B-124619, SEPTEMBER 30, 1955, 35 COMP. GEN. 167

B-124619, SEPTEMBER 30, 1955, 35 COMP. GEN. 167

VESSELS - MILITARY SEA TRANSPORTATION SERVICE - AWARD OF TANKER CONTRACTS AFTER THE AWARD OF A CONTRACT FOR THE CHARTER OF EIGHT TANKERS IN RESPONSE TO AN INVITATION WHICH COVERED FROM ONE TO FIFTEEN TANKERS AND RESERVED TO THE GOVERNMENT THE RIGHT TO REJECT ANY AND ALL PROPOSALS, A DETERMINATION BY THE COMMANDER OF THE MILITARY SEA TRANSPORTATION SERVICE TO REISSUE THE INVITATION FOR THE REMAINING SEVEN TANKERS WAS PROPER AND WITHIN THE DISCRETIONARY AUTHORITY PROVIDED IN THE ACT OF AUGUST 10, 1954, TO ENTER INTO TANKER CONTRACTS UPON SUCH TERMS AS ARE IN THE BEST INTERESTS OF THE GOVERNMENT. THE AWARD OF A CONTRACT FOR THE CHARTER AND CONSTRUCTION OF EIGHT TANKERS TO A FIRM WHOSE FINANCIAL PLAN MET THE CONDITIONS STIPULATED BY THE MILITARY SEA TRANSPORTATION SERVICE WAS PROPER NOTWITHSTANDING OTHER BIDDERS, WHOSE BIDS WERE TOO HIGH, MAY HAVE HAD FINANCIAL PLANS SUPERIOR TO THOSE OF THE FIRM WHICH RECEIVED THE AWARD.

TO THE ATLANTIC LINES CO., INC., AND OLEUM TRANSPORT CORPORATION, SEPTEMBER 30, 1955:

REFERENCE IS MADE TO LETTERS DATED JULY 15, AUGUST 11, AND SEPTEMBER 29, 1955, FROM YOUR ATTORNEYS PRESENTING CERTAIN COMMENTS IN THE NATURE OF A PROTEST RELATIVE TO AN AWARD MADE ON JUNE 30, 1955, BY THE MILITARY SEA TRANSPORTATION SERVICE TO THE UNITED OCEANIC CORPORATION OF CHARTERS FOR EIGHT TANKERS, NOT THEN IN BEING, IN RESPONSE TO INVITATION NO. SER 193M34, DATED AUGUST 20, 1954. THE SUBJECT MATTER OF SUCH COMMENTS MAY BE SUMMARIZED AS FOLLOWS:

(1) IMMEDIATELY AFTER THE AWARD TO OCEANIC WAS ANNOUNCED, ATLANTIC/1OLEUM REDUCED THEIR OFFER TO THE AWARD PRICE OF $4.80 PER DEADWEIGHT TON PER MONTH, WHICH THE MILITARY SEA TRANSPORTATION SERVICE DID NOT CONSIDER. ATLANTIC/1OLEUM CONTEND THAT "EITHER THE $4.80 IS A REASONABLE RATE FOR EVERYONE, OR THAT IT IS AN UNREASONABLE RATE FOR EVERYBODY, AND THE MILITARY SEA TRANSPORTATION SERVICE SHOULD HAVE ALL OR NONE" OF THE FOURTEEN CHARTERS THAT COULD HAVE BEEN AWARDED UNDER THIS INVITATION.

(2) OCEANIC WAS NOT, AT THE DATE OF THE AWARD NOT AT JULY 15, 1955, FINANCIALLY QUALIFIED IN ACCORDANCE WITH THE REQUIREMENTS OF THE MARITIME ADMINISTRATION UNDER TITLE XI, MERCHANT MARINE ACT, 1936, 49 STAT. 1985, 46 U.S. CODE, 1101.

(3) OCEANIC "WAS SUBJECT TO INVESTIGATION AND PROSECUTION FOR FALSIFICATION OF CITIZENSHIP BY THE SENATE SUBCOMMITTEE ON INVESTIGATION OF GOVERNMENT OPERATIONS IN CONNECTION WITH SENATE RESOLUTION 251, IN 1952, AND ALSO, THAT THEY WERE SUBJECT TO INVESTIGATION AND PENALTY FOR VIOLATION OF STATUTES REQUIRING THAT AMERICAN CITIZENS BE EMPLOYED UPON VESSELS OF THE UNITED STATES.'

