B-163964, OCTOBER 11, 1968, 48 COMP. GEN. 199

B-163964: Oct 11, 1968

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IS WITHIN THE PURVIEW OF 10 U.S.C. 2304 (A) (16). NEGOTIATIONS NEED NOT BE LIMITED TO CONTRACTORS WHOSE CONTINUED EXISTENCE UNDER COMPETITIVE BIDDING IS DOUBTFUL. THE SALIENT FEATURE OF RESPOND IS THE PROVISION THAT CARRIERS SEEKING TO OBTAIN PEACETIME LINER BUSINESS FROM THE DEPARTMENT OF DEFENSE WILL BE REQUESTED TO AGREE TO PROVIDE PREARRANGED OCEAN LIFT TO MEET POSSIBLE FUTURE DEFENSE NEEDS. THIS COMMERCIAL SEALIFT AUGMENTATION IS DIVIDED INTO THREE STAGES. 10 U.S.C. 2304 (A) (16) AUTHORIZES THE NEGOTIATION OF CONTRACTS FOR SERVICES CURRENTLY NEEDED IN SUCH MANNER AS TO ASSURE THAT THE CONTRACTOR'S SERVICES WILL BE AVAILABLE FOR FUTURE NATIONAL EMERGENCY USE. THE QUESTION PRESENTED IN THAT CASE WAS WHETHER 10 U.S.C. 2304 (A) (16) AUTHORIZED THE AWARD OF A CONTRACT UNDER WHICH AN AIRLINE OPERATOR WAS REQUIRED TO GUARANTEE THE AVAILABILITY OF NEEDED SERVICES IN THE EVENT OF AN EMERGENCY.

B-163964, OCTOBER 11, 1968, 48 COMP. GEN. 199

TRANSPORTATION - OCEAN CARRIERS - "RESPOND" PROGRAM - NEGOTIATION A PROGRAM KNOWN AS "RESPOND" PROPOSING THE NEGOTIATION OF PEACETIME BERTH -LINE SERVICES BASED ON A GUARANTEE OF THE AVAILABILITY OF NEEDED SERVICES IN THE EVENT OF AN EMERGENCY, EVEN THOUGH THE SERVICES COULD BE BOUGHT FOR LESS WITHOUT THE GUARANTEE, IS WITHIN THE PURVIEW OF 10 U.S.C. 2304 (A) (16), AND NEGOTIATIONS NEED NOT BE LIMITED TO CONTRACTORS WHOSE CONTINUED EXISTENCE UNDER COMPETITIVE BIDDING IS DOUBTFUL, THE USE OF SECTION 2304 (A) (16) AUTHORITY ASSURING THE AVAILABILITY OF CRITICAL TRANSPORTATION SERVICES IN THE INTEREST OF NATIONAL DEFENSE. HOWEVER, FOR THE REQUISITIONING PHASE OF THE PROGRAM, AN OPTION SHOULD BE RETAINED TO PROCEED UNDER THE CONTRACT OR THE AUTHORITY OF THE MERCHANT MARINE ACT OF 1936, AND THE FEDERAL MARITIME COMMISSION SHOULD PARTICIPATE IN THE PROGRAM BY FIXING RATES TO BRING THEM WITHIN THE EXCEPTION TO COMPETITION PROVIDED BY 10 U.S.C. 2304 (G), AND BY REVIEWING EMERGENCY AUGMENTATION COMMITMENTS BY BERTH LINE OPERATORS.

TO THE SECRETARY OF DEFENSE, OCTOBER 11, 1968:

BY LETTER OF APRIL 1, 1968, AS SUPPLEMENTED BY LETTERS OF JUNE 19 AND AUGUST 29, 1968, THE ASSISTANT SECRETARY OF DEFENSE (INSTALLATIONS AND LOGISTICS) REQUESTS OUR OPINION AS TO WHETHERR 10 U.S.C. 2304 (A) (16) AUTHORIZES THE EXPENDITURE OF APPROPRIATED FISCAL YEAR FUNDS FOR THE PROCUREMENT OF OCEAN TRANSPORTATION UNDER A PROPOSED PROGRAM KNOWN AS "RESPOND.'

