRACTING AGENCY.

IN SUPPORT OF YOUR ARGUMENT CONCERNING EVALUATION STANDARDS YOU POINT OUT THAT SECTION 1-3.101 (D) OF THE FEDERAL PROCUREMENT REGULATIONS (FPR) REQUIRES THAT "NEGOTIATED PROCUREMENT SHALL BE ON COMPETITIVE BASIS TO THE MAXIMUM PRACTICAL EXTENT" AND YOU MAINTAIN THAT THE FAILURE TO ADVISE OFFERORS OF WHAT WEIGHTS WOULD BE ASSIGNED TO THE VARIOUS FACTORS LISTED FOR CONSIDERATION IN SELECTING A CARRIER EFFECTIVELY PRECLUDED THE MEANINGFUL COMPETITION CONTEMPLATED BY THAT SECTION. YOU ALSO POINT OUT THAT FPR SEC. 1-3.802 (C) STATES THAT "REQUESTS FOR PROPOSALS SHALL CONTAIN THE INFORMATION NECESSARY TO ENABLE A PROSPECTIVE OFFEROR TO PREPARE A QUOTATION OPERLY.'

IT IS YOUR CONTENTION THAT CERTAIN PREFERENCES EXISTED ON THE PART OF THE CONTRACT NEGOTIATORS, FOR EXAMPLE, WITH REGARD TO THE TYPE OF EQUIPMENT DESIRED, THE APPROACH TO HOTEL CONSTRUCTION, AND THE EMPHASIS TO BE PLACED ON PROFIT SHARING, AND THAT THE FAILURE TO COMMUNICATE THIS INFORMATION, AS WELL AS INFORMATION GENERALLY CONCERNING THE RELATIVE IMPORTANCE OF THE OTHER ELEMENTS OF THE SOLICITATION, TO THE OFFERORS NECESSARILY RESULTED IN A NEGATION OF EFFECTIVE COMPETITION, CONTRARY TO THE REQUIREMENTS OF THE ABOVE-QUOTED FPR SECTIONS.

THE DEPARTMENT OF THE INTERIOR IN A REPORT IN THIS MATTER DATED DECEMBER 12, 1967, TAKES THE POSITION THAT THE TRUST TERRITORY IS NOT AN AGENCY OR INSTRUMENTALITY OF THE UNITED STATES AND AS SUCH THE STATUTES AND REGULATIONS APPLICABLE TO PROCUREMENT BY THE UNITED STATES GOVERNMENT HAVE NO APPLICABILITY TO PROCUREMENTS BY THE TRUST TERRITORY GOVERNMENT. THE DEPARTMENT MAINTAINS THAT THIS POSITION IS CORRECT NOTWITHSTANDING THE FACT THAT THE TRUST TERRITORY IS ADMINISTERED BY THE UNITED STATES GOVERNMENT AND IS SUPPORTED BY APPROPRIATED GRANT FUNDS BECAUSE NEITHER THE UNITED STATES ADMINISTRATION NOR THE GRANT FUNDS, WHICH LOSE THEIR CHARACTER AS PUBLIC FUNDS WHEN THEY BECOME COMMINGLED WITH LOCAL REVENUES, SERVE TO REMOVE THE SOVEREIGNTY OF THE TRUST TERRITORY GOVERNMENT. WHILE WE ARE NOT INCLINED TO DISAGREE WITH THE DEPARTMENT'S POSITION, WE FIND IT UNNECESSARY TO DETERMINE WHETHER OR NOT THE FEDERAL PROCUREMENT REGULATIONS APPLY TO TRUST TERRITORY PROCUREMENTS GENERALLY BECAUSE AN INTENTION TO FOLLOW THE DICTATES OF THE FEDERAL PROCUREMENT REGULATIONS WAS EXPRESSED BY REPRESENTATIVES OF THE DEPARTMENT OF THE INTERIOR TO ALL OFFERORS DURING THE COURSE OF NEGOTIATIONS.