IN A REPORT DATED JULY 28, 1955, FROM THE SECRETARY OF THE NAVY THERE WAS FURNISHED THE FOLLOWING BACKGROUND INFORMATION:

PURSUANT TO THE AUTHORITY GRANTED BY PUBLIC LAW 575, 83D CONGRESS, 2D SESSION, 68 STAT. 681, 34 U.S.C. 490, THE COMMANDER, MILITARY SEA TRANSPORTATION SERVICE, AS THE DELEGATED REPRESENTATIVE OF THE SECRETARY OF THE NAVY, BY LETTER DATED AUGUST 20, 1954, INVITED OFFERS LEADING TO THE CHARTER OF FROM ONE TO FIFTEEN TANKERS TO BE CONSTRUCTED IN AMERICAN SHIPYARDS IN ACCORDANCE WITH THE ACT AND CERTAIN SPECIFICATIONS PRESCRIBED BY THE INVITATION. IN RESPONSE TO SUCH INVITATION, SEVEN OFFERORS SUBMITTED BIDS, BUT SUBSEQUENTLY TWO OF THE BIDDERS WITHDREW, LEAVING A TOTAL OF FIVE WHOSE OFFERS WERE THE SUBJECT OF CONSIDERATION. UPON RECEIPT OF SUCH OFFERS, NUMEROUS CONFERENCES WERE HELD INDIVIDUALLY WITH THE OFFERORS DURING WHICH TIME CERTAIN DEFICIENCIES IN DOCUMENTATION WERE DISCUSSED AND APPROPRIATE CORRECTIONS MADE. UPON COMPLETION OF THE CONFERENCE WITH THE FIVE PROSPECTIVE BIDDERS, SEALED BIDS WERE THEN REQUESTED AND SUBSEQUENTLY WERE SUBMITTED ON JUNE 17, 1955. ALL OF THE FOREGOING OFFERS WERE EVALUATED IN DETAIL BY THE MILITARY SEA TRANSPORTATION SERVICE STAFF EVALUATION BOARD ESPECIALLY DESIGNATED FOR THAT PURPOSE, AND AFTER DUE CONSIDERATION THE BOARD CONCLUDED THAT AN AWARD TO UNITED OCEANIC CORPORATION WOULD BE IN THE BEST INTERESTS OF THE GOVERNMENT. SUCH RECOMMENDATION WAS SUBMITTED TO THE SECRETARY OF THE NAVY WHO APPROVED THE AWARD. AT THAT TIME, IT WAS ANNOUNCED THAT AN INVITATION WOULD BE ISSUED TO THE GENERAL PUBLIC COVERING CHARTERS FOR THE REMAINING SEVEN TANKERS.

IN RESPONSE TO YOUR SUGGESTION CONCERNING A POSSIBLE IRREGULARITY FOLLOWING THE AWARD, THE SECRETARY OF THE NAVY REPORTS AS FOLLOWS:

OLEUM/1ATLANTIC APPARENTLY IS UNDER THE IMPRESSION THAT COMMANDER MILITARY SEA TRANSPORTATION SERVICE NEGOTIATED WITH OCEANIC CORPORATION FOR A CHARTER HIRE RATE OTHER THAN THAT SET OUT IN ITS FINAL SEALED OFFER AND POSSIBLY FOR A DIFFERENT NUMBER OF CHARTERS THAN WAS STATED IN THAT SEALED OFFER; ALSO THAT OLEUM/1ATLANTIC WAS NOT AFFORDED THE SAME OPPORTUNITY TO REDUCE ITS OFFER EITHER WITH RESPECT TO THE AWARD MADE OR TO THE CHARTERS FOR THE SIX REMAINING TANKERS. AS INDICATED ABOVE, SUCH WAS NOT THE CASE.