THE SALIENT FEATURE OF RESPOND IS THE PROVISION THAT CARRIERS SEEKING TO OBTAIN PEACETIME LINER BUSINESS FROM THE DEPARTMENT OF DEFENSE WILL BE REQUESTED TO AGREE TO PROVIDE PREARRANGED OCEAN LIFT TO MEET POSSIBLE FUTURE DEFENSE NEEDS. THIS COMMERCIAL SEALIFT AUGMENTATION IS DIVIDED INTO THREE STAGES. STAGE I, WHICH AT THE MAXIMUM WOULD ABOUT DOUBLE NORMAL PEACETIME NEEDS, COULD BE INVOKED BY THE SECRETARY OF DEFENSE; STAGE II, WITH A MAXIMUM OF ABOUT THREE TIMES THE PEACETIME BASE, COULD BE INVOKED BY THE PRESIDENT; AND STAGE III, WITH A MAXIMUM OF ABOUT THREE AND ONE-HALF TIMES THE PEACETIME BASE, COULD BE INVOKED WHEN A PRESIDENTIAL PROCLAMATION SUFFICIENT TO AUTHORIZE THE REQUISITIONING OF SHIPS UNDER SECTION 902 OF THE MERCHANT MARINE ACT OF 1936, 46 U.S.C. 1242, HAS BEEN ISSUED.

SO FAR AS HERE PERTINENT, 10 U.S.C. 2304 (A) (16) AUTHORIZES PROCUREMENT BY NEGOTIATION RATHER THAN BY FORMAL ADVERTISING IF THE AGENCY HEAD DETERMINES IT TO BE IN THE INTEREST OF THE NATIONAL DEFENSE THAT ANY SUPPLIER BE MADE OR KEPT AVAILABLE FOR FURNISHING SERVICES IN THE EVENT OF A NATIONAL EMERGENCY. STATED ANOTHER WAY, 10 U.S.C. 2304 (A) (16) AUTHORIZES THE NEGOTIATION OF CONTRACTS FOR SERVICES CURRENTLY NEEDED IN SUCH MANNER AS TO ASSURE THAT THE CONTRACTOR'S SERVICES WILL BE AVAILABLE FOR FUTURE NATIONAL EMERGENCY USE.

A SOMEWHAT SIMILAR PROGRAM HAS BEEN IN EFFECT FOR SOME TIME IN THE PROCUREMENT OF CURRENT AIRLIFT NEEDS OF THE DEPARTMENT OF DEFENSE. CONSIDERED THAT PROGRAM IN OUR DECISION, B-143985, DATED DECEMBER 27, 1960. THE QUESTION PRESENTED IN THAT CASE WAS WHETHER 10 U.S.C. 2304 (A) (16) AUTHORIZED THE AWARD OF A CONTRACT UNDER WHICH AN AIRLINE OPERATOR WAS REQUIRED TO GUARANTEE THE AVAILABILITY OF NEEDED SERVICES IN THE EVENT OF AN EMERGENCY, AND UNDER WHICH THAT GUARANTEE WAS COUPLED WITH THE FURNISHING OF CURRENT SERVICES, EVEN THOUGH THE CURRENT SERVICES COULD BE BOUGHT FOR LESS WITHOUT THE GUARANTEE. WE STATED IN OUR DECISION THAT THE LEGISLATIVE HISTORY OF 10 U.S.C. 2304 (A) (16) SHOWED IT MIGHT BE EXPECTED THAT THE GOVERNMENT WOULD BE REQUIRED TO PAY MORE FOR SERVICES OBTAINED IN FURTHERANCE OF THE OBJECTIVE OF THE STATUTE. WE THEREFORE GAVE OUR APPROVAL TO THE PAYMENT OF THE HIGHER PRICE TO OBTAIN THE EMERGENCY AUGMENTATION GUARANTEE.

IT IS CONTENDED BY THE UNSUBSIDIZED LINER OPERATORS THAT 10 U.S.C. 2304 (A) (16) IS INTENDED TO PERMIT THE NEGOTIATION OF CONTRACTS ONLY WITH PARTICULAR CONTRACTORS WHOSE CONTINUED EXISTENCE UNDER COMPETITIVE BIDDING IS DOUBTFUL BUT WHO WILL BE NEEDED IN THE EVENT OF AN EMERGENCY. REFERENCE IS MADE, IN SUPPORT THEREOF, TO PARAGRAPH 306 OF ARMED SERVICES PROCUREMENT REGULATION, APPENDIX J, WHICH SPEAKS IN TERMS OF A SHOWING OF THE NEED TO NEGOTIATE WITH A PARTICULAR CONTRACTOR OR CONTRACTORS AND WHY IT IS NECESSARY TO KEEP THE PROPOSED CONTRACTORS AVAILABLE.