ALSO, IN ITS DECEMBER 12 REPORT, THE DEPARTMENT ADVISED THAT, "AS A MATTER OF PRUDENCE AND GOOD ADMINISTRATION THE PATTERN ENUNCIATED IN SUCH PROCEDURES WAS FOLLOWED, TAKING INTO ACCOUNT THE UNIQUENESS OF THE SITUATION.' WE THINK THAT THE FACT THAT THE DEPARTMENT AGREED TO BE BOUND BY THE FEDERAL PROCUREMENT REGULATIONS IS SUFFICIENT REASON FOR APPLYING THEM TO THIS PROCUREMENT. HOWEVER, FOR REASONS DISCUSSED BELOW IT IS OUR OPINION THAT WITHIN THE RATHER UNIQUE CIRCUMSTANCE HERE INVOLVED, THE CONTRACTING OFFICIALS WERE AS EXPLICIT AS REASONABLY POSSIBLE, BOTH IN THE SOLICITATION AND IN THE NEGOTIATION SESSIONS, WITH REGARD TO EVALUATION WEIGHTS AND STANDARDS, AND THAT THE REQUIREMENTS OF THE FEDERAL PROCUREMENT REGULATIONS WERE THEREFORE COMPLIED WITH.

BECAUSE THE TRUST TERRITORY GOVERNMENT COULD NOT FORETELL THE EXTENT TO WHICH CARRIERS WOULD BE WILLING TO PARTICIPATE IN AND CONTRIBUTE TO THIS VENTURE, AND BECAUSE IT WAS FELT THAT THE CARRIERS THEMSELVES WERE BETTER ABLE TO DETERMINE TECHNICALLY THE BEST APPROACH FROM THE STANDPOINTS OF SERVICE AND ECONOMICS, AS MENTIONED EARLIER, THE SOLICITATION WAS DRAWN IN A GENERAL WAY. IT WAS LEFT TO THE INDIVIDUAL CARRIERS TO PROPOSE THE BEST METHOD OF STIMULATING THE DEVELOPMENT OF A VIABLE TRUST TERRITORY AIR TRANSPORTATION SYSTEM.

CONCERNING ITS SELECTION OF CONTINENTAL, THE DEPARTMENT OF THE INTERIOR STRONGLY MAINTAINS THAT SUCH SELECTION WAS DICTATED BY THE FACT THAT THE CONTINENTAL PROPOSAL WAS DEMONSTRABLY BETTER THAN ANY OTHER RECEIVED ON AN OVERALL BASIS, AND THAT, THEREFORE, THERE WAS NO PARTICULAR EMPHASIS PLACED ON ANY INDIVIDUAL EVALUATION FACTOR STATED IN THE SOLICITATION, AND NO NONCOMMUNICATED PREFERENCES ON THE PART OF THE NEGOTIATING TEAM. FOR EXAMPLE, THE DEPARTMENT HAS ADVISED THAT THE CONTINENTAL PROPOSAL WAS CONSIDERED TO BE SUPERIOR TO THAT OF NORTHWEST IN THE AREAS OF MICRONESIAN PARTICIPATION BECAUSE IT HAS SET UP A CORPORATION ULTIMATELY TO BE CONTROLLED BY MICRONESIANS TO PERFORM THE CONTRACT SERVICES; THAT THE CONTINENTAL HOTEL PROGRAM WAS CONSIDERED TO BETTER SERVE THE NEEDS OF THE TRUST TERRITORY BECAUSE OF ITS COMMITMENT TO CONSTRUCT HOTELS IN ALL SIX DISTRICTS; THAT THE CONTINENTAL TOURISM PROMOTION PROPOSAL OFFERED AN ALREADY CONCEIVED PLAN IN ADDITION TO A MONETARY COMMITMENT; AND THAT THE FARES PROPOSED BY CONTINENTAL WERE LOWER THAN THOSE PROPOSED BY NORTHWEST.