OLEUM/1ATLANTIC ALSO APPEARS TO BE UNDER THE IMPRESSION THAT COMMANDER MILITARY SEA TRANSPORTATION SERVICE DEVIATED FROM ESTABLISHED PROCUREMENT POLICY IN NOT MAKING AWARDS FOR THE CHARTER OF THE REMAINING SIX TANKERS AVAILABLE UNDER THE ORIGINAL INVITATION. SUCH WAS NOT THE CASE. THE PROCEDURE FOLLOWED IS BRIEFLY REVIEWED AS FOLLOWS: ON 20 AUGUST 1954 COMSTS FIRST INVITED OFFERS TO BE SUBMITTED AS THE BASIS OF NEGOTIATION ON 19 NOVEMBER 1954 AND TO REMAIN FIRM UNTIL 20 JANUARY 1955. THEREAFTER AND DUE TO DIFFICULTIES ON THE PART OF THE OFFERORS IN FIRMING UP THEIR FINANCING PLANS, COMSTS EXTENDED FROM TIME TO TIME THE DATE FOR MAKING AWARDS. AS EACH OFFEROR OBTAINED APPROVAL IN PRINCIPLE BY THE MARITIME ADMINISTRATION OF ITS APPLICATION FOR MORTGAGE INSURANCE, COMSTS BEGAN NEGOTIATIONS WITH THAT OFFEROR. THIS NEGOTIATION TOOK THE FORM OF DISCUSSING OPERATING COSTS, DEBT SERVICE, DEPRECIATION, RESERVES AND PROFITS WITHOUT THE OFFEROR BEING REQUESTED OR PERMITTED TO MAKE A DEFINITIVE OFFER. EACH UNDERSTOOD THAT WHEN ALL OFFERORS HAD CONFERRED WITH MSTS REPRESENTATIVES CONCERNING THESE MATTERS, ALL WOULD BE ASKED TO SUBMIT FINAL SEALED OFFERS BY THE SAME SPECIFIED DATE AND HOUR, AND THAT THEREAFTER THERE WOULD BE NO FURTHER NEGOTIATIONS, EXCEPT THAT ALL ACTING JOINTLY MIGHT NEGOTIATE CLARIFYING AMENDMENTS TO THE PROPOSED FORM OF CHARTER PROVIDED SUCH AMENDMENTS DID NOT AFFECT THE RELATIVE POSITION OF THE OFFERORS AS TO PRICE. DETAILS WITH RESPECT TO ALL OFFERS EXCEPT AS TO THE AWARD MADE WERE HELD AS CONFIDENTIAL BOTH BECAUSE OF THE POSSIBILITY OF REISSUING THE INVITATION AND BECAUSE THE OFFERS CONTAINED FISCAL AND OPERATING DATA WHICH THE OFFERORS DESIRED TO BE TREATED AS CONFIDENTIAL.

IT WILL BE NOTED THAT THE PROCEDURE OUTLINED ABOVE GAVE ALL OFFERORS AN OPPORTUNITY TO EXPLORE WHAT THE GOVERNMENT BELIEVED TO BE A REASONABLE RATE OF CHARTER HIRE AND TO DETERMINE THE PER CENT OF PROFIT IT DESIRED TO INCLUDE IN ITS OFFER. AT THE SAME TIME ALL WERE ASSURED THAT THEIR RESPECTIVE OFFERS WOULD NOT BE KNOWN TO THE GOVERNMENT OR OTHER OFFERORS UNTIL THE SEALED OFFERS WERE OPENED. EVERY ASPECT OF FORMAL ADVERTISED PROCUREMENT WAS OBSERVED WITH RESPECT TO THE AWARD WHICH WAS MADE TO THE LOWEST RESPONSIBLE OFFEROR, WHO UPON THE MAKING OF HIS SEALED "OFFER" BECAME, IN FACT, THE LOWEST RESPONSIBLE "BIDDER.'

AND, CONCERNING YOUR OWN OFFER, THE REPORT CONTINUED:

THE INVITATION REQUIRED OFFERORS TO STATE THE PER DIEM RATE OF HIRE AND TO BASE THEIR OFFERS ON A CREW OF 44 OFFICERS AND MEN; THE OLEUM/1ATLANTIC GROUP SUBMITTED FINAL SEALED OFFERS ON CHARTERS FOR THREE, FOUR, FIVE OR SIX TANKERS BUT QUOTED ONLY THE HIRE PER DEADWEIGHT TON PER MONTH AND BASED ITS OFFERS ON A CREW OF ONLY OFFICERS AND MEN. HOWEVER, IT ACCOMPANIED ITS OFFER WITH FORMULAS BY WHICH ITS DWT PER MONTH FIGURES WERE TO BE CONVERTED TO A PER DIEM RATE OF HIRE AND BY WHICH ADJUSTMENTS WERE TO BE MADE TO THAT HIRE TO REFLECT A CREW OF 44 RATHER THAN 41 OFFICERS AND MEN. THIS SITUATION AROSE OUT OF A FRANTIC EFFORT BY OLEUM/1ATLANTIC TO OBTAIN AT THE LAST MOMENTS AN APPROVAL IN PRINCIPLE BY THE MARITIME ADMINISTRATION OF ITS FINANCIAL PLAN. IN RECORDING THE OFFER COMSTS USED THE FORMULAS FURNISHED BY OLEUM/1ATLANTIC ONLY TO FIND THAT THE OFFERS ON CHARTERS FOR THREE AND FOUR TANKERS WERE CLEARLY IN EXCESS OF $5.00 PER DWT PER MONTH WHILE THE OFFERS FOR FIVE AND SIX CHARTERS WERE $4.994 AND ?989 PER DWT PER MONTH RESPECTIVELY. WHEN THE PER DIEM RATES OF HIRE FOR CHARTERS FOR FIVE AND SIX TANKERS, COMPUTED BY THE FORMULA FURNISHED BY OLEUM/1ATLANTIC, WERE CONVERTED TO THE RATE PER DWT PER MONTH, USING THE SAME FORMULA AS WAS USED WITH RESPECT TO ALL OTHER OFFERS, ALL OF THE OLEUM/1ATLANTIC OFFERS WERE IN EXCESS OF $5.00 PER DWT PER MONTH; HENCE IT WAS DOUBTFUL THAT THE OFFERS COULD BE CONSIDERED AS RESPONSIVE TO THE INVITATION. THE OFFERS APPEARED TO EXCEED THE STATUTORY LIMIT OF $5.00 PER DWT PER MONTH IN SPITE OF THE FACT THAT OLEUM/1ATLANTIC HAD PROJECTED ITS OPERATING EXPENSES ON SUCH AN UNREALISTICALLY LOW BASIS AND ITS DEBT SERVICE ON SUCH A HIGH BASIS AS TO RAISE SOME QUESTION CONCERNING ITS ABILITY TO PERFORM. THE OLEUM/1ATLANTIC OFFERS WERE THE HIGHEST RECEIVED, EVEN WITH THE MOST FAVORABLE COMPUTATION. FURTHER, ON THE BASIS OF PROFIT AND LOSS DATA FURNISHED BY IT, HAD OLEUM/1ATLANTIC BEEN GIVEN AN AWARD AT THE MOST FAVORABLE COMPUTATION OF ITS ORIGINAL OFFER, AND IF IT HAD SUCCEEDED IN OPERATING ITS TANKERS AT THE LOW COSTS PROJECTED BY IT, THE TOTAL RECOVERY TO IT UNDER THE CHARTERS WOULD HAVE EXCEEDED THE STATUTORY LIMITATION OF 66-2/3 PERCENT OF THE COSTS OF CONSTRUCTION. * * *