WE AGREE THAT THE USUAL CASE JUSTIFYING NEGOTIATION UNDER 10 U.S.C. 2304 (A) (16) MAY WELL REQUIRE CONTRACTING WITH A PREDETERMINED CONTRACTOR OR CONTRACTORS. HOWEVER, WE DO NOT AGREE THAT THE AUTHORITY GRANTED BY THE SECTION IS LIMITED TO SUCH A SITUATION. IT PERMITS NEGOTIATION WHEN IT IS DETERMINED TO BE IN THE INTEREST OF NATIONAL DEFENSE TO HAVE A SUPPLIER AVAILABLE FOR FURNISHING SERVICES IN CASE OF A NATIONAL EMERGENCY BUT NOT NECESSARILY A PARTICULAR SUPPLIER.

WE THINK THE PRIMARY PURPOSE OF THE SECTION IS TO ASSURE THE AVAILABILITY OF CRITICAL SUPPLIES OR SERVICES WHEN THEY ARE NEEDED. FOR EXAMPLE, IT SEEMS TO US THAT 10 U.S.C. 2304 (A) (16) WELL MIGHT BE USED TO ASSURE THE AVAILABILITY OF TWO OR THREE GEOGRAPHICALLY DISPERSED SOURCES FOR THE PRODUCTION OF CERTAIN SUPPLIES WITHOUT PREDETERMINATION OF THE PARTICULAR SOURCES. UNDER THE RESPOND PROGRAM THE SERVICES INVOLVED ARE SEALIFT CAPABILITY, ADEQUATE IN TERMS OF QUANTITY, QUALITY AND TIMELINESS TO MEET NATIONAL EMERGENCY NEEDS. WHAT IS NEEDED ARE SHIPS AND CREWS, AND BECAUSE OF THE NATURE OF THE MARITIME INDUSTRY IT IS IMPOSSIBLE TO DESIGNATE CERTAIN SHIPS IN ADVANCE AND CONTRACT FOR THEIR AVAILABILITY WITHIN SPECIFIED PERIODS OF TIME AFTER AN EMERGENCY ARISES. ONE FEASIBLE WAY TO SECURE THE SEALIFT NEEDED IS TO CONTRACT FOR THE AVAILABILITY OF A NUMBER OF SHIPS SUFFICIENT TO GIVE REASONABLE ASSURANCE THAT WHENEVER AN EMERGENCY ARISES THE QUANTITY AND QUALITY OF COMMITTED SHIPS THEN IN PORT OR QUICKLY AVAILABLE WILL BE ADEQUATE TO MEET THE NEED. WE BELIEVE 10 U.S.C. 2304 (A) (16) PROVIDES THE AUTHORITY TO NEGOTIATE CONTRACTS TO ACCOMPLISH THIS.

IT CAN BE ARGUED THAT STATUTORY AUTHORITY ALREADY EXISTS IN SECTIONS 802 AND 902 OF THE MERCHANT MARINE ACT OF 1936, 46 U.S.C. 1212 AND 1242, TO REQUISITION WHATEVER SHIPS MAY BE NEEDED. WE RECOGNIZE THIS, AND THE FURTHER FACT THAT SHIPS COULD BE REQUISITIONED TODAY IN VIEW OF THE NATIONAL EMERGENCY PROCLAIMED BY THE PRESIDENT IN 1950. STAGES I AND II OF RESPOND ARE CONTRACTUAL METHODS OF OBTAINING EMERGENCY SEALIFT AUGMENTATION WITHOUT THE NECESSITY OF RESORT TO THE ULTIMATE POWER OF THE GOVERNMENT TO REQUISITION SHIPS. IN OUR OPINION THE FACT THAT THE GOVERNMENT HAS THE POWER TO REQUISITION ANY NEEDED SHIPS DOES NOT PRECLUDE THE USE OF AN ALTERNATIVE PROCUREMENT METHOD TO SATISFY NATIONAL DEFENSE NEEDS IF IT IS DECIDED THAT SUCH A COURSE OF ACTION IS THE MORE DESIRABLE FROM THE GOVERNMENT'S STANDPOINT.

STAGE III OF RESPOND IS IN A SOMEWHAT DIFFERENT CATEGORY. THE RECORD BEFORE US CHARACTERIZES IT AS REQUISITIONING, ALTHOUGH THE DIFFERENCES BETWEEN INVOCATION OF STAGE III AND REQUISITIONING UNDER THE MERCHANT MARINE ACT ARE NOT STATED. WE WOULD SUGGEST THAT CONSIDERATION BE GIVEN TO PROVIDING AN OPTION TO THE GOVERNMENT IF STAGE III IS INVOKED TO EITHER PROCEED UNDER THE CONTRACT OR TO REQUISITION UNDER THE AUTHORITY OF THE MERCHANT MARINE ACT OF 1936. AT THAT POINT THE GOVERNMENT COULD MAKE ITS DECISION AS TO WHICH COURSE OF ACTION TO FOLLOW AFTER CONSIDERATION OF COST TO THE GOVERNMENT AND OTHER PERTINENT FACTORS.