YOU PLACE GREAT STRESS ON THE FACT THAT CONTINENTAL OFFERED JET SERVICE FROM THE CONTRACT'S INCEPTION AND YOU INTIMATE THAT JET SERVICE WAS THE SINGLE MOST IMPORTANT ELEMENT LEADING TO CONTINENTAL'S SELECTION. IT IS YOUR POSITION THAT THIS INDICATES A PREFERENCE ON THE PART OF THE NEGOTIATING TEAM FOR JET SERVICE WITHOUT REGARD TO ITS GREATER EXPENSE AND CONCOMITANT EFFECT ON PROFIT SHARING OR COST TO THE GOVERNMENT AND THE PUBLIC, BOTH STATED EVALUATION FACTORS CONTAINED IN THE SOLICITATION. YOU MAINTAIN THAT HAD NORTHWEST KNOWN THAT JET SERVICE WAS TO RECEIVE GREATER WEIGHT THAN PROFIT SHARING OR COST IN THE EVALUATION, IT WOULD HAVE SACRIFICED POTENTIAL PROFIT SHARING AND COST SAVINGS AND OFFERED JETS. YOU POINT OUT THAT DURING THE NEGOTIATION SESSIONS NORTHWEST MADE REPEATED REQUESTS OF THE NEGOTIATING TEAM AS TO THE BASIS FOR EVALUATING PROPOSALS AND AS TO ANY CHANGES IN THE NORTHWEST PROPOSAL WHICH WOULD MAKE IT RATE HIGHER IN EVALUATION.

AS INDICATED ABOVE, INTERIOR HAS MAINTAINED THAT CONTINENTAL'S OFFER OF JET SERVICE WAS ONLY ONE ELEMENT IN A PROPOSAL DETERMINED TO BE SUPERIOR ON AN OVERALL BASIS. WITH REGARD TO THE EFFECT ON COSTS TO THE GOVERNMENT CAUSED BY JET USE, INTERIOR STATES THAT ANY INCREASE IN COSTS BROUGHT ABOUT BY THE USE OF JETS IS BORNE BY THE CARRIER, RATHER THAN THE GOVERNMENT, SO LONG AS FARES ARE NOT INCREASED TO COVER THE ADDITIONAL COST. WITH REGARD TO THE EFFECT OF JET USE ON PROFIT SHARING, INTERIOR POINTS OUT THAT ALL CARRIERS GENERALLY EXPECTED LOSSES IN THE FIRST YEAR OR TWO OF THE CONTRACT'S LIFE WITH NO SHARE OF PROFITS CONTEMPLATED WITH EITHER JETS OR ELECTRAS. INTERIOR THEREFORE CONCLUDES THAT A CONSIDERATION OF THE EFFECT OF JET USE ON PROFIT SHARING WAS NOT RELEVANT. THIS CONCLUSION IS REINFORCED BY THE FACT THAT NORTHWEST TOO HAD PROPOSED TO SWITCH TO JETS AT SOME TIME DURING THE CONTRACT TERM AND WOULD INCUR THE ADDITIONAL COSTS AT THAT TIME. IN THIS REGARD, YOU MAINTAIN THAT NORTHWEST DEMONSTRATED BOTH IN ITS PROPOSAL AND DURING THE NEGOTIATION SESSIONS THAT ITS USE OF ELECTRAS WOULD RESULT IN PROFIT LEVELS SUFFICIENTLY HIGH TO PERMIT PROFIT SHARING AND THAT INTERIOR'S FAILURE TO CONSIDER THIS INFORMATION VIOLATED THE HOLDING STATED IN B- 161334, NOVEMBER 13, 1967, 47 COMP. GEN. ----, THAT ALL INFORMATION SUBMITTED BY OFFERORS BE CONSIDERED DURING EVALUATION. INTERIOR'S POSITION HERE IS THAT WHILE THE PROFIT PROJECTIONS WERE CONSIDERED, IT WAS FELT THAT ANY PROJECTIONS OF PROFITS OR LOSSES ARE IN THE REALM OF SPECULATION AND NOT CAPABLE OF REDUCTION TO CONTRACTUAL COMMITMENTS, AS ARE FARES.