IT IS CLEAR, THEREFORE, THAT YOUR OFFER WAS THE HIGHEST OF ALL RECEIVED. HENCE, THE MILITARY SEA TRANSPORTATION SERVICE APPEARS TO HAVE BEEN LEGALLY JUSTIFIED IN REFUSING TO CONSIDER YOUR REDUCED OFFER AFTER THE DATE OF THE AWARD TO THE LOWEST BIDDER. IN THIS CONNECTION, THIS OFFICE REPEATEDLY HAS HELD THAT TO PERMIT BIDDERS TO VARY THEIR PROPOSALS AFTER THE BIDS ARE OPENED WOULD SOON REDUCE TO A FARCE THE WHOLE PROCEDURE OF LETTING PUBLIC CONTRACTS ON AN OPEN COMPETITIVE BASIS. THE STRICT MAINTENANCE OF SUCH PROCEDURE, REQUIRED BY LAW, IS INFINITELY MORE IN THE PUBLIC INTEREST THAN OBTAINING AN APPARENTLY PECUNIARY ADVANTAGE IN A PARTICULAR CASE BY A VIOLATION OF THE RULES. AS WAS SAID BY THE COURT IN CITY OF CHICAGO V. MOHR, 216 ILL. 320; 74 N.E. 1056---

* * * WHERE A BID IS PERMITTED TO BE CHANGED (AFTER THE OPENING) IT IS NO LONGER THE SEALED BID SUBMITTED IN THE FIRST INSTANCE, AND, TO SAY THE LEAST, IS FAVORITISM, IF NOT FRAUD--- A DIRECT VIOLATION OF LAW--- AND CANNOT BE TOO STRONGLY CONDEMNED.

FURTHERMORE, WITH RESPECT TO YOUR PROTEST AGAINST THE ACTION OF THE MILITARY SEA TRANSPORTATION SERVICE TO READVERTISE FOR THE REMAINING UNITS, YOUR ATTENTION IS INVITED TO THAT PORTION OF THE INVITATION WHICH VESTED IN THE SECRETARY OF THE NAVY, OR HIS DULY AUTHORIZED OFFICER, THE RIGHT TO REJECT ANY AND ALL OFFERS. IN THIS CONNECTION, SEE 17 COMP. GEN. 554, WHICH READS, IN PERTINENT PART, AS FOLLOWS:

NOT ONLY DID THE INVITATION FOR BIDS EXPRESSLY STATE A RESERVATION OF THE RIGHT TO REJECT ANY AND ALL PROPOSALS, BUT A REQUEST FOR BIDS OR OFFERS IRRESPECTIVE OF ANY SUCH RESERVATIONS, DOES NOT IMPART ANY OBLIGATION TO ACCEPT ANY OF THE OFFERS RECEIVED, AND CERTAINLY IT CANNOT BE CONCEDED THAT A PUBLIC OFFICER, ACTING FOR THE GENERAL WELFARE, IS BOUND TO ACCEPT A BID, WHERE HE DETERMINES THAT THE PUBLIC INTEREST WOULD BE SERVED BY A REJECTION OF ALL BIDS AND A READVERTISEMENT OF THE CONTRACT ON SPECIFICATIONS STATED TO REFLECT MORE ACCURATELY THE ACTUAL NEEDS TO BE MET, OR, FOR THAT MATTER, THAT DUE TO THE LAPSE OF TIME OR OTHERWISE A MORE ADVANTAGEOUS CONTRACT MIGHT BE OBTAINED.