UNDER THE PLAN PROPOSED IN THE LETTER OF APRIL 1, 1968, EACH OPERATOR WOULD SUBMIT GENERAL FINANCIAL DATA, PLUS DETAILED COST AND UTILIZATION DATA FOR VESSELS TO BE USED ON THE TRADE ROUTES INVOLVED. THESE DATA WOULD HAVE BEEN USED BY THE MILITARY SEA TRANSPORTATION SERVICE (MSTS) TO DEVELOP A WEIGHTED AVERAGE COST PER MEASUREMENT TON FOR EACH TRADE ROUTE WHICH, TOGETHER WITH AN INDUSTRY-WIDE ALLOWANCE FOR PROFIT, WOULD CONSTITUTE A "UNIFORM RATE" PAYABLE FOR ALL BERTH LINER SERVICES ON THAT TRADE ROUTE. THE PLAN CONTEMPLATED USE OF THE COST DATA FURNISHED BY OPERATORS TO DETERMINE THE "COST EFFECTIVENESS" OF EACH OPERATOR. AS A RESULT OF INFORMAL DISCUSSIONS BETWEEN REPRESENTATIVES OF OUR OFFICE AND THE DEPARTMENT OF DEFENSE CONCERNING THE REQUIREMENT IN 10 U.S.C. 2304 (G) THAT COMPETITION BE OBTAINED WHERE FEASIBLE EVEN IN THE CASE OF NEGOTIATED PROCUREMENTS, CERTAIN MODIFICATIONS IN THIS ASPECT OF THE PROGRAM WERE PROPOSED BY THE LETTER OF JUNE 19, 1968, WHICH WOULD HAVE PERMITTED A LIMITED DEGREE OF COMPETITION. AN OPERATOR'S COST EFFECTIVENESS AND HIS BID PRICES WOULD THEN HAVE BEEN INCLUDED AS FACTORS IN THE ALLOCATION OF PEACETIME CARGO.

OBJECTION TO THIS ASPECT OF THE PROGRAM WAS MADE BY THE UNSUBSIDIZED LINES, PRINCIPALLY ON THE BASIS THAT SUBSIDIZED LINES WOULD BE ABLE TO BID LOWER REGARDLESS OF OPERATING COSTS BECAUSE OF THEIR RECEIPT OF OPERATING DIFFERENTIAL SUBSIDY. IN THE LETTER OF AUGUST 29, 1968, RESPONDING TO THIS CONTENTION IT IS STATED THAT ELIMINATION OF THIS FEATURE OF THE PROGRAM WOULD NOT ADVERSELY AFFECT THE OBJECTIVES OF RESPOND.

ONE OF THE CONCERNS WE HAVE HAD WITH THE RESPOND PROGRAM WAS THE NONPARTICIPATION OF THE FEDERAL MARITIME COMMISSION IN THE FIXING OF RATES. WHILE THE COMMISSION DOES NOT EXERCISE THE SAME CONTROL OVER FOREIGN RATES THAT IT DOES OVER DOMESTIC RATES, NEVERTHELESS IT HAS SUBSTANTIAL RESPONSIBILITIES WITH RESPECT TO THE FOREIGN MARITIME COMMERCE OF THE UNITED STATES. IT IS OUR PRESENT UNDERSTANDING THAT THE COMMISION MAY BE WILLING TO UNDERTAKE THE ESTABLISHMENT OF CRITERIA FOR THE FORMULATION OF FAIR AND REASONABLE RATES ON MSTS ROUTES AND TO ACT AS ARBITER OF RATE DISAGREEMENTS WHICH MIGHT ARISE BETWEEN MSTS AND EITHER SUBSIDIZED OR UNSUBSIDIZED CARRIERS.