ADDITIONALLY, IT IS NOTED THAT THE GOVERNMENT'S INTEREST IN PROFIT SHARING, AS SET OUT IN PARAGRAPH 6 OF THE "GOVERNMENT UNDERTAKINGS" SECTION OF THE SOLICITATION, WAS TIED DIRECTLY TO THE GOVERNMENT'S ASSUMPTION THAT IT WOULD BE NECESSARY TO SUBSIDIZE THE SUCCESSFUL OFFEROR AT LEAST DURING THE EARLY STAGES OF THE CONTRACT TERM. IN OTHER WORDS, THE PROFIT SHARING ELEMENT OF THE PROPOSAL WAS DESIGNED, AT LEAST IN PART, TO ENABLE THE GOVERNMENT TO RECOUP PAYMENTS MADE FOR AIR SERVICE DURING THE UNPROFITABLE PHASES OF THE CONTRACT. WHEN IT LATER DEVELOPED THAT OFFERORS WERE WILLING TO ENTER A CONTRACT WITHOUT SUBSIDY PROVISIONS, PROFIT SHARING AS SUCH, AS OPPOSED TO COST SAVINGS, BY THE TERMS OF THE SOLICITATION ITSELF WAS NO LONGER A MAJOR EVALUATION FACTOR.

CONCERNING YOUR COMPLAINT THAT NORTHWEST'S REQUESTS FOR EVALUATION STANDARDS OR INDICATIONS OF WHERE OR HOW ITS PROPOSAL COULD BE IMPROVED WERE NOT HONORED, INTERIOR CONTENDS THAT THE DIVULGENCE OF ANY MORE DEFINITIVE INFORMATION IN THIS AREA THAN THAT CONTAINED IN THE SOLICITATION WOULD HAVE RESULTED IN AN AUCTION TECHNIQUE PROHIBITED BY THE FEDERAL PROCUREMENT REGULATIONS. WE ARE IMPRESSED BY THIS ARGUMENT. NOTE THAT UNTIL THE FINAL NEGOTIATION SESSIONS ALL PARTIES TO THE NEGOTIATIONS, INCLUDING CONTINENTAL AND THE NEGOTIATING TEAM, CONSIDERED SOMETHING LESS THAN JET SERVICE TO BE "THE MOST MODERN AND EFFICIENT FLIGHT EQUIPMENT SUITABLE UNDER EXISTING AND FUTURE CONDITIONS.' THIS CONVICTION WAS IN ACCORD WITH THE FINDINGS OF THE PACIFIC SURVEY, PUBLISHED BY THE DEPARTMENT OF THE INTERIOR AND CITED IN THE SOLICITATION AS A SOURCE OF INFORMATION CONCERNING EXISTING AND FUTURE AIR SERVICES IN THE TRUST TERRITORY, AND WAS APPARENTLY BROUGHT ABOUT BY THE CONCLUSION OF ALL CONCERNED THAT JET OPERATION AT THE INCEPTION OF THE CONTRACT WOULD NOT BE ECONOMICALLY FEASIBLE BECAUSE IT WOULD NOT BE JUSTIFIED BY TRAFFIC VOLUME.

WE FEEL THAT IT IS IMPORTANT TO NOTE AT THIS POINT THAT THE POSITION OF NORTHWEST DURING NEGOTIATIONS WAS THAT ITS SOLE REASON FOR NOT OFFERING JET SERVICE FROM THE BEGINNING WAS AN ECONOMIC ONE AND THAT THE QUESTION OF PAYLOAD RESTRICTIONS TO BE ENCOUNTERED IN THE USE OF JETS WAS NOT PARTICULARLY IMPORTANT. IN THIS REGARD DURING A DISCUSSION OF THE FEASIBILITY OF JET USE AT THE THIRD NEGOTIATION SESSION WITH NORTHWEST, THE FOLLOWING STATEMENTS WERE MADE BY A NORTHWEST REPRESENTATIVE:

"I WILL SIMPLY SAY THAT THE CONTINGENCIES ARE PRIMARILY ECONOMIC. THEY ONLY EXIST TO THE EXTENT TO WHICH THE JET OR 727 IN THIS CASE IS MORE EXPENSIVE TO OPERATE THAN IS THE ELECTRA. AND IT THUS REQUIRES ADDITIONAL PASSENGERS OR CARGO OR A COMBINATION OF THE TWO TO SUPPORT THE OPERATION.