IN EXPLANATION OF ITS DECISION TO READVERTISE FOR BIDS COVERING THE REMAINING SEVEN VESSELS, THE SECRETARY OF THE NAVY ADVISES:

THE AWARD TO UNITED OCEANIC CORPORATION FOR THE CHARTER OF EIGHT TANKERS WAS NOT SO UNUSUALLY LOW AS TO INDICATE IT COULD NOT BE AT LEAST EQUALED UNDER A NEW INVITATION FOR THE REMAINING SIX TANKERS, WITNESS OTHER OFFERORS WITH MUCH HIGHER RATES NOW OFFER TO EQUAL THE AWARD ON THE FIRST EIGHT TANKERS.

UNDER THE ORIGINAL INVITATION ONLY THREE SHIPBUILDERS WERE AVAILABLE TO COMPETE FOR THE CONSTRUCTION OF THE TANKERS BEING OFFERED FOR CHARTER TO THE GOVERNMENT. THE FULL CAPACITY UNDER, P.L. 575 OF ALL SUCH YARDS WOULD HAVE BEEN UTILIZED IN PRODUCING FOURTEEN OF THE FIFTEEN TANKERS DESIRED; THERE WAS LITTLE INDUCEMENT FOR THE SHIPBUILDERS TO QUOTE LOW PRICES FOR THE TANKERS. UNDER A REISSUANCE OF THE INVITATION, AND BECAUSE ADDITIONAL SHIPBUILDERS HAD BECOME INTERESTED, THERE WOULD BE MORE THAN ENOUGH SHIPBUILDERS TO CONSTRUCT ALL SEVEN OF THE REMAINING TANKERS WITH BETTER COMPETITION ASSURED.

ONLY FIVE FIRMS MADE FINAL OFFERS UNDER THE ORIGINAL INVITATION. TWO OF THOSE MADE IDENTICAL OFFERS AND WERE ACTUALLY COMBINED AS ONE. SEVERAL ADDITIONAL FIRMS WITH SUBSTANTIAL FINANCES AND OPERATING EXPERIENCE WERE AWAITING AN OPPORTUNITY TO PARTICIPATE UNDER A NEW INVITATION; THE ORIGINAL INVITATION HAD BEEN ISSUED 20 AUGUST 1954--- MANY MONTHS BEFORE.

PUBLIC LAW 575 SPECIFICALLY AUTHORIZED THE SECRETARY OF THE NAVY, OR SUCH OFFICER AS HE SHOULD DESIGNATE, TO ENTER INTO CONTRACTS UPON SUCH TERMS AS HE SHOULD DETERMINE TO BE IN THE BEST INTERESTS OF THE GOVERNMENT. WITHIN THE AREA OF SUCH DISCRETIONARY AUTHORIZATION AND FOR THE REASONS FURNISHED, THE SECRETARY HAS CONCLUDED THAT THE PUBLIC INTEREST WOULD BEST BE SERVED BY A REISSUANCE OF AN INVITATION COVERING THE REMAINING SEVEN VESSELS. AS TO WHETHER THE ANTICIPATED RESULTS OF SUCH A DECISION WILL IN ACTUALITY BE REALIZED IS NOT A MATTER FOR OUR DETERMINATION, BUT WITH RESPECT TO THE LEGALITY OF SUCH ACTION THERE CAN BE NO DOUBT.