IT SHOULD BE NOTED THAT 10 U.S.C. 2304 (G) DOES NOT REQUIRE COMPETITION IN THOSE NEGOTIATED PROCUREMENTS IN WHICH RATES OR PRICES ARE FIXED BY LAW OR REGULATION. FOREIGN MARITIME RATES ARE NOT "FIXED" BY REGULATION TO THE EXTENT THAT DOMESTIC RATES ARE. THE SHIPPING ACT OF 1916, AS AMENDED, NEVERTHELESS DOES GIVE THE FEDERAL MARITIME COMMISSION AUTHORITY UNDER SECTION 18 (B) (5), 46 U.S.C. 817 (B) (5) (1946 ED.), TO DISAPPROVE ANY RATE IN FOREIGN COMMERCE FOUND TO BE SO UNREASONABLY HIGH OR LOW AS TO BE DETRIMENTAL TO THE COMMERCE OF THE UNITED STATES. SECTION 17 OF THE ACT, 46 U.S.C. 816, FORBIDS CARRIERS IN FOREIGN COMMERCE TO CHARGE DISCRIMINATORY RATES, AND GIVES THE COMMISSION AUTHORITY TO ENFORCE THIS PROVISION. THE ACT ALSO PERMITS RESTRICTION ON COMPETITION BY THE ESTABLISHMENT OF CONFERENCE RATES UNDER AGREEMENTS APPROVED BY THE COMMISSION. CONSIDERING THE REGULATORY AUTHORITY VESTED IN THE COMMISION OVER FOREIGN MARITIME RATES, IT SEEMS TO US THAT IF SUCH RATES WERE TO BE ESTABLISHED IN ACCORDANCE WITH CRITERIA FIXED BY THE COMMISSION, THEY COULD FAIRLY BE SAID TO COME WITHIN THE EXCEPTION TO COMPETITION PERMITTED BY 10 U.S.C. 2304 (G).

IN VIEW OF THE ABOVE, WE WOULD HAVE NO OBJECTION TO ELIMINATION OF THAT PART OF THE RESPOND PROGRAM WHICH WOULD HAVE BASED CARGO ALLOCATION IN PART ON COMPETITIVE BIDS AND INDIVIDUAL CARRIER COST EFFECTIVENESS, IF THE FEDERAL MARITIME COMMISSION WILL UNDERTAKE TO PARTICIPATE IN THE FIXING OF MSTS RATES.

AS SO MODIFIED, THE RESPOND PROGRAM WOULD ALLOCATE PEACETIME CARGO SOLELY ON THE BASIS OF THE SERVICES AND MOBILIZATION COMMITMENT OFFERED BY EACH CARRIER. WE SEE NO OBJECTION TO CARGO ALLOCATION ON THIS BASIS, ASSUMING THAT IT WILL GIVE REASONABLE ASSURANCE OF THE CONTINUED AVAILABILITY OF WHATEVER CAPACITY IS NECESSARY TO MEET EMERGENCY SEALIFT NEEDS, WHETHER THE SHIPS INVOLVED ARE SUBSIDIZED OR UNSUBSIDIZED.

IN ANSWER TO THE SPECIFIC QUESTION ASKED, IT IS OUR OPINION THAT 10 U.S.C. 2304 (A) (16) DOES PERMIT, UNDER THE CIRCUMSTANCES OUTLINED ABOVE, THE NEGOTIATION OF CONTRACTS FOR BERTH-LINER SERVICES UNDER WHICH CONTRACTORS WOULD COMMIT SEALIFT CAPACITY FOR EMERGENCY USE, EVEN THOUGH CURRENT SERVICES MIGHT BE OBTAINED FOR LESS WITHOUT THE EMERGENCY COMMITMENT.

THE LETTER OF APRIL 1, 1968, STATES THAT THE RESPOND PROGRAM WOULD HAVE AN APPRECIABLE INFLUENCE ON THE TOTAL BERTH OPERATOR MARKET, WHICH IT IS HOPED WOULD PROMOTE GREATER STABILITY AND LONG RUN EFFICIENCY WITHIN THE INDUSTRY. THE CONCLUDING PAGES OF THE NOVEMBER 1967 DOD RESPOND PROPOSAL MENTION SOME OF THE PROBLEMS TO BE SOLVED IN THE FURTHER DEVELOPMENT AND DEFINITION OF THE PROGRAM. WE EXPRESS NO OPINION ON THESE PROBLEMS.

ONE OTHER ASPECT OF THE PROGRAM REQUIRES COMMENT. CONTRACTUAL COMMITMENTS BY BERTH LINE OPERATORS, PARTICULARLY BY SUBSIDIZED OPERATORS, TO FURNISH VESSELS TO THE DEPARTMENT OF DEFENSE IN THE EVENT OF NATIONAL EMERGENCY HAVE A POTENTIAL EFFECT ON COMMERCIAL SEALIFT. WE BELIEVE THE OVERALL NATIONAL INTEREST IN U.S. FLAG SHIPPING REQUIRES THAT ANY SUCH EMERGENCY AUGMENTATION COMMITMENTS BE REVIEWED BY THE MARITIME ADMINISTRATION.

THERE IS ENCLOSED FOR YOUR INFORMATION A COPY OF OUR LETTER OF TODAY TO THE AMERICAN UNSUBSIDIZED LINES.