"LOOKING INTO THE CRYSTAL BALL, MY GUESS WOULD BE THAT THREE YEARS AFTER THE BEGINNING OF THE SERVICE THAT WE BOTH WILL BE SAYING, NOW IS THE TIME TO START THINKING ABOUT IT, AND PROBABLY ACTUALLY PUTTING AT LEAST ONE 727 -TYPE OF AIRCRAFT INTO THE SERVICE, PROVIDED THAT WE CAN SEE THE TRAFFIC GROWING, AND THE ABILITY TO SUPPORT IT. THERE ARE NO OTHER CONSTRAINTS ON IT. I HAVE SAID THAT SOME OTHER AIRPORT IMPROVEMENTS WOULD MAKE THE THING A MUCH BETTER SERVICE, BECAUSE WE COULD CARRY MORE ON THAT TYPE OF AIRPLANE. "BUT THE REAL AND ONLY IMPORTANT FACTOR IS THE TRAFFIC ITSELF, ARE WE READY IN TERMS OF TRAFFIC FOR THE JET. AND WE HAVE AN AMPLE NUMBER OF THESE AIRCRAFT TO PUT IN THIS TYPE OF SERVICE ANY TIME THE TRAFFIC WARRANTS.

"THIS WOULD BE OUR PRINCIPLE RESTRAINT OR THOUGHT.' DURING ITS THIRD NEGOTIATION SESSION, HOWEVER, CONTINENTAL STATED THAT IT WAS PREPARED TO OFFER JET SERVICE FROM THE INCEPTION OF THE CONTRACT RATHER THAN AT SOME LATER TIME DEPENDENT ON FUTURE CONDITIONS, AND THAT IT WAS WILLING TO ABSORB THE ADDITIONAL COST INVOLVED WITHOUT INCREASING FARES EVEN BY THE 10-PERCENT SURCHARGE WHICH APPARENTLY IS CUSTOMARILY ADDED TO JET FARES. THIS OFFER WAS MADE BY CONTINENTAL IN AN EFFORT TO REDUCE CONTINGENCIES DEPENDENT ON FUTURE CONDITIONS TO FIRM CONTRACTUAL COMMITMENTS, AS REQUESTED BY THE NEGOTIATING TEAM. IN THE SAME VEIN, CONTINENTAL UPGRADED ITS PROPOSAL IN OTHER AREAS, MOST SIGNIFICANTLY IN THE AREA OF HOTEL CONSTRUCTION WHERE IT CHANGED ITS OFFER FROM A FIRM COMMITMENT FOR TWO HOTELS, ADDITIONAL HOTELS TO BE CONSTRUCTED WHEN CIRCUMSTANCES WARRANTED, TO A FIRM COMMITMENT FOR SIX HOTELS, ONE IN EACH DISTRICT, TO BE CONSTRUCTED DURING THE FIRST 5 YEARS OF THE CONTRACT TERM.

THE THIRD NEGOTIATION SESSION WAS CONDUCTED WITH CONTINENTAL ON NOVEMBER 1, 1967, WHILE THE THIRD SESSION WITH NORTHWEST WAS CONDUCTED ON OCTOBER 31, 1967. OBVIOUSLY, THE CONTRACT NEGOTIATORS COULD NOT TELL NORTHWEST'S REPRESENTATIVES ON OCTOBER 31 THAT THEY ENTERTAINED A PREFERENCE FOR JET SERVICE OR FOR A FIRM COMMITMENT FOR CONSTRUCTION OF HOTELS IN ALL SIX DISTRICTS WHEN THEY DIDN-T LEARN UNTIL NOVEMBER 1 THAT THESE OFFERS WERE FEASIBLE, PRACTICAL, OR WOULD IN FACT BE MADE BY ANY OF THE OFFERORS. THINK IT EQUALLY OBVIOUS THAT A REOPENING OF NEGOTIATIONS STATING THESE AND OTHER PREFERENCES WOULD HAVE BEEN A CLEAR INDICATION TO OFFERORS THAT SUCH AN OFFER HAD IN FACT BEEN MADE AND THAT IT WOULD HAVE TO BE EQUALED OR BETTERED IN ORDER FOR THE REMAINING OFFERORS TO GAIN FURTHER CONSIDERATION. THERE WOULD SEEM TO BE LITTLE QUESTION THAT THIS WOULD CONSTITUTE A PROHIBITED AUCTION TECHNIQUE.