WITH RESPECT TO THE FINANCIAL RESPONSIBILITY OF THE SUCCESSFUL BIDDER, THE SECRETARY OF THE NAVY ADVISES: WEEKS BEFORE IT MADE ITS FINAL SEALED OFFER, UNITED OCEANIC CORPORATION HAD AS A GRATUITOUS GESTURE DELIVERED TO COMMANDER MILITARY SEA TRANSPORTATION SERVICE A CERTIFIED CHECK FOR $50,000 MADE PAYABLE TO THE GOVERNMENT AS EVIDENCE OF ITS GOOD FAITH; IT OFFERED TO FORFEIT THIS SUM IF IT SHOULD FAIL WITHIN THIRTY DAYS FROM AN AWARD TO IT TO SUBMIT DEFINITIVE PROOF OF ITS ABILITY TO PERFORM. PRIOR TO ANY AWARD TO UNITED OCEANIC CORPORATION AND BEFORE IT KNEW AN AWARD WOULD BE MADE TO IT, IT EXECUTED A CASH BOND IN THE FORM OF APPENDIX A ATTACHED HERETO. IT WILL BE NOTED THAT THIS BOND STATES SPECIFICALLY THE SOURCES OF UNITED OCEANIC CORPORATION'S FINANCING HAD BEEN APPROVED IN PRINCIPLE BY THE MARITIME ADMINISTRATION. * * * AS A MATTER OF HISTORICAL BACKGROUND IT APPEARS THAT (1) ALL OFFERORS WERE NEW CORPORATIONS WITH ONLY A NOMINAL AMOUNT OF PAID-IN CAPITAL, FORMED SOLELY FOR THE PURPOSE OF OFFERING ON THESE CHARTERS. (2) ALL OFFERORS PLANNED TO OBTAIN BOTH EQUITY AND MORTGAGE FINANCING FROM OUTSIDE SOURCES. (3) ALL OFFERORS REQUIRED MORTGAGE INSURANCE FROM THE MARITIME ADMINISTRATION IN ORDER TO OBTAIN FINANCING. (4) SINCE THE NEED FOR FINANCING WAS CONDITIONED SOLELY UPON SECURING AN AWARD FOR ONE OR MORE CHARTERS, NONE OF THE OFFERORS HAD, OR COULD HAVE BEEN EXPECTED TO HAVE, SECURED FIRM FINANCIAL COMMITMENTS, AS SUCH WOULD HAVE INVOLVED THE PAYMENT OF COMMITMENT FEES AND RELATED EXPENSES. (5) PUBLIC LAW 575 MADE NO MENTION OF FINANCIAL REQUIREMENTS OTHER THAN TO STATE THAT AWARDS WOULD BE MADE TO THE "LOWEST RESPONSIBLE BIDDER.' (B) THE INVITATION FOR OFFERS LAID DOWN NO CRITERIA REGARDING FINANCIAL RESPONSIBILITY, REQUIRING MERELY THAT EACH OFFEROR SUBMIT HIS FINANCIAL PLANS.

THE RECORD SHOWS THAT DURING THE NEGOTIATIONS MILITARY SEA TRANSPORTATION SERVICE PUT CONSIDERABLE EMPHASIS ON THE NEED FOR EACH OFFEROR TO HAVE HIS FINANCING ARRANGED AS FIRMLY AND SPECIFICALLY AS POSSIBLE. IN CONNECTION THEREWITH, EACH OFFEROR WAS INSTRUCTED TO SUBMIT STATEMENTS SHOWING THE SOURCES OF EXPECTED FINANCING AND STATEMENTS FROM SUCH SOURCES EVIDENCING THEIR INTEREST AND READINESS TO PARTICIPATE.

DURING THE COURSE OF OUR SURVEY, WE REVIEWED EVIDENCE INDICATING THAT AT A CONFERENCE ON JUNE 22, 1955, ATTENDED BY ALL OFFERORS EXCEPT OCEANIC, THE MILITARY SEA TRANSPORTATION SERVICE PROPOSED A NUMBER OF "STATEMENTS OF UNDERSTANDING," ONE OF WHICH DEALT WITH FINANCING. THE CONFERENCE DISCUSSION ON THIS STATEMENT THREW IMPORTANT LIGHT ON THE POSITION OF THE MILITARY SEA TRANSPORTATION ON THE MATTER OF FIRM FINANCING, THE PROBLEM IT FACED, AND THE VIEWS OF SEVERAL OF THE OFFERORS, INCLUDING ATLANTIC/1OLEUM.

PRIOR TO JUNE 30, 1955, UNITED OCEANIC FURNISHED TO THE MILITARY SEA TRANSPORTATION SERVICE A STATEMENT WHICH MET THE CONDITIONS STIPULATED IN THE STATEMENT OF UNDERSTANDING REGARDING FINANCING. THE SOURCES OF EQUITY FINANCING WHICH WERE NOT FULLY DETAILED IN THE FINANCIAL PLANS SUBMITTED PRIOR TO JUNE 17, 1955, WERE SHOWN IN THIS STATEMENT AS TO EACH SOURCE AND THE APPROXIMATE AMOUNT THEREOF.

EXAMINATION OF THE FINANCIAL PLANS SUBMITTED BY THE OFFERORS AND OF THE CONFERENCE DISCUSSION INDICATES THAT NONE OF THE OFFERORS WERE IN A POSITION TO PROCEED WITH SHIP CONSTRUCTION IMMEDIATELY UPON RECEIPT OF AN AWARD, AND THAT ALL REQUIRED TIME AFTER RECEIVING AN AWARD TO FIRM UP THEIR FINANCING; WHILE THE FINANCIAL PLANS OF SOME OFFERORS APPEAR TO HAVE BEEN FIRMER THAN OTHERS, PARTICULARLY AS TO EQUITY FINANCING, SUCH DIFFERENCE, IN TERMS OF THE RELATIVE FINANCIAL PLANS OF ALL THE OFFERORS, WAS NOT SUCH AS TO JUSTIFY REJECTION OF ANY ONE OR MORE OF THE OFFERORS IN FAVOR OF THE OTHERS. IN THESE CIRCUMSTANCES, THE MILITARY SEA TRANSPORTATION SERVICE WAS FACED WITH THE PROBLEM OF EITHER REJECTING ALL OFFERS FOR LACK OF SUFFICIENTLY FIRM FINANCING THEREBY FURTHER DELAYING A PROGRAM CONSIDERED TO BE URGENT, OR OF FINDING SOME OTHER MEANS WITHIN THE FRAMEWORK OF THE EXISTING SITUATION BY WHICH AN AWARD OR AWARDS COULD BE MADE. THE MILITARY SEA TRANSPORTATION SERVICE CHOSE THE LATTER COURSE BY DEFINING THE CONDITIONS UNDER WHICH AN AWARD WOULD BE MADE.

FROM THE EVIDENCE BEFORE US, WE BELIEVE THAT MILITARY SEA TRANSPORTATION SERVICE GAVE ADEQUATE AND FAIR CONSIDERATION TO THE FINANCIAL RESPONSIBILITY OF ALL THE OFFERORS. IN VIEW OF ITS DISSATISFACTION WITH THE FINANCIAL PLANS PRESENTED BY THE OFFERORS UP TO JUNE 17, 1955, THE ACTION OF THE MILITARY SEA TRANSPORTATION SERVICE IN FIXING THE CONDITIONS OUTLINED IN THE "STATEMENTS OF UNDERSTANDING" IN OUR OPINION WAS WITHIN ITS ADMINISTRATIVE PREROGATIVES AND DID NOT PREJUDICE THE POSITION OF ANY OF THE OFFERORS. UNITED OCEANIC CORPORATION FULFILLED THESE CONDITIONS PRIOR TO THE AWARD. BECAUSE THE MILITARY SEA TRANSPORTATION SERVICE BELIEVED THAT THE FINAL SEALED BIDS OF THE OTHER OFFERORS WERE TOO HIGH, IT DID NOT CONTEMPLATE MAKING ANY AWARDS OTHER THAN TO OCEANIC AND THEREFORE DID NOT REQUIRE COMPLIANCE BY THE OTHER OFFERORS WITH THE PRESCRIBED CONDITIONS. VIEWED IN THIS LIGHT, IT IS APPARENT THAT THE DETERMINING FACTOR WITH RESPECT TO FINANCIAL RESPONSIBILITY WAS NOT WHETHER ATLANTIC/1OLEUM OR ANY OTHER OFFEROR HAD FINANCIAL PLANS SUPERIOR TO THOSE OF UNITED OCEANIC, BUT WHETHER THE LATTER EVIDENCED PLANS WHICH MET THE CONDITIONS STIPULATED BY THE MILITARY SEA TRANSPORTATION SERVICE FOR ALL OFFERORS.

WITH REGARD TO YOUR COMMENTS THAT UNITED OCEANIC CORPORATION HAS BEEN THE SUBJECT OF INVESTIGATION AND PROSECUTIONS, THE SECRETARY OF THE NAVY ADVISES AS FOLLOWS:

IT IS KNOWN THAT UNITED TANKERS CORPORATION, THE PARENT OF UNITED OCEANIC CORPORATION, WAS ONE OF THE DEFENDANTS IN AN ACTION BEFORE THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA, CRIMINAL NO. 970-53, AND CHARGED WITH MAKING OR CAUSING TO BE MADE A CHARTER OF AN AMERICAN FLAG VESSEL TO AN ALIEN, ANGLO-IRANIAN OIL COMPANY, LTD., FOR A PERIOD IN EXCESS OF ONE YEAR WITHOUT APPROVAL OF THE MARITIME ADMINISTRATION. THE MATTER WAS HEARD ON ITS MERITS FOR TWO DAYS AND THE COURT ENTERED JUDGMENT AS FOLLOWS:

"THE COURT MUST GRANT THE MOTION FOR A JUDGMENT OF ACQUITTAL AND ACCORDINGLY THE ENTRY OF A JUDGMENT OF ACQUITTAL IS DIRECTED IN THIS CASE.' ( PAGE 127, VOL. 2 OFFICIAL REPORTER'S TRANSCRIPT, 6 JANUARY 1954.)