YOU PRESENT COMPELLING ARGUMENTS IN FAVOR OF THE APPROACH OF NORTHWEST OVER THAT OF CONTINENTAL IN VIRTUALLY ALL AREAS COVERED BY THE SOLICITATION. FOR EXAMPLE, YOU MAINTAIN THAT SERVICE WITH TWO ELECTRAS IS BETTER THAN SERVICE WITH A SINGLE IN-SERVICE JET BECAUSE IT WILL PROVIDE ADDITIONAL RELIABILITY AND SCHEDULE FLEXIBILITY IN ADDITION TO MORE ECONOMICAL SERVICE; THAT THE NORTHWEST PROPOSAL OF TWO 90-ROOM HOTELS IS MORE BENEFICIAL BECAUSE HOTELS THAT LARGE ARE NECESSARY FOR A PROFITABLE OPERATION WHILE SIX SMALLER HOTELS WILL PROBABLY LOSE MONEY THEREBY HURTING RATHER THAN HELPING THE MICRONESIAN ECONOMY; THAT NORTHWEST'S PROPOSAL FOR THE EMPLOYMENT OF MICRONESIANS PROVIDED EMPLOYMENT IN GREATER NUMBERS THAN DID THAT OF CONTINENTAL BECAUSE NORTHWEST WOULD PROVIDE MORE HOTEL ROOMS REQUIRING MORE EMPLOYEES AND WOULD ALSO PERFORM MORE OF THE REQUIRED AIRCRAFT MAINTENANCE WITHIN THE TRUST TERRITORY; THAT THE NORTHWEST PROPOSAL FOR FINANCIAL PARTICIPATION BY MICRONESIANS WAS BETTER CONCEIVED; ETC. HOWEVER, AS INDICATED EARLIER, THE ACTUAL DETERMINATION AS TO WHICH APPROACH WAS BEST IS A MATTER OF ADMINISTRATIVE DISCRETION AND DOES NOT RELATE TO THE QUESTION OF WHETHER OR NOT SUFFICIENT INFORMATION WITH REGARD TO EVALUATION WEIGHTS OR STANDARDS WAS GIVEN TO THE RESPECTIVE OFFERORS.

WE DO FEEL THAT WE SHOULD COMMENT ON A POINT RAISED IN YOUR LETTER DATED JANUARY 5, 1968, IN WHICH IT IS ARGUED THAT OKINAWA GATEWAY SERVICE IS "MOST IMPORTANT IN MEETING THE CRITERIA STATED IN THE SOLICITATION FOR PROPOSALS," POINTING OUT VARIOUS BENEFITS, INCLUDING REDUCTIONS IN THE BALANCE OF PAYMENTS, TO BE GAINED FROM A DEVELOPMENT OF THE OKINAWA GATEWAY. THIS ARGUMENT IS BASED ON THE ASSUMPTION THAT CONTINENTAL DID NOT OFFER OKINAWA GATEWAY SERVICE AND THAT AN AWARD TO CONTINENTAL THEREFORE WILL EFFECTIVELY PRECLUDE THE BENEFITS TO BE GAINED FROM SUCH SERVICE. WHILE THE TRANSCRIPTS OF THE NEGOTIATION SESSIONS WITH CONTINENTAL INDICATE THAT CONTINENTAL PLACED LESS EMPHASIS ON OKINAWA GATEWAY SERVICE THAN DID NORTHWEST, THEY SHOW CLEARLY THAT CONTINENTAL OFFERED TO PROVIDE OKINAWA GATEWAY SERVICE CONTINGENT ONLY UPON THE GRANTING OF AN EXEMPTION BY THE CAB FOR SUCH SERVICE AND UPON THE REQUEST OF THE TRUST TERRITORY GOVERNMENT THAT SUCH SERVICE BE INSTITUTED. THEREFORE APPEARS THAT THE BENEFITS POINTED OUT IN YOUR JANUARY 5 LETTER ARE AS POSSIBLE OF ACHIEVEMENT UNDER A CONTRACT WITH CONTINENTAL AS THEY WOULD BE UNDER A CONTRACT WITH NORTHWEST, ASSUMING, OF COURSE, THAT AN EXEMPTION IS GRANTED. ALSO, SINCE OKINAWA GATEWAY SERVICE IS CONTINGENT UPON THE GRANTING OF AN EXEMPTION, THE NEGOTIATING TEAM, IN ACCORDANCE WITH ITS EXPRESSED INTENT TO PLACE LESS EMPHASIS ON CONTINGENCIES THAN ON ELEMENTS OF PROPOSALS REDUCIBLE TO FIRM CONTRACTUAL COMMITMENTS, DID NOT EMPHASIZE THIS FACET OF PROPOSED SERVICE.

ON THE BASIS OF THE WRITTEN RECORD AS SUPPLEMENTED BY MEETINGS BETWEEN MEMBERS OF OUR OFFICE AND REPRESENTATIVES OF CONTINENTAL, NORTHWEST AND THE DEPARTMENT OF THE INTERIOR, WE MUST CONCLUDE THAT THE RECORD SHOWS CLEARLY THAT ALL OFFERORS WERE MADE AWARE THAT IT WAS UP TO THEM TO DEVISE THE BEST METHODS OF FULFILLING THE DIVERSE REQUIREMENTS OF THE SOLICITATION AND THAT ALL WERE INFORMED AT THE FINAL NEGOTIATION SESSION THAT PROPOSALS SHOULD BE UPGRADED, IF POSSIBLE, TO BETTER SERVE THE GOVERNMENT'S DESIRES AND TO REDUCE OR REMOVE CONTINGENCIES WHERE POSSIBLE. WE FIND NO INDICATIONS IN THE TRANSCRIPTS OR IN THE INFORMATION SUBMITTED BY NORTHWEST OF PREFERENTIAL TREATMENT, UNCOMMUNICATED PREFERENCES, OR OF ANY UNDUE EMPHASIS ON PARTICULAR ELEMENTS OF THE SOLICITATION ON THE PART OF THE NEGOTIATING TEAM. LIKEWISE, ON THE BASIS OF THE RECORD BEFORE US, IT APPEARS THAT THE SELECTION OF CONTINENTAL WAS ON THE BASIS OF WHAT WAS CONSIDERED BY THE NEGOTIATING TEAM TO BE AN OVERALL SUPERIORITY. IN THIS REGARD, REPRESENTATIVES OF THE NEGOTIATING TEAM HAVE INFORMALLY ADVISED US THAT HAD CONTINENTAL'S PROPOSAL NOT CONTAINED AN OFFER OF JET SERVICE BUT REMAINED THE SAME IN ALL OTHER RESPECTS, IT STILL WOULD HAVE BEEN CONSIDERED TO BE THE BEST PROPOSAL SUBMITTED.

BECAUSE OF THE UNIQUE CIRCUMSTANCES OF THIS SOLICITATION AND THE PRACTICAL DIFFICULTIES OF STATING WITH PRECISION THE AIMS AND OBJECTIVES OF THE TRUST TERRITORY GOVERNMENT, WE THINK THAT THE NOTICE TO OFFERORS IN THE SOLICITATION THAT THE RESPONSES THERETO BE "IMAGINATIVE AND YNAMIC" CONSTITUTED A SUBSTANTIAL COMPLIANCE WITH THE NEGOTIATION REQUIREMENTS OF THE FEDERAL PROCUREMENT REGULATIONS AND THAT THE EVALUATION FACTORS CONTAINED IN THE SOLICITATION WERE STATED WITH AS MUCH PRECISION AS WAS POSSIBLE UNDER THE CIRCUMSTANCES. MOREOVER, WE FEEL PARTICIPATING CARRIERS WERE AFFORDED EQUAL OPPORTUNITY TO COMPETE FOR AN AWARD, SUBJECT ONLY TO THE INGENUITY AND INVENTIVENESS OF THEIR TECHNICAL APPROACHES TO THE SOLICITATION.

ACCORDINGLY, WE MUST CONCLUDE THAT THE NEGOTIATION OF PROPOSALS RECEIVED UNDER THE SOLICITATION COMPORTED WITH THE GENERALLY ACCEPTABLE METHODS OF NEGOTIATION INSOFAR AS THE PURPOSES AND OBJECTIVES OF THE SOLICITATION PERMITTED. YOUR PROTEST IS THEREFORE DENIED.