FURTHER, THE DEPARTMENT OF JUSTICE PROSECUTED A CIVIL ACTION AGAINST THE CORPORATE FAMILY TO WHICH UNITED TANKERS CORPORATION (THE PARENT OF UNITED OCEANIC CORPORATION) BELONGS, SUCH ACTION BEING FOUNDED ON A CONTENTION THAT THE CORPORATE GROUP MISREPRESENTED TO THE GOVERNMENT THAT ITS STOCK WAS OWNED AND CONTROLLED BY AMERICAN CITIZENS WITHIN THE MEANING OF THE SHIPPING ACT, 1916. ON 3 SEPTEMBER 1954, THE UNITED STATES, ACTING BY AND THROUGH THE DEPARTMENT OF JUSTICE, ENTERED INTO AN AGREEMENT BY WHICH THAT LITIGATION WAS SETTLED. A COPY OF THAT AGREEMENT MAY BE OBTAINED FROM THAT DEPARTMENT. HOWEVER, THE DEPARTMENT HAS INFORMED COMSTS THAT THE AGREEMENT PROVIDES ON PAGE 5 THAT "IT IS THE INTENTION OF THE PARTIES THAT THIS SETTLEMENT WILL PUT AT REST ALL CLAIMS BY ANY PARTY HERETO BASED UPON QUESTIONS OF CITIZENSHIP OR EXISTENCE OF ALIEN INTEREST; " ALSO ON PAGE 10 THAT THE "AGREEMENT SHALL BE BINDING UPON * * * ALL AGENCIES AND INSTRUMENTALITIES OF THE GOVERNMENT.' THE UNITED STATES WOULD SEEM BOUND IN ACTING IN ITS PROCURING CAPACITY TO GIVE FULL FAITH AND CREDIT TO THE JUDGMENTS OF ITS COURTS AND TO HONOR ITS AGREEMENTS WITH THE SAME STANDARDS OF INTEGRITY IT DEMANDS OF THOSE WITH WHOM IT DOES BUSINESS.

THE HEARINGS BEFORE THE SUBCOMMITTEE ON MERCHANT MARINE AND MARITIME MATTERS OF THE SENATE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE REFERRED TO BY OLEUM/1ATLANTIC SPEAK FOR THEMSELVES. COMSTS HAS ASSURED HIMSELF THAT THERE IS NO BASIS TO DENY AN AWARD TO UNITED OCEANIC CORPORATION AS NOT BEING A RESPONSIBLE OFFEROR. ITS OPERATING BACKGROUND AND ABILITY TO PERFORM WAS A MATTER OF INQUIRY BY THE MARITIME ADMINISTRATION IN CONNECTION WITH THE LATTER'S APPROVAL IN PRINCIPLE OF UNITED OCEANIC CORPORATION'S APPLICATION FOR MORTGAGE INSURANCE AND THE SUBJECT WILL CONTINUE TO BE UNDER REVIEW BY THE MARITIME ADMINISTRATION SO LONG AS THAT AGENCY HAS A POLICY OUTSTANDING ON THE TANKERS.

IT HAS BEEN HELD THAT THE WORD "RESPONSIBLE" IMPORTS SOMETHING MORE THAN PECUNIARY ABILITY AND THAT IN THE SELECTION OF THE LOWEST RESPONSIBLE BIDDER CONTRACTING OFFICERS ARE REQUIRED TO CONSIDER NOT ONLY THE FINANCIAL RESOURCES BUT ALSO THE JUDGMENT, SKILL AND INTEGRITY OF THE BIDDER AND TO INQUIRE AS TO HIS FITNESS AND ABILITY SUCCESSFULLY TO FULFILL THE CONTRACT REQUIREMENTS. O-BRIEN V. CARNEY, 6 F.1SUPP. 761, KELLING, ET AL. V. EDWARDS, ET AL., 116 MINN. 484, 134 N.W. 221, KOICH V. CVAR, 110 P.2D 964.

IN CONSONANCE WITH THE FOREGOING, OUR REVIEW OF THE MATTER INDICATES THAT THE MILITARY SEA TRANSPORTATION SERVICE MADE A REASONED DETERMINATION OF ALL FACTORS INVOLVED, AND CONCLUDED THAT THE UNITED OCEANIC CORPORATION WAS THE LOWEST RESPONSIBLE BIDDER. ACCORDINGLY, SINCE THE RECORD APPEARS TO BE COMPLETELY DEVOID OF ANY EVIDENCE OF FAVORITISM, OR ARBITRARY OR CAPRICIOUS ACTION, IT MUST BE CONCLUDED THAT YOUR PROTEST FURNISHES NO PROPER BASIS ON WHICH WE WOULD BE JUSTIFIED IN HOLDING THAT THE ADMINISTRATIVE ACTION WAS ILLEGAL OR IMPROPER.